<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 2000.
REGISTRATION NO. 333-96049
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DRUGABUSE SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
------------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 2836 94-3222724
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1430 O'BRIEN DRIVE
MENLO PARK, CA 94025
(650) 462-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
PHILIPPE POULETTY, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DRUGABUSE SCIENCES, INC.
1430 O'BRIEN DRIVE
MENLO PARK, CA 94025
(650) 462-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Jeffrey P. Higgins, Esq. Paul Hilton, Esq.
Gunderson Dettmer Stough Lexi Methvin, Esq.
Villeneuve Franklin & Hachigian, LLP Brobeck, Phleger & Harrison, LLP
155 Constitution Drive 370 Interlocken Blvd., Suite 500
Menlo Park, California 94025 Broomfield, Colorado 80021
(650) 321-2400 (303) 410-2000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value...... 4,600,000 $15.00 $69,000,000.00 $18,216.00
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a)
(3) A fee of $18,216.00 was previously paid by the Registrant in connection with
the filing of the Form S-1 on February 3, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS Subject to completion , 2000
- --------------------------------------------------------------------------------
4,000,000 Shares
[DRUGABUSE SCIENCES LOGO]
Common Stock
- ---------------------------------------------------------
This is our initial public offering of shares of our common stock. No public
market currently exists for our common stock. We expect the public offering
price to be between $13.00 and $15.00 per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "DASI."
BEFORE BUYING ANY SHARES OF OUR COMMON STOCK YOU SHOULD READ THE DISCUSSION OF
MATERIAL RISKS OF INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON
PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
- ----------------------------------------------------------------------------------
Public offering price $ $
- ----------------------------------------------------------------------------------
Underwriting discounts and commissions $ $
- ----------------------------------------------------------------------------------
Proceeds, before expenses, to DrugAbuse Sciences $ $
- ----------------------------------------------------------------------------------
</TABLE>
The underwriters may also purchase up to 600,000 shares of common stock from us
at the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus. This option may be exercised
only to cover over-allotments, if any. If the option is exercised in full, the
total underwriting discounts and commissions will be $4,508,000, and the total
proceeds, before expenses, to us will be $59,892,000 at an assumed public
offering price of $14.00 per share.
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares of common stock is expected to be made on
or about , 2000.
Warburg Dillon Read LLC
Robertson Stephens
<PAGE>
OUTSIDE GATEFOLD
Views of human brain activity, which illustrate that addictions are diseases
of the brain, and that improvement of brain activity can be obtained if a
patient becomes and remains abstinent. THESE IMAGES DO NOT SHOW THE EFFECT OF
ANY OF OUR PRODUCT CANDIDATES ON BRAIN ACTIVITY. From left to right and from top
to bottom the four images are from an individual with normal brain activity; a
patient addicted to heroin, an alcohol abuser and a former alchohol and drug
abuser, abstinent for one year.
Improvement was the result of conventional care, not the result of using any of
our product candidates.
Legend One: Individual with normal brain activity
Legend Two: Patient addicted to heroin for 25 years showing decreased brain
activity
Legend Three: Alcohol abuser for 17 years showing decreased brain activity
Legend Four: Former alcohol and drug abuser, abstinent for one year showing
improved brain activity
These images of brain activity were obtained using Single Photon Emission
Computerized Tomography and were reproduced with permission from Dr. Daniel G.
Amen, M.D., of the Brian Imaging Division of The Amen Clinic for Behavioral
Medicine.
INSIDE FRONT COVER
Three graphics that illustrate normal brain function: how neurons transmit
signals via neurotransmitters, the effect of heroin, alcohol and cocaine on
neuron transmission, and the potential effect of our product candidates.
First graphic: Endorphins stimulate opiate receptors and dopamine stimulates
dopamine receptors, inducing euphoria.
Second graphic: Heroin overstimulates opiate receptors. Alcohol triggers excess
endorphin release. Endorphins overstimulate opiate receptors. Stimulation of
opiate receptors triggers neuron activation. Activated neuron releases dopamine.
Cocaine prevents the normal reabsorption of dopamine. Prolonged excess of
dopamine leads to abnormal euphoria.
Third graphic: Naltrel blocks opiate receptors and the effect of alcohol and
heroin. COC-AB and ITAC block cocaine entry into the brain.
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Prospectus summary..................... 3
The offering........................... 5
Summary consolidated financial data.... 6
Risk factors........................... 7
Use of proceeds........................ 19
Dividend policy........................ 19
Capitalization......................... 20
Dilution............................... 22
Selected consolidated financial data... 24
Management's discussion and analysis of
financial condition and results of
operations........................... 26
Business............................... 31
Management............................. 53
Related party transactions............. 65
Principal shareholders................. 68
Description of securities.............. 71
Shares eligible for future sale........ 74
Underwriting........................... 76
Legal matters.......................... 78
Experts................................ 78
Change in independent accountants...... 78
Where you can find more information.... 79
Index to consolidated financial
statements........................... F-1
</TABLE>
You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
<PAGE>
Prospectus summary
WHILE THIS SUMMARY HIGHLIGHTS WHAT WE BELIEVE TO BE THE MOST IMPORTANT
INFORMATION ABOUT THIS OFFERING, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY
FOR A COMPLETE UNDERSTANDING OF THE OFFERING AND OUR BUSINESS. OUR PRINCIPAL
EXECUTIVE OFFICES ARE LOCATED AT 1430 O'BRIEN DRIVE, MENLO PARK, CA 94025. OUR
TELEPHONE NUMBER IS (650) 462-1000. ALCOHOLMD-TM-, BUPREL-TM-, COC-AB-TM-,
DAS-TM-, DRUGABUSE SCIENCES-TM-, ITAC-TM-, LACTIZ-TM-, MAP-AB-TM-, METHALIZ-TM-
AND NALTREL-TM- ARE OUR TRADEMARKS. TRADE NAMES, SERVICE MARKS OR TRADEMARKS OF
OTHER COMPANIES APPEARING IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR
RESPECTIVE HOLDERS.
OUR BUSINESS
We believe we are the first biotechnology company dedicated to developing and
marketing novel therapies for alcohol and drug abusers. According to state
governmental agencies, alcohol and drug abuse is the number one healthcare
problem in the United States. It consumes approximately 3.7% of the Gross
National Product in the United States alone. This market is underserved with few
medications available or in development. We intend to become the leading
biopharmaceutical company in addiction care by offering a broad portfolio of
medications to serve the addiction care community. Our strategy is to develop
several medications in the near term and expand our product portfolio through
research and the acquisition of marketed products and technologies. We intend to
build a sales force to market our products, taking advantage of the concentrated
addiction care market.
THE PROBLEM
Addiction is a chronic disease of the brain. Current therapy depends heavily on
psychosocial therapy and the few available medications. However, we believe
psychosocial therapy alone is insufficient as it does not address the biological
basis of addiction. Furthermore, because of their underlying neurological
disease, addicts typically have great difficulty taking pills every day and
therefore current medications usually fail. Consequently, only a minority of
patients receiving treatment remain alcohol or drug free after one year.
Recent medical literature shows that the molecular biology of addiction is being
uncovered. Alcohol, heroin, cocaine and methamphetamine all affect a common
neurological pathway, which involves the neurotransmitter dopamine. Medications
that affect the dopamine pathway are available to treat alcohol and heroin
dependence. However, to be effective in maintaining abstinence, these
medications need to be taken every day on a long-term basis. There are no
medications for treating addiction to other drugs of abuse, such as cocaine and
methamphetamine. There is a great need for novel therapies which can improve
compliance with existing medications and offer new means to promote abstinence,
prevent relapse, and treat overdose for alcohol, heroin, cocaine and
methamphetamine abusers.
OUR SOLUTION
We are developing a broad portfolio of biopharmaceutical products that address
key medical needs of alcohol abusers and drug addicts. We are developing product
candidates for the treatment of alcohol abuse and heroin addiction, NALTREL-TM-,
BUPREL-TM- and METHALiz-TM-, to improve existing medications. These products are
designed to be administered only once a month by a physician or a nurse, as
opposed to once a day by the patient. By putting the medical practitioner in
control, our products are expected to promote continuous therapy and help
overcome patient non-compliance. Our other product candidates, COC-AB-TM-,
MAP-AB-TM- and ITAC-TM-, are intended to provide novel means to treat patients
suffering from cocaine and methamphetamine overdose and addiction.
3
<PAGE>
In 2000, to support prospective market approval, we expect to conduct pivotal
clinical trials with NALTREL for the treatment of alcohol and heroin dependence.
In parallel, in the next 18 months we expect to conduct several human trials
with BUPREL and METHALiz for the treatment of severe heroin addiction and with
COC-AB and ITAC for the treatment of cocaine overdose and addiction.
OUR STRATEGY
We intend to:
- - Focus on the large but under-served alcohol and drug addiction care market;
- - Develop several medications in the near term;
- - Build a broad product portfolio through internal discovery research and
development, and the licensing or acquisition of commercial products and
product candidates; and
- - Market our products in the United States and Europe using our own dedicated
sales force.
4
<PAGE>
The offering
The following information assumes that the underwriters do not exercise the
over-allotment option granted by us to purchase additional shares in the
offering.
<TABLE>
<S> <C>
Common stock offered by us................... 4,000,000 shares
Common stock to be outstanding after the
offering................................... 16,502,131 shares
Proposed Nasdaq National Market symbol....... DASI
Use of proceeds.............................. Research and development, sales and
marketing, general and administration and
working capital and general corporate
purposes. See "Use of proceeds."
</TABLE>
Except as otherwise indicated, the information in this prospectus, including the
number of shares to be outstanding after this offering assumes the following:
- - the automatic conversion of all outstanding shares of preferred stock into
7,305,769 shares of our common stock upon the closing of this offering,
including the 2,445,131 shares of our Series D Preferred Stock which were
issued in exchange for 1,849 shares of common stock in DrugAbuse Sciences,
SAS, our French Subsidiary on February 1, 2000;
- - net exercise of outstanding warrants to purchase 1,815,912 shares of our
common stock at an assumed public offering price of $14.00 per share;
- - 6-for-1 reverse split of the common stock to be effected prior to the
closing of this offering; and
- - no exercise of the underwriters' over-allotment option.
The information in this prospectus, unless otherwise indicated, does not assume
inclusion of the following:
- - 600,000 shares issuable upon exercise of the underwriters' over-allotment
option;
- - 374,519 shares that may be issuable upon the exercise of warrants
outstanding as of January 20, 2000;
- - 1,042,729 shares issuable upon the exercise of options outstanding as of
January 20, 2000, at a weighted average exercise price of $0.36 per share;
and
- - 1,656,417 shares made available for future grants and awards under our stock
plans to be effective at the close of this offering. For a description of
our stock option and stock purchase plans, please see "Management--Stock
plans."
The number of shares of common stock outstanding after the offering is based on
shares outstanding as of December 31, 1999, based on the assumptions above.
Please see "Capitalization."
5
<PAGE>
Summary consolidated financial data
THE FOLLOWING TABLE SUMMARIZES THE FINANCIAL DATA FOR OUR BUSINESS DURING THE
PERIODS INDICATED. YOU SHOULD READ THE DATA SET FORTH BELOW IN CONJUNCTION WITH
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
Also, with respect to information relating to the number of shares used in per
share calculations and information relating to pro forma calculations, please
note the following:
- - See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing basic and
diluted loss per share and pro forma net loss per share.
- - The pro forma information for the consolidated balance sheet data at
December 31, 1999 represents the automatic conversion of all outstanding
preferred stock into 7,305,769 shares of common stock, including the
2,445,131 shares of our Series D preferred stock which were issued in
exchange for 1,849 shares of common stock of DrugAbuse Sciences, SAS, our
French subsidiary, which was reflected as minority interests and which was
converted on February 1, 2000, and adjusted to give effect to the sale of
4,000,000 shares of common stock offered by us at the estimated initial
public offering price of $14.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. See
"Use of proceeds" and "Capitalization."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA: 1997 1998 1999
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Grant revenues.............................................. $-- $810,607 $1,224,605
Loss from operations........................................ (1,382,412) (1,272,946) (6,379,053)
Net loss.................................................... (1,300,163) (1,192,343) (6,228,002)
Dividend related to beneficial conversion feature of
preferred stock........................................... -- -- (9,669,978)
Net loss available to common shareholders................... (1,300,163) (1,192,343) (15,897,980)
Net loss per share available to common shareholders, basic
and diluted............................................... $(0.61) $(0.56) $(7.45)
=========== =========== ===========
Shares used in computing net loss per share available to
common shareholders, basic and diluted.................... 2,114,506 2,116,728 2,134,073
Pro forma net loss per share available to common
shareholders.............................................. $(2.80)
===========
Shares used in computing pro forma net loss per share
available to common shareholders.......................... 5,672,186
===========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
1999
1999 PRO FORMA
CONSOLIDATED BALANCE SHEET DATA: 1997 1998 ACTUAL AS ADJUSTED
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents................................... $2,305,882 $1,039,315 $19,224,906 $69,804,906
Total assets................................................ 2,693,408 1,997,048 21,036,632 71,616,632
Long-term obligations and capital lease obligations......... 478,684 543,090 367,789 367,789
Minority interest........................................... -- -- 11,654,492 --
Total shareholders' equity.................................. 1,707,699 862,490 7,833,442 70,067,934
</TABLE>
6
<PAGE>
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Risk factors
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. OUR BUSINESS AND RESULTS OF
OPERATIONS COULD BE SERIOUSLY HARMED IF ANY OF THE FOLLOWING RISKS OCCUR. IN
THIS CASE THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF
THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY WITH A HISTORY OF LOSSES AND WE EXPECT TO
INCUR LOSSES IN THE FUTURE
We commenced operations in late 1994 and are still a development stage company.
We have not commercialized any products, have incurred significant losses to
date and expect to incur future losses. Our expenses have consisted principally
of costs incurred in research and development and from general and
administrative costs associated with our operations. Operating losses were
approximately $1.4 million, $1.3 million and $6.4 million for the fiscal years
ended December 31, 1997, 1998 and 1999, respectively. We had an accumulated
deficit of approximately $19.3 million at December 31, 1999. We expect our
expenses to increase and to continue to incur operating losses for at least the
next several years as we continue our research and development efforts and
develop and market our products. Our future success and profits depend upon our
ability to market and sell our products. The time frame to achieve market
success for any one of our products is long and uncertain and may not occur at
all. As a result, we may never become profitable.
IF WE ARE UNABLE TO SUCCESSFULLY COMPLETE PRE-CLINICAL TESTING AND CLINICAL
TRIALS, WE MAY NEVER OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS AND WILL NOT BE
ABLE TO MARKET OUR PRODUCTS AND ACHIEVE PROFITABILITY
We are still developing our products. If we do not demonstrate the safety and
effectiveness of our products through pre-clinical testing and clinical trials,
regulatory agencies will not approve our products. The FDA must approve our new
products before we can market and sell them in the United States, and thus,
generate revenues.
NALTREL-TM- is the only product candidate for which we have initiated clinical
trials involving human testing. Our other product candidates, BUPREL-TM-,
METHALiz, COC-AB-TM-, MAP-AB-TM- and ITAC-TM-, are still in the pre-clinical
testing phase. Conducting clinical trials is a lengthy, time-consuming,
uncertain and expensive process. We will incur substantial expenses for, and
devote significant time and resources to, pre-clinical testing and clinical
trials of our product candidates, which may take up to a minimum of two to three
years to complete for our first product. Clinical trials are subject to various
interpretations. Regulatory authorities may not agree with us regarding our
trial design, methods of analysis and our interpretations of clinical results.
If we do not obtain regulatory approval for our product candidates, we will not
be able to sell them.
In addition, it is possible that we could encounter problems in a clinical trial
that would significantly delay the completion of the trial, require us to repeat
the study or cause us to abandon the trial or our product candidates altogether.
The commencement and completion of clinical trials may be delayed or affected by
several factors, including:
- - inability to manufacture or develop the product candidates and the placebo
to be used in the clinical trials;
- --------------------------------------------------------------------------------
7
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
- - inability to obtain the controlled substances to be used in the study;
- - patient enrollment, including the size of the patient population, the nature
of the protocol, the proximity of patients to clinical sites, the
eligibility criteria for the study and the potential for patient drop out,
particularly due to the nature of the study;
- - inability to adequately follow patients after initial participation in the
clinical trial;
- - availability of third parties to conduct the trials.
IF WE DO NOT OBTAIN THE NECESSARY DOMESTIC AND FOREIGN REGULATORY APPROVALS,
THEN WE WILL NOT BE ABLE TO SELL OUR PRODUCTS
Numerous governmental authorities in the United States and Europe regulate the
production and marketing of our products and our ongoing research and
development activities. We will need to obtain approvals from the appropriate
regulatory authorities to market and sell our products. Foreign regulations can
vary among countries and foreign regulatory authorities may require different or
additional clinical trials than we conduct to obtain FDA approval.
The length of the regulatory review period varies considerably, as does the
amount of pre-clinical and clinical data required to demonstrate the safety and
effectiveness of a specific product. In some cases, the testing process may be
even longer if we replace a compound because we have been unable to obtain the
original compound or another compound has been introduced that is better than
the compound we were initially going to use. In addition, if the FDA or any
other foreign regulatory agency, changes its policy position during the period
of product development, we could encounter additional delays or rejections.
Moreover, even if regulatory approval of a product is granted, approval may be
conditioned upon limiting the indicated uses for which our product may be
marketed. Further, regulatory agencies will require post-marketing reporting and
may require surveillance programs to monitor the usage or side effects of each
of our approved products. Our approved products, their manufacturers and their
manufacturing facilities will be subject to continual review and periodic
inspections. If unknown problems with one of our products, its manufacturer or
facilities are discovered after regulatory approval, regulatory agencies may
place restrictions on the product or manufacturer, or may require withdrawal of
the product from the market.
Government regulation in the United States or Europe may delay marketing of our
potential products for years, may impose costly procedures upon our business and
may furnish a competitive advantage to larger companies that may compete with
us. A delay in obtaining or a failure to obtain these approvals would inhibit
our ability to market any potential products we develop and could adversely
affect our liquidity and capital resources. In addition, our failure to comply
with applicable regulatory requirements, could result in, among other things,
warning letters, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, refusal of the government
to grant market clearance or market approval, withdrawal of approvals and
criminal prosecution.
We have relied upon scientific, technical, clinical, commercial and other data
supplied and disclosed by outside collaborators and will rely in part on such
data in support of our initial drug applications and subsequent clinical trials
for our products. If the FDA or any other foreign regulatory agency does not
permit us to rely upon such data to support our applications or subsequent
clinical trials or if the information contains errors or omissions of fact or is
otherwise inadequate, our research and development efforts will be harmed and it
is unlikely that we will obtain the necessary regulatory approval for our
products.
- --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
IF THE MARKET FOR MEDICATIONS TO TREAT ADDICTIONS DOES NOT DEVELOP, WE WILL NOT
BE SUCCESSFUL
According to prominent medical researchers, psychosocial therapy is currently
the primary treatment for addiction care. As scientists have only recently
uncovered the molecular basis of addiction, few medications have been available
as a form of addiction treatment. If this market does not develop and our
products are not widely accepted by the addiction care community we will not be
successful. In addition, addicts must be willing to begin and maintain this type
of medical treatment for their addiction, or we will not be successful.
According to a recent article in a medical journal, the majority of addicts who
begin therapy with the limited medications available to treat addiction fail to
take their medication on a long term basis and often relapse to their addiction.
Even with a slow release formulation, patients may not complete treatment as
prescribed and we will not be successful.
In addition, many other factors influence the market acceptance of new
pharmaceuticals, including:
- - safety and efficacy of the product;
- - marketing and distribution restrictions;
- - adverse publicity; and
- - product pricing and reimbursement by third-party payors.
IF THIRD-PARTY PAYORS DO NOT REIMBURSE PATIENTS FOR THE COST OF OUR PRODUCTS,
PRODUCT DEMAND WILL DECREASE AND OUR PROFITS WILL SUFFER
Our profitability will depend on reimbursement for the cost of our products by
government health organizations, such as Medicaid, private health insurance
providers and other organizations. If reimbursement by third-party payors does
not occur, demand for our products will decrease, lowering our profits. We
cannot be assured that the cost of our products will be reimbursed by these
third-party payors. Most patients who buy commercial drug products rely on
reimbursement from their insurance provider or the government to cover the cost
of the product. Historically in the United States, many state Medicaid programs
and various private health insurance providers have been reluctant to provide
reimbursement for addiction care medications such as methadone. In addition, we
could experience pricing pressure on our products due to the trend toward
managed health care, the increasing influence of health maintenance
organizations, and legislative proposals. Several other factors may affect the
possibility that the cost of our products will be reimbursed, including:
- - the trend in the United States of third party payors toward cost-reduction;
- - patients' access to medical insurance and medication reimbursement; and
- - third-party payors often limiting reimbursement for newly approved
healthcare products.
We may not be able to sell our products profitably if reimbursement is
unavailable or limited in scope.
FOREIGN GOVERNMENTAL REGULATIONS AND PRICE CONTROLS COULD LIMIT OUR REVENUES AND
PROFITS
In the European Union, or EU, the Member States generally have the option to
restrict the range of products covered by their national health insurance
systems. They are also allowed to control the prices of medications for human
use. A Member State may approve a specific price for our products or it may,
instead, adopt a system of direct or indirect controls on our profitability. We
cannot be assured that any Member State with price controls or reimbursement or
coverage limitations for medications will allow favorable coverage and pricing
arrangements for our products.
- --------------------------------------------------------------------------------
9
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
SOME OF OUR PRODUCTS CONTAIN CONTROLLED SUBSTANCES, WHICH ARE SUBJECT TO A HIGH
DEGREE OF REGULATION, AND FURTHER RESTRICTIONS BY THE DEA COULD LIMIT OUR
PRODUCT SALES
Some of the components of our current product candidates are regulated as
controlled substances by the United States Drug Enforcement Administration, or
DEA and internationally by the International Narcotics Control Board and
national agencies. As controlled substances, the handling of these ingredients,
and the manufacture, shipment, storage, sale, and use of finished products
containing these ingredients, are subject to a high degree of regulation and
accountability by DEA. The amount of controlled substances we can obtain for
clinical trials and for commercial distribution is limited by the DEA and may
not be sufficient to complete clinical trials or meet commercial demand. We
cannot be sure that the DEA will not, in the future, seek to regulate other
ingredients in our product candidates as controlled substances. DEA restrictions
on the controlled substance ingredients used in our products, or on the
marketing of our products containing those ingredients, could significantly
limit the sales of our products, adversely affecting our financial performance.
The active ingredient in METHALiz is currently classified as Schedule II
(signifying, among other things, a high potential for abuse) and the active
ingredient in BUPREL is currently classified as Schedule V (signifying, among
other things, a lower but still significant potential for abuse). In addition,
the active ingredient in ITAC is derived from a substance classified as Schedule
II and may itself be regulated as a Schedule II substance.
WITHOUT THE EXISTENCE OF COLLABORATIVE RELATIONSHIPS WE WOULD BE UNABLE TO
DEVELOP AND MANUFACTURE OUR PRODUCTS
We rely heavily upon other parties for many important stages of our discovery,
research and product development, including:
- - manufacturing of our product candidates;
- - conducting of pre-clinical trials and clinical studies; and
- - development of new products and technologies under the license of existing
patented and proprietary information.
We will also rely upon other parties to manufacture our commercial products. In
addition, we license most of our technology from strategic partners. We license
the sustained-release polymer technology, called Lactiz, which is used in
NALTREL, BUPREL and METHALiz from Southern Research Institute and we license our
ITAC technology from The Scripps Institute. The successful completion of our
clinical trials and the sale of our products depends upon the continued
relationship with these partners. In the event that any of these partners were
to terminate the licensing arrangement, or if the licensor failed to perform its
obligations under the agreements, we would be unable to continue with our
product testing and would not be successful in bringing our product to the
market.
In addition, some of the technology licensed by us relating to ITAC may rely on
patented inventions developed using US government resources. The US government
may retain certain rights to these inventions and may choose to exercise such
rights.
IF WE ARE UNABLE TO OBTAIN GOVERNMENTAL FUNDING WE WILL HAVE LIMITED RESOURCES
Some of our research and development activities are conducted with various
French universities and are paid for, in part, by grants and loans from the
French government. If we are not successful in securing additional funding from
governmental sources or we are required to reimburse any amounts received to
date, we would be required to scale back our research and development efforts.
One loan is in the amount of approximately $0.5 million and in June 1999 we
began repayment and will
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continue to make payments annually until September 30, 2002. The grant is in the
amount of approximately $2.8 million and is repayable in the form of royalties
once we make commercial sales of our product. In addition we have agreed to use
our best efforts to manufacture some of our products in France.
COMPETITORS HAVE DEVELOPED OR COULD DEVELOP PRODUCTS OR TECHNOLOGIES THAT
COMPETE WITH OUR PRODUCTS AND THAT COULD RENDER OUR PRODUCTS OBSOLETE
Many of our competitors have greater financial, operational, sales and marketing
resources, and more experience in research and development than we have.
Products developed by these competitors could have advantages significantly
outweighing those of the products that we are seeking to develop and even render
our products obsolete. We expect the intensity of competition to increase.
Currently, we compete with biotechnology, pharmaceutical, chemical and other
companies, academic and scientific institutions, governmental agencies and
public and private research organizations.
Several companies are currently making or developing products that compete with
or will compete with our products. The current products that will compete with
ours are:
- - Acamprosate, for treatment of alcoholics, marketed by Lipha;
- - Buprenorphine, for treatment of heroin addiction, marketed by Schering
Plough;
- - Disulfiram, for treatment of alcoholics, marketed by Wyeth Ayerst and
others;
- - LAAM, a derivative of methadone, for treatment of heroin addiction, marketed
by Roxane;
- - Methadone, for treatment of heroin addiction, marketed by Roxane and
Mallinckrodt; and
- - Naltrexone oral tablets, for treatment of heroin addicts and alcoholics,
marketed by Barr Laboratories and Dupont Merck.
Technological advances, new treatments and new products could make our products
obsolete or unsuccessful in the market. In particular, the patents for
naltrexone, methadone and buprenorphine have expired and several competitors may
be developing products similar to ours based on the same basic compounds.
WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS
Patent positions in the pharmaceutical field are often uncertain and may involve
complex legal, scientific and factual questions. There has been increasing
litigation in the pharmaceutical industry with respect to the manufacture, use
and sale of new therapeutic products that are the subject of conflicting patent
rights. The validity and breadth of claims in pharmaceutical patents may involve
complex factual and legal issues for which no consistent policy has emerged, and
therefore, are highly uncertain. Moreover, the patent laws of foreign countries
differ from those of the United States, and therefore the degree of protection
afforded by foreign patents may be different. It is possible that patent
applications relating to products and technologies developed by us may not
result in patents being issued or that, even if the patents are issued, it does
not mean that we will have a competitive advantage or will gain protection
against competitors with similar technology, or that the patents will not be
challenged successfully or circumvented by competitors. In addition, there is a
substantial backlog of biotechnology patent applications at the US Patent and
Trademark Office, and the approval or rejection of patent applications may take
several years.
We currently hold one US patent relating to COC-AB and we expect that a second
patent will be issued in the near future. In addition, we have patent
applications pending for our proprietary
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naltrexone formulation, NALTREL and our buprenorphine formulation, BUPREL.
Additionally, we have an exclusive license from Southern Research Institute for
patents and patent applications for our sustained-release technology,
Lactiz-TM-, which is used in NALTREL, BUPREL and METHALiz and an exclusive
license from the Scripps Research Institute for patents and patent applications
relating to ITAC. If the use of any of these patents were to be challenged,
resulting in the initiation of any litigation, we would incur substantial costs
and our ability to compete would be limited.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON
OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS
In the event a claim is brought, we could face legal actions seeking damages and
seeking to enjoin clinical testing, manufacturing and marketing of the affected
product. This type of litigation could consume a substantial portion of our
resources, and if there was an adverse outcome to of any such litigation, our
business would be severely harmed. Our products may conflict with patents that
have been or may be granted to competitors, universities or others. In addition,
our products compete with products that have been developed by other companies
using alternative technologies. These products may differ only because of the
active ingredient, formulation, mechanism of action, dosage form, frequency of
administration or target indication. As the pharmaceutical industry expands and
more patents are issued, the risk increases that our products may give rise to
patent infringement claims. In the event that any claims of third-party patents
are upheld as valid and enforceable with respect to a product or process made,
used or sold by us, we could be prevented from practicing the subject matter
claimed in such patents or could be required to obtain licenses or redesign our
products or processes to avoid infringement. As a result, we would be liable to
pay damages that may exceed our resources. We cannot be assured that such
licenses would be available or, if available, would be on commercially
reasonable terms, or that we would be successful in any attempt to redesign our
products to avoid infringement.
THE RIGHTS WE RELY UPON TO PROTECT OUR TRADE SECRETS MAY NOT BE ADEQUATE,
ENABLING THIRD PARTIES TO USE OUR TECHNOLOGY
We require our employees, consultants and advisors to execute confidentiality
agreements. However, we cannot guarantee that these agreements will provide us
with adequate protection against improper use or disclosure of confidential
information. In addition, in some situations, these agreements may conflict
with, or be subject to, the rights of third parties with whom our employees,
consultants or advisors have prior employment or consulting relationships.
Further, others may independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets.
IF ONE OF OUR THIRD PARTY MANUFACTURERS WERE TO TERMINATE THEIR RELATIONSHIP
WITH US, WE WOULD NEED TO OBTAIN A NEW MANUFACTURER FOR OUR PRODUCTS AND WOULD
BE DELAYED IN OUR COMMERCIAL SALES
We have no manufacturing facilities for clinical production of our products and
we rely on third parties for the manufacture of drug product. If we are unable
to enter into new agreements with our manufacturers for our clinical trials or
commercial manufacture of our products, or if our manufactures breach the terms
of their agreements with us, we will need to obtain regulatory approval for any
alternate manufacturer which may delay the commercialization of our products and
possibly invalidate our clinical trials.
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Aventis Pasteur manufactures COC-AB for use in our clinical trials and for
commercial sale. SP Pharmaceuticals manufactures Naltrel for use in our clinical
trials. The strategy of using third party manufactures carries with it certain
risks, including:
- - reduced control over quality, timing and scale of production;
- - inability to manufacture products on reasonable terms;
- - inability to produce commercial quantities of our products;
- - loss of FDA approval or approval from other foreign regulatory agencies; and
- - in the case of products containing controlled substances, loss of DEA
approval.
If any of these risks were to materialize, our pre-clinical testing and clinical
trials could be delayed, the results from these trials could be invalidated and
we could be unable to meet commercial manufacturing quantity and quality
requirements.
We currently do not have any agreements for the manufacture of BUPREL, METHALiz,
or ITAC for clinical trials. We have entered into an agreement with Aventis
Pasteur for the commercial manufacture of COC-AB but we currently do not have
any other agreements for the commercial manufacture of our other product
candidates. We cannot be assured that we will be able to enter into such
agreements on commercially reasonable terms or at all.
IF ONE OF OUR THIRD-PARTY SUPPLIERS WERE TO TERMINATE THEIR RELATIONSHIP WITH
US, WE WOULD NEED TO OBTAIN A NEW SUPPLIER FOR RAW MATERIALS AND THE INABILITY
TO OBTAIN RAW MATERIALS IN A TIMELY MANNER MAY DELAY THE MANUFACTURING OF OUR
PRODUCTS
While we expect to have access to several suppliers for most of the raw
materials used in our product candidates, each supplier must be qualified and
approved according to the FDA, DEA and other foreign regulatory agencies'
policies. If any of our suppliers were unable to supply us with the necessary
materials in a timely fashion, or at all, we would need to obtain a substitute
vendor, which would not only delay the timing of our pre-clinical testing and
clinical trials, but would require the submission of additional regulatory
applications, which could take several months to process. The delay of our
testing will inhibit our ability to obtain regulatory approval and therefore, we
will not be able to sell our products for an indeterminate amount of time, or at
all.
WE WILL NEED TO ESTABLISH SALES AND MARKETING CAPABILITIES TO SELL OUR PRODUCTS
We have no sales and marketing experience. If our products are approved for sale
and we have not established the sales and marketing capabilities necessary to
commercialize our product, we will never be successful. Establishing sufficient
sales and marketing capability will require the expenditure of significant
amounts of capital. We will need to recruit and retain skilled sales management,
direct salespersons or distributors. If we enter into distribution arrangements
with third parties for the sale of our products, we will be dependent on them.
If we are unable to attract and retain a skilled sales and marketing team, or if
third party distributors do not perform as expected, we will not become
profitable.
POTENTIAL FUTURE ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE SHAREHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS
Part of our strategy is to acquire additional businesses, products or
technologies. If we are unable to successfully complete these types of
transactions, the overall timing of our business strategy could be affected. In
addition, even if we identify an appropriate acquisition candidate, we may not
be able to
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RISK FACTORS
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negotiate the terms of the acquisition successfully, finance the acquisition, or
integrate the acquired business, products or technologies into our existing
business and operations. Further, completing a potential acquisition and
integrating an acquired business will cause significant diversions of management
time and resources. If we were to proceed with one or more significant
acquisitions in which the consideration included cash, we could be required to
use a substantial portion of our available cash, including the proceeds of this
offering, to consummate any acquisition. On the other hand, if we consummate one
or more significant acquisitions in which the consideration consists of stock or
other securities, your equity interest could be significantly diluted. In
addition, we may be required to amortize significant amounts of goodwill and
other intangible assets in connection with future acquisitions, which would
seriously harm our business.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS, WE MAY NOT BE ABLE TO SUPPORT OUR
OPERATIONS
Based on our current plans, we believe our cash, cash equivalents and short-term
investments, together with the net proceeds of this offering will be sufficient
to fund our operating expenses and capital requirements through at least the
next 18 months. However, if additional funds are required and we are unable to
obtain them on terms favorable to us, we may be required to delay, scale back or
eliminate some or all of our research and development programs or to license
third parties to market products or technologies that we would otherwise seek to
develop or market ourselves. If we raise additional funds by selling additional
shares of our capital stock, the ownership interest of our shareholders will be
diluted.
The actual amount of funds that we will need during or after the next 18 months
will be determined by many factors, some of which are beyond our control, and we
may need funds sooner than currently anticipated. These factors include:
- - our progress with research and development;
- - the success of our pre-clinical testing and clinical trials;
- - costs and timing of obtaining regulatory approval for our products;
- - our ability to license and/or acquire innovative technologies and products;
- - our ability to protect our intellectual property rights;
- - our ability to manufacture our products;
- - our ability to introduce and sell our products;
- - our ability to hire competent personnel;
- - the level of our sales and marketing expenses;
- - pricing and policies of reimbursement; and
- - the costs and timing of obtaining new patent rights, changes in regulation,
competition, and medical and technological developments in the market.
IF OUR PRODUCTS ARE ALLEGED TO BE HARMFUL, OUR BUSINESS MAY BE ADVERSELY
AFFECTED
In the event that any of our products is alleged to be harmful, we may
experience reduced consumer demand for our products and our products may be
recalled from the market. In addition, we may be forced to defend a lawsuit and,
if unsuccessful, to pay a substantial amount in damages. We currently have
insurance against liability risks associated with pre-clinical testing and
clinical trials, and intend to obtain coverage to insure against liability risks
associated with manufacturing and marketing of our
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RISK FACTORS
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products. If our insurance coverage limits are not adequate to protect us from
the liabilities we might incur in connection with the clinical testing or sales
of our products, our business will be severely harmed. Insurance is expensive
and, in the future, may not be available on acceptable terms, if at all. A
successful product liability claim or series of claims brought against us in
excess of our insurance coverage, or a recall of our products, could have a
detrimental effect on our business, financial condition and results of
operations.
INTERNATIONAL EVENTS CAN AFFECT THE AVAILABILITY AND PRICE OF THE MATERIALS WE
USE, THE TIMING OF OUR PRE-CLINICAL TESTS AND CLINICAL TRIALS AND THE SALE OF
OUR PRODUCTS
We expect that a significant portion of our sales will be made outside of the
United States. International operations involve a number of risks not typically
present in solely domestic operations, including:
- - additional and varied regulatory approval processes;
- - government controls;
- - changes in regulatory policies;
- - export license requirements;
- - political instability;
- - price controls and reimbursement policies;
- - trade restrictions;
- - changes in tariffs or duty rates;
- - changes in currency exchange rates; or
- - difficulties in staffing and managing international operations.
IF WE HAD AN ACCIDENT INVOLVING HAZARDOUS MATERIALS OUR LIABILITY MAY EXCEED OUR
RESOURCES
In the event of an accident involving hazardous materials, we could be held
liable for any damages that result, and any such liability could exceed our
resources. Our research, development and manufacturing activities involve the
controlled use of hazardous materials, chemicals, and waste products and, as
such, we are subject to federal, state and local laws and foreign regulations
governing the use, manufacture, storage, handling and disposal of these
materials, chemicals and waste products. Although we believe that our safety
procedures for the handling and disposal of these materials comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. We
may be required to incur significant costs to comply with environmental laws and
regulations in the future. The compliance with or breach of current or future
environmental laws or regulations may be costly and time consuming and may
severely harm our business.
OUR EFFORTS WOULD BE HINDERED IF WE WERE TO LOSE THE SERVICES OF ANY OF THE
PRINCIPAL MEMBERS OF OUR MANAGEMENT AND SCIENTIFIC TEAM
Our success will depend on our ability to attract and retain key employees and
scientific advisors. Competition among biotechnology and biopharmaceutical
companies for highly skilled scientific and management personnel, particularly
in our geographic region, is intense. There is no guarantee that we will be
successful in retaining our existing personnel or advisors, or in attracting
additional qualified employees. We anticipate expanding our existing functions
and entering into new areas and activities,
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RISK FACTORS
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which requires additional expertise, such as clinical testing, regulatory
compliance, marketing and distribution. This expansion will potentially place
increased demands on our resources. These activities may require the addition of
new personnel with expertise in these areas and the development of additional
expertise by existing personnel. If we fail to acquire such personnel, lose
existing personnel, specifically current members of our management team, such as
our Chief Executive Officer, or fail to develop this expertise, our success
would be hindered. We maintain a key-man life insurance policy on the life of
our founder and Chief Executive Officer, Philippe Pouletty, in the amount of
$5.0 million.
We also depend on the continued availability of outside scientific collaborators
who perform research, which we may fund, in certain areas relevant to our
research, and on consultants and scientific advisors. Our scientific
collaborators, consultants and advisors are not our employees and generally may
terminate their relationship with us at any time. As a result, we have limited
control over their activities and can expect that only limited amounts of their
time will be dedicated to our research. Although certain of our scientific
collaborators have agreed not to engage in activities that would involve a
conflict of interest with our business, it is possible that this could occur in
the future.
WE HAVE EXPERIENCED RECENT GROWTH AND IF WE DO NOT MANAGE THIS GROWTH
EFFECTIVELY, IT COULD AFFECT OUR ABILITY TO PURSUE BUSINESS OPPORTUNITIES AND
EXPAND OUR BUSINESS
We have recently expanded our management team, adding a Vice President of
Clinical Development in October 1999, a Senior Vice President of Marketing and
Sales, a Vice President of Regulatory Affairs and a Senior Vice President of
European Development in January of this year. Philippe Pouletty, the founder and
Chairman of our company, replaced our former Chief Executive Officer in December
of 1999 and our Chief Financial Officer, a director since 1998, joined our
management team in April of 1999. Since these officers have so recently been
elected, it may take some time before the management team is able to effectively
work together and manage our business or operations. In addition, our management
team will need to expand, train and manage our workforce and continue to improve
our operational and financial systems and managerial controls. If we fail to
effectively manage our growth and address the above concerns, it could affect
our ability to pursue business opportunities and expand our business.
FAILURE TO MANAGE OUR GROWTH MAY ADVERSELY AFFECT OUR BUSINESS
We have only recently implemented financial and accounting processes, controls,
reporting systems and procedures. We currently utilize commercial accounting
software that is licensed to our outside accounting consultants. We have limited
internal financial and accounting personnel. We believe that we need to hire
additional financial and accounting personnel to manage future growth.
Additionally, due to our international operations and the difference in
accounting conventions between the United States and Europe, there is added
complexity in our financial reporting and controls.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND CALIFORNIA LAW COULD MAKE
A THIRD-PARTY ACQUISITION OF US DIFFICULT. THIS COULD LIMIT THE PRICE INVESTORS
MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK
The anti-takeover provisions in our articles of incorporation, our bylaws and
California law could make it more difficult for a third party to acquire us
without approval of our board of directors. As a result of these provisions we
could delay, deter or prevent a takeover attempt or third party acquisition that
our shareholders consider to be in their best interests, including a takeover
attempt that results in a premium over the market price for the shares held by
our shareholders.
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RISK FACTORS
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RISKS RELATED TO THIS OFFERING
CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AMONG OUR EXISTING EXECUTIVE
OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS MAY PREVENT NEW INVESTORS FROM
INFLUENCING SIGNIFICANT CORPORATE DECISIONS
Upon completion of this offering, our executive officers, directors and
beneficial owners of 5% or more of our common stock and their affiliates will,
in aggregate, beneficially own approximately 48.19% of our outstanding common
stock or 46.55% if the underwriters' over-allotment option is exercised in full.
As a result, these persons, acting together, will have the ability to determine
the outcome of all matters submitted to our shareholders for approval, including
the election and removal of directors and any merger, consolidation or sale of
all or substantially all of our assets. In addition, such persons, acting
together, will have the ability to control the management and affairs of our
company. Accordingly, this concentration of ownership may harm the market price
of our common stock by:
- - delaying, deferring or preventing a change in control of our company;
- - impeding a merger, consolidation, takeover or other business combination
involving our company; or
- - discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.
Please see "Principal shareholders" for additional information on concentration
of ownership of our common stock.
OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE, WHICH IN TURN COULD AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL TO
FUND THE COMMERCIALIZATION OF OUR PRODUCTS
The trading price of our common stock is likely to be highly volatile and could
be subject to wide fluctuations in price in response to various factors, many of
which are beyond our control, including:
- - actual or anticipated variations in quarterly operating results;
- - announcements of technological innovations or breakthroughs in research by
us or our competitors;
- - the meeting or failure to meet milestones;
- - delay or failure in initiating, conducting, completing or analyzing clinical
trials or unsatisfactory design or results of these trials;
- - achievement of regulatory approvals;
- - new products or services introduced or announced by us or our competitors;
- - changes in financial estimates by securities analysts;
- - conditions or trends in the biotechnology, pharmaceutical and addiction care
industries;
- - changes in the market valuations of other similar companies;
- - announcements or departures of key personnel; and
- - sales of our common stock.
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In addition, the stock market in general, and the Nasdaq National Market and the
market for pharmaceutical companies in particular, has experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of those companies. Further, there has been particular
volatility in the market prices of securities of biotechnology and life sciences
companies. These broad market and industry factors may seriously harm the market
price of our common stock, regardless of our operating performance. In the past,
following periods of volatility in the market price of a company's securities,
securities class-action litigation has often been instituted against that
company. If this type of litigation was instituted against us, we would be faced
with substantial costs and management's attention and resources would be
diverted, which could in turn seriously harm our business, financial condition
and results of operations.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE
Sales of substantial amounts of our common stock in the public market after this
offering could seriously harm prevailing market prices for our common stock.
These sales might make it difficult or impossible for us to sell additional
securities when we need to raise capital. The number of additional shares
available for sale in the public market will be affected by restrictions imposed
by:
- - the Securities Act and related rules, including the volume and other
restrictions of Rule 144; and
- - lock-up agreements between us and selected shareholders or between
shareholders and the underwriters.
Please see "Shares eligible for future sale" for a description of the number of
shares which may be sold by existing shareholders in the future.
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Use of proceeds
We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock that we are offering will be approximately $50.6 million, assuming
an estimated initial public offering price of $14.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be approximately $58.4 million. We have not
yet determined our expected use of these proceeds, but we estimate that we will
use approximately $20.0 million for research and development, $8.0 million for
sales and marketing, $11.0 million for general and administrative expenses and
$11.6 million for general corporate purposes, including working capital. The
amounts that we actually expend will vary significantly depending on any number
of factors, including future revenue growth, if any, and the amount of cash we
generate from operations. As a result, we will retain broad discretion over the
allocation of the net proceeds from this offering. A portion of the net proceeds
may also be used for the acquisition of businesses, products and technologies
that are complementary to ours. We have no current agreements or commitments for
acquisitions of complementary businesses, products or technologies. Pending
these uses, we will invest the net proceeds of this offering in short-term,
investment grade and interest-bearing securities.
Dividend policy
We have never declared or paid any cash dividends since inception and do not
currently anticipate paying any cash dividends in the foreseeable future. Any
future determination relating to dividend policy will be made at the discretion
of our board of directors and will depend on a number of factors, including
future earnings, capital requirements, financial condition and future prospects
and other factors the board of directors may deem relevant.
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Capitalization
The following table shows our capitalization as of December 31, 1999;
- - On an actual basis; and
- - On a pro forma basis to give effect to:
- the automatic conversion of all outstanding shares of preferred stock into
7,305,769 shares of our common stock upon the closing of this offering,
including the 2,445,131 shares of our Series D Preferred Stock which were
issued in exchange for 1,849 shares of common stock in DrugAbuse Sciences,
SAS, our French subsidiary, which was reflected as minority interests and
which was converted on February 1, 2000;
- net exercise of outstanding warrants to purchase 1,815,912 shares of our
common stock at an assumed public offering price of $14.00 per share;
- 6-for-1 reverse split of the common stock to be effected prior to the
closing of this offering; and
- no exercise of the underwriters' over-allotment option.
- - On a pro forma as adjusted basis:
- our receipt of the estimated net proceeds from our sale of 4,000,000
shares of common stock in this offering at an assumed initial offering
price of $14.00 and, after deducting the underwriting discounts and
commissions and estimated offering expenses; and
- the filing of new articles of incorporation upon the closing of this
offering.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total long-term obligations and capital lease
obligations..................................... $367,789 $367,789 $367,789
------------ ------------ -----------
Minority interest................................. 11,654,492 -- --
------------ ------------ -----------
Shareholders' equity:
Convertible preferred stock: $0.001 par value;
shares authorized: 7,707,414; shares issued
and outstanding, actual 4,860,638; no shares
outstanding, pro forma or pro forma as
adjusted...................................... 4,861 -- --
Common stock: $0.001 par value; shares
authorized: 85,000,000; shares issued and
outstanding, actual 3,380,450; shares issued
and outstanding, pro forma 12,502,131; shares
issued and outstanding, pro forma as adjusted;
16,502,131.................................... 2,721 10,027 14,027
Additional paid-in capital........................ 42,142,532 65,449,071 116,025,071
Deferred stock compensation....................... (14,409,691) (14,409,691) (14,409,691)
Note receivable from shareholders................. (510,950) (510,950) (510,950)
Accumulated other comprehensive loss.............. (126,018) (126,018) (126,018)
Deficit accumulated during the development
stage........................................... (19,270,013) (30,924,505) (30,924,505)
------------ ------------ -----------
Total shareholders' equity........................ 7,833,442 19,487,934 70,067,934
------------ ------------ -----------
Total capitalization.......................... $19,855,723 $19,855,723 $70,435,723
============ ============ ===========
</TABLE>
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CAPITALIZATION
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This table excludes:
- - 1,042,729 shares of common stock issuable upon exercise of stock options
outstanding as of January 20, 2000 at a weighted average exercise price of
$0.36 per share;
- - 1,081,000 shares of common stock available for issuance under our 2000 Stock
Incentive Plan;
- - 375,000 shares of common stock available for issuance under our 2000
Employee Stock Purchase Plan;
- - 200,000 shares of common stock available for issuance under our 2000
Directors' Option Plan; and
- - 374,519 shares of common stock that may be issuable upon exercise of
outstanding warrants at an exercise price of $0.06 per share;
To the extent that these options are exercised, there will be further dilution
to new investors. Please see "Management--stock plans," and Note 8 of "Notes to
Consolidated Financial Statements" for further information regarding our stock
option plans.
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21
<PAGE>
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Dilution
Our pro forma net tangible book value as of December 31, 1999 was $19.5 million,
or approximately $1.56 per share, based on the pro forma number of common shares
outstanding as of December 31, 1999, calculated giving effect to:
- - the automatic conversion of all outstanding shares of preferred stock into
7,305,769 shares of our common stock upon the closing of this offering,
including the 2,445,131 shares of our Series D Preferred Stock which were
issued in exchange for 1,849 shares of common stock in DrugAbuse Sciences,
SAS, our French subsidiary, which was reflected as minority interests and
which was converted on February 1, 2000; ;
- - net exercise of outstanding warrants to purchase 1,815,912 shares of our
common stock at an assumed public offering price of $14.00 per share;
- - 6-for-1 reverse stock split of the common stock to be effected prior to the
closing of this offering; and
- - no exercise of underwriters' over-allotment option.
Pro forma net tangible book value per share is equal to our total tangible
assets, less liabilities divided by the pro forma shares of common stock
outstanding.
Pro forma net tangible book value dilution per share to new investors represents
the difference between the amount per share paid by purchasers of shares of
common stock in this offering and the pro forma net tangible book value per
share of common stock immediately after completion of this offering. After
giving effect to our sale of 4,000,000 shares of common stock in this offering
at an assumed initial public offering price of $14.00 per share and after
deducting the underwriting discounts and commissions and estimated offering
expenses, our pro forma net tangible book value as of December 31, 1999 would
have been $70.1 million or $4.25 per share. This represents an immediate
increase in pro forma net tangible book value of $2.69 per share to existing
shareholders and an immediate dilution in pro forma net tangible book value of
$9.75 per share to purchasers of common stock in the offering, as illustrated in
the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Pro forma net tangible book value per share as of
December 31, 1999....................................... $1.56
Increase per share attributable to new investors.......... 2.69
------
Pro forma net tangible book value per share after the
offering.................................................. 4.25
------
Dilution per share to new investors......................... $9.75
======
</TABLE>
The following table presents on a pro forma basis as of December 31, 1999 after
giving effect to the conversion of all outstanding shares of preferred stock
into common stock upon completion of this offering, the differences between the
existing shareholders and the purchasers of shares in the offering
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22
<PAGE>
DILUTION
- --------------------------------------------------------------------------------
with respect to the number of shares purchased from us, the total consideration
paid and the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............. 12,502,131 76% $26,631,081 32% $2.13
New shareholders................... 4,000,000 24 $56,000,000 68% 14.00
---------- ----- ----------- -----
Totals........................... 16,502,131 100% $82,631,081 100%
========== ===== =========== =====
</TABLE>
The table above assumes the net exercise of warrants to purchase 1,815,912
shares of common stock and excludes:
- - 1,042,729 shares issuable upon exercise of options outstanding at
January 20, 2000 at a weighted average exercise price of $0.36 per share;
- - 374,519 shares that may be issuable upon exercise of warrants outstanding at
January 20, 2000 at an exercise price of $0.06 per share;
- - 1,656,417 shares reserved for issuance under our stock option and purchase
plans.
To the extent outstanding or future options or warrants are exercised, there
will be further dilution to new investors. For a description of our equity
plans, please see "Management--Stock plans" and Note 8 of Notes to consolidated
financial statements.
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23
<PAGE>
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Selected consolidated financial data
THE FOLLOWING SELECTED CONSOLIDATED FINANCIAL DATA SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES AND "MANAGEMENT'S
DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
APPEARING ELSEWHERE IN THIS PROSPECTUS.
The consolidated statements of operations data for the fiscal years ended
December 31, 1997, 1998 and 1999 and the consolidated balance sheet data as of
December 31, 1998 and 1999 are derived from our audited consolidated financial
statements included elsewhere in this prospectus. The statement of operations
data for the fiscal years ended December 31, 1995 and 1996 and the consolidated
balance sheet data as of December 31, 1995, 1996 and 1997 are derived from
unaudited financial statements not included in the prospectus. In the opinion of
management, the unaudited consolidated financial statements include all
adjustments, consisting principally of normal recurring adjustments necessary
for a fair presentation of the results of operations for this period. The
historical results are not necessarily indicative of the operations to be
expected for future periods and the results of interim periods are not
necessarily indicative of the results for a full year.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
DATA 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Grant revenues......................... $-- $-- $-- $810,607 1,224,605
Operating expenses:
Research and development............. 196,891 207,545 1,041,720 1,309,980 4,205,085
General and administrative........... 57,664 92,020 275,829 592,775 1,549,836
Amortization of deferred stock
compensation....................... -- -- 64,863 180,798 1,848,737
---------- ---------- ----------- ----------- ------------
Total operating expenses........... 254,555 299,565 1,382,412 2,083,553 7,603,658
---------- ---------- ----------- ----------- ------------
Loss from operations................... (254,555) (299,565) (1,382,412) (1,272,946) (6,379,053)
Interest income........................ -- 6,653 85,314 96,067 273,547
Interest expense....................... -- -- (3,065) (15,464) (122,496)
---------- ---------- ----------- ----------- ------------
Net loss............................... (254,555) (292,912) (1,300,163) (1,192,343) (6,228,002)
---------- ---------- ----------- ----------- ------------
Dividend related to beneficial
conversion feature of preferred
stock................................ -- -- -- -- (9,669,978)
---------- ---------- ----------- ----------- ------------
Net loss available to common
shareholders......................... (254,555) (292,912) (1,300,160) (1,192,343) (15,897,980)
Other comprehensive income (loss):
Change in foreign currency
translation adjustments............ (8,964) (7,073) 35,760 (44,581) (116,714)
---------- ---------- ----------- ----------- ------------
Comprehensive loss..................... (263,519) (299,985) $(1,264,403) (1,236,924) (16,014,694)
========== ========== =========== =========== ============
Net loss per share available to common
shareholders basic and diluted....... $(0.13) $(0.14) $(0.61) $(0.56) $(7.45)
========== ========== =========== =========== ============
Shares used in computing net loss per
share available to common
shareholders basic and diluted....... 2,027,013 2,094,345 2,114,506 2,116,728 2,134,073
========== ========== =========== =========== ============
Pro forma net loss per share available
to common shareholders............... $(2.80)
============
Shares used in computing pro forma net
loss per share available to common
shareholders......................... 5,672,186
============
</TABLE>
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24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
CONSOLIDATED BALANCE SHEET DATA: 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents............. 380,655 40,698 $2,305,882 $1,039,315 $19,224,906
Total assets.......................... 396,171 49,870 2,693,408 1,997,048 21,036,632
Long-term obligations and capital
lease obligations................... 250,000 250,000 478,684 543,090 367,789
Minority interest..................... -- -- -- -- 11,654,492
Total shareholders' equity
(deficit)........................... 130,359 (403,518) 1,707,699 862,490 7,833,442
</TABLE>
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25
<PAGE>
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Management's discussion and analysis of financial condition and results of
operations
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS THAT APPEAR ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We are a development stage company. Since our inception, we have incurred losses
and, as of December 31, 1999, we had an accumulated deficit of $19.3 million. To
date, our revenues have been solely from government grants. We intend to carry
out the necessary registration trials for our lead product, NALTREL-TM-, in
2000. We do not anticipate generating commercial product revenues from our own
internally developed products until the various regulatory agencies, such as the
FDA and other European agencies, have approved these for marketing.
We expect to recognize revenues from government grants and from the sale of
approved pharmaceutical products. We may in-license or acquire currently
available commercial products. We expect to market our own internally developed
products following regulatory approval. We expect our sales to increase over
time as our products become accepted by physicians and as we introduce a broader
array of products.
Our expenses have consisted primarily of research and development costs and
general and administrative costs associated with our operations. We expect our
research and development expenses to increase in the future as we continue to
improve and develop products. Our selling expenses will increase as we
commercialize our products. The additional obligations we will have as a public
company will also add to our expenses. As a result, we expect to incur losses in
the foreseeable future.
We have a limited history of operations and we anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including:
- - the time and extent of our research and development efforts;
- - the market acceptance of product candidates following approval;
- - the introduction of new products by our competitors; and
- - the timing of regulatory approval for additional products.
Our limited operating history makes accurate prediction of future operations
difficult or impossible.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUE
Government grant revenue increased to $1.2 million in 1999 from $0.8 million in
1998 and to $0.8 million in 1998 from $0.0 in 1997. The increases in 1999 and
1998 were primarily due to grants received from the French government and the
National Institute on Drug Abuse.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 211.0% to $4.2 million in 1999 from
$1.3 million in 1998 and increased 25.8% to $1.3 million in 1998 from $1.0
million in 1997. The increase in 1999
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26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
was primarily due to expenses relating to animal studies and the commencement of
human trials with Naltrel, and to a lesser extent, research projects relating to
the chemistry of COC-AB, Buprel and MAP-AB and the increase in 1998 resulted
from the development work associated with NALTREL and COC-AB.
GENERAL ADMINISTRATIVE EXPENSES
General and administrative expenses increased 161.5% to $1.5 million in 1999
from $0.6 million in 1998 and increased 114.9% to $0.6 million in 1998 from
$0.3 million in 1997. The increase in 1999 was primarily due to the
strengthening of our management team and the engagement of consultants to
evaluate the commercial market and the increase in 1998 was primarily due to the
costs associated with patent work for NALTREL and COC-AB and the hiring of
personnel in fourth quarter of 1998.
DEFERRED STOCK COMPENSATION
Deferred stock compensation for options granted to employees is the difference
between the deemed value for financial reporting purposes of our common stock on
the date such options were granted and their exercise price. Deferred stock
compensation for options granted to consultants has been determined in
accordance with Statement of Financial Accounting Standards No. 123 as the fair
value of the equity instruments issued. Deferred stock compensation for options
granted to consultants is periodically remeasured as the underlying options vest
in accordance with Emerging Issues Task Force No. 96-18.
In connection with the grant of stock options to employees and consultants, we
recorded deferred stock compensation of approximately $0.1 million in the year
ended December 31, 1997, compared to $0.4 million in 1998 and $15.9 million in
1999. These amounts were recorded as a component of shareholders equity and are
being amortized as charges to operations over the vesting periods of the
options. We recorded amortization of deferred stock compensation of
approximately $64,863 for the year ended December 31, 1997, compared to
$0.2 million in 1998 and $1.8 million in 1999. For options granted through
December 31, 1999, we expect to record additional amortization expense for
deferred compensation as follows: $7.3 million in 2000, $3.8 million in 2001,
$2.1 million in 2002 and $0.8 million in 2003. Amortization expense relates to
options awarded to employees and consultants assigned to all operating expense
categories in the statements of operations. We will also record an additional
$4.2 million of deferred stock compensation related to options for 364,738
shares of common stock granted during January 2000. See Note 8 of Notes to
Consolidated Financial Statements.
INTEREST INCOME
Interest income increased to approximately $273,547 in 1999 from approximately
$96,067 in 1998 and increased to approximately $96,067 in 1998 from $85,314 in
1997. The increase in 1999 was due to the proceeds received from the Series C
and Series D Preferred Stock financings and the increase in 1998 was due to
higher rates on short term investments in 1998 offset by expenditure of the
proceeds from the Series B preferred stock financing in March 1997.
INTEREST EXPENSE
Interest expense increased to $122,496 in 1999 from $15,464 in 1998 and
increased to $15,464 in 1998 from $3,065 in 1997. The increase in 1999 was due
to a short-term convertible note and the increase in 1998 was due to the
increase in borrowings under a capital lease agreement in France.
INCOME TAXES
No provision for federal and state income taxes was recorded as we incurred net
operating losses from inception through December 31, 1999. As of December 31,
1999, we had approximately $7 million of
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27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
net operating loss carryforwards which expire in varying amounts through the
year 2019. Due to uncertainty regarding the ultimate utilization of the net
operating loss carryforwards, we have not recorded any benefit for losses and a
valuation allowance has been recorded for the entire amount of the net deferred
tax asset. Under applicable tax regulations, sales of our stock, including
shares sold in this offering, may further restrict our ability to utilize our
net operation loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through $26.6 million
in private equity financings and $2.5 million in grants and loans from the
French and United States governments. At December 31, 1999, cash and cash
equivalents were $19.2 million compared to $1.0 million at December 31, 1998.
Our cash reserves are held in short-term, investment grade and interest-bearing
securities.
Cash used in operations for the year ended December 31, 1999 was $4.8 million
compared with $1.0 million for the same period in 1998.
Cash provided by financing activities was $24.6 million for the year ended
December 31, 1999 compared to use of funds of $0 for the same period in 1998.
Financing activities included the receipt of net proceeds of $24.6 million from
the sale of preferred stock to investors in the twelve month period ended
December 31, 1999 and $0 in the twelve month period ended December 31, 1998.
Working capital increased to $1.4 million in the twelve month period ended
December 31, 1999 from $1.0 million in the twelve month period ended December
31, 1998. The increase was due to our financings.
As of December 31, 1999, we had an aggregate of $367,789 million in future
obligations of principle payments under capital leases and long term
obligations. During fiscal 2000, $0.2 million of our capital leases and long
term obligations are to be paid.
In June 1997, we entered into a multi-year research and development loan, with a
French government agency. We received approximately $420,000 for the future
research and development activities in 1997. We perform research on a
"best-effort" basis and the loan is repayable over a five year period. Payments
received under this multi-year research and development loan have been recorded
as long term obligations.
In November 1997, we entered into a line of credit with BNP. The line of credit
has a total capacity of approximately $140,000 to finance research and
development activities. The line of credit bears interest at 6.25% with
principal and interest payable semi-annually. $65,000 is available for
borrowing. The line of credit terminates in November 2001.
We believe our existing cash, cash equivalents and short term investments,
together with the net proceeds of this offering will be sufficient to fund our
operating expenses and capital requirements through at least the next 18 months.
Our future capital uses and requirements depend on numerous factors, including:
- - our progress with research and development;
- - the success of our pre-clinical testing and clinical trials;
- - costs and timing of obtaining regulatory approval for our products;
- - our ability to license and/or acquire innovative technologies and products;
- - our ability to protect our intellectual property rights;
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28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
- - our ability to manufacture our products;
- - our ability to introduce and sell our products;
- - our ability to hire competent personnel;
- - the level of our sales and marketing expenses;
- - pricing and policies of reimbursement; and
- - the costs and timing of obtaining new patent rights, changes in regulation,
competition, and medical and technological developments in the market.
Therefore, our capital requirements may increase in the future periods. As a
result, we may require additional funds and may attempt to raise additional
funds through equity or debt financings, collaborative arrangements with
corporate partners, government grants or other sources.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept or recognize only two-digit entries in the date code field. These systems
and software products will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software may need to be upgraded, redesigned or replaced to comply with such
Year 2000 requirements to avoid system failure or miscalculations causing
disruptions of normal business activities.
STATE OF READINESS
We have experienced no Year 2000 compliance problems relating to our systems. In
response to the Year 2000 problem, we implemented changes to our existing
information technology systems through a combination of modifications and
upgrades to Year 2000 compliant software.
We expect to have no Year 2000 problems in the future.
COSTS
We have incurred minimal costs associated with identifying and addressing Year
2000 compliance issues, and do not expect to incur costs in the future.
RISKS
We believe that the Year 2000 issue will not have a material adverse effect on
our business, financial condition or operating results. Since December 31, 1999
we have experienced no Year 2000 problems, however, latent issues may still
surface in the future that require upgrades, modifications, or replacement, all
of which could be time-consuming and expensive. In addition, there can be no
assurance that utility companies, Internet access companies and our third-party
vendors or Year 2000 compliant. The failure by such entities to be Year 2000
compliant could result in a systemic failure such as a prolonged Internet,
telecommunications or electrical failure.
CONTINGENCY PLAN
Because no systems have been found to be non-compliant and we have experienced
no problems to date, we have determined that a contingency plan is not required.
We are unable to provide for contingencies arising as a result of large scale or
Internet-wide failure because we are not aware of any adequate replacement
service for the Internet.
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29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our activities
without increasing risk. Some of the securities that we invest in may have
market risk. This means that a change in prevailing interest rates may cause the
fair value of the principal amount of the investment to fluctuate. For example,
if we hold a security that was issued with a fixed interest rate at the
prevailing rate and the prevailing rate later rises, the fair value of the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and short
term investments in a variety of securities, including commercial paper,
government and non-government debt securities and money market funds. The
average duration of all our investments has generally been less than one year.
Due to the short term nature of these investments, we believe we have no
material exposure to interest rate risk arising from our investments. Therefore,
no quantitative tabular disclosure is required.
FOREIGN CURRENCY RATE FLUCTUATIONS
The functional currency for our French subsidiary is the French franc. The
translation from the French franc to the US dollar is translated for balance
sheet accounts using the current exchange rate in effect at the balance sheet
date and for revenues and expense accounts using average exchange rate during
the period. The effects of translation are recorded as a separate component of
shareholders equity. Our French subsidiary conducts its business with customers
in local European currencies or the Euro. Exchange gains and losses arising
through these transactions are recorded using the actual exchange differences on
the date of the transaction. We have not taken any action to reduce our exposure
to changes in currency in foreign currency exchange rates, such as options or
futures contracts, with respect to transactions with our French subsidiary or
transactions with our European customers.
INFLATION
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative--which focused on
freestanding contracts such as options and forwards, including futures and
swaps--expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We do not anticipate
that the adoption of SFAS No. 133 will have a material impact on our financial
position or results of operations.
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<PAGE>
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Business
OVERVIEW
We believe we are the first biotechnology company dedicated to developing and
marketing novel therapies for alcohol and drug abusers. According to state
governmental agencies, alcohol and drug abuse is the number one healthcare
problem in the United States. It consumes approximately 3.7% of the Gross
National Product in the United States alone. This market is under-served with
few medications available or in development. We intend to become the leading
biopharmaceutical company in addiction care by offering a broad portfolio of
medications to serve the addiction care community. Our strategy is to develop
several medications in the near term, and expand our product portfolio through
research and the acquisition of marketed products and technologies. We intend to
build a sales force to market our products, taking advantage of the concentrated
addiction care market.
We are developing and intend to market a broad portfolio of biopharmaceutical
products that address various medical needs of alcohol abusers and drug addicts.
Our product candidates for the treatment of alcohol and heroin addiction,
NALTREL-TM-, BUPREL-TM- and METHALiz-TM-, are being developed to improve
existing medications. These products are designed to be administered only once a
month by a physician or a nurse, as opposed to once a day by the patient. By
putting the medical practitioner in control, our products are expected to
promote continuous therapy and help overcome patient non-compliance, the primary
limitation of current medications. Our other product candidates, COC-AB-TM-,
MAP-AB-TM- and ITAC-TM-, are intended to provide novel means to treat patients
suffering from cocaine and methamphetamine overdose and addiction. In 2000, to
support prospective market approval in the United States and Europe, we expect
to conduct pivotal clinical trials with NALTREL for the treatment of alcohol
abuse and heroin addiction. In parallel, in the next 18 months we expect to
conduct several human trials with BUPREL and METHALiz for treatment of severe
heroin addiction, and with COC-AB and ITAC for the treatment of cocaine overdose
and addiction.
BACKGROUND
According to state governmental agencies, alcohol and drug abuse is the most
significant health problem in the United States and a leading cause of death. In
1995, the Substance Abuse and Mental Health Services Administration estimated
the direct and indirect costs of alcohol and drug abuse consumed approximately
3.7% of the Gross National Product in the United States alone. We estimate that
in the United States and Europe, there are in excess of 20.0 million alcoholics
and 2.0 million heroin addicts. According to the Office of National Drug Control
Policy, in the United States, there are an estimated 3.6 million cocaine
addicts. Substance abuse can have severe social and medical consequences,
including imprisonment, car accidents, overdose, liver failure, infections such
as HIV and viral hepatitis, and death. In addition, the National Institute of
Health estimated that $197.0 billion dollars is lost each year in the United
States due to absenteeism and lost productivity at work related to alcohol and
drug abuse.
We estimate that 7% of alcholics and drug addicts, approximately 1.5 million
patients in the United States, receive treatment for their addiction. According
to the Substance Abuse and Mental Health Services Administration, the majority
of alcohol and drug abuse patients that receive treatment are treated in the
limited number of specialized addiction care centers. Current treatments consist
primarily of psychosocial therapy and drug-substitution therapy and are
generally not effective in curing alcohol and drug addiction. According to the
National Drug and Alcohol Treatment Unit Survey, in 1992, nearly $7.1 billion
was spent in the United States to treat alcohol and drug abuse. An estimated
$11.00 of social and medical costs are saved for every dollar spent on substance
abuse treatment
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BUSINESS
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according to the New York State Office of Alcoholism and Substance Abuse
Services. Despite the potential medical benefits and cost-savings of treating
addictions, we believe the market for addiction care is poorly served by the
pharmaceutical industry and that the medical community needs new products to
effectively treat alcohol abuse and drug addictions.
THE NEUROBIOLOGY OF ADDICTION
Addiction is a chronic disease of the brain triggering the compulsive use of
substances like alcohol, heroin, cocaine and methamphetamine at increasing and
more frequent doses, despite severe social and medical consequences. Scientists
have only recently uncovered the biology of addiction at the molecular level.
Alcohol and all drugs of abuse interfere with normal neurological pathways that
are responsible for transmitting signals in the brain, particularly the pathway
that involves the neurotransmitter dopamine. This dopamine pathway in the brain
controls euphoria and pain. All addictive substances impact dopamine directly or
indirectly. Alcohol and heroin stimulate a receptor in the brain called the
opiate receptor. Heroin binds directly to the opiate receptor, while alcohol
triggers the release of naturally occurring endorphins, which then bind to the
opiate receptor. Stimulation of the opiate receptor by heroin or alcohol-induced
endorphins causes cells to release dopamine. Unlike alcohol and heroin,
methamphetamine triggers a direct release of dopamine, while cocaine prevents
the normal reabsorption of dopamine following its release. Excess levels of
dopamine overstimulate the dopamine receptors of nearby cells, triggering
feelings of euphoria.
The molecular biology of opiate and dopamine receptors is now understood,
potentially enabling the rational design of novel medications targeting these
receptors. Opiate receptors include several subtypes, mu, delta, and kappa,
which are located on the outside of a neuron membrane in several regions of the
brain. The opiate receptors are made of proteins that contain six helices.
Molecules such as endorphins, morphine, heroin and methadone bind specifically
to the helices located in the outer region of the receptor, modify their shape,
and trigger transmission of an intracellular signal by the inner region of the
receptor. The molecules that stimulate the opiate receptor are called receptor
agonists. Stimulation of the receptors can induce euphoria and resistance to
pain. Other molecules, such as naltrexone, can bind to the receptor without
triggering its stimulation and can prevent the binding of agonists. They are
called antagonists. Dopamine receptors belong to a family of protein receptors
expressed on the membrane of neurons in various areas of the brain. Dopamine
binds to and stimulates three categories of dopamine receptors called D1, D2 and
D3, which mediate different neurochemical signals. These receptors are made of
seven protein helices linked by protein loops. Their shape changes when dopamine
occupies the receptor, triggering a signal transmission to the neuron. D1
receptors are involved in control of movement, cognitive functions and
cardiovascular functions. D2 receptors are involved in control of movement and
behavior. D3 receptors are involved in control of emotions and behavior.
When brain cells are repeatedly exposed to addictive substances, levels of
dopamine and other neurotransmitters, such as serotonin and GABA, and their
corresponding neuroreceptors are chronically modified, creating a chemical
imbalance. As a result of this chemical-imbalance, an abuser's neurological
pathways demand the presence of the addictive substance and the abuser has
become addicted. Once addicted, the substance abuser will use the substance more
frequently to induce euphoria at the expense of normal activities. The substance
abuser will also increase the amount of the substance taken, because an
increased concentration of alcohol or drug becomes necessary to obtain the same
level of euphoria. As dopamine and the other affected neurotransmitters play a
key role in multiple brain functions, this chemical imbalance often leads to
other neurological manifestations such
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as impaired judgement and perceptions, memory loss, depression, irritability,
aggressive behavior, seizures and thoughts of suicide.
CLINICAL ASPECTS OF ADDICTION
The clinical aspects of addiction are the:
- - acute effects of a drug overdose or binge drinking;
- - chronic toxicity of repeated use on various biological systems and brain
functions;
- - acute withdrawal symptoms; and
- - lifelong risk of relapse.
ACUTE EFFECTS. Drug overdose and binge drinking affect multiple organs and
biological systems. Acute intoxication can often result in psychotic episodes,
respiratory or cardiovascular distress, accidental injury or death. For example,
a 1992 study, The Economic Costs of Alcohol and Drug Abuse in the U.S. has shown
that approximately 40% of fatal car accidents in the United States are
alcohol-related. The Drug Abuse Warning Network estimated 250,000 emergency room
visits per year are the result of drug overdose.
CHRONIC TOXICITY OF SUBSTANCE OF ABUSE. As brain chemistry is modified on a
chronic basis, substance abusers may suffer multiple psychiatric and
neurological disorders such as depression, suicidal thoughts and psychotic
behavior. Permanent neurological damage may occur.
ACUTE WITHDRAWAL SYNDROME. Withdrawal is a condition resulting from sudden
discontinuation of a substance to which a person is addicted. Withdrawal from
alcohol can result in rapid heart rate, difficulty sleeping and life threatening
delirium tremens. Heroin withdrawal can result in irritability, pain, nausea,
vomiting, cramps and muscle aches. Withdrawal from cocaine or methamphetamine
can result in irritability, sleeplessness, and depression.
RELAPSE. The ultimate goal of medical treatment for addicts is to achieve an
alcohol-and drug-free state called abstinence. However, several studies found
that for patients who have achieved abstinence, the rate of relapse is high
within the first months of therapy, and remains a significant risk over the
patient's lifetime. Relapse can be very severe, and many patients experience
multiple cycles of detoxification, abstinence, relapse and overdose. Due to the
long-term risk of relapse, alcohol abusers and drug addicts are life-long
patients.
CURRENT ADDICTION CARE AND AVAILABLE PRODUCTS
Care for addiction includes chronic therapy and emergency therapy. Chronic
therapy promotes and attempts to maintain long-term abstinence following
detoxification. Emergency therapy attempts to reverse the effects of overdose.
Few medications are available to promote abstinence in alcohol and heroin
abusers. No medication is available to treat cocaine and methamphetamine
addiction or overdose. Studies have shown that as many as eighty percent of
patients are not compliant with their therapeutic regimen, typically resulting
in treatment failure.
CHRONIC ADDICTION CARE
Chronic therapy relies heavily on psychosocial therapy because few medications
are available. Psychosocial therapy, which consists of regular counseling
sessions, is the cornerstone of addiction care but has limited success because
it does not address the biological basis of addiction.
There are two types of medications available for long-term therapy of addicts.
Substitution therapy is the use of a pharmaceutical product that mimics the
abused substance. Abstinence therapy is the use of a medication to help the
addict abstain from substance use and cure addiction.
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Substitution therapy is used for heroin addicts whose dependence is too severe
to permit abstinence therapy. It consists of medications which are chemically
related to heroin and which bind to and stimulate the opiate receptor. These
medications prevent withdrawal symptoms and maintain the state of addiction, but
in a medically-controlled environment. Substitution therapy is not a cure for
addiction. However, there are significant medical and social benefits, such as
reducing the risk of contracting infections and decreasing propensity to commit
crime. Substitution therapy can be used as a temporary therapy for patients who
can then be detoxified and become abstinent, or as a long-term therapy for
severe addicts who are unresponsive to abstinence therapies.
Abstinence therapy is medically more desirable than substitution therapy, as it
can effectively reduce dependence and may restore normal brain functions.
However, there are few medications available to promote abstinence, and
medication non-compliance is a major limitation. An estimated 80% of patients
fail to take their medication on a daily basis as prescribed and typically
relapse into severe alcohol and heroin abuse. A minority of alcoholics and
heroin addicts receiving abstinence treatment typically remain abstinent after
one year.
The existing medications are summarized in the following table.
<TABLE>
<CAPTION>
DOSAGE
PRODUCT/FIRST US REGIMEN/
APPROVAL DATE TECHNOLOGY USAGE SUBSTANCE OF ABUSE LIMITATION
- ---------------- ----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
METHADONE Binds to and Substitution Heroin and other Requires daily
(1975) stimulates opiate therapy opiates therapy at a
receptor licensed clinic
BUPRENORPHINE(1) Binds to and Substitution Heroin and other Requires daily
stimulates opiate therapy opiates therapy
receptor
LAAM (1993) Binds to and Substitution Heroin and other Requires therapy
stimulates opiate therapy opiates 2 times per week
receptor at clinic
NALTREXONE Blocks opiate Abstinence Alcohol and heroin Daily/
(1984, HEROIN; 1994, receptor maintenance non-compliance
ALCOHOL)
ACAMPROSATE(2) GABA antagonist Abstinence Alcohol Daily/
maintenance non-compliance
DISULFIRAM (1951) Induces nausea Relapse Alcohol Toxicity/
and vomiting upon prevention non-compliance
alcohol
absorption
</TABLE>
(1) APPROVED IN FRANCE IN 1995.
(2) APPROVED IN FRANCE IN 1987 AND SUBSEQUENTLY IN OTHER EUROPEAN COUNTRIES.
The opiate agonists, methadone, LAAM and buprenorphine are the three
substitution medications. According to the Substance Abuse and Mental Health
Services Administration, methadone is used in an estimated 180,000 patients in
the United States. Sales of this off-patent generic product are subject to low
pricing, with approximately $20.0 million in sales in 1999 in the United States.
Methadone
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binds to the opiate receptor, triggering a stimulation of the dopamine pathway.
It decreases the use of heroin but maintains dependence. Methadone is dispensed
by licensed methadone clinics that typically require the patient to visit
several times per week. LAAM is structurally related to methadone, has similar
effects, and is administered three times a week at the clinic. Buprenorphine,
currently marketed only in France, is a compound structurally related to
methadone, but which stimulates the opiate receptor to a lesser extent.
Buprenorphine is used on a daily basis by an estimated 62,000 patients in
France, approximately 37% of the heroin addict population. In 1999, sales in
France reached approximately $80 million. Buprenorphine therapy may result in
significant diversion of use and potential lethal overdoses, as the patient is
responsible for administration.
The two main products available to promote and maintain abstinence are
naltrexone, for alcoholics and heroin addicts, and acamprosate (available only
in the EU) for alcoholics. Both naltrexone and acamprosate are available as oral
daily tablets. Naltrexone is an opiate antagonist that blocks the opiate
receptor, thereby decreasing the effects of and desire to use both alcohol and
heroin, and promoting an alcohol and heroin-free state when used on a chronic
basis. Acamprosate only affects alcohol dependence. Worldwide sales of branded
and generic naltrexone were an estimated $34 million in 1999. Sales of
acamprosate were an estimated $20 million in 1999. Naltrexone and acamprosate
have a similar efficacy and safety profile in alcoholics and are both limited by
severe patient non-compliance. To avoid prescribing therapies which will not be
used, physicians typically prescribe these medications only to the small subset
of their patients who are highly motivated to comply. We believe a
sustained-release formulation of naltrexone can be developed to address the
issue of non-compliance, but that acamprosate is not conducive to
sustained-release formulation development because of the high dose required to
obtain a therapeutic effect. The other medication to treat alcoholism is
disulfiram. Disulfiram induces nausea and vomiting when the patient drinks
alcohol because it increases the concentration of toxic alcohol byproducts. Few
patients are willing to use disulfiram long term.
For cocaine and methamphetamine dependence, there is no medication available.
EMERGENCY THERAPY
Emergency therapy focuses on reversing the life-threatening effects of alcohol
and drug overdose. The goal is to use an antidote to block the effect of or
rapidly remove the toxic substance from the patient's blood stream and tissue,
reduce the complications of the overdose and lower the overall cost of emergency
care. Heroin is the only drug of abuse for which there is an antidote, called
naloxone. Naloxone binds to the opiate receptor, displaces molecules of heroin
already bound to the receptor, and prevents further binding of heroin to the
receptor. For cocaine and methamphetamine overdose, there is no antidote
available.
Other medications commonly used in alcoholics and drug addicts are products to
treat medical conditions resulting from substance abuse such as depression,
infectious diseases or liver dysfunction.
We believe that due to the seriousness of addiction and the low compliance with
current medications, there is a substantial need for medications that treat the
biological basis of addiction, facilitate medication compliance through less
frequent dosing schedules and promote alcohol and drug abstinence.
OUR SOLUTION
We are developing and intend to market a broad portfolio of biopharmaceutical
products for alcohol and drug abusers that we believe will:
- - facilitate and maintain abstinence;
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- - provide safer substitution therapy;
- - treat overdose; and
- - prevent the onset of addiction.
Our lead product candidates are:
- - NALTREL, a sustained-release formulation of naltrexone to treat patients
with alcohol or heroin dependence;
- - BUPREL, a sustained-release formulation of buprenorphine to provide
substitution therapy to patients with heroin dependence;
- - METHALiz, a sustained-release formulation of methadone to provide
substitution therapy to patients with severe heroin dependence; and
- - COC-AB, an antidote to treat cocaine overdose.
Our product candidates use two proven technologies. NALTREL, BUPREL and METHALiz
are based on our sustained-release technology, called Lactiz, which we licensed
from Southern Research Institute. Other companies have applied Southern Research
Institute's patented technology to create successful sustained-release
medications outside addiction care. COC-AB is based on an antidote technology
which has been applied by others to various other applications including
treatment of snake venom and digoxin poisoning.
WE ARE IMPROVING EXISTING MEDICATIONS USING SUSTAINED-RELEASE FORMULATIONS
All current abstinence medications are available only as daily oral medications.
The majority of patients prescribed an abstinence medication fail to take their
daily pill. Non-compliance with prescribed medication typically leads to therapy
failure and relapse into alcohol or drug abuse. We are developing
sustained-release formulations of approved medications to overcome chronic
non-compliance with daily therapies. A sustained-release formulation only
requires the administration once a month by the physician or the nurse, as
opposed to once a day by the patient. We believe once-a-month administration
fits well with the regular schedule of patient visits to their physician for
psychosocial therapy sessions. Putting addiction care in the hands of doctors
rather than patients should ensure compliance and greatly improve the chances of
success in addiction therapy.
We are applying our sustained-release technology to several medications,
naltrexone, buprenorphine and methadone, which are already used in the field of
substance abuse. Naltrexone, an abstinence medication which blocks the opiate
receptor, is effective in alcohol and heroin dependent patients. Buprenorphine
(approved only in France) and methadone are substitution medications prescribed
to heroin addicts. Because the active ingredients in our product candidates,
naltrexone, buprenorphine and methadone have demonstrated safety and
effectiveness in the oral dosage form approved by the FDA or by foreign
regulatory agencies for the treatment of addiction, we believe the demonstration
in human trials of the prolonged release of the medication in the blood is the
critical step in clinical development of our sustained-release dosage forms.
WE ARE CREATING MOLECULAR BARRIERS TO BLOCK ACCESS OF A DRUG TO THE BRAIN
Drugs of abuse exert their toxic effect in the brain only after they have
crossed the barrier that separates the blood from the brain tissue, called the
blood brain barrier. Current medications only interfere with drugs of abuse once
they have entered the brain. We are developing novel medications to prevent a
drug from crossing the blood brain barrier. We believe that we can develop
antibodies that will bind to a specific drug in the bloodstream, such as
cocaine, forming large molecular complexes
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that are unable to pass through the blood brain barrier. Preventing drugs from
entering the brain will limit their toxic effects and the desire to use them. We
are developing two complementary antibody technologies, COC-AB for treatment of
overdose and ITAC for prevention of cocaine dependence.
WE ARE CONDUCTING RESEARCH ON NOVEL COMPOUNDS THAT MAY REGULATE THE EFFECT OF
DOPAMINE
As dopamine is central to the biology of addiction, we believe that therapeutic
products derived from molecules that regulate the release of dopamine by brain
cells could help treat drug dependence. In collaboration with academic
scientists at the University of Paris V, we are conducting early-stage research
on the design of novel medications that can modify the levels of dopamine and
its effect on dopamine receptors.
OUR STRATEGY
Our goal is to become the leader in the United States and Europe in the
development and commercialization of pharmaceutical products for the treatment
of patients with alcohol dependence or drug addiction.
WE FOCUS ON THE LARGE BUT UNDERSERVED ADDICTION CARE MARKET
We are the first biotechnology company to focus exclusively on addiction care.
We intend to develop products for the key medical indications for alcohol and
drug abusers:
- - promoting and maintaining abstinence;
- - providing substitution therapy;
- - preventing relapse; and
- - treating overdose.
By offering new and improved therapies that address the multiple medical needs
of substance abusers, we plan to increase the availability and effectiveness of
treatment options and promote phamacotherapy as the cornerstone of addiction
care.
WE ARE DEVELOPING SEVERAL MEDICATIONS IN THE NEAR TERM
We currently focus on developing products with short development time frames
that may be rapidly commercialized. We are applying two known and proven
technologies, a sustained-release polymer and an antidote technology, to develop
our first four products NALTREL, BUPREL, COC-AB and METHALiz. We believe we have
a greater probability of near-term success in gaining FDA approval for our three
sustained-release products as compared to the approval probability of novel
molecular entities. The sustained-release technology is a proven technology for
other marketed pharmaceutical products and the active ingredients are already
approved by the FDA or other regulatory authorities as oral dosage forms.
Several of our products are being developed to address major indications and
large potential markets.
WE ARE BUILDING A BROAD PRODUCT PORTFOLIO
We intend to build a broad portfolio of products through internal research and
development and the licensing or acquisition of existing commercial products and
product candidates. As the first company dedicated to this field, we believe we
will be well positioned to acquire new product candidates and technologies from
academic groups and biotechnology or pharmaceutical companies active in central
nervous system research but with no commercial interest in addiction care. We
may also seek to acquire, before our own products are on the market, some of the
products already marketed for addiction care. We believe the synergies between
our different products will allow a medical
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practitioner to combine several medications to treat patients according to the
stage and severity of their particular medical condition. We believe we can
increase the probability of successful treatment for patients already receiving
therapy and induce more alcoholics and drug addicts to seek treatment by making
therapy easier and more effective.
WE INTEND TO MARKET OUR PRODUCTS IN THE UNITED STATES AND EUROPE USING OUR OWN
DEDICATED SALES FORCE
We intend to market our products directly. We believe that a small sales force
of approximately 60 dedicated representatives will enable us to effectively
market our products to the limited number of specialized, high volume, addiction
treatment centers in the United States and Europe.
WE INTEND TO FOCUS ON NEAR-TERM REVENUES AND FUND LONGER-TERM RESEARCH WITH
GRANTS
We hope to achieve profitability from sales generated in the United States and
Europe from the first approved product in our current portfolio. We believe we
can generate significant margins by marketing our broad portfolio of products
using the same sales force. While developing near-term products, we can also
develop a pipeline of innovative product candidates. As addiction care is a
government priority in many countries, significant grant funding is available to
support addiction research. To date we have received research grants from
European and US government entities of approximately $4.2 million and are
seeking additional grants.
If the market for addiction care medication does not develop and our products
are not widely accepted due to safety and effectiveness issues, marketing and
distribution restrictions, adverse publicity or pricing and reimbursement
issues, we will not be successful.
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PRODUCT CANDIDATES
We are developing a portfolio of novel product candidates that we believe
improve existing medications by facilitating medication compliance, and address
novel treatment indications. Near term products are for treatment of alcohol and
heroin abusers. Longer term products are for treatment of cocaine and
methamphetamine addicts.
<TABLE>
<CAPTION>
PRODUCT CANDIDATE TECHNOLOGY INDICATION SUBSTANCE OF ABUSE DEVELOPMENT STATUS(1)
- ----------------- ----------------- ------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
NALTREL-TM- Lactiz-TM-(2) Abstinence Alcohol Pivotal trial(3)
Sustained-release maintenance planned in 2000
naltrexone
Heroin Pivotal trial(3)
planned in 2000
BUPREL-TM- Lactiz-TM-(2) Substitution Heroin Safety and
Sustained-release therapy for pharmacokinetic
buprenorphine mild addicts trial(4) initiation
planned late 2000
METHALIZ-TM- Lactiz-TM-(2) Substitution Heroin Safety and
Sustained-release therapy for pharmacokinetic
methadone severe trial(4) planned in
addicts 2001
COC-AB-TM- Antidote(2) Overdose Cocaine Phase I/II trial(5)
therapy planned in 2000
MAP-AB-TM- Antidote(2) Overdose Methamphetamine Phase I/II trial(5)
therapy planned in 2001
ITAC-TM- PLATFORM Vaccine(2) Abstinence Cocaine Phase I trial(6)
TECHNOLOGY induction start planned in
2000/2001
DOPAMINE MODULATORS Rational drug Abstinence Cocaine Early stage research
design maintenance Methamphetamine
ALCOHOLMD.COM Website Clinician and Alcohol Launch planned late
patient 2000
education
Psychosocial
therapy
</TABLE>
(1) DATES ASSUME SUCCESSFUL COMPLETION OF PRECLINICAL RESEARCH.
(2) COMMERCIAL RIGHTS HELD BY US SUBJECT TO ROYALTY PAYMENTS TO OUR
COLLABORATORS.
(3) A PIVOTAL TRIAL IS THE FINAL CLINICAL TRIAL NECESSARY BEFORE WE CAN OBTAIN
MARKET APPROVAL OF OUR PRODUCT CANDIDATE.
(4) A SAFETY AND PHARMACOKINETIC TRIAL IS A CLINICAL TRIAL FOR THE STUDY OF
MEDICATION SAFETY AND BLOOD LEVELS.
(5) A PHASE I/II TRIAL IS A CLINICAL TRIAL FOR THE STUDY OF MEDICATION SAFETY IN
PATIENTS.
(6) A PHASE I TRIAL IS A CLINICAL TRIAL FOR THE STUDY OF MEDICATION SAFETY IN
HEALTHY VOLUNTEERS.
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NALTREL-TM-
NALTREL is a sustained-release formulation of naltrexone designed to be
administered by intramuscular injection on a monthly basis by a physician or a
nurse. The potential recommended use of NALTREL is for the treatment of alcohol
and heroin dependence. NALTREL is designed to release naltrexone continuously
over 30 days from a single administration. By putting the medical practitioner
in control of therapy, we expect that the use of NALTREL will facilitate patient
compliance, enhance the effectiveness of the medication, improve overall
treatment outcomes and become the therapy of choice for a large number of
patients.
NALTREL IS BASED ON NALTREXONE, A PROVEN MEDICATION. Naltrexone is an effective
medication approved in more than 30 countries in an oral daily dosage form for
treatment of alcohol dependence and heroin addiction. It blocks the opiate
receptor, preventing euphoria and thereby decreasing the desire for, and the
effects of alcohol and heroin. If taken daily on a chronic basis, naltrexone is
highly effective in reducing alcohol and heroin consumption, promoting
abstinence and preventing relapse. In clinical trials involving the daily oral
dosage form of naltrexone, patients who were compliant in taking their
medication demonstrated a much higher success rate at achieving abstinence than
those who were not compliant. However, most patients who are prescribed daily
naltrexone tablets are not compliant; they stop taking their medication within
the first few weeks or months, and fail therapy.
NALTREL IS BASED ON OUR LACTIZ SUSTAINED-RELEASE TECHNOLOGY. The Lactiz
technology uses polylactide, a biodegradable, carbon-based polymer, which can be
processed into solid microscopic spheres. The microscopic spheres consist of a
network of tiny pores and channels into which a medication can be incorporated.
When injected into muscle, the microscopic spheres fill with water, initiating a
progressive and continuous release of medication into surrounding tissues. The
medication then diffuses into small blood vessels called capillaries, and from
capillaries into larger blood vessels. It then crosses the blood brain barrier
and diffuses into the brain. The properties of Lactiz, including its molecular
weight and density, as well as the type and amount of medication loaded into the
microscopic spheres, control the rate at which medication is released into
surrounding tissue. The polylactide polymer making up Lactiz breaks down into
carbon dioxide and water over time, eventually disappearing. Lactiz-based
products can be re-injected at appropriate intervals. By adjusting the
properties of Lactiz, we can create formulations with sustained-release
characteristics that may allow for medication release ranging from two weeks to
three months.
NALTREL CLINICAL TRIAL RESULTS. We have developed multiple formulations of
NALTREL and evaluated them in animals and in humans to select a formulation that
we believe will safely deliver sufficient levels of naltrexone over a one-month
period following a single administration. We have completed human trials in 28
subjects to evaluate levels of naltrexone in the blood. The results evidenced
two critical facts. First, release of naltrexone over one month following a
single NALTREL administration was similar to the amount of naltrexone delivered
by 31 daily naltrexone oral tablets. Second, the blood levels of naltrexone
resulting from one NALTREL administration were less variable over time than with
the oral tablets. As naltrexone is a clinically-proven commercial drug in the
tablet dosage form, and as our sustained-release technology is similar to the
technology used in previously approved products, we believe that these first
human trials suggest that NALTREL will be effective in treating alcoholics and
heroin addicts.
NALTREL PIVOTAL TRIALS PLAN. In 2000, we intend to conduct pivotal safety and
efficacy trials in alcoholics and heroin addicts to support potential market
approvals in the United States and Europe. In the US, we expect to need a single
pivotal trial to support the alcohol dependence indication and a single pivotal
trial to support the heroin dependence indication. Subject to discussion of the
protocols with the FDA and European regulatory authorities, the clinical trial
in alcoholics will be a double-blind, randomized, placebo-controlled trial in an
estimated 300 alcoholic patients. We plan to
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conduct the trial at approximately 30 sites in the United States. We expect to
treat and follow-up patients for three to six months. We expect that at the end
of this period we will find that patients will have been drinking less and that
they are less likely to relapse into heavy drinking. Subject to discussion of
the protocols with the FDA and European regulatory authorities, the clinical
trial in heroin addicts will enroll an estimated 100 patients and will be
placebo-controlled. We expect that at the end of this period we will find that
NALTREL will have blocked the opiate receptor preventing the patient from
experiencing drug-induced euphoria. In addition to these trials, we intend to
conduct additional NALTREL studies in particular patient sub-populations, such
as rapid detoxification, converting methadone users to abstinence therapy to
respond to the interests of the medical community.
BUPREL-TM-
BUPREL is a sustained-release formulation of buprenorphine designed to be
administered by intramuscular injection on a monthly basis by a physician or a
nurse, using the same Lactiz technology as for NALTREL. The potential indication
of BUPREL is for substitution therapy for heroin-dependent patients who are not
ready or willing to be detoxified. Buprenorphine partially stimulates the opiate
receptor, inducing mild euphoria and maintaining dependence, while reducing the
consumption of heroin. Frequent misuse of the oral dosage form by the patient
may limit the safety of buprenorphine therapy. By putting the physician or the
nurse in charge of medication administration, we expect BUPREL will simplify and
improve the safety of buprenorphine therapy.
We are currently optimizing formulations of BUPREL in preclinical studies and
expect to enter the clinic in late 2000. Initial trials in approximately 30
patients are expected to permit the potential selection of a formulation that
release an appropriate medication amount over one month. Subsequent trials in
approximately 100 patients will be designed to potentially confirm the
buprenorphine release profile and one pivotal trial will seek to establish
safety and efficacy in fewer than 300 heroin dependent patients.
METHALIZ-TM-
METHALiz is a sustained-release formulation of methadone designed to be
administered by intramuscular injection on a monthly basis by a physician or a
nurse, using the same Lactiz technology as for NALTREL and BUPREL. The potential
indication of METHALiz is for substitution therapy for severe heroin-dependent
patients who are not ready or willing to be detoxified and for whom
buprenorphine therapy is not available or sufficiently potent. Methadone
stimulates the opiate receptor, prevents withdrawal symptoms and maintains
dependence while reducing the consumption of heroin. According to the American
Methadone Treatment Association, approximately 180,000 heroin addicts in the
United States use an oral formulation of methadone, dispensed by
900 specialized methadone clinics. While high-risk patients are required to
visit the registered methadone clinic on a daily basis to be administered their
dose of methadone, many patients are allowed to take one or more days worth of
product home for self-administration. This sometimes leads to fatal overdosing.
By putting the physician or the nurse in charge of medication administration and
making the dosing schedule more convenient, by eliminating patient take-homes
and self-dosing, we expect METHALiz will simplify and improve the safety of
methadone therapy.
Subject to successful preclinical development, we expect to enter the clinic in
2001. Initial trials in approximately 30 patients may permit the selection of
the formulation that provides an appropriate amount of medication over one
month. Subsequent trials in fewer than 100 subjects will be designed to confirm
the methadone release profile and one pivotal trial will seek to establish
safety and efficacy in fewer than 300 patients.
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COC-AB-TM-
COC-AB is designed as a cocaine antidote for the treatment of cocaine overdose,
an indication for which there is no treatment available. The current care for
toxic overdose is intensive treatment with cardiovascular and central nervous
system medications, which may be costly and labor-intensive. COC-AB is designed
to rapidly remove cocaine from the brain and body, acting as an antidote by
binding free cocaine in the blood and triggering the removal of cocaine. COC-AB
is administered by intravenous injection. A similar antidote technology is used
commercially for therapy of digoxin overdose and snake venom bites. Aventis
Pasteur, a marketer of similar antidotes for other indications, is our
manufacturer.
COC-AB is a purified protein fragment, called F(ab')(2,) derived from an
antibody produced in horses. It binds tightly to cocaine and toxic cocaine
metabolites in the bloodstream to stop further cocaine entry into tissues,
particularly the heart and brain which is responsible for the potential
life-threatening consequences of cocaine overdose. As a result, the
concentration of free cocaine molecules in the bloodstream is reduced. The body
strives to maintain equilibrium of free cocaine between tissue sites and the
bloodstream. Therefore, as the free cocaine in the bloodstream is bound as a
COC-AB-cocaine complex, the cocaine present in the brain and other tissues
diffuses back to the bloodstream where it is captured by COC-AB. The liver and
kidneys clear the inactive COC-AB-cocaine complex within days.
COC-AB is made by injecting horses with a proprietary chemical derivative of
cocaine linked to a protein carrier. Most of the metabolites of cocaine are
benign. To be effective, an antidote should preferably target only cocaine
itself and its toxic metabolites and not be unnecessarily consumed by these
benign metabolites. By chemically modifying cocaine into novel chemical
entities, we succeeded in producing antibodies that distinguish between toxic
by-products of cocaine, such as cocaethylene and norcocaine, and its non-toxic
metabolites such as benzoylecgonine and ecgonine-methylester. As a result, we
expect that COC-AB activity in the body will target primarily the toxic
metabolites that result from cocaine overdose.
We are currently scaling-up COC-AB in collaboration with our manufacturer,
Aventis Pasteur. We expect to enter the clinic mid-2000 to study the effect of
COC-AB on blood levels of cocaine in approximately 25 cocaine users. To assess
the clinical benefits of COC-AB in patients suffering from cocaine overdose, we
then intend to conduct a clinical trial in the emergency room in fewer than 100
patients and additional trials to support potential market approval.
MAP-AB-TM-
We intend to apply the same antidote technology to develop additional products.
MAP-AB is intended for the treatment of methamphetamine overdose.
Methamphetamine is one of the substances of abuse with the fastest growth in the
United States. Recent research has demonstrated the long-lasting toxic effects
of methamphetamine. These effects are thought to be responsible for the severe
behavioral abnormalities that accompany the prolonged use of methamphetamine.
According to the National Institute for Drug Abuse, or NIDA, there is an urgent
need for an effective medication to treat methamphetamine addiction, especially
anti-methamphetamine antibodies which could be used by emergency room physicians
to treat the growing number of overdoses. We are currently in pre-clinical
development of the chemistry of MAP-AB that could, upon intravenous
administration to a patient in the emergency room, capture methamphetamine
molecules and decrease their toxicity.
ITAC-TM-
ITAC is a cocaine vaccine candidate designed to create a chemical barrier in the
blood to prevent cocaine from reaching the brain. Following administration of
the vaccine, anti-cocaine antibodies are formed. Upon cocaine use,
cocaine-antibody complexes will form that are too large to move through
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blood vessel walls into the brain. Cocaine is trapped within the bloodstream
until it is eliminated with no toxic effects from the body through normal kidney
and liver activity. Such a vaccine may serve as a valuable component of
treatment programs that protect against relapse. In animals, ITAC prevents the
onset of cocaine dependence. Using a proprietary technology similar to the one
developed to produce COC-AB, our collaborators at the Scripps Research Institute
have developed the cocaine vaccine candidate by chemically modifying cocaine and
linking it to a large protein molecule. Animals vaccinated with the ITAC vaccine
develop cocaine-specific antibodies that bind with cocaine in the blood, as well
as its toxic metabolites, preventing most of the drug from reaching the brain.
Injecting cocaine into rodents immunized with the ITAC vaccine candidate
resulted in significantly higher levels of cocaine in the blood where it is
harmless, and correspondingly lower levels in the brain, thereby reducing
dependence to cocaine. We are currently studying in additional animal models
various vaccine formulations to select one candidate that may be tested in
humans. In 2000, we expect to initiate clinical trials with ITAC in cocaine
abusers to study the safety of the vaccine and its ability to generate
anti-cocaine antibodies in humans.
ALCOHOLMD.COM
We are developing an interactive website for medical practitioners and patients
for alcohol addiction treatment. For medical practitioners, the website will
feature medical literature, including an online medical journal, information
about best practices for addiction care, latest treatment options and provide a
forum for addiction care physicians to exchange ideas on a real time basis. In
addition, the website will be designed to host a consultant forum allowing
physician in the field to solicit opinions from leading experts. For patients
and their families, AlcoholMD.com is expected to provide tools for the
self-evaluation of drinking habits, information on treatment options and an
online forum for patient and family support. We will seek to make AlcoholMD.com
the premier online website for alcohol abuse care by assembling broad
information about alcohol addiction care and providing links to other addiction
care websites. We also intend to study the use of online psychotherapy support
for patients who are in treatment for alcohol abuse. We expect to launch
AlcoholMD.com in the second half of 2000. Importantly, we expect this website to
facilitate the marketing of our own products and services.
THE MARKET
LARGE POPULATION OF CHRONIC PATIENTS TREATED IN A SMALL NUMBER OF SPECIALIZED
CENTERS
Approximately 1.5 million patients in the United States receive therapy for
alcohol, heroin or cocaine addiction in a limited number of specialized
treatment centers as recorded by the Substance Abuse and Mental Health Services
Administration. Approximately 3,200 physicians are members of the American
Society of Addiction Medicine and these physicians write most of the
prescriptions for the few medications available to treat these patients.
Approximately 70% of alcohol abusers and drug users are employed and most
employers in the United States provide mental health plan coverage. It is
estimated that 90 percent of addiction care is paid through insurance or direct
government financing in the United States. In Europe, addiction care is covered
by various social security and private payers plans.
ADDICTION CARE IS COST-EFFECTIVE
For every dollar spent on substance abuse treatment, an estimated $11.00 of
other social and medical costs are avoided. For instance, treatment is estimated
to reduce overall hospital admission rates of substance abusers by 38% in the
United States. In addition, treatment for addiction can decrease crime rates. In
one study, treatment for one year was shown to reduce arrests by an estimated
65%. We believe novel addiction medications can command pricing comparable to
other critical care therapies.
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For example, buprenorphine in France, used now by an estimated 37% of heroin
addicts, costs approximately $1,500 per year.
MORE PATIENTS ARE IN NEED OF THERAPY
Only an estimated 6% of alcohol abusers and cocaine addicts, and 27% of heroin
addicts are in treatment in the United States and Europe. There are an estimated
12.4 million alcohol abusers, 810,000 heroin addicts and 3.6 million cocaine
addicts in the United States, and approximately 14 million alcohol and drug
abusers in Europe. Lack of effective medications often discourages families and
primary care physicians to refer more patients to addiction treatment centers.
COLLABORATIONS
We are strengthening our position by forming relationships with strategic
partners. Alliances with government organizations, academic institutions and
others will help develop and market our new therapies. We have cultivated
relationships with academic communities, clinics, government organizations and
others, to advance the development of medications in the treatment in addiction.
We have formed alliances with research organizations and pharmaceutical
companies for product development and the manufacturing of NALTREL, BUPREL,
METHALiz, COC-AB and ITAC. This strategy lowers costs and leverages the
resources and expertise of our collaborators.
MANUFACTURING AND SUPPLY ARRANGEMENTS
We do not intend to build manufacturing facilities, but to contract out our
manufacturing requirements to recognized leaders in pharmaceutical
manufacturing.
RELATIONSHIP WITH AVENTIS PASTEUR
In June 1999, we entered into a manufacturing agreement with Aventis Pasteur for
the manufacture of COC-AB. Aventis Pasteur is one of the world's largest vaccine
companies with a broad range of products. Under the terms of the agreement,
Aventis Pasteur has agreed to manufacture and supply us with COC-AB (Fab')2
product. As part of the relationship, Aventis Pasteur has agreed to certain
exclusivity provisions that preclude Aventis Pasteur from developing,
manufacturing or licensing a product that contains an anti-cocaine antibody or
antibody derivative for anyone other than us. We have agreed to exclusively use
Aventis Pasteur to manufacture COC-AB. This agreement has been in effect since
June 1999 and will continue until the 10(th) anniversary of the first commercial
sale of COC-AB to the general public. After such ten year period, we can
negotiate up to two (2) year renewals. The manufacturing agreement may be
terminated upon:
- uncured material breach;
- failure to obtain regulatory approval within specified time frames ranging
from two years to six years, and;
- termination of the patent and know-how license agreement between us and
Aventis Pasteur.
Also in June 1999, we entered into a patent and know-how license agreement with
Aventis Pasteur. In this agreement, Aventis Pasteur granted to us an exclusive
license under certain patents and know-how to produce and sell COC-AB products
for the treatment of drug addiction. This agreement will continue for thirteen
years following the date of first commercial sale of COC-AB to the public and
until we have made all royalty payments. The agreement may be terminated by
either party 120 days following written notice of an uncured material breach.
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RELATIONSHIP WITH SP PHARMACEUTICALS L.L.C.
In November 1999, we entered into a manufacturing agreement with SP
Pharmaceuticals L.L.C. for the manufacture of NALTREL active and placebo product
for our use in clinical trials. Under the terms of the agreement, SP
Pharmaceuticals has agreed to manufacture and supply us with NALTREL.
SP Pharmaceuticals also agreed not to develop, manufacture or sell any product,
drug or compound directed to the treatment of drug, alcohol, or other substance
abuse addiction which involve sustained-release properties for any party other
than us during the term of this agreement and for two years after the expiration
or termination of this agreement. The agreement is to continue until
February 1, 2001. It may be extended for additional successive one year periods
until the development work is completed. This agreement may be terminated upon
an uncured material breach.
LICENSING AGREEMENTS
RELATIONSHIP WITH SOUTHERN RESEARCH INSTITUTE
In February 1997, we entered into an agreement with Southern Research Institute,
or SRI, for the research and development of NALTREL. SRI is a multidisciplinary
non-profit research organization and is recognized for its ability to produce
practical, workable solutions to difficult technological problems. SRI has been
instrumental in developing the proprietary micro-encapsulation technology for
NALTREL.
Under the terms of the agreement, we are working with SRI on the development of
an injectable, biodegradable microscopic sphere formulation for one-month
delivery of naltrexone. In connection with the agreement, we were also granted
the option to license some of the developed product. On July 1, 1999, we
exercised the option of licensing worldwide rights, on an exclusive basis to
develop, produce and sell any injectable, sustained-release formulation of
naltrexone or other opiate receptor antagonists. In addition, we received a
nonexclusive license to certain other SRI patents and know-how for the purpose
of developing and commercializing any injectable, sustained-release formulations
of naltrexone. With respect to any of the other SRI patents, we agreed to give
SRI a non-exclusive, royalty-free license to fully exploit for any other purpose
any improvements to the other SRI patents for which we file a patent
application. The term of the development agreement will continue until
December 31, 2000. The license will continue until December 31, 2010, or the
expiration of the naltrexone patents or the expiration of the SRI patent rights,
whichever is last to occur. SRI may terminate the agreement if we have not filed
a new drug application for an injectable, sustained-release formulation of
naltrexone with the FDA by July 1, 2004, unless we can show our failure to file
resulted from events reasonably beyond our control. Further, SRI may terminate
the agreement upon 90 days written notice of an uncured material breach by us.
In January 2000, we entered into a second agreement with SRI for the research
and development of controlled release buprenorphine or other opiate receptor
agonists, including but not limited to, methadone. Under the terms of the
agreement, we are developing with SRI an injectable, sustained-release
formulation for delivery of controlled release buprenorphine. On January 21,
2000 we exercised the option of licensing exclusive worldwide rights for any
current or future patent rights covering inventions made during the performance
of the work under the research agreement to develop and commercialize any
injectable, sustained-release formulation of buprenorphine or other opiate
recepter agonists, including, but not limited to, methadone. The license
requires us to give a non-exclusive, royalty-free license to SRI to exploit for
any commercial purpose, other than sustained-release buprenorphine and other
opiate recepter agonists, any improvements we make to SRI patents. The term of
the development agreement will continue until January 21, 2003. The license will
continue until the expiration of the last of the buprenorphine patents or the
expiration of other relevant SRI patent rights. This agreement may be terminated
upon an uncured material breach by us.
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RELATIONSHIP WITH SCRIPPS RESEARCH INSTITUTE
In June 1996, SCRIPPS Research Institute granted us a license of certain patents
relating to the development and marketing of diagnostic and therapeutic products
within the field of treatment of cocaine addition. SCRIPPS is engaged in
fundamental scientific biomedical and biochemical research. The SCRIPPS Research
Institute is one of the largest, private, non-profit research organizations in
the United States. SCRIPPS has become internationally known for its basic
research into immunology, molecular and cellular biology, chemistry,
neurosciences, autoimmune diseases, cardiovascular diseases and synthetic
vaccine development.
Under the terms of the agreement we licensed exclusive worldwide rights to
develop and market ITAC. This agreement will remain in effect so long as we sell
products covered under the terms of the license or until the licensed patents
expire. Scripps may terminate the agreement within 60 days after an arbitrator's
decision that we have not complied with the commercial development obligations
required in the agreement. Further, Scripps will be able to terminate the
agreement upon 15 days written notice for nonpayment of any amounts due by us
and upon 60 days notice for any other uncured breach by us.
RELATIONSHIP WITH UNIVERSITY OF PARIS V
In June 1999 and March 2000, we entered into research and development agreements
with the University of Paris V to jointly develop COC-AB and related antibodies,
MAP-AB and dopamine modulators using both the facilities and expertise of the
University of Paris V.
Under the terms of the agreements, we have been granted worldwide rights,
current and future, to all inventions related to and including COC-AB, MAP-AB
and dopamine modulators. In consideration of the agreements we have agreed to
make royalty payments to the University of Paris V for a period of five years
from the date of the first commercial sale of either COC-AB, MAP-AB or dopamine
modulators, as the case may be.
In order for our clinical trials to be successful, we must continue to maintain
collaborative relationships with our partners. We rely heavily on these partners
to manufacture our product candidates, conduct pre-clinical trials and clinical
studies and license patented and proprietary technology to us.
PATENTS AND PROPRIETARY TECHNOLOGY
Our success will depend in part on our and our licensors' ability to obtain
patents for our technology and preserve our trade secrets and to operate without
infringing upon the proprietary rights of others. We currently hold one US
patent relating to COC-AB and we expect that a second patent will be issued in
the near future. We also have a patent application pending for our proprietary
naltrexone formulation, NALTREL and have a patent application pending for our
proprietary buprenorphine formulation, BUPREL. In addition, we have an exclusive
license from Southern Research Institute for patents relating to
sustained-release formulations of NALTREL, BUPREL, and METHALiz and an exclusive
license from the Scripps Research Institute for a patent relating to ITAC.
Patent positions in the pharmaceutical field are often uncertain and may involve
complex legal, scientific and factual questions. There has been increasing
litigation in the pharmaceutical industry with respect to the manufacture, use
and sale of new therapeutic products that are the subject of conflicting patent
rights. The validity and breadth of claims in pharmaceutical patents may involve
complex factual and legal issues for which no consistent policy has emerged, and
therefore, are highly uncertain. Moreover, the patent laws of foreign countries
differ from those of the US, and hence the degree of protection afforded by
foreign patents may be different. There can be no assurance that patent
applications relating to products and technologies developed by us will result
in patents being issued or that, if issued, the patents will provide a
competitive advantage or will afford protection against competitors with similar
technologies, or that such patents will not be challenged successfully or
circumvented by
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competitors, or that our technologies, products or processes will not be found
to infringe on third parties patent rights. In addition, there is a substantial
backlog of biotechnology patent applications at the US Patent and Trademark
Office, and the approval or rejection of patent applications may take several
years.
We also rely on certain proprietary trade secrets and know-how that are not
patentable. Although we have taken steps to protect our unpatented trade secrets
and know-how, in part through the use of confidentiality agreements, with our
employees and consultants there can be no assurance that:
- these agreements will not be breached; or
- our trade secrets will not otherwise become known or independently
developed.
COMPETITION
The market for our products has few direct competitors but we expect the
intensity of competition to increase. Currently, we compete primarily with other
companies marketing products for the treatment of alcohol and heroin abuse. In
the future we may compete with companies developing similar products using
alternative technologies, or different products for similar medical indications
that could render our products obsolete. We believe we will compete in the
future on the basis of approved product indications, post-marketing studies,
pricing and reimbursement. Many of our competitors have greater financial,
operational, sales and marketing resources, and more experience in research and
development than we have. Companies known to market or actively develop products
for alcohol or drug addiction care include, but are not limited to Cantab,
Dupont Merck, Lipha, Mallinckrodt, Medimmune, Schering Plough, Reckitt Colman
and Roxane.
PRE-CLINICAL TESTING AND CLINICAL TRIALS
Before we can obtain the necessary regulatory approvals for the sale of any of
our products, we must demonstrate, through pre-clinical testing and clinical
trials, that our product candidates are safe and effective. Naltrel is the only
product candidate for which we have initiated clinical trials involving human
testing. Our other product candidates are still in the pre-clinical testing
phase.
Conducting clinical trials is a lengthy, time-consuming, uncertain and expensive
process. The successful commencement and completion of clinical trials depends
on a number of factors, such as the design, size, implementation and results of
clinical trials, the effectiveness of the product, the safety of the product,
the ability to ascertain the proper dosage of the product, our ability to obtain
the materials for the testing and the participants in the study. If our product
candidates fail to perform as expected, then we will not be able to develop our
products as expected.
GOVERNMENT REGULATION
Our research and development activities, pre-clinical tests and clinical trials,
and ultimately the manufacturing, marketing and labeling of our products, are
subject to extensive regulation by the FDA and other regulatory agencies in the
United States and other countries. In the US, the Federal Food, Drug, and
Cosmetic Act, or the Act, and the regulations promulgated thereunder and other
federal and state statutes and regulations govern, among other things, the
testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising, promotion, import and export of our products. Similarly,
the EU subjects the manufacture, testing, marketing, labeling, advertising, and
classification of medicinal products to extensive regulation, which is
implemented at national level and supplemented by additional national rules
throughout the Member States of the EU. Pre-clinical testing and clinical trial
requirements and the regulatory approval process typically take years and
require the
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expenditure of substantial resources. Additional government regulation may be
established that could prevent or delay regulatory approval of our product
candidates. Delays or rejections in obtaining regulatory approvals would
adversely affect our ability to commercialize any pharmaceutical product
candidates we develop and our ability to receive product revenues or royalties.
Even if regulatory approval of a product candidate is granted, the approval may
include significant limitations on the indicated uses for which the product may
be marketed.
The FDA and other foreign regulatory agencies require that the safety and
effectiveness of our product candidates be supported through adequate and
well-controlled clinical trials. If the results of pivotal clinical trials that
we submit in applications for approval do not establish the safety and efficacy
of our product candidates to the satisfaction of the FDA and other foreign
regulatory agencies, we will not receive the approvals necessary to market our
product candidates, which would have a material adverse effect on our business,
financial condition, cash flows and results of operations.
Some of our products will also be regulated by the United States Drug
Enforcement Administration and by the European Union as controlled substances.
FDA REGULATION--APPROVAL OF THERAPEUTIC PRODUCTS
Our therapeutic products are regulated either as drugs (in the case of NALTREL,
BUPREL, METHALiz, and dopamine modulators) or as biological products (in the
case of COC-AB, MAP-AB and ITAC). The steps required before a drug or biological
product may be marketed in the United States include:
- - pre-clinical and clinical studies;
- - the submission to the FDA of an Investigational New Drug application, or
IND, which must become effective before human clinical trials may commence;
- - adequate and well-controlled human clinical trials to establish the safety
and efficacy of the drug;
- - the submission to the FDA of a New Drug Application, or NDA, or, a
Biological License Application, or BLA; and
- - FDA approval of the application, including approval of all product labeling.
Pre-clinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Pre-clinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the pre-clinical tests are typically submitted and
reviewed by the FDA as part of an IND, before human clinical trials begin. If
the FDA does not object to an IND, it will become effective in 30 days.
Submission of an IND may not result in FDA authorization to commence clinical
trials and the lack of an objection may not mean that the FDA will ultimately
approve a product for marketing. We filed an IND for NALTREL in early 1999.
Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. The
protocols for clinical trials must be reviewed by the FDA and must be conducted
in accordance with Good Clinical Practices. Each clinical trial must be approved
by an Institutional Review Board that will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution conducting the clinical trials. We must also obtain patient informed
consent.
Clinical trials are typically conducted in three sequential phases that may
overlap. In clinical trials for the study of medication safety in healthy
volunteers, typically called Phase I clinical trials, the drug is given to
healthy human volunteers and is tested for safety, dosage tolerance, metabolism,
distribution,
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excretion and blood levels. In trials for the study of medication safety in
patients, typically known as Phase I/II clinical trials, trials are conducted in
a target patient population:
- - to gather evidence about the blood levels, safety and effectiveness of the
drug for specific uses;
- - to determine dosage tolerance and optimal dosage; and
- - to identify possible adverse effects and safety risks.
Phase III clinical trials are undertaken to evaluate effectiveness and to test
for safety in an expanded patient population. Our clinical trials may not be
completed successfully or within any specified time period. We or the FDA may
suspend clinical trials at any time, if either we or the FDA conclude that
clinical subjects are being exposed to an unacceptable health risk, or for many
other reasons.
The FDA may disagree with the design of the Phase III clinical trial protocols
after the results of the Phase III clinical trials have been announced. The FDA
inspects and reviews clinical trial sites and data from the clinical trials to
determine compliance with Good Clinical Practice. The FDA also examines whether
there was bias in the conduct of clinical trials. Phase III clinical trials are
complex and difficult, and they may not be successful.
The results of pre-clinical studies and clinical trials, if successful, are
submitted in an application to seek the FDA approval to market the drug or
biological product for a specified use. The testing and approval process
requires substantial time and effort, and approval may not be granted for any
product nor approval granted according to any schedule. The FDA may refuse to
approve an application if it believes that regulatory criteria are not satisfied
and may require additional testing for safety and efficacy of the drug. If
regulatory approval is granted, the approval will be limited to specific
indications. Our product candidates may not receive regulatory approvals for
marketing, or if approved, the approval may not be for the indications we have
requested.
The FDA provides a "fast track" review process for drugs that treat serious or
life threatening diseases and conditions and have a demonstrated potential to
meet unmet medical needs for these diseases or conditions. Approval may be
conditioned on a requirement that, following product launch, a company continue
to study the drug to verify and describe its clinical benefit. Under "fast
track" procedures, the FDA may withdraw approval on an expedited basis if the
company fails to show due diligence in conducting post-marketing clinical trials
or if the post-approval clinical trials fail to demonstrate that the product is
safe or effective. When appropriate, we intend to pursue opportunities for "fast
track" review of our products. We may not be able to take advantage of "fast
track" review of our products.
The current fee for submission of NDAs and BLAs is $256,338, and may increase
from year to year. The FDA also may require annual fees for approved products
and for companies that manufacture products. The FDA may waive or reduce these
fees under special circumstances. We will seek waivers or reductions of fees
where possible, but we may not be eligible for any such waiver or reduction.
FDA REGULATION--POST-APPROVAL REQUIREMENTS
Even if regulatory approvals for our product candidates are obtained, our
products and the facilities that manufacture them are subject to continual
review and periodic inspection. Each US drug manufacturing establishment must be
registered with the FDA. Manufacturing establishments in the US and abroad are
subject to inspections by the FDA and must comply with the FDA's good
manufacturing practice regulations, which are strictly enforced. Full technical
compliance requires manufacturers to expend funds, time and effort in the area
of production and quality control.
The FDA continues to regulate products after they have been approved. For
example, the FDA and, in certain instances, the Federal Trade Commission,
regulate the labeling and promotion of approved
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products. The FDA also requires that we report certain adverse events involving
our products. In addition, the FDA can impose other post-marketing controls on
us and our products.
Failure to comply with regulatory requirements can result in warning letters,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, refusal or withdrawal of approvals and
criminal prosecution of our company and employees.
EU REGULATION--APPROVAL OF THERAPEUTIC PRODUCTS
Before clinical trials and marketing of our products in the EU begin, EU
regulatory approval must be obtained, regardless of FDA approval. The approval
procedure varies in each Member State, and the time required may be different
from that required for FDA approval.
Under EU law, there are two procedures for the approval of therapeutic products.
The first is a centralized approval procedure, administered by the European
Agency for the Evaluation of Medicinal Products , or the EMEA. The second is a
decentralized approval procedure, which requires approval by the Medicines
Agency in each Member State where our therapeutic products will be marketed.
Once a product has been approved by one Member State, the product is eligible
for expedited review by other Member States. The centralized approval procedure
is mandatory for certain biological products and may be applicable to our
products. We believe that approval of COC-AB, MAP-AB and ITAC will be considered
under this procedure. We believe that the approval of some of our other
products, such as, NALTREL, BUPREL and METHALiz will be considered under the
decentralized procedure. There can be no assurance that one Member State will
recognize a drug approval granted earlier by another Member State, but a
decision will be made within 90 days.
Regardless of which procedure might be used, the rigorous and lengthy steps
ordinarily required before a medicinal product may be marketed in the EU
include:
- - adequate non-clinical tests and clinical trials;
- - the submission to the EMEA or to the respective Member States' Medicines
Agencies of an application for a marketing authorization, supported by all
necessary documents and test results; and
- - approval of the application, including approval of all product labeling and
packaging, by the European Commission and/or the relevant Medicines Agencies
in each Member State.
- - In the EU, there is no "fast track" review process to for expedited
regulatory approval.
In all cases, the safety, effectiveness and quality of our product candidates
must be demonstrated according to demanding criteria under EU and US rules. Our
non-clinical tests and clinical trials performed in the US may not be recognized
and accepted by the regulatory authorities in the EU. Pre-clinical tests in the
EU must be conducted by laboratories that comply with Good Laboratory Practice,
and clinical trials must be conducted in accordance with specific national Good
Clinical Practices. Moreover, many Member States require compliance with
principles of Good Manufacturing Practices in the manufacture of products
intended for use in clinical trials. The complex array of national requirements
for clinical trials conducted in the EU may delay regulatory approvals.
After receiving pre-marketing approval we will have to comply with rules in the
Member States relating to the labeling and advertising of our products.
Even if regulatory authorities approve our product candidates, our products and
our facilities, including facilities located outside the EU, may be subject to
ongoing testing, review and inspections by EU health regulatory authorities.
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Failure to comply with EU regulatory requirements can result in, among other
things, warning letters, fines, injunctions, civil penalties, recall orders or
seizure of products, total or partial suspension of production, refusal or
withdrawal of approvals and criminal prosecution of us and our employees.
DEA REGULATION
Some components of our current product candidates are regulated as controlled
substances by the Drug Enforcement Agency, or DEA. The active ingredient in
METHALiz is currently classified on Schedule II (signifying, among other things,
a high potential for abuse) and the active ingredient in BUPREL is currently
classified as Schedule V (signifying, among other things, a lower potential for
abuse). In addition, the active ingredient in ITAC is derived from a substance
classified on Schedule II and may itself be regulated as a Schedule II
substance.
As controlled substances, the handling of these ingredients, and the
manufacture, shipment, storage, sale, and use of finished products containing
these ingredients, are subject to the highest degree of regulation and
accountability by DEA. The amount of controlled substances we can obtain for
clinical trials and for commercial distribution is limited by the DEA and may
not be sufficient to complete clinical trials or meet commercial demand.
Moreover, DEA may, in the future, seek to regulate other active ingredients in
our product candidates as controlled substances. DEA restrictions on the
controlled substances used in our products, or on the marketing of our products
containing those controlled substances, could significantly limit the sales of
our products, resulting in a material adverse impact on our financial
performance.
REGULATION OF CONTROLLED SUBSTANCES IN THE EUROPEAN UNION
EU regulations govern trade in controlled substances between the EU and third
countries, and may adversely affect the manufacture, clinical testing, shipment,
storage, sale and use of certain active ingredients contained in our products or
our products themselves. EU regulations impose a specific system of monitoring
trade in controlled substances, including licensing and registration
requirements, pre-notification of consignments of certain controlled substances,
prohibitions of certain operations, and a variety of record keeping, labeling
and security requirements. Enforcement actions for non-compliance with
regulations include fines and/or criminal sanctions.
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SCIENTIFIC ADVISORY BOARD
We have established a scientific advisory board made up of leading scholars in
the field of addiction science. Members of our scientific advisory board consult
with us on matters relating to the development of our products described
elsewhere in this prospectus. Members of our Scientific Advisory Board are
reimbursed for reasonable out-of-pocket expenses they incur in connection with
board meetings. Some of the members may also receive options to purchase shares
of our common stock. The members of the scientific advisory board are as
follows:
<TABLE>
<CAPTION>
ADVISOR INSTITUTION
- -----------------------------------------------------------------------------------------------
<S> <C>
Walter Ling, MD, Chairman University of California, Los Angeles
Jean Ades, MD Louis Mourier Hospital, Paris
Dominique Blanchard, PhD Establissement de Transfusion
Sanguine, Nantes
Herve Galons, PhD University of Paris V, Paris
Kim D. Janda, PhD The Scripps Research Institute, La
Jolla
Reese Jones, MD University of California, San
Francisco
George Koob, PhD The Scripps Research Institute, La
Jolla
Charles O'Brien, MD University of Pennsylvania,
Philadelphia
Jean-Marc Rouzioux, MD, PhD, LD Aventis Pasteur, Lyon
</TABLE>
EMPLOYEES
As of March 6, 2000, we employed 19 persons, four of whom hold PhD or MD degrees
and one who holds another advanced degree. Approximately seven employees are
engaged in management or administration, one in business development, one in
finance, one in marketing and sales, one in regulatory affairs and quality
assurance, and six are involved in research and clinical development. Our
success will depend in large part upon our ability to attract and retain
employees. We face competition in this regard from other companies, research and
academic institutions, government entities and other organizations. We believe
that we maintain good relations with our employees.
FACILITIES
We sublease an office facility in Menlo Park, California that is approximately
1,500 square feet for $4,500.00 per month that we use as our headquarters and as
the base for our operations. The sublease expires on September 30, 2000. We rent
laboratory space in Paris, France and also intend to lease a facility in Paris
that is approximately 1,700 square feet. Under the terms of this lease, we will
pay rent of approximately $3,400 per month beginning July 1, 2000. We believe
that our current facilities will be adequate to meet our near-term space
requirements. We also believe that suitable additional space will be available
to us, when needed, on commercially reasonable terms.
ORGANIZATION
We were incorporated in the state of California in 1993. We have a wholly-owned
subsidiary, DrugAbuse Sciences, SAS, incorporated under the laws of France.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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Management
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Set forth below is the name, age, position and a brief account of the business
experience of each of our executive officers, directors and key employees as of
March 1, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND KEY
EMPLOYEES
Philippe Pouletty, MD..................... 41 Chairman of the Board and Chief Executive
Officer
Elizabeth M. Greetham..................... 50 Chief Financial Officer, Senior Vice
President, Business Development and Director
James W. Elder............................ 47 Senior Vice President, Marketing and Sales
Jason A. Gross, PharmD.................... 35 Vice President, Regulatory Affairs and
Quality Assurance
Maryvonne Hiance.......................... 51 General Manager of European Operations
Jacques Kusmierek, MD..................... 57 Deputy General Manager of European
Operations, Senior Vice President European
Development
David E. Smith, MD........................ 60 Medical Director and Director
Donald R. Wesson, MD...................... 58 Vice President, Clinical Development
Raffy Kazandjian(2)....................... 40 Director
Fred P. Phillips IV(2).................... 35 Director
Russell Ricci(1).......................... 53 Director
Gordon Russell(2)......................... 66 Director
Vincent Worms(1).......................... 47 Director
</TABLE>
- ---------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
PHILIPPE POULETTY, MD Dr. Pouletty is our founder and has served as our
Chairman of the Board since 1993 and chief executive officer since December
1999. In 1988, Dr. Pouletty founded SangStat Medical Corporation (NASDAQ: SANG),
the only specialty pharmaceutical company dedicated to organ transplantation
which received FDA approval for two new drugs in 1998. Dr. Pouletty served as
President, CEO and a director of SangStat from 1988 to 1995. From 1995 to 1998
he served as Chairman and CEO and is presently the Chairman. He is also a member
of the board of Conjuchem, a private biotechnology company. Before founding
SangStat, Dr. Pouletty co-founded Clonatec, a French biotechnology company,
where he was the director of research from 1984 to 1988. From 1981 to 1984,
Dr. Pouletty was Interne des Hospitaux de Paris and practiced hematology and
immunology at two of Paris' leading hospitals. He is the inventor of 22 issued
US patents, co-author of 41 published scientific papers and a member of the
American Society of Addiction Medicine. Dr. Pouletty received his M.D. degree
from the University of Paris VI and immunology and virology degrees (M.S.) at
Institut Pasteur. He was a post-doctoral fellow at Stanford University in the
Department of Medical Microbiology and Immunology.
ELIZABETH M. GREETHAM Ms. Greetham joined us in 1998 as a member of the board
of directors and in April 1999 assumed the position of Chief Financial Officer
and Senior Vice President, Business Development. From 1988 to 1999,
Ms. Greetham was a portfolio manager for Weiss, Peck & Greer,
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an institutional investment management firm. She managed the WPG Life Sciences
Funds, L.P., which invested in select biotechnology stocks. Prior to that,
Ms. Greetham was a consultant to F. Eberstadt & Co. She has over 25 years of
investment experience as a portfolio manager and health care analyst in the
United States and Europe. She is a member of the Board of Directors of Guilford
Pharmaceuticals, SangStat Medical Corporation, PathoGenesis Corporation and
CliniChem Development Inc., all publicly traded companies. Ms. Greetham earned
an MA (Hons.) from the University of Edinburgh, Scotland.
JAMES W. ELDER Mr. Elder joined us in January 2000, to become our Senior Vice
President, Marketing and Sales. For the past twenty-one years, he has held
numerous management positions at Mallinckrodt Incorporated, a pharmaceutical
company that manufactures controlled substances in bulk. Mr. Elder was most
recently Business Director of the Addiction Treatment Business Unit, where he
was responsible for developing products and services for addiction treatment
clinics, including a methadone clinic computer, sales of methadone and
naltrexone pharmaceuticals and bulk methadone, and retail sales of generic
analgesics. Other positions held by Mr. Elder at Mallinkrodt include Marketing
Manager of the Pharmaceutical Dosage Products and Drug Chemicals Divisions,
Quality Assurance Manager, and Senior Business Manager. Prior to joining
Mallinckrodt, Mr. Elder worked as a Research Chemist for the Protein Research
Division of Ralston Purina. Mr. Elder earned an MBA at the Southern Illinois
University and received his Bachelor of Arts in Chemistry from the University of
Missouri-Columbia.
JASON A. GROSS, PHARMD Mr. Gross joined us in January 2000 to become our Vice
President, Regulatory Affairs and Quality Assurance. From 1997 until 2000, he
was the director of State, Federal and International regulatory affairs at
Zenith/Goldline Pharmaceuticals, a subsidiary of IVAX Corporation. From 1992 to
1997 Dr. Gross was an officer in the Public Health Service assigned to the Food
and Drug Administration, Center for Drug Evaluaion and Research (CDER). He
served in various regulatory capacities including Chief Consumer Safety Officer
for the Office of Generic Drugs; Division of Bioequivalence, Manager of the
Domestic Preapproval Inspection Process and was assigned to the Office of the
Commissioner at the US Food and Drug Administration, to work on issues
associated with the tobacco initiative and homeopathic medications. Dr. Gross
studied Marketing and Management at Pima Community College and received his
Doctor of Pharmacy from the University of Arizona, after which he completed a
post Doctorate specialized residency in Ambulatory Care at the National
Institutes of Health.
MARYVONNE HIANCE Ms. Hiance joined us as General Manager of our European
operations in 1997. She served as President of Sangstat Atlantique, Sangstat's
European subsidiary from 1990 to 1992. She was co-founder from 1991 to 1996, of
Demeter Innovation, a French consulting company where she was manager from 1991
to 1993. Ms. Hiance was General Manager of Strategic Ventures, a company focused
on organizing and financing the international growth of European companies, from
1993 to 1997. She holds an Engineering degree from the 'Ecole Polytechnique
Feminine', Paris and a Nuclear Engineering degree from the 'Institut des
Sciences et Techniques', Grenoble.
JACQUES KUSMIEREK, MD Dr. Kusmierek joined us in January 2000 as Deputy General
Manager of European Operations and Senior Vice President of European
Development. From 1990 to 1999, he served in several positions at Sanofi
Pharmaceuticals in Paris, France. From 1996 to 1999 he served as Vice President
and Chief Executive Medical Officer of Human Health Worldwide, where he was
responsible for establishing the new Medical Affairs division which included
Health Economics and Outcome Research, Pricing and Reimbursement. From 1990 to
1996 he was Executive Vice President of Research and Director of International
Clinical Development, a division he started and managed for six years.
Dr. Kusmierek has held medical director and clinical research positions at Eli
Lilly, Rhone
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MANAGEMENT
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Poulenc and Boehringer Ingelheim in both the US and Europe. Dr. Kusmierek
received his M.D. degree from the University of Rene Descartes in Paris, France.
He is a board-certified cardiologist and completed additional training in
clinical pharmacology at the University of Pierre and Marie Curie.
DAVID E. SMITH, MD Dr. Smith is our Medical Director and a member of our
Scientific Advisory Board, positions he has held since 1998. Dr. Smith founded
the Haight Ashbury Free Clinics in the San Francisco area in 1967 and has been
the President and Medical Director from inception. He serves as medical director
for several organizations including the California State Department of Alcohol
and Drug Programs at the University of California in San Francisco (UCSF). Dr.
Smith has been an author and advisor of more than 300 articles, books, and films
and has been an investigator in numerous clinical trials of addiction
treatments. He served as President of the American Society of Addiction Medicine
(ASAM) from 1995 to 1997 and also served as President of the California Society
of Addiction Medicine (CSAM). He is also a member of the Clinical Review Board
for the National Institute on Drug Abuse (NIDA). In 1967, Dr. Smith founded the
Journal of Psychoactive Drugs, where he currently serves as Executive Editor.
Dr. Smith received a M.S. in pharmacology and his M.D. from the University of
California, San Francisco.
DONALD R. WESSON, MD Dr. Wesson joined us in January 1998 as a member of our
Scientific and Medical Advisory Board, and in October 1999 he was appointed Vice
President, Clinical Development. Dr. Wesson has been the Scientific Director of
Friends Research Associates in Berkeley, California, a collaborative group of
researchers dedicated to expanding the treatment options for addiction care. He
has been the principal investigator for 11 clinical trials sponsored by the
National Institute on Drug Abuse (NIDA), and 10 clinical trials sponsored by the
pharmaceutical industry. Since 1997, Dr. Wesson has served as the Chairman of
the American Society of Addiction Medicine's (ASAM) Medications Development
Committee. He has written more than 100 articles, book chapters, and books
concerning drug abuse and its treatment and is on the editorial board of several
journals including the Journal of Psychoactive Drugs and the Journal of
Addictive Diseases. Dr. Wesson received his M.D. at the Medical College of
Alabama and is a board-certified psychiatrist.
RAFFY KAZANDJIAN Mr. Kazandjian joined our board of directors in March 1998. He
is currently the Investment Director at CDC-Innovation, a venture-capital firm
he joined in 1996. He has extensive knowledge in the area of life sciences
investments and information technology. Mr. Kazandjian currently serves on the
boards of directors of several European and North American pharmaceutical and
biotechnology and internet companies, including Thallia Pharmaceuticals,
Neurotech, and Quantum Biotechnologies. Mr. Kazandjian is a graduate of
Massachusetts Institute of Technology, with an MBA from INSEAD in Paris, and
started his career with the P&G Company.
FRED P. PHILLIPS IV Mr. Phillips joined our Board of Directors in
October 1999. Since November 1997, Mr. Phillips has invested in technology
companies on behalf of ABN AMRO NV, an investment firm in the Netherlands.
Mr. Phillips is presently a director of several privately held technology
companies in the United States and Europe. Mr. Phillips holds a B.S. in
economics from Cornell University, a M.St. in philosophy from Oxford University,
and a J.D. from Yale University.
RUSSELL J. RICCI, MD Dr. Ricci joined our board of directors in January 2000
and is the General Manager of IBM's Healthcare Industry leading a team
developing information technology and e-business solutions to payors, providers
and pharmaceutical companies. Prior to joining IBM, he held a number of
executive and clinical positions with other organizations, including Voluntary
Hospitals of America (VHA), and New Health Ventures at Blue Cross and Blue
Shield of Massachusetts, where he served as President. Dr. Ricci received his
M.D. from Harvard University and is a former associate chairman and assistant
clinical professor at Boston University School of Medicine.
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MANAGEMENT
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GORDON RUSSELL Mr. Russell joined our board of directors in December 1998, and
was formerly a general partner at Sequoia Capital, a venture capital firm he
joined in 1979. At Sequoia he developed the partnership's original healthcare
investments in companies such as Acuson, Ventritex, SangStat Medical
Corporation, and Biotrack. Mr. Russell is a Chairman of Fusion Medical
Technologies, a publicly traded company. He is a Chairman of the Board of
Overseers of the Dartmouth Medical School and the C. Everett Koop Institute at
Dartmouth. He also sits on the Board of Trustees of the Palo Alto Medical
Foundation. Mr. Russell has an A.B. in History from Dartmouth College.
VINCENT WORMS Mr. Worms joined our board of directors in July 1994, and is
currently a General Partner at Partech International a venture capital firm he
jointly founded in 1982. His 17 years of investment experience have been
concentrated in the computer and CAD/CAE areas, and now predominantly in the
software industry. Mr. Worms is presently a director of Business Objects,
SangStat Medical Corporation, Visioneer and Informatica. He has a MS in Civil
Engineering from the Massachusetts Institute of Technology and a MS in
engineering from Ecole Polytechnique in Paris.
BOARD OF DIRECTORS
We currently have authorized eight directors. All of our officers serve at the
discretion of the board of directors. There are no family relationships among
our directors and officers.
BOARD COMMITTEES
The compensation committee of the board of directors reviews and makes
recommendations to the board regarding all forms of compensation provided to our
executive officers and directors, including stock compensation and loans. In
addition, the compensation committee reviews and makes recommendations on bonus
and stock compensation arrangements for all of our employees. As part of these
responsibilities, the compensation committee also administers our 2000 Stock
Incentive Plan, 2000 Employee Stock Purchase Plan and 2000 Directors' Option
Plan. The current members of the compensation committee are Vincent Worms and
Russell Ricci.
The audit committee of the board of directors reviews and monitors our corporate
financial reporting and our external audits, the results and scope of the annual
audit and other services provided by our independent auditors and our compliance
with legal matters that have a significant impact on our financial reports. The
audit committee also consults with management and our independent auditors
before the presentation of financial statements to shareholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee has the responsibility to consider and recommend
the appointment of, and to review fee arrangements with, our independent
auditors. The current members of the audit committee are Fred Phillips, Gordon
Russell, and Raffy Kazandjian.
DIRECTOR COMPENSATION
We do not currently provide our directors with cash compensation for their
services as members of the board of directors, although members are reimbursed
for some expenses in connection with attendance at board and committee meetings.
On December 15, 1999, all non-employee directors, including Gordon Russell,
David Smith, Vincent Worms, Raffy Kazandijian, Fred Phillips, and Russell Ricci
were granted a stock option for 33,333 shares at $0.45. The directors will vest
in 25% of the shares subject to their options after 12 months of continuous
service as directors after their grant date; the remaining shares vest equally
over the next 36 months of continuous service. Following this offering,
directors will receive automatic option grants under our 2000 Directors' Option
Plan. A non-employee director who first joins our board following the offering
will receive an option for 20,000 shares of our common stock. Twenty-five
percent of the shares subject to this initial option vest after 12 months of
continuous service as a director; the remaining shares vest equally over the
next 36 months of
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<PAGE>
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continuous service. At each annual meeting of shareholders, beginning in 2001,
all non-employee directors who will continue to be board members after the
annual meeting will receive an option for 5,000 shares of our common stock,
which will vest after 12 months of continuous service after the grant date. In
no event will a non-employee director receive an option for 5,000 shares in the
same calendar year that he or she receives the option for 20,000 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Vincent Worms and Russell Ricci. No interlocking relationship exists between any
member of our board of directors or our compensation committee and any member of
the board of directors or compensation committee of any other company, and no
interlocking relationship has existed in the past, except that Elizabeth
Greetham and Vincent Worms serve on the compensation committee of SangStat
Medical Corporation, a publicly traded company, in which Philippe Pouletty
serves as the Chairman of the Board.
EXECUTIVE COMPENSATION
The following table presents information on compensation for fiscal year 1999
paid by us for services by our current chief executive officer, our former chief
executive officer, and our executive officers, collectively referred to as the
Named Executive Officers.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) AWARDS ($) OPTIONS(#)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Philippe Pouletty, M.D.... -- -- -- -- 726,656
Chairman of the Board,
Chief Executive Officer
and President
Elizabeth M. Greetham..... -- -- -- 2,200 480,553
Chief Financial Officer,
Senior Vice President,
Business Development and
Director
James W. Elder(1)......... -- -- -- -- --
Senior Vice President,
Marketing and Sales
Maryvonne Hiance.......... 60,000 -- -- -- 25,000
General Manager of
European Operations
Stanley Kaplan, Ph.D.(2)... 175,000 8,033 36,526 -- --
Former Chief Executive
Officer and Former
President
</TABLE>
- ---------
(1) MR. JAMES W. ELDER BEGAN SERVING AS OUR SENIOR VICE PRESIDENT, MARKETING AND
SALES ON JANUARY 19, 2000.
(2) DR. KAPLAN CEASED TO SERVE AS CHIEF EXECUTIVE OFFICER AS OF DECEMBER 26,
1999. HE CONTINUED TO SERVE AS PRESIDENT UNTIL DECEMBER 31, 1999.
DR. KAPLAN CURRENTLY PROVIDES CONSULTING SERVICES AND WILL PROVIDE THESE
SERVICES UNTIL APRIL 9, 2000. OTHER ANNUAL COMPENSATION FOR MR. KAPLAN
INCLUDES A SEVERANCE PAYMENT OF $30,834 AND $5,692 IN ACCRUED VACATION.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options we granted during fiscal year
1999 to each of our Named Executive Officers. Generally these stock options are
immediately exercisable. We have the right to repurchase all unvested shares at
the original exercise price if the optionee's service terminates. Each of the
options has a ten-year term, subject to earlier termination if the optionee's
service terminates.
The percentages in the column entitled "Percent of total options granted to
employees in 1999" are based on an aggregate of 1,721,210 options granted under
the 1994 Stock Plan, the 1999 Stock Plan A, and the 1999 Stock Plan B during the
12 months ended December 31, 1999.
The amounts listed in the following table under the heading "Exercise price"
were valued by our board of directors on the date of grant. In determining this
fair market value, the board of directors took into account the purchase price
paid by investors for shares of our preferred stock (taking into account the
liquidation preferences and other rights, privileges and preferences associated
with such preferred stock) and an evaluation by the board of directors of our
revenues, operating history and prospects. The exercise price may be paid in
cash, in shares of our common stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of the
purchased shares. We may also finance the option exercise by lending the
optionee sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with the exercise.
We calculated the amounts listed in the following table under the heading
"Potential realizable value at assumed annual rates of stock price appreciation
for option term" based on the ten-year term of the option at the time of grant.
For purposes of these columns, we assumed stock price appreciation of 5% and 10%
pursuant to rules promulgated by the Securities and Exchange Commission. These
rates do not represent our prediction of our stock price performance. We
calculated the potential realizable values at 5% and 10% appreciation by
assuming that the estimated fair market value on the date of grant appreciates
at the indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price. Information on how we determined the fair market value of our
common stock is disclosed in the preceding paragraph. The price to the public in
this offering is higher than the estimated fair market value on the date of
grant. Therefore, the potential realizable value of the option grants would be
significantly higher than the
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numbers shown in the column if future stock prices were projected to the end of
the option term by applying the same annual rates of stock price appreciation to
the public offering price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OPTION TERM
OPTIONS TO EMPLOYEES PRICE EXPIRATION (IN THOUSANDS)
NAME GRANTED (#) IN 1999 ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Philippe Pouletty, M.D...... 106,709(1) 6.20% $0.30 09/27/2009 $20,133 $51,020
619,947(2) 36.02 0.45 12/14/2009 175,447 444,616
Elizabeth M. Greetham....... 108,585(3) 6.31 0.30 04/06/2009 20,487 51,917
371,968(4) 12.61 0.45 12/14/2009 105,268 266,770
James Elder................. -- -- -- -- -- --
Maryvonne Hiance............ 25,000(5) 1.45 0.30 07/12/2009 4,717 11,953
Stanley Kaplan, PhD......... -- -- -- -- -- --
</TABLE>
- ---------
(1) DR. POULETTY'S OPTION GRANT VESTS 25% UPON COMPLETION OF 12 MONTHS OF
SERVICE FROM THE VESTING START DATE AND THE BALANCE EQUALLY OVER THE NEXT
36 MONTHS OF SERVICE. THIS OPTION WILL BECOME FULLY VESTED UPON A CHANGE IN
CONTROL BEFORE DR. POULETTY'S SERVICE TERMINATES.
(2) DR. POULETTY'S OPTION GRANT VESTS FOR 30% OF THE SHARES EQUALLY OVER 36
MONTHS OF SERVICES AND FOR 70% AT THE END OF HIS SIXTH YEAR OF SERVICE, WITH
POTENTIAL VESTING ACCELERATION UPON THE ATTAINMENT OF SPECIFIC MILESTONES.
THIS OPTION WILL BECOME FULLY VESTED UPON A CHANGE IN CONTROL.
(3) MS. GREETHAM'S OPTION GRANT VESTS AT THE END OF HER SIXTH YEAR OF SERVICE,
WITH POTENTIAL VESTING ACCELERATION UPON THE ATTAINMENT OF SPECIFIC
MILESTONES.
(4) MS. GREETHAM'S OPTION GRANT VESTS AT THE END OF HER SIXTH YEAR OF SERVICE,
WITH POTENTIAL VESTING ACCELERATION UPON THE ATTAINMENT OF SPECIFIC
MILESTONES. THIS OPTION WILL BECOME PARTIALLY VESTED UPON A CHANGE IN
CONTROL.
(5) MS. HIANCE'S OPTION GRANT VESTS AS FOLLOWS: 25% OF THE SHARES VEST EQUALLY
OVER FOUR YEARS AND THE BALANCE AT THE END OF HER SIXTH YEAR OF SERVICE,
WITH ACCELERATION UPON THE ATTAINMENT OF SPECIFIC MILESTONES.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table sets forth for each of our Named Executive Officers the
number of options exercised during the fiscal year ended December 31, 1999 and
the number and value of securities underlying unexercised options that are held
by the Named Executive Officers as of December 31, 1999. No stock appreciation
rights were exercised by our Named Executive Officers in fiscal year 1999, and
no stock appreciation rights were outstanding at the end of that year.
The numbers in the column entitled "Value Realized" are equal to the fair market
value of the purchased shares on the option exercise date, less the exercise
price paid for such shares. Generally, these stock options are immediately
exercisable. We have the right to repurchase all unvested option shares at the
original exercise price if the optionee's service terminates. The heading
"Vested" refers to shares no longer subject to our right of repurchase; the
heading "Unvested" refers to shares subject to our right of repurchase as of
December 31, 1999.
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The numbers in the column entitled "Value of unexercised in-the-money options at
December 31, 1999" are based on the value of our common stock at December 31,
1999, as determined by our board of directors, $0.45, less the exercise price
payable or paid for such shares. The fair market value of our common stock at
December 31, 1999 was estimated by the board of directors on the basis of the
purchase price paid by investors for shares of our preferred stock (taking into
account the liquidation preferences and other rights, privileges and preferences
associated with the preferred stock) and an evaluation by the board of our
revenues, operating history and prospects. The price to the public in this
offering is higher than the estimated fair market value at December 31, 1999.
Consequently, the value of unexercised options would be higher than the numbers
shown in the table if the value were calculated by subtracting the option
exercise price from the public offering price.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, DECEMBER 31,
ACQUIRED ON VALUE 1999 (#) 1999 ($)
NAME EXERCISE (#) REALIZED ($) VESTED UNVESTED VESTED UNVESTED
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Philippe Pouletty, M.D....... 726,656 16,006 -- -- -- --
Elizabeth M. Greetham........ 480,553 16,288 -- -- -- --
James Elder.................. -- -- -- -- -- 0
Maryvonne Hiance............. -- -- 10,417 39,583 260 990
Stanley Kaplan, PhD.......... 48,684 7,303 -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS, SEVERANCE AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
As a condition to employment, each employee must execute our Employee
Confidentiality Information and Inventions Agreement. In addition, all of our
current employees have entered into arrangements with us which contain
restrictions and covenants. These provisions include covenants relating to the
protection of our confidential information, the assignment of inventions, and
restrictions on competition and soliciting our clients, employees, or
independent contractors. None of our US employees are employed for a specified
term, and each employee's employment with us is subject to termination at any
time by either party for any reason, with or without cause. Our French employees
are also at-will employees but are subject to the employment laws of France,
including notice provisions and other restrictions regulating the termination of
employment.
We have entered into an agreement dated December 26, 1999, with Dr. Stanley
Kaplan, our former Chief Executive Officer and President. On his termination
date, December 31, 1999, we paid Dr. Kaplan $30,834, which was equal to two
months of his base salary, and $5,692, which represented his accrued vacation.
In addition, the severance agreement confirms that Dr. Kaplan is vested in
48,683 shares of the 182,562 shares under his stock option granted September 8,
1998. Dr. Kaplan will provide us with consulting services from January 10, 2000
until April 9, 2000, for a salary of $7,800 per month for 20 hours of work per
week.
We have entered into an employment agreement dated December 27, 1999, with James
W. Elder, our Senior Vice President, Marketing and Sales, North America, which
provides for an initial annual base salary of $140,000 and a potential bonus of
up to 25% of base salary subject to meeting specific milestones and
participation in our employee benefit plans. We will pay reasonable moving
expenses, up to $20,000. If Mr. Elder is terminated without cause during the
first five years with us and if the total value of Mr. Elder's vested stock
options is lower than $140,000, we will pay Mr. Elder six months of severance
payments equal to his starting monthly salary. These payments will cease before
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the end of the six months if Mr. Elder accepts a new full time position or the
value of his vested options exceeds $140,000. If Mr. Elder is terminated without
cause after the fifth anniversary of employment, we will pay Mr. Elder a
severance of two months salary.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with each of our directors
and officers that would require us to indemnify them against liabilities that
may arise by reason of their status or service as directors or officers and to
advance their expenses incurred as a result of any proceeding against them.
However, we will not indemnify directors or officers with respect to liabilities
arising from willful misconduct of a culpable nature. For more information
concerning these agreements, see "Description of securities--limitation of
liabilities and indemnification matters."
STOCK PLANS
2000 STOCK INCENTIVE PLAN
SHARE RESERVE
Our board of directors adopted our 2000 Stock Incentive Plan on January 13,
2000, subject to shareholder approval. We have reserved 750,000 shares of our
common stock for issuance under the 2000 Stock Incentive Plan. Any shares not
yet issued under our 1994 Stock Plan and 1999 Stock Plans on the date of this
offering will also be available under the 2000 Stock Incentive Plan. On
January 1 of each year, starting with the year 2001, the number of shares in the
reserve will automatically increase by 6% of the total number of shares of
common stock that are outstanding at that time or by 2,000,000 shares, whichever
is less. In general, if options or shares awarded under the 2000 Stock Incentive
Plan or the 1994 or 1999 Stock Plans are forfeited, then those options or shares
will again become available for awards under the 2000 Stock Incentive Plan. We
have not yet granted any options under the 2000 Stock Incentive Plan.
ADMINISTRATION
The compensation committee of our board of directors administers the 2000 Stock
Incentive Plan. The committee has the complete discretion to make all decisions
relating to the interpretation and operation of our 2000 Stock Incentive Plan.
The committee has the discretion to determine who will receive an award, what
type of award it will be, how many shares will be covered by the award, what the
vesting requirements will be (if any), and what the other features and
conditions of each award will be. The compensation committee may also reprice
outstanding options and modify outstanding awards in other ways.
ELIGIBILITY
The following groups of individuals are eligible to participate in the 2000
Stock Incentive Plan:
- - Employees;
- - Members of our board of directors who are not employees; and
- - Consultants.
TYPES OF AWARD
The 2000 Stock Incentive Plan provides for the following types of awards:
- - Incentive stock options to purchase shares of our common stock;
- - Nonstatutory stock options to purchase shares of our common stock; and
- - Restricted shares of our common stock.
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OPTIONS
An optionee who exercises an incentive stock option may qualify for favorable
tax treatment under Section 422 of the Internal Revenue Code of 1986.
Nonstatutory stock options, however, do not qualify for such favorable tax
treatment. The exercise price for incentive stock options granted under the 2000
Stock Incentive Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. In the case of nonstatutory stock
options, the minimum exercise price is 50% of the fair market value of our
common stock on the option grant date. Optionees may pay the exercise price by
using:
- - Cash;
- - Shares of common stock that the optionee already owns;
- - A full-recourse promissory note;
- - An immediate sale of the option shares through a broker designated by us; or
- - A loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee. In
most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
2000 Stock Incentive Plan provides that no participant may receive options
covering more than 1,000,000 shares in the same year, except that a newly hired
employee may receive options covering up to 2,000,000 shares in the first year
of employment.
RESTRICTED SHARES
Restricted shares may be awarded under the 2000 Stock Incentive Plan in return
for:
- - Cash;
- - A full-recourse promissory note; or
- - Services provided to us.
Restricted shares vest at the time or times determined by the compensation
committee.
CHANGE IN CONTROL
If a change in control of DrugAbuse Sciences occurs, an option or restricted
stock award under the 2000 Stock Incentive Plan may vest on an accelerated basis
to the extent determined by the compensation committee. The compensation
committee may determine that outstanding grants will vest in full or in part at
the time of the change in control. It may also determine that the grants will
vest on an accelerated basis only if the participant is actually or
constructively discharged within a specified period of time after the change in
control. Finally, the committee may determine that the grants will remain
outstanding without acceleration of vesting. However, if the surviving
corporation fails to assume an outstanding option or replace it with a
comparable option, then the option will always become fully vested as a result
of the change in control. A change in control includes:
- - A merger of DrugAbuse Sciences after which our own shareholders own 50% or
less of the surviving corporation (or its parent company);
- - A sale of all or substantially all of our assets;
- - A proxy contest that results in the replacement of more than one-half of our
directors over a 24-month period; or
- - An acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to our company (such as a holding company
owned by our shareholders).
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62
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
AMENDMENTS OR TERMINATION
Our board may amend or terminate the 2000 Stock Incentive Plan at any time. If
our board amends the plan, it does not need to ask for shareholder approval of
the amendment unless applicable law requires it. The 2000 Stock Incentive Plan
will continue in effect for 10 years, unless the board decides to terminate the
plan earlier.
2000 EMPLOYEE STOCK PURCHASE PLAN
SHARE RESERVE AND ADMINISTRATION
Our board of directors adopted our 2000 Employee Stock Purchase Plan on
January 13, 2000, subject to shareholder approval. Our 2000 Employee Stock
Purchase Plan is intended to qualify under Section 423 of the Internal Revenue
Code. We have reserved 375,000 shares of our common stock for issuance under the
plan. On May 1 of each year, starting with the year 2001, the number of shares
in the reserve will automatically be restored to 375,000. In other words, the
reserve will be increased by the number of shares that have been issued under
the 2000 Employee Stock Purchase Plan during the prior 12-month period. The plan
will be administered by the compensation committee of our board of directors.
ELIGIBILITY
All of our employees are eligible to participate if they are employed by us for
more than 20 hours per week and for more than five months per year. Eligible
employees may begin participating in the 2000 Employee Stock Purchase Plan at
the start of any offering period. Each offering period lasts 24 months.
Overlapping offering periods start on May 1 and November 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on April 30, 2002.
AMOUNT OF CONTRIBUTIONS
Our 2000 Employee Stock Purchase Plan permits each eligible employee to purchase
common stock through payroll deductions. Each employee's payroll deductions may
not exceed 15% of the employee's salary and commissions. Purchases of our common
stock will occur on April 30 and October 31 of each year. Each participant may
purchase up to 2,000 shares on any purchase date (4,000 shares per year). But
the value of the shares purchased in any calendar year (measured as of the
beginning of the applicable offering period) may not exceed $25,000.
PURCHASE PRICE
The price of each share of common stock purchased under our 2000 Employee Stock
Purchase Plan will be 85% of the lower of:
- - The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
- - The fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the plan
will be 85% of the lower of:
- - The price per share to the public in this offering, or
- - The fair market value per share of common stock on the purchase date.
OTHER PROVISIONS
Employees may end their participation in the 2000 Employee Stock Purchase Plan
at any time. Participation ends automatically upon termination of employment
with DrugAbuse Sciences. If a change in control of DrugAbuse Sciences occurs,
our 2000 Employee Stock Purchase Plan will end and shares will be purchased with
the payroll deductions accumulated to date by participating employees, unless
the plan is assumed by the surviving corporation or its parent. Our board of
directors may
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63
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
amend or terminate the plan at any time. If our board increases the number of
shares of common stock reserved for issuance under the plan (except for the
automatic increases described above), it must seek the approval of our
shareholders. The 2000 Employee Stock Purchase Plan will continue in effect for
10 years, unless the board decides to terminate the plan earlier.
2000 DIRECTORS' OPTION PLAN
SHARE RESERVE
Our board of directors adopted our 2000 Directors' Option Plan on January 13,
2000, subject to shareholder approval. We have reserved 200,000 shares of our
common stock for issuance under the plan. On January 1 of each year, starting
with the year 2001, the number of shares in the reserve will automatically be
restored to 200,000. In other words, the reserve will be increased by the number
of shares that have been optioned under the 2000 Directors' Option Plan during
the prior 12-month period. In general, if options granted under the 2000
Directors' Option Plan are forfeited, then those options will again become
available for grants under the plan. The Directors' Option Plan will be
administered by the compensation committee of our board of directors, although
all grants under the plan are automatic and non-discretionary.
INITIAL GRANTS
Only the non-employee members of our board of directors will be eligible for
option grants under the 2000 Directors' Option Plan. Each non-employee director
who first joins our board after the effective date of this offering will receive
an initial option for 20,000 shares. That grant will occur when the director
takes office. The initial options vest in equal monthly installments over the
four-year period following the date of grant, except that all vesting for the
first year occurs at the close of that year.
ANNUAL GRANTS
At the time of each of our annual shareholders' meetings, beginning in 2001,
each non-employee director who will continue to be a director after that meeting
will automatically be granted an annual option for 5,000 shares of our common
stock. However, a new non-employee director who is receiving the 20,000-share
initial option will not receive the 5,000-share annual option in the same
calendar year. The annual options vest in full one year following the date of
grant.
OTHER OPTION TERMS
The exercise price of each non-employee director's option will be equal to the
fair market value of our common stock on the option grant date. A director may
pay the exercise price by using cash, shares of common stock that the director
already owns, or an immediate sale of the option shares through a broker
designated by us. The non-employee directors' options have a 10-year term,
except that they expire one year after a director leaves the board (if earlier).
If a change in control of DrugAbuse Sciences occurs, a non-employee director's
option granted under the 2000 Directors' Option Plan will become fully vested
(unless the accounting rules applicable to a pooling of interests preclude
acceleration). Vesting also accelerates in the event of the optionee's death or
disability.
AMENDMENTS OR TERMINATION
Our board may amend or terminate the 2000 Directors' Option Plan at any time. If
our board amends the plan, it does not need to ask for shareholder approval of
the amendment unless applicable law requires it. The 2000 Directors' Option Plan
will continue in effect for 10 years, unless the board decides to terminate the
plan.
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64
<PAGE>
- --------------------------------------------------------------------------------
Related party transactions
SALES OF SECURITIES
Since our inception in December 1993 through March 1, 2000, we have issued and
sold the following securities in private placement transactions:
- - 672,892 shares of our common stock for an aggregate price of $30,280 in
August 1994, in connection with the sale of our Series A preferred stock,
and accounting for a three for one stock split on November 15, 1994 and a
four-for-one stock split on June 14, 1996;
- - 375,556 shares of our Series A preferred stock for an aggregate price of
$499,489 in August, which accounts for a three for one stock split on
November 15, 1994 and a four-for-one stock split on June 14, 1996, resulting
in aggregate proceeds to us of $499,489;
- - 1,316,069 shares of Series B preferred stock for an aggregate price of
$3,284,995 in March 1997;
- - warrants to purchase 1,855,684 shares of our common stock in connection with
the sale of Series B preferred stock;
- - 932,456 shares of Series C preferred stock for an aggregate price of
$2,327,428 on March 1999;
- - 4,681,688 shares of Series D preferred stock for an aggregate price of
$22,314,874 on October 1999, includes the exchange of 1,849 shares of common
stock in DrugAbuse Sciences, SAS;
- - warrants to purchase 374,519 shares of Series D preferred stock in
connection with the sale of Series D preferred stock.
All preferred stock was issued to various venture capital and other
institutional investors in reliance upon exemption from registration under
Section 4(2) of the Securities Act. All shares issued upon exercise of options
were issued to employees and consultants in reliance upon exemption from
registration under Rule 701 of the Securities Act. All shares of common stock
issued to one of our executive officers were issued in reliance upon exemption
from registration under Section 4(2) of the Securities Act. None of the
institutional investors who negotiated the terms of these transactions were
affiliated with us prior to purchasing these shares.
The purchasers of more than $60,000 of these securities include, among others,
the following executive officers, directors and holders of more than 5% of our
outstanding stock and their affiliates:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF SHARES OF
SHARES OF SERIES A SERIES B SERIES C SERIES D
EXECUTIVE OFFICERS, DIRECTORS AND COMMON PREFERRED PREFERRED PREFERRED PREFERRED TOTAL
5% SHAREHOLDERS STOCK STOCK STOCK STOCK STOCK CONSIDERATION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Philippe Pouletty............ 2,906,782(1) 20,032 52,083 16,784(2) $571,648
Elizabeth M. Greetham............ 487,886 60,096 31,470(3) 502,161
Gordon Russell(4)................ 297,846(5) 71,168 50,080 80,128 41,960(6) 626,350
Partech International(7)......... 702,348(8) 179,844 300,479 122,060 270,853 2,600,432
CDC Innovation(9)................ 300,480 122,067 167,841(10) 1,854,680
ABN-Amro Venture, France(11)..... 690,296(12) 1,222,807
Nomura International PLC......... 734,306(13) 3,499,999
Parnib Belgie N.V................ 591,641(14) 2,820,000
3i Group PLC..................... 986,517(15) 4,702,137
</TABLE>
- ----------
THESE FIGURES ASSUME THE CONVERSION OF THE SHARES OF OUR FRENCH SUBSIDIARY,
DRUGABUSE SCIENCES, SAS, INTO SHARES OF OUR COMMON STOCK.
- --------------------------------------------------------------------------------
65
<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
(1) INCLUDES 880,376 SHARES OF OUR COMMON STOCK ISSUED PURSUANT TO NET EXERCISE
OF WARRANTS AT AN EXERCISE PRICE OF $0.30.
(2) EXCLUDES WARRANTS TO PURCHASE 1,342 SHARES OF OUR SERIES D PREFERRED STOCK
AT AN EXERCISE PRICE OF $0.06.
(3) EXCLUDES WARRANTS TO PURCHASE 2,517 SHARES OF OUR SERIES D PREFERRED STOCK
AT AN EXERCISE PRICE OF $0.06.
(4) CONSISTS OF: 247,526 SHARES OF COMMON STOCK, 71,168 SHARES OF SERIES A
PREFERRED STOCK, 50,080 SHARES OF SERIES B PREFERRED STOCK, 80,128 SHARES OF
SERIES C PREFERRED STOCK, 41,960 SHARES OF SERIES D PREFERRED STOCK, AND
WARRANTS TO PURCHASE 3,356 SHARES OF SERIES D PREFERRED STOCK HELD BY GORDON
W. RUSSELL, TTE RUSSELL, 1988 REVOCABLE TRUST. MR. RUSSELL, ONE OF OUR
DIRECTORS, IS THE TRUSTEE OF THE GORDON RUSSELL TRUST.
(5) INCLUDES 149,014 SHARES OF OUR COMMON STOCK ISSUED PURSUANT TO NET EXERCISE
OF WARRANTS AT AN EXERCISE PRICE OF $0.30.
(6) EXCLUDES WARRANTS TO PURCHASE 3,356 SHARES OF SERIES D PREFERRED STOCK AT AN
EXERCISE PRICE OF $0.06.
(7) CONSISTS OF:
- - 43,897 SHARES OF COMMON STOCK, 11,240 SHARES OF SERIES A PREFERRED STOCK,
9,754 SHARES OF SERIES B PREFERRED STOCK, AND 3,962 SHARES OF SERIES C
PREFERRED STOCK HELD BY MULTINVEST, AN AFFILIATE OF PARTECH INTERNATIONAL;
- - 142,660 SHARES OF COMMON STOCK, 36,530 SHARES OF SERIES A PREFERRED STOCK,
67,802 SHARES OF SERIES B PREFERRED STOCK, AND 27,538 SHARES OF SERIES C
PREFERRED STOCK HELD BY PARVEST EUROPE, AN AFFILIATE OF PARTECH
INTERNATIONAL;
- - 428,001 SHARES OF COMMON STOCK, 109,594 SHARES OF SERIES A PREFERRED STOCK,
203,416 SHARES OF SERIES B PREFERRED STOCK, AND 82,636 SHARES OF SERIES C
PREFERRED STOCK HELD BY PARVEST US, AN AFFILIATE OF PARTECH INTERNATIONAL;
- - 63,779 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 5,102
SHARES OF SERIES D PREFERRED STOCK HELD BY AXA US GROWTH FUND, A SIDE FUND
OF PARVEST US;
- - 86,648 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 6,931
SHARES OF SERIES D PREFERRED STOCK HELD PARALLEL CAPITAL I LLC, A SIDE FUND
OF PARVEST US;
- - 120,426 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 9,634
SHARES OF SERIES D PREFERRED STOCK HELD PARALLEL CAPITAL II LLC, A SIDE FUND
OF PARVEST US; AND
- - 87,790 SHARES OF COMMON STOCK, 22,480 SHARES OF SERIES A PREFERRED STOCK,
19,507 SHARES OF SERIES B PREFERRED STOCK, AND 7,924 SHARES OF SERIES C
PREFERRED STOCK HELD BY TRADINVEST, AN AFFILIATE OF PARTECH INTERNATIONAL.
- - MR. VINCENT WORMS, ONE OF OUR DIRECTORS, IS A GENERAL PARTNER OF PARTECH
INTERNATIONAL.
(8) INCLUDES 353,126 SHARES OF OUR COMMON STOCK ISSUED PURSUANT TO NET EXERCISE
OF WARRANTS AT AN EXERCISE PRICE OF $0.30.
(9) MR. RAFFY KAZANDJIAN, ONE OF OUR DIRECTORS, IS THE INVESTMENT DIRECTOR AT
CDC INNOVATION.
(10) EXCLUDES WARRANTS TO PURCHASE 13,427 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
(11) CONSISTS OF:
- - 433,750 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 34,700
SHARES OF SERIES D PREFERRED STOCK HELD BY CAPITAL INVESTMENTS BELGIE N.V.,
AN AFFILIATE OF ABN-AMRO VENTURE, FRANCE;
- - 128,273 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 10,261
SHARES OF SERIES D PREFERRED STOCK HELD BY FRANCE INNOVATION 1, AN AFFILIATE
OF ABN-AMRO VENTURE, FRANCE;
- - 128,273 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 10,261
SHARES OF SERIES D PREFERRED STOCK HELD BY FRANCE INNOVATION 2, AN AFFILIATE
OF ABN-AMRO VENTURE, FRANCE.
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66
<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
- - MR. FRED PHILLIPS IV, ONE OF OUR DIRECTORS, IS AFFILIATED WITH ABN-AMRO
VENTURE, FRANCE.
(12) EXCLUDES WARRANTS TO PURCHASE 55,222 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
(13) EXCLUDES WARRANTS TO PURCHASE 58,744 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
(14) EXCLUDES WARRANTS TO PURCHASE 47,331 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
(15) EXCLUDES WARRANTS TO PURCHASE 78,921 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
Shares by all affiliated persons and entities have been aggregated. Share
numbers and purchase price information are reflected on an as if converted into
shares of common stock basis. See "Principal shareholders" for more detail on
shares held by these purchasers.
In addition, we have granted options to some of our directors and executive
officers. See "Management--director compensation," "Management--executive
compensation" and "Principal shareholders."
We believe that all of the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal shareholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board of directors, and will continue to
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
Elizabeth Greetham and Vincent Worms serve on the compensation committee of
SangStat Medical Corporation, a publicly traded company, in which Philippe
Pouletty serves as the Chairman of the Board.
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67
<PAGE>
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Principal shareholders
The following table presents selected information regarding beneficial ownership
of our outstanding common stock as of March 1, 2000 and as adjusted to reflect
the sale of the common stock being sold in this offering for:
- - each of our directors;
- - our executive officers listed in the "Summary compensation" table above;
- - all of our directors and executive officers as a group; and
- - each other person (or group of affiliated persons) who owns beneficially 5%
or more of our common stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SHARES
SHARES OUTSTANDING(1)(2)
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIVE PERCENT SHAREHOLDERS
Entities affiliated with Partech International (3) ........ 1,575,584 12.60% 9.55%
50 California street, Suite 3200
San Francisco, California 94111
3i Group PLC .............................................. 986,517 7.89 5.98
91 Waterloo Road
London SE1 8XP,
United Kingdom
Nomura .................................................... 734,306 5.87 4.45
Nomura House
1 St. Martin's-le-Grant
London EC1A 4NP
Entities affiliated with ABN-Amro (4) ..................... 690,296 5.52 4.18
23, rue Balzac
75008 Paris
France
Parnib Belgie N.V. ........................................ 591,641 4.73 3.59
Uitbredingstraat 10/16
2600 Antwerpen
Belgium
CDC--Innovations .......................................... 590,388 4.72 3.58
Raffy Kazandjian
Tour Maine--Montparnasse
33 Avenue du Maine--B.P. 180
75755 Paris Cedex 15
France
</TABLE>
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68
<PAGE>
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SHARES
SHARES OUTSTANDING(1)(2)
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Philippe Pouletty, M.D..................................... 2,995,681 23.96% 18.15%
Elizabeth M. Greetham...................................... 579,452 4.63 3.51
James W. Elder (5)......................................... 116,666 * *
Maryvonne Hiance (6)....................................... 61,404 * *
David E. Smith (7)......................................... 50,000 * *
Raffy Kazandjian (8)....................................... 623,722 4.99 3.78
Fred P. Phillips IV (9).................................... 723,630 5.79 4.39
Russell Ricci (10)......................................... 33,333 * *
Gordon Russell (11)........................................ 574,515 4.60 3.48
Vincent Worms (12)......................................... 1,634,076 13.07 9.90
All executive officers and directors 7,635,811 58.23 48.19
as a group (13 persons) (13).............................
</TABLE>
- ---------
* REPRESENTS BENEFICIAL OWNERSHIP OF LESS THAN 1% OF THE OUTSTANDING SHARES OF
COMMON STOCK.
(1) PERCENTAGE OWNERSHIP IS BASED ON 12,502,131 SHARES OUTSTANDING AS OF
JANUARY 20, 2000, INCLUDING 7,305,769 SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF ALL OUTSTANDING PREFERRED STOCK AT THE CLOSING OF THIS
OFFERING, NET EXERCISE OF WARRANTS TO PURCHASE 1,815,912 SHARES OF COMMON
STOCK, AND CONVERSION OF DRUGABUSE SCIENCES SAS SHARES INTO SHARES OF OUR
SERIES D PREFERRED STOCK. SHARES OF COMMON STOCK SUBJECT TO OPTIONS
CURRENTLY EXERCISABLE OR EXERCISABLE WITHIN 60 DAYS OF JANUARY 20, 2000 ARE
DEEMED OUTSTANDING FOR PURPOSES OF COMPUTING THE PERCENTAGE OWNERSHIP OF
THE PERSON HOLDING SUCH OPTIONS BUT ARE NOT DEEMED OUTSTANDING FOR
COMPUTING THE PERCENTAGE OWNERSHIP OF ANY OTHER PERSON. UNLESS OTHERWISE
INDICATED, THE ADDRESS FOR EACH LISTED SHAREHOLDER IS: C/O DRUGABUSE
SCIENCES, INC., 1430 O'BRIEN DRIVE, MENLO PARK, CA 94025. TO OUR KNOWLEDGE,
EXCEPT AS INDICATED IN THE FOOTNOTES TO THIS TABLE AND UNDER APPLICABLE
COMMUNITY PROPERTY LAWS, THE PERSONS OR ENTITIES IDENTIFIED IN THIS TABLE
HAVE SOLE VOTING AND INVESTMENT POWER WITH RESPECT TO ALL SHARES OF COMMON
STOCK SHOWN AS BENEFICIALLY OWNED BY THEM.
(2) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT IS NOT EXERCISED.
(3) INCLUDES 274,530 SHARES OWNED BY PARVEST EUROPE, 823,647 SHARES OWNED BY
PARVEST US, 63,779 SHARES OWNED BY AXA US GROWTH FUND, 86,648 SHARES OWNED
BY PARALLEL CAPITAL I LLC, 120,426 SHARES OWNED BY PARALLEL CAPITAL II LLC,
137,701 SHARES OWNED BY TRADINVEST, AND 68,853 SHARES OWNED BY MULTINVEST.
MR. WORMS, ONE OF OUR DIRECTORS, IS A GENERAL PARTNER AND/OR MANAGING
MEMBER OF THE PARTECH INTERNATIONAL ENTITIES LISTED ABOVE. MR. WORMS
DISCLAIMS BENEFICIAL OWNERSHIP OF THE SHARES HELD BY THE ENTITIES
AFFILIATED WITH PARTECH INTERNATIONAL EXCEPT TO THE EXTENT OF HIS PECUNIARY
INTEREST THEREIN.
(4) INCLUDES 433,750 SHARES OWNED BY CAPITAL INVESTMENTS (BELGIE) N.V., 128,273
SHARES OWNED BY FRANCE INNOVATION 1, AND 128,273 SHARES OWNED BY FRANCE
INNOVATION 2.
(5) INCLUDES 116,666 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
IMMEDIATELY EXERCISABLE OPTIONS, 116,666 SHARES OF WHICH ARE SUBJECT TO OUR
RIGHT OF REPURCHASE.
(6) INCLUDES 50,000 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
IMMEDIATELY EXERCISABLE OPTIONS, 39,075 SHARES OF WHICH ARE SUBJECT TO OUR
RIGHT OF REPURCHASE.
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69
<PAGE>
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
(7) INCLUDES 50,000 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
IMMEDIATELY EXERCISABLE OPTIONS, 41,667 OF WHICH ARE SUBJECT TO OUR RIGHT
OF REPURCHASE.
(8) INCLUDES 590,388 SHARES OWNED BY CDC-INNOVATION. INCLUDES 33,333 SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF IMMEDIATELY EXERCISABLE OPTIONS,
33,333 OF WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE.
(9) INCLUDES 690,296 SHARES OWNED BY ABN-AMRO ENTITIES. INCLUDES 33,333 SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF IMMEDIATELY EXERCISABLE OPTIONS,
33,333 OF WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE.
(10) INCLUDES 33,333 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
IMMEDIATELY EXERCISABLE OPTIONS, 33,333 OF WHICH ARE SUBJECT TO OUR RIGHT
OF REPURCHASE.
(11) INCLUDES 490,862 SHARES OWNED BY THE GORDON RUSSELL TRUST. INCLUDES 33,333
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF IMMEDIATELY EXERCISABLE
OPTIONS, 33,333 OF WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE
(12) INCLUDES 1,575,584 SHARES OWNED BY PARTECH ENTITIES. INCLUDES 33,333
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF IMMEDIATELY EXERCISABLE
OPTIONS, 33,333 OF WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE.
(13) INCLUDES OPTIONS IMMEDIATELY EXERCISABLE FOR 609,996 SHARES, 599,071 OF
WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE.
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70
<PAGE>
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Description of securities
Upon the consummation of this offering, we will be authorized to issue
50,000,000 shares of common stock, and 5,000,000 shares of undesignated
preferred stock. The following is a summary description of our capital stock.
Our bylaws and our Amended and Restated Articles of Incorporation, to be
effective after the closing of this offering, provide further information about
our capital stock.
COMMON STOCK
As of January 20, 2000 there were 12,502,131 shares of common stock outstanding,
as adjusted to reflect the conversion of all outstanding shares of preferred
stock into common stock, the exercise of certain warrants, and the exchange of
all DrugAbuse Sciences SAS shares not owned by us for shares of our common stock
upon the closing of this offering. The preferred shares were held of record by
approximately 55 shareholders. There will be 16,502,131 shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
assuming no exercise after January 20, 2000 of outstanding options or warrants,
after giving effect to the sale of the shares of common stock to the public
offered in this prospectus.
The holders of common stock are entitled to one vote per share on all matters to
be voted upon by the shareholders. Subject to preferences that may be applicable
to any outstanding preferred stock, the holders of common stock are entitled to
receive dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available. See "Dividend policy." In the event of
our liquidation, dissolution or winding up, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon
completion of this offering will be fully paid and nonassessable.
OPTIONS
As of January 20, 2000, options to purchase a total of 1,042,729 shares of
common stock were outstanding at a weighted average exercise price of $0.074.
Options to purchase a total of 1,656,417 shares of common stock may be granted
under our stock plans. Please see "Management--Stock plans" and "Shares eligible
for future sale."
WARRANTS
Immediately following the closing of this offering there will be outstanding
warrants to purchase a total of 374,519 shares of common stock at an exercise
price of $0.06 per share. The warrants are only exercisable if our valuation at
the expiration of the 180 day period following the closing of this offering is
not at least $150,000,000. This valuation target is based on the average of the
closing prices of our common stock for the twenty trading days ending on the
expiration of such 180 day period and does not include the sale of any shares
sold in this offering, including those that may be exercised by the underwriters
pursuant to their over-allotment option. The warrants expire 220 days following
the closing of this offering if it is not a qualifying IPO.
- --------------------------------------------------------------------------------
71
<PAGE>
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
PREFERRED STOCK
The board of directors has the authority, without action by the shareholders, to
designate and issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and related restrictions, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of the series. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of us
without further action by the shareholders and may adversely affect the voting
and other rights of the holders of common stock. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the
holders of common stock, including the loss of voting control to others. At
present, we have no plans to issue any of our preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 7,305,769 shares of common
stock will be entitled to rights with respect to the registration of these
shares under the Securities Act. Under the terms of the agreement between us and
the holders of these registrable securities, if we propose to register any of
our securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, these holders
are entitled to notice of registration and are entitled to include their shares
of common stock in the registration. Holders of 7,305,769 shares of the
registrable securities are also entitled to specified demand registration rights
under which they may require us to file a registration statement under the
Securities Act at our expense with respect to our shares of common stock, and we
are required to use our best efforts to effect this registration. Further, the
holders of these demand rights may require us to file additional registration
statements on Form S-3. All of these registration rights are subject to
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in the registration and our
right not to effect a requested registration within six months following the
initial offering of our securities, including this offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our Amended and Restated Articles of Incorporation limit the personal liability
of our directors for monetary damages to the fullest extent permitted by the
California General Corporation Law. Under California law, a director's liability
to a company or its shareholders may not be limited:
- - for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law;
- - for acts or omissions that a director believes to be contrary to the best
interests of the company or its shareholders or that involve the absence of
good faith on the part of the director;
- - for any transaction from which a director derived an improper personal
benefit;
- - for acts or omissions that show a reckless disregard for the director's duty
to the company or its shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing
the director's duties, of a risk of serious injury to the company or its
shareholders;
- - for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the company or its
shareholders;
- --------------------------------------------------------------------------------
72
<PAGE>
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
- - under Section 310 of the California General Corporation Law concerning
contacts or transactions between the company and a director; or
- - under Section 316 of the California General Corporation Law concerning
directors' liability for improper dividends, loans and guarantees.
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to our shareholders for any violation by a
director of the director's fiduciary duty to us or our shareholders.
Our Articles of Incorporation also include an authorization for us to indemnify
our "agents," as defined in Section 317 of the California General Corporation
Law, through bylaw provisions, by agreement or otherwise, to the fullest extent
permitted by law. Pursuant to this provision, our Amended and Restated Bylaws
provide for indemnification of our directors, officers and employees. In
addition, we may, at our discretion, provide indemnification to persons whom we
are not obligated to indemnify. The Amended and Restated Bylaws also allow us to
enter into indemnity agreements with individual directors, officers, employees
and other agents. Indemnity agreements have been entered into with all directors
and certain executive officers and provide the maximum indemnification permitted
by law. We also intend to obtain directors' and officers' liability insurance.
These agreements, together with our Amended and Restated Bylaws and Amended and
Restated Articles of Incorporation, may require us, among other things, to
indemnify our directors and executive officers, other than for liability
resulting from willful misconduct of a culpable nature, and to advance expenses
to them as they are incurred, provided that they undertake to repay the amount
advanced if it is ultimately determined by a court that they are not entitled to
indemnification. Section 317 of the California General Corporation Law and our
Amended and Restated Bylaws and our indemnification agreements make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities, including reimbursement of expenses incurred, arising under the
Securities Act. We are not currently aware of any pending litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification will be required or permitted. Moreover, we are not
currently aware of any threatened litigation or proceeding that might result in
a claim for such indemnification. We believe that the foregoing indemnification
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is EquiServ.
- --------------------------------------------------------------------------------
73
<PAGE>
- --------------------------------------------------------------------------------
Shares eligible for future sale
Upon completion of this offering, we will have 16,502,131 shares of common stock
outstanding, assuming no exercise of options after January 20, 2000. Of these
shares, the 4,000,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except
that any shares held by persons that directly or indirectly control, or are
controlled by, or are under common control with us, may generally only be sold
in compliance with the limitations of Rule 144 described below.
The remaining 12,502,131 shares of common stock are deemed restricted shares
under Rule 144. The number of shares of common stock available for sale in the
public market is limited by restrictions under the Securities Act and lock-up
agreements under which the holders of the shares have agreed not to sell or
dispose of any of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of Warburg Dillon Read. On the date
of this prospectus, no shares other than the 4,000,000 shares being sold in this
offering will be eligible for sale. Beginning 180 days after the date of this
prospectus, or earlier with the consent of Warburg Dillon Read, 7,539,786
restricted shares will become available for sale in the public market subject to
the limitations of Rule 144 of the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock,
approximately 165,021 shares after giving effect to this offering, and the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding this sale. Sales under Rule 144 of the
Securities Act are subject to restrictions relating to manner of sale, notice
and the availability of current public information about us. A person who is not
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, would be entitled to sell
these shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of
Rule 144 of the Securities Act. However, the transfer agent may require an
opinion of counsel that a proposed sale of shares comes within the terms of
Rule 144 of the Securities Act before effecting a transfer of these shares.
Before this offering, there has been no public market for our common stock and
no predictions can be made of the effect, if any, that the sale or availability
for sale of shares of additional common stock will have on the market price of
our common stock. Nevertheless, sales of substantial amounts of these shares in
the public market, or the perception that these sales could occur, could
adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
As of January 20, 2000, options to purchase a total of 1,042,729 shares of
common stock, including 358,826 under the 1994 Stock Plan, 481,405 under the
1999 Stock Plan A, 202,498 under the 1999 Stock Plan B and 0 under the 2000
Stock Incentive Plan, were outstanding and exercisable. All of the shares
subject to options are subject to lock-up agreements. An additional 1,564,179
shares of common stock were available as of January 20, 2000 for future option
grants or direct issuances under the 2000 Stock Incentive Plan. In addition, in
January 20, 2000, 575,000 shares were reserved for issuance under our 2000
Employee Stock Purchase Plan and our 2000 Directors' Option Plan. See
"Management--Stock plans."
- --------------------------------------------------------------------------------
74
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Rule 701 under the Securities Act provides that shares of common stock acquired
on the exercise of outstanding options may be resold by persons other than our
affiliates, beginning 90 days after the date of this prospectus, subject only to
the manner of sale provisions of Rule 144, and by affiliates, beginning 90 days
after the date of this prospectus, subject to all provisions of Rule 144 except
its one-year minimum holding period. We intend to file one or more registration
statements on Form S-8 under the Securities Act to register all shares of common
stock subject to outstanding stock options under our 1994 Stock Plan and our
1999 Stock Plans and all shares offered under the 2000 Stock Incentive Plan, the
2000 Employee Stock Purchase Plan and the 2000 Directors' Option Plan
approximately five days after the closing of this offering. This registration
statement is expected to become effective upon filing. Shares covered by this
registration statement will then be eligible for sale in the public markets,
subject to the lock-up agreements, if applicable.
- --------------------------------------------------------------------------------
75
<PAGE>
- --------------------------------------------------------------------------------
Underwriting
We have entered into an underwriting agreement concerning the shares being
offered with the underwriters for the offering named below. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Warburg Dillon Read LLC and FleetBoston
Robertson Stephens Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ------------------------------------------------------------------------------
<S> <C>
Warburg Dillon Read LLC.....................................
FleetBoston Robertson Stephens Inc..........................
----------
Total...................................................
==========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional 600,000 shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up to
an additional 600,000 shares.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Per Share................................................... $ $
Total................................................... $ $
</TABLE>
We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $1,500,000. Shares
sold by the underwriters to the public will initially be offered at the initial
public offering price set forth on the cover of this prospectus. Any shares sold
by the underwriters to securities dealers may be sold at a discount of up to
$ per share from the initial public offering price. Any of these securities
dealers may resell any shares purchased from the underwriters to other brokers
or dealers at a discount of up to $ per share from the initial public
offering price. If all shares are not sold at the initial public offering price,
the representatives may change the offering price and the other selling terms.
The underwriters have informed us that they do not expect discretionary sales to
exceed 5% of the shares of common stock to be offered.
We and our directors, officers and certain of our shareholders have agreed with
the underwriters not to offer, sell, contract to sell, hedge or otherwise
dispose of, directly or indirectly, or file with the SEC a registration
statement under the Securities Act relating to, any of our common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, without the prior written consent of
Warburg Dillon Read LLC. This agreement does not apply to any securities issued
under existing employee benefit plans.
The underwriters have reserved for sale, at the initial public offering price,
up to 200,000 shares of our common stock being offered for sale to our customers
and business partners. At the discretion of our management, other parties,
including our employees, may participate in the reserved shares program. The
number of shares available for sale to the general public in the offering will
be reduced
- --------------------------------------------------------------------------------
76
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
to the extent these persons purchase reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be negotiated by us and the
representatives of the underwriters. The principal factors to be considered in
determining the public offering price include:
- - the information set forth in this prospectus and otherwise available to the
representatives;
- - our prospects for future earnings, the present state of our development, and
our current financial position;
- - the history and the prospects for the industry in which we compete;
- - the ability of our management;
- - the general condition of the securities markets at the time of this
offering; and
- - the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
In connection with the offering, the underwriters may purchase and sell shares
of common stock in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against some liabilities,
including liabilities under the Securities Act of 1933 and to contribute to
payments that the underwriters may be required to make in respect thereof.
- --------------------------------------------------------------------------------
77
<PAGE>
- --------------------------------------------------------------------------------
Legal matters
The validity of the common stock being offered will be passed upon for DrugAbuse
Sciences, Inc. by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California and for the underwriters by Brobeck, Phleger & Harrison
LLP, Broomfield, Colorado. Attorneys at Brobeck, Phleger & Harrison LLP
beneficially own, through an investment trust, 20,032 shares of our common
stock.
Experts
The consolidated financial statements as of December 31, 1997 and 1998 and for
each of the three years in the period ended December 31, 1999 and the for the
cumulative period from December 21, 1993 (date of inception) to December 31,
1999 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The statements in this prospectus relating to US and EU patent and other
intellectual property matters have been reviewed and approved by Raeventner Law
Group, our patent counsel, as experts on such matters and are included in this
prospectus in reliance upon that review and approval.
Bert Rowland, an attorney with Raeventner Law Group, beneficially owns 287,402
shares of our common stock.
Change in Independent Accountants
In January 2000, we engaged PricewaterhouseCoopers LLP as our independent
accountants to replace Deloitte & Touche LLP, who we dismissed as our
independent accountants effective December 1999. The report of Deloitte & Touche
LLP on our financial statements for the year ended 1998 and for the cumulative
period from December 21, 1993 (date of inception) to December 31, 1998, which is
not included herein and are not made part of the registration statement, did not
contain any adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles. In connection
with the audits of our financial statements for the fiscal year ended
December 31, 1998 and in the subsequent interim period preceding the dismissal
of Deloitte & Touche LLP there were no disagreements with Deloitte & Touche LLP
on any matters of accounting principles or practices, financial statements
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Deloitte & Touche LLP would have caused Deloitte & Touche LLP to
make a reference to the matter in their report. During the most recent fiscal
years and subsequent interim period preceding the dismissal of Deloitte & Touche
LLP, we have not been advised of any matters described in Regulation S-K,
Item 304(a)(1)(v) of the Securities Act, except that in 1999 Deloitte & Touche
LLP advised our Board of Directors in writing of certain significant
deficiencies in our internal controls noted in connection with their audit of
our 1998 financial statements, including, among other items, a lack of
comprehensive accounting and finance policies and procedures throughout our
organization, understaffing in our accounting department, and the non-timely
performance of account reconciliations, all of which conditions could adversely
affect our ability to prepare reliable financial statements. We requested that
Deloitte & Touche LLP furnish us with a letter addressed to the SEC stating
whether or not they agree with the above statements. A copy of such letter is
filed as an exhibit to the registration statement which includes this
prospectus.
Prior to engaging PricewaterhouseCoopers LLP as our new independent accountants,
we did not request any advice from PricewaterhouseCoopers LLP regarding any
matter related to accounting
- --------------------------------------------------------------------------------
78
<PAGE>
- --------------------------------------------------------------------------------
practice or accounting principles; and we did not consult with
PricewaterhouseCoopers LLP regarding the type of audit opinion that might be
rendered by them or items that were or should have been subject to the AICPA's
Statement on Auditing Standards No. 50, "Reports on the Application of
Accounting Principles."
We have requested that PricewaterhouseCoopers LLP review the above disclosures
regarding our change in accountants and have given them the opportunity to
furnish us with a letter addressed to the SEC in which PricewaterhouseCoopersLLP
may include new information, clarify our statements on the change in accountants
or disclose the respects in which they disagree with the statements made by us
in this prospectus regarding our change in accountants. If
PricewaterhouseCoopers LLP elects to submit such a letter to the SEC, we will
file the letter as an exhibit to the registration statement when received.
- --------------------------------------------------------------------------------
79
<PAGE>
- --------------------------------------------------------------------------------
Where you can find more information
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
being offered. This prospectus does not contain all of the information presented
in the registration statement and the exhibits to the registration statement.
For further information with respect to DrugAbuse Sciences and our common stock
we are offering, reference is made to the registration statement and the
exhibits filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
referred to may be only summaries of these documents. The exhibits to this
registration statement should be referenced for the complete contents of these
contracts and documents. Each statement is qualified in all respects by
reference to the exhibit. The registration statement, including the exhibits,
may be inspected without charge at the public reference facilities maintained by
the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part may be obtained from this office after payment of fees
prescribed by the Commission. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the
Commission. The address of the site is http://www.sec.gov.
- --------------------------------------------------------------------------------
80
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY (COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------------------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
- --------------------------------------------------------------------------------
F-1
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of DrugAbuse Sciences, Inc.
(a company in the development stage)
The stock split described in Note 1 to the consolidated financial statements has
not been consummated at the date of our opinion. When it has been consummated,
we will be in a position to furnish the following report.
"In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of DrugAbuse
Sciences, Inc. and its subsidiary (companies in the development stage) at
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 and for
the cumulative period from December 21, 1993 (date of inception) to
December 31, 1999 in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above."
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 6, 2000
- --------------------------------------------------------------------------------
F-2
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- DECEMBER 31,
1998 1999 1999
----------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $1,039,315 $19,224,906
Grant receivable......................................... 416,040 1,014,638
Prepaid expenses and other current assets................ 135,248 372,628
----------- ------------
Total current assets................................... 1,590,603 20,612,172
Property and equipment, net................................ 297,445 314,981
Other assets............................................... 109,000 109,479
----------- ------------
Total assets........................................... $1,997,048 $21,036,632
=========== ============
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $436,625 $930,235
Accrued liabilities...................................... 41,580 93,535
Current portion of long-term obligations................. 80,393 108,282
Current portion of capital lease obligations............. 32,870 48,857
----------- ------------
Total current liabilities.............................. 591,468 1,180,909
Long-term obligations...................................... 435,127 264,610
Long-term capital lease obligations........................ 107,963 103,179
----------- ------------
Total liabilities...................................... 1,134,558 1,548,698
----------- ------------
Commitments (Note 7)
Minority interest.......................................... -- 11,654,492 $--
Shareholders' Equity:
Convertible preferred stock: $0.001 par value;
Shares authorized: 7,707,414
Shares issued and outstanding: 1,691,625 in 1998,
4,860,638 in 1999 and none pro forma................... 1,692 4,861 --
(Liquidation value: $16,772,132)
Common Stock: $0.001 par value;
Shares authorized: 85,000,000
Shares issued and outstanding: 2,116,726 in 1998,
3,380,450 in 1999 and 12,502,131 pro forma............. 1,457 2,721 10,027
Additional paid-in capital............................... 4,560,758 42,142,532 65,449,071
Deferred stock compensation.............................. (320,080) (14,409,691) (14,409,691)
Notes receivable from shareholders....................... -- (510,950) (510,950)
Accumulated other comprehensive loss..................... (9,304) (126,018) (126,018)
Deficit accumulated during the development stage......... (3,372,033) (19,270,013) (30,924,505)
----------- ------------ ------------
Total shareholders' equity............................. 862,490 7,833,442 $19,487,934
----------- ------------ ============
Total liabilities, minority interest and
shareholders' equity............................... $1,997,048 $21,036,632
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-3
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
CUMULATIVE
PERIOD FROM
DECEMBER 21,
1993 (DATE OF
FOR THE YEAR ENDED DECEMBER 31, INCEPTION) TO
------------------------------------------ DECEMBER 31,
1997 1998 1999 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Grant revenues...................... $-- $810,607 $1,224,605 $2,035,212
Operating expenses:
Research and development.......... 1,041,720 1,309,980 4,205,085 7,215,989
General and administrative........ 275,829 592,775 1,549,836 2,645,416
Amortization of deferred stock
compensation.................... 64,863 180,798 1,848,737 2,094,398
----------- ----------- ------------ ------------
Total operating expenses........ 1,382,412 2,083,553 7,603,658 11,955,803
----------- ----------- ------------ ------------
Loss from operations................ (1,382,412) (1,272,946) (6,379,053) (9,920,591)
Interest income..................... 85,314 96,067 273,547 461,581
Interest expense.................... (3,065) (15,464) (122,496) (141,025)
----------- ----------- ------------ ------------
Net loss............................ (1,300,163) (1,192,343) (6,228,002) (9,600,035)
Dividend related to beneficial
conversion feature of preferred
stock............................. -- -- (9,669,978) (9,669,978)
----------- ----------- ------------ ------------
Net loss available to common
shareholders...................... (1,300,163) (1,192,343) (15,897,980) (19,270,013)
Other comprehensive income (loss):
Change in foreign currency
translation adjustments......... 35,760 (44,581) (116,714) (150,001)
----------- ----------- ------------ ------------
Comprehensive loss.................. $(1,264,403) $(1,236,924) $(16,014,694) $(19,420,014)
=========== =========== ============ ============
Net loss per share available to
common shareholders, basic and
diluted........................... $(0.61) $(0.56) $(7.45)
=========== =========== ============
Shares used in computing net loss
per share available to common
shareholders, basic and diluted... 2,114,506 2,116,728 2,134,073
=========== =========== ============
Pro forma net loss per share
available to common shareholders
(unaudited)....................... $(2.80)
============
Shares used in computing pro forma
net loss per share available to
common shareholders (unaudited)... 5,672,186
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-4
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 21, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share.................................... -- $-- 1,320,000 $660
Issuance of common stock in August 1994 at $0.045 per
share................................................... -- -- 672,892 673
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance costs of
$8,000.................................................. 375,556 376 -- --
Exercise of stock options in August 1995 at $0.045 per
share................................................... -- -- 90,000 90
Issuance of common stock in June 1996 in exchange for
license agreement....................................... -- -- 18,459 18
Exercise of stock options in July 1996 at $0.135 per
share................................................... -- -- 3,000 3
Net loss since inception.................................. -- -- -- --
--------- --------- --------- ----------
Balances, December 31, 1996................................. 375,556 376 2,104,351 1,444
Exercise of stock options in January 1997 at $0.135 per
share................................................... -- -- 6,000 6
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance costs of
$56,183................................................. 1,316,069 1,316 -- --
Exercise of stock options in May 1997 at $0.135 per
share................................................... -- -- 8,500 9
Repurchase of common stock in July 1997 at $0.135 per
share................................................... -- -- (2,125) (2)
Stock options granted for services in 1997................ -- -- -- --
Deferred stock compensation............................... -- -- -- --
Amortization of deferred stock compensation............... -- -- -- --
Foreign currency translation adjustment................... -- -- -- --
Net loss.................................................. -- -- -- --
--------- --------- --------- ----------
Balances, December 31, 1997................................. 1,691,625 1,692 2,116,726 1,457
Stock options granted for services in 1998................ -- -- -- --
Stock compensation........................................ -- -- -- --
Foreign currency translation adjustment................... -- -- -- --
Deferred stock compensation............................... -- -- -- --
Amortization of deferred stock compensation............... -- -- -- --
Net loss.................................................. -- -- -- --
--------- --------- --------- ----------
Balances, December 31, 1998................................. 1,691,625 1,692 2,116,726 1,457
Issuance of common stock in January 1999 at $0.30 per
share................................................... -- -- 499 1
Issuance of Series C convertible preferred stock in
March 1999 at $2.496 per share, net of issuance costs of
$37,812................................................. 932,456 932 -- --
Issuance of common stock for services from April through
December 1999........................................... -- -- 7,334 7
Exercise of stock options in September 1999 at $0.30 per
share................................................... -- -- 1,207,208 49
Issuance of Series D convertible preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $1,245,373........................................... 1,502,251 1,503 48,683 --
Conversion of notes payable into preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $449,996............................................. 734,306 734 -- --
Exercise of stock options in exchange for notes receivable
from shareholders....................................... -- -- 1,207,208 1,207
Stock compensation........................................ -- -- -- --
Deferred stock compensation............................... -- -- -- --
Amortization of deferred stock compensation............... -- -- -- --
Foreign currency translation adjustment................... -- -- -- --
Dividend related to beneficial conversion feature of
preferred stock......................................... -- -- -- --
Net loss.................................................. -- -- -- --
--------- --------- --------- ----------
Balances, December 31, 1999................................. 4,860,638 $4,861 3,380,450 $2,721
========= ========= ========= ==========
<CAPTION>
ADDITIONAL DEFERRED NOTES RECEIVABLE
PAID-IN CAPITAL STOCK COMPENSATION FROM SHAREHOLDERS
--------------- -------------------- -------------------
<S> <C> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share.................................... $-- $-- $--
Issuance of common stock in August 1994 at $0.045 per
share................................................... 29,607 -- --
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance costs of
$8,000.................................................. 491,113 -- --
Exercise of stock options in August 1995 at $0.045 per
share................................................... 3,960 -- --
Issuance of common stock in June 1996 in exchange for
license agreement....................................... 9,951 -- --
Exercise of stock options in July 1996 at $0.135 per
share................................................... 402 -- --
Net loss since inception.................................. -- -- --
------------- ---------------- --------------
Balances, December 31, 1996................................. 535,033 -- --
Exercise of stock options in January 1997 at $0.135 per
share................................................... 804 -- --
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance costs of
$56,183................................................. 3,227,409 -- --
Exercise of stock options in May 1997 at $0.135 per
share................................................... 1,139 -- --
Repurchase of common stock in July 1997 at $0.135 per
share................................................... (285) -- --
Stock options granted for services in 1997................ 20,000 -- --
Deferred stock compensation............................... 145,274 (145,274) --
Amortization of deferred stock compensation............... -- 64,863 --
Foreign currency translation adjustment................... -- -- --
Net loss.................................................. -- -- --
------------- ---------------- --------------
Balances, December 31, 1997................................. 3,929,374 (80,411) --
Stock options granted for services in 1998................ 15,000 -- --
Stock compensation........................................ 195,917 -- --
Foreign currency translation adjustment................... -- -- --
Deferred stock compensation............................... 420,467 (420,467) --
Amortization of deferred stock compensation............... -- 180,798 --
Net loss.................................................. -- -- --
------------- ---------------- --------------
Balances, December 31, 1998................................. 4,560,758 (320,080) --
Issuance of common stock in January 1999 at $0.30 per
share................................................... 149 -- --
Issuance of Series C convertible preferred stock in
March 1999 at $2.496 per share, net of issuance costs of
$37,812................................................. 2,288,666 -- --
Issuance of common stock for services from April through
December 1999........................................... 51,363 -- --
Exercise of stock options in September 1999 at $0.30 per
share................................................... 14,556 -- --
Issuance of Series D convertible preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $1,245,373........................................... 5,913,453 -- --
Conversion of notes payable into preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $449,996............................................. 2,999,266 -- --
Exercise of stock options in exchange for notes receivable
from shareholders....................................... 509,743 -- (510,950)
Stock compensation........................................ 196,252 -- --
Deferred stock compensation............................... 15,938,348 (15,938,348) --
Amortization of deferred stock compensation............... -- 1,848,737 --
Foreign currency translation adjustment................... -- -- --
Dividend related to beneficial conversion feature of
preferred stock......................................... 9,669,978 -- --
Net loss.................................................. -- -- --
------------- ---------------- --------------
Balances, December 31, 1999................................. $42,142,532 $(14,409,691) $(510,950)
============= ================ ==============
<CAPTION>
ACCUMULATED
OTHER DEFICIT ACCUMULATED
COMPREHENSIVE DURING THE
INCOME (LOSS) DEVELOPMENT STAGE TOTALS
----------------- -------------------- ------------
<S> <C> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share.................................... $-- $-- $660
Issuance of common stock in August 1994 at $0.045 per
share................................................... -- -- 30,280
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance costs of
$8,000.................................................. -- -- 491,489
Exercise of stock options in August 1995 at $0.045 per
share................................................... -- -- 4,050
Issuance of common stock in June 1996 in exchange for
license agreement....................................... -- -- 9,969
Exercise of stock options in July 1996 at $0.135 per
share................................................... -- -- 405
Net loss since inception.................................. -- (879,527) (879,527)
------------ --------------- ------------
Balances, December 31, 1996................................. -- (879,527) (342,674)
Exercise of stock options in January 1997 at $0.135 per
share................................................... -- -- 810
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance costs of
$56,183................................................. -- -- 3,228,725
Exercise of stock options in May 1997 at $0.135 per
share................................................... -- -- 1,148
Repurchase of common stock in July 1997 at $0.135 per
share................................................... -- -- (287)
Stock options granted for services in 1997................ -- -- 20,000
Deferred stock compensation............................... -- -- --
Amortization of deferred stock compensation............... -- -- 64,863
Foreign currency translation adjustment................... 35,277 -- 35,277
Net loss.................................................. -- (1,300,163) (1,300,163)
------------ --------------- ------------
Balances, December 31, 1997................................. 35,277 (2,179,690) 1,707,699
Stock options granted for services in 1998................ -- -- 15,000
Stock compensation........................................ -- -- 195,917
Foreign currency translation adjustment................... (44,581) -- (44,581)
Deferred stock compensation............................... -- -- --
Amortization of deferred stock compensation............... -- -- 180,798
Net loss.................................................. -- (1,192,343) (1,192,343)
------------ --------------- ------------
Balances, December 31, 1998................................. (9,304) (3,372,033) 862,490
Issuance of common stock in January 1999 at $0.30 per
share................................................... -- -- 150
Issuance of Series C convertible preferred stock in
March 1999 at $2.496 per share, net of issuance costs of
$37,812................................................. -- -- 2,289,598
Issuance of common stock for services from April through
December 1999........................................... -- -- 51,370
Exercise of stock options in September 1999 at $0.30 per
share................................................... -- -- 14,605
Issuance of Series D convertible preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $1,245,373........................................... -- -- 5,914,956
Conversion of notes payable into preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $449,996............................................. -- -- 3,000,000
Exercise of stock options in exchange for notes receivable
from shareholders....................................... -- -- --
Stock compensation........................................ -- -- 196,252
Deferred stock compensation............................... -- -- --
Amortization of deferred stock compensation............... -- -- 1,848,737
Foreign currency translation adjustment................... (116,714) -- (116,714)
Dividend related to beneficial conversion feature of
preferred stock......................................... -- (9,669,978) --
Net loss.................................................. -- (6,228,002) (6,228,002)
------------ --------------- ------------
Balances, December 31, 1999................................. $(126,018) $(19,270,013) $7,833,442
============ =============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-5
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
CUMULATIVE
PERIOD FROM
DECEMBER 21,
1993 (DATE OF
FOR THE YEAR ENDED INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(1,300,163) $(1,192,343) $(6,228,002) $(9,600,035)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 3,881 38,575 43,129 90,665
Amortization of deferred stock
compensation............................ 64,863 180,798 1,848,737 2,094,398
Common stock and options issued for
services................................ 20,000 15,000 51,370 86,370
Common stock issued for license
agreement............................... -- -- -- 9,969
Compensation related to stock options..... -- 195,917 196,252 392,169
Changes in assets and liabilities:
Grant receivable........................ -- (394,772) (655,012) (1,071,052)
Prepaid expenses and other assets....... (236,134) (3,029) (237,859) (482,107)
Accounts payable........................ 351,473 42,792 493,610 930,235
Accrued liabilities..................... (268,941) 1,578 51,955 93,535
Other................................... (20,561) (19,766) (54,285) (42,508)
----------- ----------- ----------- ------------
Net cash used in operating
activities.......................... (1,385,582) (1,135,250) (4,490,105) (7,498,361)
----------- ----------- ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment.......... (146,556) (32,759) -- (179,315)
----------- ----------- ----------- ------------
Net cash used in investing
activities.......................... (146,556) (32,759) -- (179,315)
----------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from long-term obligations......... 568,164 -- 2,930,000 3,498,164
Payment of long-term obligations and capital
lease obligations......................... -- (98,558) (128,105) (226,663)
Proceeds from issuance of preferred stock... 3,228,725 -- 19,859,046 23,579,260
Proceeds from issuance of common stock...... 1,958 -- 14,755 52,108
Repurchase of common stock.................. (287) -- -- (287)
----------- ----------- ----------- ------------
Net cash provided by (used in)
financing activities................ 3,798,560 (98,558) 22,675,696 26,902,582
----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents................................. 2,266,422 (1,266,567) 18,185,591 --
Cash and cash equivalents, beginning of
period...................................... 39,460 2,305,882 1,039,315 19,224,906
----------- ----------- ----------- ------------
Cash and cash equivalents, end of period...... $2,305,882 $1,039,315 19,224,906 19,224,906
=========== =========== =========== ============
ADDITIONAL CASH FLOW INFORMATION--INTEREST
PAID........................................ $3,065 $15,464 $122,496 $141,025
=========== =========== =========== ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases..... $-- $156,954 $60,665 $217,619
Conversion of notes payable for preferred
stock..................................... $-- $-- $3,000,000 $3,000,000
Stock options exercised in exchange for
notes receivable.......................... $-- $-- $510,950 $510,950
Dividend related to beneficial conversion
feature of preferred stock................ $-- $-- $9,669,978 $9,669,978
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-6
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- FORMATION AND BUSINESS OF THE COMPANY:
DrugAbuse Sciences Inc., (the "Company") is a biotechnology company dedicated to
developing and marketing novel biopharmaceutical products that address key
medical needs of alcohol abusers and drug addicts. For the period from inception
through December 31, 1999, the Company has been in the development stage as
planned operations had not yet begun to generate significant revenue. The
Company was incorporated in December 1993 and operates in one business segment.
In February 2000, the Board of Directors and shareholders of the Company
approved a 1-for-6 reverse stock split of its common and preferred stock. All
share and per share amounts in the accompanying financial statements have been
adjusted retroactively.
In November 1994 and May 1996, the Board of Directors and shareholders of the
Company approved a 3-for-1 and a 4-for-1 stock split, respectively, of its
common and preferred stock.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All intercompany transactions have been eliminated
in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
INITIAL PUBLIC OFFERING
In January 2000, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
initial public offering is closed under the terms presently anticipated, all of
the preferred stock, including the 2,445,131 shares of Series D preferred stock
which were issued in exchange for 1,849 shares of common stock of DrugAbuse
Sciences, SAS, the French subsidiary, will automatically convert into
7,305,769 shares of common stock. Unaudited pro forma shareholders' equity, as
adjusted for the assumed conversion of the preferred stock, is set forth on the
balance sheet.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash and cash equivalents and accounts receivable. Cash
and cash equivalents are deposited in demand and money market accounts in one
financial institution in the United States and France.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable and accounts payable approximate
fair value due to their short
- --------------------------------------------------------------------------------
F-7
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
maturities. Based on borrowing rates currently available to the Company for
loans with similar terms, the carrying value of its debt obligations
approximates fair value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents include short-term investment grade and interest-bearing securities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a straight-line
basis over their estimated useful lives of three to seven years. Leasehold
improvements are amortized over their estimated useful lives, or the lease term
if shorter. Upon retirement or sale, the cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations. Maintenance and repairs are charged to operations as
incurred.
REVENUE RECOGNITION
Research and development grant agreements provide for periodic payments in
support of the Company's research activities. Grant revenue is recognized as
earned based on actual costs incurred or as milestones are achieved. Payments
received under multi-year research and development grants which are repayable
have been recorded as long-term obligations in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 68, "Research and Development
Arrangements" (Note 6).
RESEARCH AND DEVELOPMENT
Research and development expenses consist of costs incurred for
Company-sponsored research and development activities. These costs include
direct and research-related overhead expenses and are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
FOREIGN CURRENCY ACCOUNTING
Exchange adjustments resulting from foreign currency transactions are generally
recognized in operations, whereas adjustments resulting from the translation of
financial statements are reflected as a separate component of stockholders'
equity.
COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
from common shares issuable through stock options, warrants and other
convertible securities. The following table is a reconciliation of the numerator
(net loss available to common shareholders) and the denominator (number of
shares) used in the basic and diluted EPS
- --------------------------------------------------------------------------------
F-8
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
calculations and sets forth potential shares of common stock that are not
included in the diluted net loss per share available to common shareholders as
their effect is antidilutive:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
BASIC AND DILUTED:
Net loss available to common shareholders........ $(1,300,163) $(1,192,343) $(15,897,980)
Weighted average common shares outstanding....... 2,114,506 2,116,728 2,134,073
----------- ------------ ------------
Net loss per share available to common
shareholders................................... $(0.61) $(0.56) $(7.45)
=========== ============ ============
ANTIDILUTIVE SECURITIES:
Convertible preferred stock...................... 1,691,625 1,691,625 4,860,638
Options to purchase common stock................. 369,459 598,489 680,280
Warrants......................................... 1,855,684 1,855,684 2,245,813
----------- ------------ ------------
3,916,768 4,145,798 7,786,731
=========== ============ ============
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share available to common shareholders for the year ended
December 31, 1999 was computed using the weighted average number of shares of
common stock outstanding, including the pro forma effects of the automatic
conversion of all of the company's preferred stock, including the 2,445,131
shares of Series D preferred stock which were issued in exchange for 1,849
shares of common stock of DrugAbuse Sciences, SAS, the French subsidiary, into
shares of the Company's common stock effective upon the closing of the Company's
initial public offering as if such conversion occurred on January 1, 1999, or at
the date of original issuance, if later.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components for
general-purpose financial statements. Comprehensive income is defined as net
income plus all revenues, expenses, gains and losses from non-owner sources that
are excluded from net income in accordance with generally accepted accounting
principles.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. To date, the Company has not engaged in derivative
and hedging activities.
RECLASSIFICATIONS
Certain financial statement items have been reclassified to conform to the
current year's format. These reclassifications had no impact on previously
reported net loss or shareholders equity.
- --------------------------------------------------------------------------------
F-9
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT:
Property and equipment comprise:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
--------- ---------
<S> <C> <C>
Computer equipment................................ $9,039 $27,376
Furniture and fixtures............................ 2,493 21,605
Equipment......................................... 164,350 212,614
Leasehold improvements............................ 160,388 135,340
-------- --------
336,270 396,935
Less: Accumulated depreciation and amortization... (38,825) (81,954)
-------- --------
$297,445 $314,981
======== ========
</TABLE>
Included in computer equipment at December 31, 1998 and 1999 is equipment
acquired under capital leases totaling approximately $157,000 and $216,000,
respectively, net of accumulated amortization of $23,000 and $56,000,
respectively.
NOTE 4 -- GRANT RECEIVABLE
In December 1997, the Company received a grant from The Ministry of Research in
France (FRT) of approximately $2.8 million for the development and
commercialization of the COC-AB product. Under the terms of the grant the
Company is reimbursed for 50% of its expenses relating to COC-AB research and is
committed to pay royalties of 1% of worldwide net sales of the COC-AB product
for a period of 5 years up to a maximum amount of the grant.
NOTE 5--SPONSORED LICENSE AND RESEARCH AGREEMENTS:
In February 1997, the Company entered into a research agreement with Southern
Research Institute ("SRI") to help develop NALTREL and conduct animal studies.
Under the terms of the agreement, the Company pays SRI monthly for research
services performed during the three year agreement. Aggregate payments are
expected to be approximately $3.0 million. Expenses under the agreement were
$739,978, $671,580 and $1,270,087 for the years ended December 31, 1997, 1998
and 1999, respectively.
In connection with the research agreement, the Company entered into a license
agreement with SRI under which it obtained an exclusive, worldwide, royalty
bearing license to make, use and sell pharmaceutical products containing
sustained release Naltrexone and Naltrexone derivatives. The license agreement
terminates upon the later of December 31, 2010 or the last Naltrexone Patent or
Southern Patent Rights.
In June 1996, the Company entered into an exclusive worldwide license with the
Scripps Research Institute ("Scripps") for certain patents relating to the
development and marketing of diagnostic and therapeutic products within the
field of cocaine addiction treatment. In exchange for the exclusive license, the
Company paid Scripps $8,000 and issued 18,460 shares of common stock. Upon the
achievement of certain milestones, the Company will issue additional common
shares aggregating 55,382. As additional consideration, Scripps will receive a
royalty ranging from 1% to 2% of net sales of licensed products.
- --------------------------------------------------------------------------------
F-10
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1999, the Company entered into manufacturing and license agreements with
Aventis Pasteur ("Pasteur"). Under the terms of the agreements, Pasteur has
agreed to manufacture and supply the COC-AB product, as well as license certain
patents for the treatment of drug addiction. As consideration for the license
agreement, the Company will pay Pasteur royalties ranging from 4% to 14%.
In June 1999, the Company entered into a research and development agreement with
the University of Paris V (the "University") whereby the Company is developing
COC-AB and related antibodies using the facilities and expertise of the
University. Under the terms of the agreement, the Company was granted worldwide
rights to all inventions related to and including COC-AB. In consideration for
the agreement, the Company will make royalty payments to the University at 1% of
COC-AB revenues, up to a maximum of the amount granted to the Company by the
University, for a period of five years from the date of the first commercial
sale of COC-AB.
NOTE 6--LONG-TERM OBLIGATIONS:
In June 1997, the Company entered into a multi-year research and development
loan, with a French government agency. The Company received approximately
$420,000 for the future research and development activities in 1997. The Company
performs research on a "best-effort" basis and the loan is repayable over a five
year period.
In November 1997, the Company entered into a line of credit with Banque
Nationale de Paris. The line of credit has a total capacity of approximately
$140,000 to finance research and development activities. The line of credit
bears interest at 6.25% with principal and interest payable semi-annually. The
line of credit terminates in November 2001.
In June 1999, the Company entered into a convertible note payable for $3,000,000
with a financial institution. The note and accrued interest (2% above US LIBOR)
is due on December 31, 2003. The note and accrued interest automatically convert
to Series D preferred stock in any private placement raising at least
$5 million prior to March 31, 2000 or into Series C preferred stock at the
option of the holder on March 31, 2000 (but not after) at a conversion price
equal to the Series C subscription price if no automatic conversion has taken
place. The Company may prepay the balance at any time after March 31, 2000. This
note converted into Series D preferred stock in connection with the preferred
round of financing.
Future repayments of the long-term obligations at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C>
2000........................................................ 108,282
2001........................................................ 142,492
2002........................................................ 122,118
---------
372,892
Less: current portion................................. 108,282
---------
$264,610
=========
</TABLE>
- --------------------------------------------------------------------------------
F-11
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMITMENTS:
The Company leases office space and equipment under noncancelable operating and
capital leases with various expiration dates through March 2004. Capital lease
obligations are collateralized by the equipment subject to the leases. The
Company is responsible for maintenance costs and property taxes on certain of
the operating leases. Rent expense for the years ended December 31, 1997, 1998
and 1999 and for the cumulative period from December 21, 1993 (date of
inception) to December 31, 1999 was nil, $13,500, $54,000 and $67,500,
respectively.
Future minimum lease payments under noncancelable operating and capital leases
at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
FOR THE PERIODS CAPITAL OPERATING
ENDING DECEMBER 31, LEASES LEASES
- -----------------------------------------------------------------------------
<S> <C> <C>
2000.................................................. $48,857 $40,500
2001.................................................. 48,857 --
2002.................................................. 48,857 --
2003.................................................. 22,527 --
2004.................................................. 2,310 --
-------- --------
Total minimum lease payments.......................... 171,408 $40,500
========
Less: Amount representing interest.................... 19,372
--------
Present value of capital lease obligations............ 152,036
Less: Current portion................................. 48,857
--------
$103,179
========
</TABLE>
NOTE 8--SHAREHOLDERS' EQUITY:
COMMON STOCK
At December 31, 1999, the Company had reserved sufficient shares of common stock
for issuance upon conversion of preferred stock and the exercise of stock
options and warrants. Common shareholders are entitled to dividends as and when
declared by the Board of Directors subject to the prior rights of the preferred
shareholders. The holders of each share of common stock are entitled to one
vote.
CONVERTIBLE PREFERRED STOCK:
SERIES D PREFERRED STOCK
In October 1999, the Company issued 2,236,557 shares of Series D convertible
preferred stock at a price of $4.7664 raising gross proceeds of $10,660,325.
Additionally, the Company's subsidiary in France, DrugAbuse Sciences, SAS,
issued 1,849 shares of common stock at a price of $6,303.1325 per share raising
gross proceeds of $11,654,492. The subsidiary's common shares are convertible
into 2,445,131 shares of the Company's Series D preferred stock at the option of
the Company or the holders. Such shares automatically convert upon certain
trigger events including (i) the filing of a registration statement with respect
to an underwritten public offering of the Company's common stock, or (ii) the
execution of a binding letter of intent to merge or consolidate the Company with
a third party, or (iii) the automatic conversion of all outstanding shares of
preferred stock into shares of
- --------------------------------------------------------------------------------
F-12
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
common stock. In connection with the sale of the Company's Series D preferred
stock and DrugAbuseSciences, SAS common stock, the Company issued 178,913
warrants to purchase Series D preferred stock. In addition, the Company has
committed to issue warrants to purchase 195,606 shares of Series D preferred
stock upon conversion of the subsidiary's common stock.
The convertible preferred stock comprise the following series at December 31,
1999:
<TABLE>
<CAPTION>
COMMON SHARES
NUMBER OF NUMBER OF SHARES RESERVED FOR LIQUIDATION
SHARES AUTHORIZED ISSUED AND OUTSTANDING CONVERSION VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A............... 375,556 375,556 375,556 $499,489
Series B............... 1,316,069 1,316,069 1,316,069 3,284,908
Series C............... 932,456 932,456 932,456 2,327,410
Series D............... 5,083,333 2,236,557 5,083,333 10,660,325
------------ -------------- ----------- -----------
7,707,414 4,860,638 7,707,414 $16,772,132
============ ============== =========== ===========
</TABLE>
DIVIDENDS
The holders of shares of Series A, Series B, Series C and Series D convertible
preferred stock are entitled to receive dividends, out of any assets legally
available, prior and in preference to any declaration or payment of any dividend
on the common stock of the Company, at the rate of eight percent of the $1.33,
$2.496, $2.496 and $4.766 per share, respectively, when, as and if declared by
the Board of Directors. Dividends on the Series A, Series B, Series C and
Series D convertible preferred stock shall not accrue unless declared by the
Board of Directors.
LIQUIDATION
In the event of any liquidation, dissolution or winding up for the Company,
either voluntary or involuntary, the holders of Series A, Series B, Series C and
Series D convertible preferred stock are entitled to receive, prior and in
preference to any distribution of any of the assets of the Company to the
holders of common stock by reason of their ownership, an amount per share equal
to $1.33, $2.496, $2.496 and $4.766, respectively, for each outstanding share of
convertible preferred stock, as adjusted for stock splits, stock dividends or
similar events, plus any accrued but unpaid dividends on such shares. If the
assets and funds distributed among the holders of Series A, Series B, Series C
and Series D convertible preferred stock are insufficient to permit the payment
in the full preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of Series A, Series B, Series C and Series D convertible
preferred stock in proportion to the full amounts to which they would otherwise
be respectively entitled.
After payment has been made to the holders of Series A, Series B, Series C and
Series D convertible preferred stock, any remaining assets and funds are to be
distributed among the holders of common stock and convertible preferred stock
ratably until such time as the Series A, Series B, Series C and Series D
convertible preferred shareholders have received an aggregate of $2.66, $4.992,
$4.992, $9.534 per share, respectively, thereafter any remaining assets will be
distributed to the holders of common stock.
- --------------------------------------------------------------------------------
F-13
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MERGERS
A merger, reorganization or sale of all or substantially all of the assets of
the Company in which the shareholders of the Company immediately prior to the
transaction possess less than 50% of the voting power of the surviving entity
(or its parent) immediately after the transaction shall be deemed to be a
liquidation, dissolution or winding up.
VOTING
The holder of each share of Series A, Series B, Series C and Series D
convertible preferred stock is entitled to the number of votes equal to the
number of shares of common stock into which each share of convertible preferred
stock could be converted, except as otherwise required by law, and has voting
rights and powers equal to the voting rights and powers of common stock. For as
long as fifty percent of the authorized shares of Series A and Series B
convertible preferred stock remain outstanding, each class shall have the right
to elect a member to the Board of Directors voting separately as individual
classes. For as long as forty-six percent of the authorized shares of Series D
convertible preferred stock remain outstanding, two directors shall be elected
by vote of the holders of the Series D convertible preferred stock voting as a
separate class. One director shall be elected by the holders of common stock and
the holders of Series A, Series B, Series C and Series D convertible preferred
stock, voting together with members of common stock as one class, shall be
entitled to elect the remaining directors.
CONVERSION
Each share of Series A, Series B, Series C and Series D convertible preferred
stock, at the option of the holder, is convertible into the number of fully paid
and nonassessable shares of common stock which results from dividing the
liquidation price for each respective series, $1.33, $2.496, $2.496 and $4.766,
respectively, by the respective conversion prices. The per share conversion
price of Series A Series B, Series C and Series D convertible preferred stock is
$1.33, $2.496, $2.496 and $4.766 respectively. Conversion is automatic
immediately (i) upon the closing of a sale of common stock by the Company in an
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended, in which (a) the aggregate gross proceeds
exceed $15,000,000 and (b) the public offering price equals or exceeds $10.50 or
(ii) at the election of the holders of sixty-seven percent of the then
outstanding Series A, Series B, Series C and Series D convertible preferred
stock, voting together as a single class on an as-converted basis, or (iii) or
at the election of the holders of two-thirds Series A and Series B convertible
preferred stock, voting together as a separate series and the holders of two
thirds of Series C and Series D convertible preferred stock, voting separately
as separate series.
PREFERRED STOCK DIVIDEND
1999 ACTIVITY
In October 1999, the Company sold 2,236,557 shares of Series D convertible
preferred stock at $4.7664 per share. The difference between the conversion
price and the deemed value per share of the common stock on the transaction date
resulted in a beneficial conversion feature in the amount of $9.7 million. The
beneficial conversion feature has been reflected as a preferred stock dividend
in the statement of operations for the year ended December 31, 1999.
- --------------------------------------------------------------------------------
F-14
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUBSEQUENT EVENT
In February 2000, the Company's subsidiary in France exchanged 1,849 shares of
its common stock for 2,445,131 shares of Series D preferred stock. The
difference between the conversion price and the deemed value per share of the
common stock on the transaction date resulted in a beneficial conversion feature
in the amount of $11.7 million that will be recorded in the first quarter of
fiscal year 2000. The beneficial conversion features we calculated in accordance
with Emerging Issues Task Force No. 98-5, "Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios".
NOTES RECEIVABLE FROM SHAREHOLDERS
In December 1999, certain officers exercised stock options in exchange for
short-term advances that were repaid in February 2000.
STOCK OPTION PLAN
In July 1994 and December 1999, the Company adopted the 1994 Stock Plan, and the
1999 A and 1999 B Stock Plans (the "Plans"), respectively, under which the Board
of Directors may issue incentive and non-qualified stock options to employees,
directors and consultants. The Board of Directors has the authority to determine
to whom options will be granted, the number of shares, the term and exercise
price. Options are to be granted at an exercise price not less than fair market
value for incentive stock options or 85% of fair market value for non-qualified
stock options. For individuals holding more than 10% of the voting rights of all
classes of stock, the exercise price of incentive stock options will not be less
than 110% of fair market value. The options are exercisable immediately upon the
Optionee entering into a Restricted Stock Purchase Agreement with respect to any
unvested options. Options generally vest and become exercisable annually at a
rate of 25% after the first year and 1/48 per month thereafter. The term of the
options is no longer than five years for incentive stock options for which the
grantee owns greater than 10% of the voting power of all classes of stock and no
longer than ten years for all other options.
- --------------------------------------------------------------------------------
F-15
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Activity under the Plans are as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER OF EXERCISE
GRANT SHARES PRICE
<S> <C> <C> <C>
Balances, December 31, 1996.............................. 137,582 279,418 $0.14
Granted................................................ (72,333) 72,333 0.17
Exercised.............................................. -- (14,500) 0.14
Cancelled.............................................. 15,500 (15,500) 0.14
---------- ---------- ------
Balances, December 31, 1997.............................. 80,749 321,751 0.14
Additional options reserved............................ 166,666 -- --
Granted................................................ (236,725) 236,725 0.30
Cancelled.............................................. 73,367 (73,367) 0.14
---------- ---------- ------
Balances, December 31, 1998.............................. 84,057 485,109 0.22
Additional options reserved............................ 1,749,999 -- --
Granted................................................ (1,595,532) 1,595,532 0.43
Exercised.............................................. -- (1,255,891) 0.45
Cancelled.............................................. 144,470 (144,470) 0.30
---------- ---------- ------
Balances, December 31, 1999.............................. 382,994 680,280 0.31
========== ========== ======
</TABLE>
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
AT DECEMBER 31, 1999
-------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE
- --------------- ----------- ------------ --------
<S> <C> <C> <C>
$0.14 187,959 6.48 years $0.14
$0.30 194,828 8.72 years $0.30
$0.45 297,493 9.96 years $0.45
----------
680,280
==========
</TABLE>
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." Had compensation cost for the Incentive Stock Plan been
determined based on the fair value at the grant date for awards during 1997,
1998 and 1999, consistent with the provisions of SFAS No. 123, the
- --------------------------------------------------------------------------------
F-16
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's pro forma net loss available to common shareholders and pro forma net
loss per share available to common shareholders would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1998 1999
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss available to common
shareholders as reported......... $(1,300,163) $(1,192,343) $(15,897,980)
Net loss available to common
shareholders pro forma........... $(1,302,972) $(1,195,984) $(15,921,159)
Net loss per share available to
common shareholders, as reported,
basic and diluted................ $(0.61) $(0.56) $(7.45)
Net loss per share available to
common shareholders, pro forma,
basic and diluted................ $(0.62) $(0.57) $(7.46)
</TABLE>
Such pro forma disclosures may not be representative of future compensation cost
because options vest over several years and additional grants are anticipated to
be made each year.
At December 31, 1997, 1998 and 1999, all options under the Plan were
exercisable. The Plan provides for employees to exercise their options at any
time. Unvested options are subject to repurchase by the Company at their
original exercise price upon termination of employment. The weighted average
fair values of options granted during 1997, 1998 and 1999 were $0.06, $0.07 and
$0.09, respectively.
The fair value of each option grant is estimated on the date of grant using the
minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998 1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.1% 6.2% 6.4%
Expected life..................................... 4 years 4 years 4 years
Expected dividends................................ -- -- --
</TABLE>
2000 STOCK INCENTIVE PLAN
In January 2000, the Board of Directors adopted the 2000 Stock Incentive Plan
(the "2000 Plan"). The Company reserved 750,000 shares of common stock for
issuance under the 2000 Plan. Additionally, any shares not yet issued under the
1999 Stock Plans are also available under the 2000 Plan. Beginning on
January 1, 2001, the number of shares in the reserve will automatically increase
by the lesser of 6% of the total number of shares of common stock that are
outstanding or by 2,000,000 shares. The 2000 Plan allows for the issuance of
nonstatutory and incentive stock options which will generally vest over the four
year period following the date of the grant and expire ten years after they are
granted. Upon a change of control, options will become fully vested if the
surviving corporation fails to assume an outstanding option or replace it with a
comparable option.
2000 EMPLOYEE STOCK PURCHASE PLAN
In January 2000, the Board of Directors adopted the 2000 Employee Stock Purchase
Plan ("2000 Purchase Plan"). The 2000 Purchase Plan is intended to qualify under
Section 423 of the Internal
- --------------------------------------------------------------------------------
F-17
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Code. The Company has reserved 375,000 shares of common stock for
issuance under the plan. On May 1 of each year, starting with the year 2001, the
number of shares in the reserve will automatically be restored to 375,000. All
employees are eligible to participate if they are employed by the Company for
more than 20 hours per week and for more than five months per year. Eligible
employees may begin participating in the 2000 Purchase Plan at the start of any
offering period, which lasts 24 months. Overlapping offering periods start on
May 1 and November 1 of each year. However, the first offering period will start
on the effective date of this offering and end on April 30, 2002.
The 2000 Purchase Plan permits each eligible employee to purchase common stock
through payroll deductions up to 15% of the employee's salary and commissions.
Purchases of our common stock will occur on April 30 and October 31 of each
year. The price of each share of common stock purchased under our 2000 Purchase
Plan will be 85% of the lower of the fair market value per share of common stock
on the date immediately before the first day of the applicable offering period,
or the fair market value per share of common stock on the purchase date.
Employees may end their participation in the 2000 Purchase Plan at any time,
although participation ends automatically upon termination of employment with
the Company.
2000 DIRECTORS' OPTION PLAN
Also in January 2000, the Board of Directors adopted the 2000 Directors' Option
Plan ("2000 Directors' Plan"). The Company has reserved 200,000 shares of common
stock for issuance under the plan. On January 1 of each year, starting with the
year 2001, the number of shares in the reserve will automatically be restored to
200,000. Only the non-employee members of the Board of Directors will be
eligible for option grants under the 2000 Directors' Plan. Each non-employee
director who first joins the board after the effective date of the offering will
receive an initial option for 20,000 shares. That grant will occur when the
director takes office. The initial options vest in equal monthly installments
over the four-year period following the date of grant, except that all vesting
for the first year occurs at the close of that year. At the time of each of the
annual shareholders' meetings, beginning in 2001, each non-employee director who
will continue to be a director after that meeting will automatically be granted
an annual option for 5,000 shares of common stock.
The exercise price of each non-employee director's option will be equal to the
fair market value of common stock on the option grant date. The non-employee
directors' options have a 10-year term, except that they expire one year after a
director leaves the board. If a change in control of the Company occurs, a
non-employee director's option granted under the 2000 Directors' Plan will
become fully vested. Vesting also accelerates in the event of the optionee's
death or disability.
DEFERRED STOCK COMPENSATION
During the period from inception through December 31, 1999, the Company recorded
$16,504,089 of deferred stock compensation in accordance with APB No. 25,
SFAS No. 123 and EITF 96-18, related to options granted to consultants and
employees in 1997, 1998 and 1999. The Company will record additional deferred
compensation of $4.2 million related to options to purchase common stock issued
subsequent to December 31, 1999. During this period the Company determined the
fair value of options granted to consultants using the Black-Scholes option
pricing model with the following assumptions: expected lives of four years;
weighted average risk-free rate of 5.75%; expected dividend yield of zero
percent; expected volatility of 50% and deemed values of common stock between
$0.14 and $11.05 per share. Stock compensation expense is being recognized in
accordance with FIN 28 over
- --------------------------------------------------------------------------------
F-18
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the vesting periods of the related options, generally four years. The Company
recognized stock compensation expense of $64,863, $180,798, $1,848,737 and
$2,094,398 for the years ended December 31, 1997, 1998 and 1999 and for the
cumulative period from December 21, 1993 (date of inception) to December 31,
1999, respectively.
WARRANTS
In connection with its license agreement with the Scripps Research Institute in
June 1996, the Company issued warrants to purchase 55,382 shares of common stock
at an exercise price of $0.14. The warrants expire in June 2016. The fair value
of these warrants determined using the Black-Scholes valuation model was not
considered material, and accordingly, no value was ascribed to them for
financial reporting purposes.
In connection with the Series B preferred stock issuance, the Company issued
warrants to purchase 1,815,912 shares of common stock with an exercise price of
$0.30. The warrants will become exerciseable only in the event of a merger or
sale of substantially all of the Company's assets or an initial public offering
with gross proceeds to the Company of $10 million and a price per share of at
least $12.00. The term of the warrants is five years.
In connection with the Series D convertible preferred stock issuance, the
Company issued 178,913 warrants to purchase Series D convertible preferred
stock. The warrants have an exercise price of $0.06 per share and will terminate
on November 30, 2001 or earlier upon the closing of certain events. The warrants
become exercisable only in the event that the Company has not completed on or
before April 26, 2001 either (i) an initial public offering with a valuation at
the expiration of the 180 day lock-up period following the closing of the
initial public offering of at least $150 million based on the average of the
closing prices of the Company's common stock for the twenty trading days ending
on the expiration of such 180 day period, or (ii) a merger or sale of all or
substantially all of the Company's assets resulting in proceeds of
$150 million.
In addition, the Company has committed to issue warrants to purchase 195,606
shares of Series D preferred stock upon conversion of the subsidiary's common
stock.
The warrants to purchase Series D preferred stock issued in connection with the
Series D financing are exercisable only in the event that the Company has not
successfully completed a qualified public offering by April 2001. As such, in
order to assign value to these warrants at the date of issuance, a probability
factor was given to the warrants related to probability of a public offering.
Based on various economic factors, the Company assigned a high probability to
the completion of a qualified public offering which results in an immaterial
value for the warrants. No expense has been recorded for the Series D warrants
and all the proceeds related to the Series D issuance have been allocated to
preferred stock and additional paid in capital.
NOTE 9--INCOME TAXES:
As of December 31, 1999, the Company has net operating loss carryforwards of
approximately $7.5 million for federal and state income tax purposes. The net
operating loss carryforwards expire primarily in the year 2019 for federal and
in 2006 for state purposes.
The Company's ability to utilize its net operating loss carryforwards to offset
future taxable income will be subject to annual limitations resulting from
changes in ownership, as defined in the Tax Reform Act of 1986.
- --------------------------------------------------------------------------------
F-19
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
----------- -----------
<S> <C> <C>
Net operating loss carryforwards............................ $1,172,000 $1,450,000
Other....................................................... 1,600 38,000
----------- -----------
Gross deferred tax asset................................ 1,173,600 1,488,000
Valuation allowance......................................... (1,173,600) (1,488,000)
----------- -----------
Net deferred tax assets................................. $-- $--
=========== ===========
</TABLE>
Under SFAS 109, "Accounting for Income Taxes", deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
Based upon the weight of available evidence, which includes the Company's
historical operating performance, the reported net losses for the period from
inception through December 31, 1999 and for the three years ended December 31,
1999, and the uncertainties regarding the Company's future results of
operations, a full valuation allowance has been provided against its net
deferred tax assets as it is more likely than not that the deferred tax assets
will not be realized.
- --------------------------------------------------------------------------------
F-20
<PAGE>
[DRUGABUSE SCIENCES LOGO]
Until , 2000 (25 days after the date of this prospectus), all
dealers selling shares of our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This delivery requirement is
in addition to the dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to their unsold allotments or subscriptions.
<PAGE>
- --------------------------------------------------------------------------------
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table presents the costs and expenses, other than underwriting
discounts and commissions, payable by us in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $18,216.00
NASD fee.................................................... 7,400.00
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 300,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 350,000
Blue sky fees and expenses.................................. 15,000
Custodian and transfer agent fees........................... 10,000
Miscellaneous fees and expenses............................. 104,384
----------
Total................................................... $1,500,000
==========
</TABLE>
- ---------
* Information to be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended and Restated Articles of Incorporation limit the personal liability
of our directors for monetary damages to the fullest extent permitted by the
California General Corporation Law (the "California Law"). Under the California
Law, a director's liability to a company or its shareholders may not be limited:
- - for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law,
- - for acts or omissions that a director believes to be contrary to the best
interest of our company or our shareholders or that involve the absence of
good faith on the part of the director,
- - for any transaction from which a director derived an improper personal
benefit,
- - for acts or omissions that show a reckless disregard for the director's duty
to our company or our shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the Registrant or its
shareholders,
- - for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to our company or our
shareholders,
- - under Section 310 of the California Law concerning contacts or transactions
between our company and a director, or
- - under Section 316 of the California Law concerning directors' liability for
improper dividends, loans and guarantees.
- --------------------------------------------------------------------------------
II-1
<PAGE>
PART II
- --------------------------------------------------------------------------------
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to our shareholders for any violation by a
director of the director's fiduciary duty to our company or our shareholders.
Our Articles of Incorporation also include an authorization for the company to
indemnify our "agents" (as defined in Section 317 of the California Law),
through bylaw provisions, by agreement or otherwise, to the fullest extent
permitted by law. Pursuant to this provision, the company's Bylaws provide for
indemnification of the company's directors, officers and employees. In addition,
the company, at its discretion, may provide indemnification to persons whom we
are not obligated to indemnify. The Bylaws also allow the company to enter into
indemnity agreements with individual directors, officers, employees and other
agents. These indemnity agreements have been entered into with all directors and
executive officers and provide the maximum indemnification permitted by law.
These agreements, together with the company's Bylaws and Articles of
Incorporation, may require us, among other things, to indemnify these directors
or executive officers (other than for liability resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification,
and to obtain directors' and officers' insurance if available on reasonable
terms. Section 317 of the California Law and the company's Bylaws make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities (including reimbursement of expense incurred) arising under the
Securities Act. We currently maintain directors' and officers' liability
insurance.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or agent in which indemnification will be required or
permitted. Moreover, we are not aware of any threatened litigation or proceeding
that might result in a claim for such indemnification. We believe that the
foregoing indemnification provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers. The Underwriting
Agreement (the form of which is filed as Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of our company and our officers and
directors, and by us of the Underwriters, for certain liabilities arising under
the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, we have issued and sold the following securities:
1. On March 28, 1997, we issued and sold an aggregate of 1,316,069 shares of
Series B Preferred Stock to a group of 26 investors for an aggregate
purchase price of $3,284,908.
2. On March 28, 1997, in connection with the Series B Preferred Stock
Financing, we issued and sold warrants to purchase 1,855,684 shares of
common stock to a group of 17 investors.
3. On March 17, 1999, we issued and sold an aggregate of 932,456 shares of
Series C Preferred Stock to a group of 29 investors for an aggregate
purchase price of $2,327,410.
4. On October 6, 1999, we issued and sold an aggregate of 2,236,557 shares of
Series D Preferred Stock to a group of 27 investors for an aggregate
purchase price of $10,660,409.49.
5. On October 6, 1999, in connection with the Series D Preferred Stock
Financing, we issued and sold warrants to purchase 178,913 shares of
Series D Preferred Stock to a group of 26 investors.
6. On October 6, 1999, our French subsidiary, DrugAbuse Sciences, SAS, issued
and sold an aggregate of 2,445,131 shares of the common stock of DrugAbuse
Sciences, SAS to a group of 9
- --------------------------------------------------------------------------------
II-2
<PAGE>
PART II
- --------------------------------------------------------------------------------
investors for an aggregate purchase price of $11,654,492.35. These shares
convert into shares of our Series D Preferred Stock upon certain
circumstances.
8. On January 31, 2000, we issued 2,445,131 shares of our Series D Preferred
Stock in connection with the exchange of 1,849 shares of DrugAbuse
Sciences, SAS.
9. On January 31, 2000, and in connection with the exchange of the DrugAbuse
Sciences, SAS shares, our French subsidiary, DrugAbuse Sciences, SAS issued
warrants to purchase 195,606 shares of Series D Preferred Stock to a group
of 9 investors.
From inception through January 20, 2000, we granted options to purchase
2,680,024 shares of common stock at exercise prices ranging from $0.045 to $0.45
per share to employees, consultants, directors, and other service providers
pursuant to our 1994 and 1999 stock plans.
The sale of the above securities was deemed to be exempt from registration under
the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving any public
offering or transactions under compensation benefit plans and contracts relating
to compensation as provided under Rule 701. The recipients of securities in each
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution and appropriate legends were affixed to the share certificates
issued in these transactions. All recipients had adequate access, through their
relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Our Amended and Restated Articles of Incorporation.
3.2 Form of Amended and Restated Articles of Incorporation to be
filed upon the closing of the offering made under this
Registration Statement.
3.3** Our Bylaws.
3.4 Our Amended and Restated Bylaws to be effective upon the
closing of the offering made under this Registration
Statement.
4.1** Amended and Restated Investors' Rights Agreement, dated
October 6, 1999.
4.2 Form of our Common Stock certificate.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1 Form of Indemnification Agreement entered into between us
and each of our directors and executive officers.
10.2** 1994 Stock Option Plan.
10.3** 1999 Stock Plan A.
10.4** 1999 Stock Plan B.
10.5 2000 Stock Incentive Plan.
10.6 2000 Employee Stock Purchase Plan.
</TABLE>
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II-3
<PAGE>
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
10.7 2000 Directors' Option Plan.
10.8** Sublease between Etak, Inc. and us dated October 1, 1998, as
amended.
10.9**+ Clinical Supply Agreement by and between the Registrant and
SP Pharmaceuticals, L.L.C. dated November 24, 1999.
10.10**+ Research Agreement with Option to License by and between us
and Southern Research Institute dated February 28, 1997.
10.11**+ Product License Agreement by and between us and Southern
Research Institute dated July 1, 1999.
10.12**+ Research Agreement with Option to License by and between us
and Southern Research Institute dated January 21, 2000.
10.13**+ Product License Agreement by and between us and Southern
Research Institute dated January 21, 2000.
10.14**+ License Agreement by and between us and SCRIPPS dated
June 18, 1996.
10.15**+ License Agreement by and between us and Pasteur Meriux
Serums & Vaccins dated June 8, 1999.
10.16**+ Manufacturing and Supply Agreement by and between us and
Pasteur Meriux Serums & Vaccins dated June 8, 1999.
10.17+ Research and Development Agreement by and between us and
University of Paris V dated June 8, 1999.
10.18+ Research and Development Agreement by and between us and
University of Paris V dated March 3, 2000.
16.1 Letter regarding change in certifying accountant.
21.1** List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
23.3 Consent of Patent Counsel.
24.1** Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission ("SEC"). The omitted information has been filed
separately with the SEC pursuant to the application for confidential
treatment.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information required to be presented
in them is not applicable or is shown in the consolidated financial statements
or related notes.
- --------------------------------------------------------------------------------
II-4
<PAGE>
PART II
- --------------------------------------------------------------------------------
ITEM 17. UNDERTAKINGS
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in the denominations and registered in the
names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
under the California Corporations Code, the Certificate of Incorporation or our
bylaws, the underwriting agreement, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission this indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against these
liabilities, other than the payment by us of expenses incurred or paid by a
director, officer, or controlling person of ours in the successful defense of
any action, suit or proceeding, is asserted by a director, officer or
controlling person in connection with the securities being registered in this
offering, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether this indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of this issue.
We undertake that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us under Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered, and
the offering of these securities at that time shall be deemed to be the
initial bona fide offering.
- --------------------------------------------------------------------------------
II-5
<PAGE>
- --------------------------------------------------------------------------------
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Menlo
Park, State of California, on this 7th day of March, 2000.
<TABLE>
<S> <C>
DRUGABUSE SCIENCES, INC.
By: /s/ PHILIPPE POULETTY, M.D.
--------------------------------------------
Philippe Pouletty, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C>
/s/ PHILIPPE POULETTY, M.D.
--------------------------------- Chairman of the Board and Chief March 7, 2000
Philippe Pouletty, M.D. Executive Officer
* Chief Financial Officer, Senior Vice
--------------------------------- President, Business Development and
Elizabeth M. Greetham Director
*
--------------------------------- Medical Director and Director
David E. Smith, M.D.
*
--------------------------------- Director
Raffy Kazandjian
*
--------------------------------- Director
Fred P. Phillips IV
*
--------------------------------- Director
Russell Ricci
*
--------------------------------- Director
Gordon Russell
*
--------------------------------- Director
Vincent Worms
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ PHILIPPE POULETTY, M.D.
--------------------------------------
Philippe Pouletty, M.D. March 7, 2000
ATTORNEY-IN-FACT
</TABLE>
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II-6
<PAGE>
- --------------------------------------------------------------------------------
Index to exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Our Amended and Restated Articles of Incorporation.
3.2 Form of Amended and Restated Articles of Incorporation to be
filed upon the closing of the offering made under this
Registration Statement.
3.3** Our Bylaws.
3.4 Our Amended and Restated Bylaws to be effective upon the
closing of the offering made under this Registration
Statement.
4.1** Amended and Restated Investors' Rights Agreement, dated
October 6, 1999.
4.2 Form of our Common Stock certificate.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1 Form of Indemnification Agreement entered into between us
and each of our directors and executive officers.
10.2** 1994 Stock Option Plan.
10.3** 1999 Stock Plan A.
10.4** 1999 Stock Plan B.
10.5 2000 Stock Incentive Plan.
10.6 2000 Employee Stock Purchase Plan.
10.7 2000 Directors' Option Plan.
10.8** Sublease between Etak, Inc. and us dated October 1, 1998, as
amended.
10.9**+ Clinical Supply Agreement by and between the Registrant and
SP Pharmaceuticals, L.L.C. dated November 24, 1999.
10.10**+ Research Agreement with Option to License by and between us
and Southern Research Institute dated February 28, 1997.
10.11**+ Product License Agreement by and between us and Southern
Research Institute dated July 1, 1999.
10.12**+ Research Agreement with Option to License by and between us
and Southern Research Institute dated January 21, 2000.
10.13**+ Product License Agreement by and between us and Southern
Research Institute dated January 21, 2000.
10.14**+ License Agreement by and between us and SCRIPPS dated June
18, 1996.
10.15**+ License Agreement by and between us and Pasteur Meriux
Serums & Vaccins dated June 8, 1999.
10.16**+ Manufacturing and Supply Agreement by and between us and
Pasteur Meriux Serums & Vaccins dated June 8, 1999.
10.17+ Research and Development Agreement by and between us and
University of Paris V dated June 8, 1999.
10.18+ Research and Development Agreement by and between us and
University of Paris V dated March 3, 2000.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
16.1 Letter regarding change in certifying accountant.
21.1** List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
23.3 Consent of Patent Counsel.
24.1** Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission ("SEC"). The omitted information has been filed
separately with the SEC pursuant to the application for confidential
treatment.
<PAGE>
Exhibit 1.1
[ ] Shares
Common Stock
($0.001 Par Value)
UNDERWRITING AGREEMENT
March [ ], 2000
<PAGE>
UNDERWRITING AGREEMENT
March [ ], 2000
Warburg Dillon Read LLC
FleetBoston Roberston Stephens Inc.
as Managing Underwriters
299 Park Avenue
New York, New York 10171-0026
Ladies and Gentlemen:
DrugAbuse Sciences, Inc., a California corporation (the Company),
proposes to issue and sell to the underwriters named in Schedule A annexed
hereto (the "Underwriters") an aggregate of ____shares (the "Firm Shares") of
Common Stock, $0.001 par value (the "Common Stock"), of the Company. In
addition, solely for the purpose of covering over-allotments, the Company
proposes to grant to the Underwriters the option to purchase from the Company up
to an additional ____ shares of Common Stock (the "Additional Shares"). The Firm
Shares and the Additional Shares are hereinafter collectively sometimes referred
to as the "Shares." The Shares are described in the Prospectus which is referred
to below.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively called the "Act"), with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (File No. 333-96049)
including a prospectus, relating to the Shares. The Company has furnished to
you, for use by the Underwriters and by dealers, copies of one or more
preliminary prospectuses (each thereof being herein called a "Preliminary
Prospectus") relating to the Shares. Except where the context otherwise
requires, the registration statement, as amended when it becomes effective,
including all documents filed as a part thereof, and including any information
contained in a prospectus subsequently filed with the Commission pursuant to
Rule 424(b) under the Act and deemed to be part of the registration statement at
the time of effectiveness pursuant to Rule 430(A) under the Act and also
including any registration statement filed pursuant to Rule 462(b) under the
Act, is herein called the Registration Statement, and the prospectus, in the
form filed by the Company with the Commission pursuant to Rule 424(b) under the
Act on or before the second business day after the date hereof (or such earlier
time as may be required under the Act) or, if no such filing is required, the
form of final prospectus included in the Registration Statement at the time it
became effective, is herein called the Prospectus.
<PAGE>
The Company and the Underwriters agree as follows:
1. SALE AND PURCHASE. Upon the basis of the warranties and
representations and subject to the terms and conditions herein set forth, the
Company agrees to sell to the respective Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company the
aggregate number of Firm Shares set forth opposite the name of such Underwriter
in Schedule A attached hereto in each case at a purchase price of $[ ] per
Share. The Company is advised by you that the Underwriters intend (i) to make a
public offering of their respective portions of the Firm Shares as soon after
the effective date of the Registration Statement as in your judgment is
advisable and (ii) initially to offer the Firm Shares upon the terms set forth
in the Prospectus. You may from time to time increase or decrease the public
offering price after the initial public offering to such extent as you may
determine.
In addition, the Company hereby grants to the several Underwriters the
option to purchase, and upon the basis of the warranties and representations and
subject to the terms and conditions herein set forth, the Underwriters shall
have the right to purchase, severally and not jointly, from the Company, ratably
in accordance with the number of Firm Shares to be purchased by each of them,
all or a portion of the Additional Shares as may be necessary to cover
over-allotments made in connection with the offering of the Firm Shares, at the
same purchase price per share to be paid by the Underwriters to the Company for
the Firm Shares. This option may be exercised by you on behalf of the several
Underwriters at any time (but not more than once) on or before the thirtieth day
following the date hereof, by written notice to the Company. Such notice shall
set forth the aggregate number of Additional Shares as to which the option is
being exercised, and the date and time when the Additional Shares are to be
delivered (such date and time being herein referred to as the additional time of
purchase); PROVIDED, HOWEVER, that the additional time of purchase shall not be
earlier than the time of purchase (as defined below) nor earlier than the second
business day(1) after the date on which the option shall have been exercised nor
later than the tenth business day after the date on which the option shall have
been exercised. The number of Additional Shares to be sold to each Underwriter
shall be the number which bears the same proportion to the aggregate number of
Additional Shares being purchased as the number of Firm Shares set forth
opposite the name of such Underwriter on Schedule A hereto bears to the total
number of Firm Shares (subject, in each case, to such adjustment as you may
determine to eliminate fractional shares).
- --------
(1) As used herein "business day" shall mean a day on which the New York Stock
Exchange is open for trading.
2
<PAGE>
2. PAYMENT AND DELIVERY. Payment of the purchase price for the Firm
Shares shall be made to the Company by Federal Funds wire transfer, against
delivery of the certificates for the Firm Shares to you through the facilities
of the Depository Trust Company (DTC) for the respective accounts of the
Underwriters. Such payment and delivery shall be made at 10:00 A.M., New York
City time, on March ___, 2000 (unless another time shall be agreed to by you and
the Company or unless postponed in accordance with the provisions of Section 8
hereof). The time at which such payment and delivery are actually made is
hereinafter sometimes called the time of purchase. Certificates for the Firm
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding the time
of purchase. For the purpose of expediting the checking of the certificates for
the Firm Shares by you, the Company agrees to make such certificates available
to you for such purpose at least one full business day preceding the time of
purchase.
Payment of the purchase price for the Additional Shares shall be made
at the additional time of purchase in the same manner and at the same office as
the payment for the Firm Shares. Certificates for the Additional Shares shall be
delivered to you in definitive form in such names and in such denominations as
you shall specify no later than the second business day preceding the additional
time of purchase. For the purpose of expediting the checking of the certificates
for the Additional Shares by you, the Company agrees to make such certificates
available to you for such purpose at least one full business day preceding the
additional time of purchase.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each of the Underwriters that:
(a) the Company has not received, and has no notice of, any
order of the Commission preventing or suspending the use of any Preliminary
Prospectus, or instituting proceedings for that purpose, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act; and when the Registration Statement becomes
effective, the Registration Statement and the Prospectus will fully comply in
all material respects with the provisions of the Act, and the Registration
Statement will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement have been so described or filed; PROVIDED, HOWEVER, that
the Company makes no warranty or representation with respect to any
3
<PAGE>
statement contained in the Registration Statement or the Prospectus in reliance
upon and in conformity with information concerning the Underwriters and
furnished in writing by or on behalf of any Underwriter through you to the
Company expressly for use in the Registration Statement or the Prospectus; and
the Company has not distributed any offering material in connection with the
offering or sale of the Shares other than the Registration Statement, the
Preliminary Prospectus, the Prospectus or any other materials, if any, permitted
by the Act;
(b) as of the date of this Agreement, the Company has an
authorized capitalization as set forth under the heading entitled "Actual" in
the section of the Registration Statement and the Prospectus entitled
"Capitalization" and, as of the time of purchase and the additional time of
purchase, as the case may be, the Company shall have an authorized
capitalization as set forth under the headings entitled "Pro Forma" and "Pro
Forma As Adjusted" in the section of the Registration Statement and the
Prospectus entitled "Capitalization," all of the issued and outstanding shares
of capital stock including Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable, have been
issued in compliance with all federal and state securities laws and were not
issued in violation of any preemptive right, resale right, right of first
refusal or similar right;
(c) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
California with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement;
(d) the Company is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction where the ownership or leasing
of its properties or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the business, properties, condition, operations, or prospects of the Company
and its Subsidiaries (as hereinafter defined) taken as a whole (a "Material
Adverse Effect"). The Company has no subsidiaries (as defined in the Rules and
Regulations) other than those set forth in Schedule B annexed hereto
(collectively, the "Subsidiaries"); the Company owns 100% of the outstanding
common stock of the Subsidiaries, except as otherwise described on Schedule B;
other than the Subsidiaries, the Company does not own, directly or indirectly,
any shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity; complete and correct copies of the certificates of
incorporation and of the bylaws of the Company and the Subsidiaries and all
amendments thereto have been delivered to you, and except as set forth in the
exhibits to the Registration Statement no changes therein will be made
subsequent to the date hereof and prior to the Closing Date or, if later, the
Option Closing Date; each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with full
4
<PAGE>
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement; each Subsidiary
is duly qualified to do business as a foreign corporation in good standing in
each jurisdiction where the ownership or leasing of the properties or the
conduct of its business requires such qualification, except where the failure to
so qualify would not have a Material Adverse Effect; all of the outstanding
shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued, are fully paid and non-assessable and (except as otherwise
described in this Section 3(d)) are owned by the Company subject to no security
interest, other encumbrance or adverse claims; no options, warrants or other
rights to purchase, agreements or other obligations to issue or other rights to
convert any obligation into shares of capital stock or ownership interests in
the Subsidiaries are outstanding.
(e) the Company and each of its Subsidiaries are in compliance in
all material respects with the laws, orders, rules, regulations and directives
issued or administered by all jurisdictions in which they conduct their
respective businesses;
(f) neither the Company nor any of its Subsidiaries is in breach
of, or in default under (nor has any event occurred which with notice, lapse of
time, or both would result in any breach of, or constitute a default under), its
respective charter or by-laws or in the performance or observance of any
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust, bank loan or credit agreement or other evidence of
indebtedness, or any lease, contract or other agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which any of them or any
of their properties is bound, and the execution, delivery and performance of
this Agreement, the issuance and sale of the Shares and the consummation of the
transactions contemplated hereby will not conflict with, or result in any breach
of or constitute a default under (nor constitute any event which with notice,
lapse of time, or both would result in any breach of, or constitute a default
under), any provisions of the charter or by-laws, of the Company or any of its
Subsidiaries or under any provision of any license, indenture, mortgage, deed of
trust, bank loan or credit agreement or other evidence of indebtedness, or any
lease, contract or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of them or their respective
properties may be bound or affected, or under any federal, state, local or
foreign law, regulation or rule or any decree, judgment or order applicable to
the Company or any of its Subsidiaries;
(g) this Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement of the
Company enforceable in accordance with its terms;
5
<PAGE>
(h) the certificates for the Shares are in due and proper form
and the holders of the Shares will not be subject to personal liability by
reason of being such holders;
(i) the Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be duly
and validly issued and fully paid and non-assessable;
(j) no approval, authorization, consent or order of or filing
with any national, state or local governmental or regulatory commission, board,
body, authority or agency is required in connection with the issuance and sale
of the Shares or the consummation by the Company of the transactions as
contemplated hereby other than registration of the Shares under the Act and any
necessary qualification under the securities or blue sky laws of the various
jurisdictions in which the Shares are being offered by the Underwriters or under
the rules and regulations of the National Association of Securities Dealers,
Inc. ("NASD");
(k) no person has the right, contractual or otherwise, to cause
the Company to issue to it, or register pursuant to the Act, any shares of
capital stock of the Company upon the issue and sale of the Shares to the
Underwriters hereunder, nor does any person have preemptive rights, co-sale
rights, rights of first refusal or other rights to purchase any of the Shares
other than those that have been expressly waived prior to the date hereof;
copies of all such waivers have been delivered to you;
(l) PriceWaterhouse Coopers LLP, whose reports on the
consolidated financial statements of the Company and its Subsidiaries are filed
with the Commission as part of the Registration Statement and Prospectus, are
independent public accountants as required by the Act;
(m) each of the Company and its Subsidiaries has all necessary
licenses, authorizations, consents and approvals and has made all necessary
filings required under any federal, state, local or foreign law, regulation or
rule, including rules and regulations promulgated by the Food and Drug
Administration (the "FDA") of the U.S. Department of Health and Human Services
and/or any committee thereof, and has obtained all necessary authorizations,
consents and approvals from other persons, in order to conduct its respective
business; neither the Company nor any of its Subsidiaries is in violation of, or
in default under, any such license, authorization, consent or approval or any
federal, state, local or foreign law, regulation or rule or any decree, order or
judgment applicable to the Company or any of its Subsidiaries the effect of
which could have a Material Adverse Effect;
(n) all legal or governmental proceedings, contracts, leases or
documents of a character required to be described in the Registration Statement
or the Prospectus
6
<PAGE>
or to be filed as an exhibit to the Registration Statement have been so
described or filed as required;
(o) there are no actions, suits, claims, investigations or
proceedings pending or threatened to which the Company or any of its
Subsidiaries or any of their respective officers is a party or of which any of
their respective properties is subject at law or in equity, or before or by any
federal, state, local or foreign governmental or regulatory commission, board,
body, authority or agency which could result in a judgment, decree or order
having a Material Adverse Effect or prevent consummation of the transactions
contemplated hereby;
(p) the financial statements included in the Registration
Statement and the Prospectus present fairly the consolidated financial position
of the Company and its Subsidiaries as of the dates indicated and the
consolidated results of operations and cash flows of the Company and its
Subsidiaries for the periods specified; such financial statements have been
prepared in conformity with generally accepted accounting principles (with the
exception of notes to the information presented with respect to the nine months
ended September 30, 1999) applied on a consistent basis during the periods
involved;
(q) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been (i)
any material adverse change, or any development which, in the Company's
reasonable judgment, is likely to have Material Adverse Effect, (ii) any
transaction which is material to the Company or its Subsidiaries, except
transactions in the ordinary course of business, (iii) any obligation, direct or
contingent, which is material to the Company and its Subsidiaries taken as a
whole, incurred by the Company or its Subsidiaries, except obligations incurred
in the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company or its Subsidiaries or (v) any dividend
or distribution of any kind declared, paid or made on the capital stock of the
Company. Neither the Company nor its Subsidiaries has any material contingent
obligation which is not disclosed in the Registration Statement.
(r) the Company has obtained the agreement of each of its
directors, officers and stockholders not to sell, offer to sell, contract to
sell, hypothecate, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock or securities convertible into or
exchangeable for Common Stock or warrants or other rights to purchase Common
Stock for a period of 180 days after the effective date of the Registration
Statement;
(s) the Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment
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company," as such terms are defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act");
(t) the Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) Except to the extent disclosed in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), the clinical,
preclinical and other studies and tests conducted by or on behalf of or
sponsored by the Company or in which the Company or the Company's products under
development have participated that are described in the Prospectus or the
results of which are referred to in the Prospectus were and, if still pending,
are being conducted in accordance with standard medical and scientific research
procedures. The descriptions of the results of such studies and tests are
accurate and complete in all material respects and fairly present the data
derived from such studies and tests, and the Company has not knowledge of any
other studies or tests the results of which are inconsistent with or otherwise
call into question the results described or referred to in the Prospectus.
Except to the extent disclosed in the Registration Statement and the Prospectus
(or any amendment or supplement thereto), the Company has operated and currently
is in compliance in all material respects with all applicable FDA rules,
regulations and policies. Except to the extent disclosed in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), the
Company has not received any notices or other correspondence from the FDA or any
other governmental agency requiring the termination, suspension or modification
of any clinical or pre-clinical studies or tests that are described in the
Prospectus or the results of which are referred to in the Prospectus.
(v) the Company is (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received and is in compliance with all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct its businesses
and (iii) has not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or toxic
substances or wastes, pollutants or contaminants, except where such
non-compliance with Environmental Laws, failure to receive required permits,
licenses or other approvals, or liability would not,
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individually or in the aggregate, have a Material Adverse Effect, whether or not
arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto). The Company has not been named as a "potentially responsible party"
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended.
(w) the Company owns, possesses, licenses or has other rights to
use, on reasonable terms, all patents, patent applications, trade and service
marks, trade and service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets, technology, know-how and other intellectual property
(collectively, the "Intellectual Property") reasonably necessary for the conduct
of the Company's business as now conducted or as proposed in the Prospectus to
be conducted. Except as set forth in the Prospectus under the caption "Business
- - Patents and Proprietary Information," (a) there are no rights of third parties
to any such Intellectual Property; (b) there is no infringement by third parties
of any such Intellectual Property; (c) there is no pending or, to the Company's
knowledge, threatened action, suit, proceeding or claim by others challenging
the Company's rights in or to any such Intellectual Property, and the Company is
unaware of any facts which would form a reasonable basis for any such claim; (d)
there is no pending or threatened action, suit, proceeding or claim by others
challenging the validity or scope of any such Intellectual Property, and the
Company is unaware of any facts which would form a reasonable basis for any such
claim; (e) there is no pending or, to the Company's knowledge threatened action,
suit, proceeding or claim by others that the Company infringes or otherwise
violates any patent, trademark, copyright, trade secret or other proprietary
rights of others, and the Company is unaware of any other fact which would form
a reasonable basis for any such claim; (f) to the best of the Company's
knowledge there is no U.S. patent or published U.S. patent application which
contains claims that dominate in the Prospectus as being owned by or licensed to
the Company or that interferes with the issued or pending claims of any such
Intellectual Property; and (g) to the best of the Company's knowledge there is
no prior art of which the Company is aware that may render any U.S. patent held
by the Company invalid or any U.S. patent application held by the Company
unpatentable which has not been disclosed to the U.S. Patent and Trademark
Office.
(x) the statements contained in the Prospectus under the captions
"Risk Factors - Our business depends on the existence of collaborative
relationships to be successful," "--We may incur substantial costs as a result
of litigation or other proceedings relating to patent and other intellectual
property rights," "-- The rights we rely upon to protect our trade secrets may
not be adequate, enabling third parties to use our technology" and"Business -
Collaborations," "--Licensing Agreements," "--Patents and Proprietary
Information," insofar as such statements summarize legal matters, agreements,
documents, or proceedings discussed therein, are accurate and fair summaries of
such legal matters, agreements, documents or proceedings.
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<PAGE>
(y) the Company has not received nor is it aware of any
communication (written or oral) relating to the termination or modification or
threatened termination or modification of any of the agreements described or
referred to in the prospectus under the captions "Risk Factors - Our business
depends on the existence of collaborative relationships to be successful,"
"Business - Collaborations," and "Licensing Agreements," nor is it aware of any
communication (written or oral) relating to any determination or threatened
determination not to renew or extend any agreement described or referred to
under such caption is at the end of the current term of any such agreement.
(z) all representations and warranties made by the Company and
its Subsidiary, DrugAbuse Sciences S.A.S., a societe par actions simplifiee
("DAS SAS") in the Exchange Agreement dated as of October ___, 1999 (the
"Exchange Agreement), by and among the Company and DAS SAS are true and correct
in all respects on and of the date hereof and shall be true and correct in all
respects as of the date of the closing of the DAS SAS purchase of the Firm
Shares and the Additional Shares, as the case may be, as if made by the Company
and DAS SAS, as the case may be, on and as of such dates.
(aa) the exchange of the Exchange Shares (as defined in the
Exchange Agreement) for the Shares (as defined in the Exchange Agreement) (the
"Exchange") was completed on February ___, 2000 (the "Effective Date"). Each of
the Investors (as defined in the Exchange Agreement) has delivered duly executed
Transfer Orders (as defined in the Exchange Agreement) in respect of all the
Shares, sufficient to convey good title to the Shares to the Company as of the
Effective Date and such transfers have been duly recorded in the share transfer
register ("REGISTRE DE MOUVEMENTS TITRES") of DAS SAS. Any transfer taxes or
similar levies that were or may become payable as a result of the execution of
the Exchange Agreement or the completion of the Exchange have been paid.
(bb) the Shares acquired by the Company pursuant to the Exchange
constitute all of the equity interests in DAS SAS which were not held by the
Company on the Effective Date immediately prior to the Exchange and were
acquired by the Company, together with all rights (whether economic, voting or
otherwise) then or thereafter attaching thereto, free and clear of all pledges,
liens, privileges, mortgages, charges, community property interests, security
interests, burdens, encumbrances, as well as any agreements, options,
undertakings, rights of first offer, rights of pre-emption or any other rights
of third parties, or other obligations restrictions or limitations of any nature
whatsoever. The Exchange Shares issued to each Investor constitute the total
consideration paid or payable to such Investor for the Shares and no Investor
retained any interest whatsoever (whether economic, voting or otherwise) in DAS
SAS upon consummation of the Exchange.
(cc) the consummation of the Exchange, does not and will not:
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conflict with or violate any provision of the STATUTS of DAS SAS, the articles
of incorporation or other governing documents ("Organizational Documents") of
the Company, or if any Investor is a corporation or a partnership, the
Organizational Documents of such Investor;
violate, conflict with or result in the breach or termination of, or constitute
a default, event of default (or an event which with notice, lapse of time, or
both, would constitute a default or event of default), under the terms of, (i)
any written contracts, agreements, commitments, leases, licenses, mortgages,
bonds, notes or other undertakings or (ii) any permits, authorizations,
approvals, registrations and licenses, grants, subsidies or financial assistance
granted by or obtained from any governmental, administrative or regulatory body,
department agency, commission, authority or similar instrumentality
("Governmental Authority") to which the Company or DAS SAS is a party;
Constitute a violation by the Company, DAS SAS or any of the Investors of any
applicable laws, rules or regulations of any Governmental Authority or any
judgments, orders, rulings or awards of any court, arbitrator or other judicial
authority or any other Governmental Authority to the Company or DAS SAS are
subject.
(dd) the sale and issuance of the Exchange Shares in accordance
with the Exchange constitutes transactions exempt from the registration
requirements of Section 5 of the Act were effected in compliance, in all
respects, with applicable U.S. state securities laws, do not constitute an
"APPEL PUBLIC A L'EPARGNE" as defined for French law purposes in article 6-I al.
1 of the ordinance no. 67-833 of September 28, 1967 as modified by law no.
98-546 of July 2, 1998 or a private placement subject to the information
requirements set forth in the COMMISSION DES OPERATIONS DE BOURSE regulation no.
98-09 and shall not otherwise cause the Company or DAS SAS to become subject to
any requirements imposed by French law upon companies deemed for French law
purposes to have made an offering of securities to the public.
(ee) no consent, waiver, approval, authorization, exemption,
registration, license or declaration of or by, or filing with, any Governmental
Authority or any third party was required to be made or obtained by any of the
Company, DAS SAS, or any of the Investors in connection with the consummation of
the Exchange.
4. CERTAIN COVENANTS OF THE COMPANY. The Company hereby agrees:
(a) to furnish such information as may be required and otherwise
to cooperate in qualifying the Shares for offering and sale under the securities
or blue sky laws of such states as you may designate and to maintain such
qualifications in effect so long as required for the distribution of the Shares;
PROVIDED that the Company shall not be required to qualify as a foreign
corporation or to consent to the service of process under the laws of any such
state (except service of process with respect to the offering and sale of the
Shares); and
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to promptly advise you of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose;
(b) to make available to the Underwriters in New York City, as
soon as practicable after the Registration Statement becomes effective, and
thereafter from time to time to furnish to the Underwriters, as many copies of
the Prospectus (or of the Prospectus as amended or supplemented if the Company
shall have made any amendments or supplements thereto after the effective date
of the Registration Statement) as the Underwriters may request for the purposes
contemplated by the Act; in case any Underwriter is required to deliver a
prospectus within the nine-month period referred to in Section 10(a)(3) of the
Act in connection with the sale of the Shares, the Company will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act;
(c) to advise you promptly and (if requested by you) to confirm
such advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment thereto becomes effective and (ii) if Rule
430A under the Act is used, when the Prospectus is filed with the Commission
pursuant to Rule 424(b) under the Act (which the Company agrees to file in a
timely manner under such Rules);
(d) to advise you promptly, confirming such advice in writing, of
any request by the Commission for amendments or supplements to the Registration
Statement or Prospectus or for additional information with respect thereto, or
of notice of institution of proceedings for, or the entry of a stop order
suspending the effectiveness of the Registration Statement and, if the
Commission should enter a stop order suspending the effectiveness of the
Registration Statement, to make every reasonable effort to obtain the lifting or
removal of such order as soon as possible; to advise you promptly of any
proposal to amend or supplement the Registration Statement or Prospectus and to
file no such amendment or supplement to which you shall object in writing;
(e) to file promptly all reports and any definitive proxy or
information statement required to be filed by the Company with the Commission in
order to comply with the Exchange Act subsequent to the date of the Prospectus
and for so long as the delivery of a prospectus is required in connection with
the offering or sale of the shares, and to promptly notify you of such filing;
(f) if necessary or appropriate, to file a registration statement
pursuant to Rule 462(b) under the Act;
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(g) to furnish to you and, upon request, to each of the other
Underwriters for a period of five years from the date of this Agreement (i)
copies of any reports or other communications which the Company shall send to
its stockholders or shall from time to time publish or publicly disseminate,
(ii) copies of all annual, quarterly and current reports filed with the
Commission on Forms 10-K, 10-Q and 8-K, or such other similar form as may be
designated by the Commission, (iii) copies of documents or reports filed with
any national securities exchange on which any class of securities of the Company
is listed, and (iv) such other information as you may reasonably request
regarding the Company or its Subsidiaries, in each case as soon as such
communications, documents or information becomes available;
(h) to advise the Underwriters promptly of the happening of any
event known to the Company within the time during which a Prospectus relating to
the Shares is required to be delivered under the Act which, in the judgment of
the Company, would require the making of any change in the Prospectus then being
used, so that the Prospectus would not include an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they are made, not misleading,
and, during such time, to prepare and furnish, at the Company's expense, to the
Underwriters promptly such amendments or supplements to such Prospectus as may
be necessary to reflect any such change and to furnish you a copy of such
proposed amendment or supplement before filing any such amendment or supplement
with the Commission;
(i) to make generally available to its security holders, and to
deliver to you, an earnings statement of the Company (which will satisfy the
provisions of Section 11(a) of the Act) covering a period of twelve months
beginning after the effective date of the Registration Statement (as defined in
Rule 158(c) of the Act) as soon as is reasonably practicable after the
termination of such twelve-month period but not later than [ ], 2001;
(j) to furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and of cash flow of the Company for
such fiscal year, accompanied by a copy of the certificate or report thereon of
nationally recognized independent certified public accountants;
(k) to furnish to you three signed copies of the Registration
Statement, as initially filed with the Commission, and of all amendments thereto
(including all exhibits thereto and sufficient conformed copies of the foregoing
(other than exhibits) for distribution of a copy to each of the other
Underwriters;
(l) to furnish to you as early as practicable prior to the time
of purchase and the additional time of purchase, as the case may be, but not
later than two business days
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prior thereto, a copy of the latest available unaudited interim consolidated
financial statements, if any, of the Company and its Subsidiaries which have
been read by the Company's independent certified public accountants, as stated
in their letter to be furnished pursuant to Section 6(b) hereof;
(m) to apply the net proceeds from the sale of the Shares in the
manner set forth under the caption "Use of Proceeds" in the Prospectus;
(n) to pay all costs, expenses, fees and taxes (other than any
transfer taxes and fees and disbursements of counsel for the Underwriters except
as set forth under Section 5 hereof and (iii), (iv) and (vi) below) in
connection with (i) the preparation and filing of the Registration Statement,
each Preliminary Prospectus, the Prospectus, and any amendments or supplements
thereto, and the printing and furnishing of copies of each thereof to the
Underwriters and to dealers (including costs of mailing and shipment), (ii) the
registration, issue, sale and delivery of the Shares, (iii) the producing, word
processing and/or printing of this Agreement, any Agreement Among Underwriters,
any dealer agreements, any Powers of Attorney and any closing documents
(including compilations thereof) and the reproduction and/or printing and
furnishing of copies of each thereof to the Underwriters and (except closing
documents) to dealers (including costs of mailing and shipment), (iv) the
qualification of the Shares for offering and sale under state laws and the
determination of their eligibility for investment under state law as aforesaid
(including the legal fees and filing fees and other disbursements of counsel for
the Underwriters) and the printing and furnishing of copies of any blue sky
surveys or legal investment surveys to the Underwriters and to dealers, (v) any
listing of the Shares on any securities exchange or qualification of the Shares
for quotation on NASDAQ and any registration thereof under the Exchange Act,
(vi) any filing for review of the public offering of the Shares by the NASD and
(vii) the performance of the Company's other obligations hereunder;
(o) to furnish to you, before filing with the Commission
subsequent to the effective date of the Registration Statement and during the
period referred to in paragraph (f) above, a copy of any document proposed to be
filed pursuant to Section 13, 14 or 15(d) of the Exchange Act;
(p) not to sell, offer or agree to sell, contract to sell, grant
any option to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock or warrants or other rights to purchase Common Stock or any
other securities of the Company that are substantially similar to Common Stock
or permit the registration under the Act of any shares of Common Stock, except
for the registration of the Shares and the sales to the Underwriters pursuant to
this Agreement and except for issuances of Common Stock upon the exercise of
outstanding
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options, warrants and debentures, for a period of 180 days after the date
hereof, without the prior written consent of Warburg Dillon Read ("WDR"); and
(q) to use its best efforts to cause the Common Stock for
quotation on the National Association of Securities Dealers Automated Quotation
National Market System ("NASDAQ").
5. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Shares are not
delivered for any reason other than the termination of this Agreement pursuant
to the first two paragraphs of Section 8 hereof or the default by one or more of
the Underwriters in its or their respective obligations hereunder, the Company
shall, in addition to paying the amounts described in Section 4(n) hereof,
reimburse the Underwriters for all of their out-of-pocket expenses, including
the fees and disbursements of their counsel.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters hereunder are subject to the accuracy of the representations
and warranties on the part of the Company on the date hereof and at the time of
purchase (and the several obligations of the Underwriters at the additional time
of purchase are subject to the accuracy of the representations and warranties on
the part of the Company on the date hereof and at the time of purchase (unless
previously waived) and at the additional time of purchase, as the case may be),
the performance by the Company of its obligations hereunder and to the following
additional conditions precedent:
(a) The Company shall furnish to you at the time of purchase and
at the additional time of purchase, as the case may be, an opinion of Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Company,
addressed to the Underwriters, and dated the time of purchase or the additional
time of purchase, as the case may be, with reproduced copies for each of the
other Underwriters and in form satisfactory to Brobeck, Phleger & Harrison, LLP,
counsel for the Underwriters, stating that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement
and the Prospectus, to execute and deliver this Agreement and to issue, sell and
deliver the Shares as herein contemplated;
(ii) each of the Subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of its
respective jurisdiction of incorporation with full corporate power and authority
to own, lease and operate its respective properties and to conduct its
respective business;
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(iii) the Company and its Subsidiaries are duly qualified or
licensed by each jurisdiction in which they conduct their respective businesses
and in which the failure, individually or in the aggregate, to be so licensed or
qualified could have a Material Adverse Effect and the Company and its
Subsidiaries are duly qualified, and are in good standing, in each jurisdiction
in which they own or lease real property or maintain an office and in which such
qualification is necessary;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) the Shares have been duly authorized and, when issued
and delivered to and paid for by theUnderwriters, will be validly issued and
will be fully paid and non-assessable;
(vi) the Company has an authorized capitalization as set
forth in the Registration Statement and the Prospectus; the outstanding shares
of capital stock of the Company have been duly and validly authorized and issued
and are fully paid, nonassessable and free of statutory and contractual
preemptive rights, resale rights, rights of first refusal and similar rights;
the Shares when issued will be free of statutory and contractual preemptive
rights; the certificates for the Shares are in due and proper form and the
holders of the Shares will not be subject to personal liability by reason of
being such holders;
(vii) other than the Subsidiaries, the Company does not own
or control, directly or indirectly, any corporation, association or other
entity; each Subsidiary has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement; each Subsidiary is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction where the ownership or leasing
of the properties or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a Material Adverse Effect;
all of the outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and non-assessable and,
except as otherwise stated in the Registration Statement, are owned by the
Company, in each case subject to no security interest, other encumbrance or
adverse claim; to the best of such counsel's knowledge, no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligation into shares of capital stock or ownership
interests in the Subsidiaries are outstanding;
(viii) the capital stock of the Company, including the
Shares, conforms to the description thereof contained in the Registration
Statement and Prospectus;
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(ix) the Registration Statement and the Prospectus (except
as to the financial statements and schedules and other financial and statistical
data contained or incorporated by reference therein, as to which such counsel
need express no opinion) comply as to form in all material respects with the
requirements of the Act;
(x) the Registration Statement has become effective under
the Act and, to the best of such counsel's knowledge, no stop order proceedings
with respect thereto are pending or threatened under the Act and any required
filing of the Prospectus and any supplement thereto pursuant to Rule 424 under
the Act has been made in the manner and within the time period required by such
Rule 424;
(xi) no approval, authorization, consent or order of or
filing with any national, state or local governmental or regulatory commission,
board, body, authority or agency is required in connection with the issuance and
sale of the Shares and consummation by the Company of the transactions as
contemplated hereby other than registration of the Shares under the Act (except
such counsel need express no opinion as to any necessary qualification under the
state securities or blue sky laws of the various jurisdictions in which the
Shares are being offered by the Underwriters);
(xii) the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not conflict with, or result in any breach
of, or constitute a default under (nor constitute any event which with notice,
lapse of time, or both, would result in any breach of, or constitute a default
under), any provisions of the charter or by-laws of the Company or any of its
Subsidiaries or under any provision of any license, indenture, mortgage, deed of
trust, bank loan or credit agreement or other evidence of indebtedness, or any
lease, contract or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of them or their respective
properties may be bound or affected, or under any federal, state, local or
foreign law, regulation or rule or any decree, judgment or order applicable to
the Company or any of its Subsidiaries;
(xiii) to the best of such counsel's knowledge, neither the
Company nor any of its Subsidiaries is in violation of its charter or by-laws or
is in breach of, or in default under (nor has any event occurred which with
notice, lapse of time, or both would result in any breach of, or constitute a
default under), any license, indenture, mortgage, deed of trust, bank loan or
credit agreement or other evidence of indebtedness, or any lease, contract or
other agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which any of them or their respective properties may be bound or
affected or under any federal, state, local or foreign law, regulation or rule
or any decree, judgment or order applicable to the Company or any of its
Subsidiaries;
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(xiv) to the best of such counsel's knowledge, there are no
contracts, licenses, agreements, leases or documents of a character which are
required to be filed as exhibits to the Registration Statement or to be
summarized or described in the Prospectus which have not been so filed,
summarized or described;
(xv) to the best of such counsel's knowledge, there are no
actions, suits, claims, investigations or proceedings pending, threatened or
contemplated to which the Company or any of its Subsidiaries is subject or of
which any of their respective properties is subject at law or in equity or
before or by any federal, state, local or foreign governmental or regulatory
commission, board, body, authority or agency which are required to be described
in the Prospectus but are not so described;
(xvi) the Company will not, upon consummation of the
transactions contemplated by this Agreement, be an "investment company," or a
"promoter" or "principal underwriter" for, a "registered investment company," as
such terms are defined in the Investment Company Act of 1940, as amended;
(xvii) such counsel have participated in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants of the Company and representatives of the
Underwriters at which the contents of the Registration Statement and Prospectus
were discussed and, although such counsel is not passing upon and does not
assume responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or Prospectus (except as and
to the extent stated in subparagraphs (vi) and (viii) above), on the basis of
the foregoing nothing has come to the attention of such counsel that causes them
to believe that the Registration Statement or any amendment thereto at the time
such Registration Statement or amendment became effective contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus or any supplement thereto at the date of such Prospectus or
such supplement, and at all times up to and including the time of purchase or
additional time of purchase, as the case may be, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements and schedules and other financial and statistical data included in
the Registration Statement or Prospectus).
(b) the Company shall furnish to you at the time of purchase and
at the additional time of purchase, as the case may be, an opinion of Venable,
Baetjer, Howard & Civiletti, LLP, counsel for the Company, addressed to the
Underwriters, and dated the time of purchase or the additional time of purchase,
as the case may be, with reproduced copies for
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each of the other Underwriters and in form satisfactory to Brobeck, Phleger &
Harrison, LLP, counsel for the Underwriters stating that:
such counsel have read the description of the Company's business
in the Prospectus and the statements in the Prospectus under the captions "Risk
Factors - If we are unable to successfully complete preclinical testing..."
"--We will not be able to sell our products if we do not obtain..."
"Business-Government Regulation" (the "FDA Portion") and, to the best of such
counsel's knowledge, (A) the statements included in the FDA Portion, insofar as
such statements summarize provisions of applicable FDA statutes and regulations,
are accurate in all material respects and (B) the FDA statutes and regulations
summarized in the FDA Portion are the FDA statutes and regulations that are
material to the Company's business as described in the Prospectus.
(c) The Company shall furnish to you at the time of purchase and
at the additional time of purchase, as the case may be, an opinion of [Flehr
Hohoboch], counsel for the Company, addressed to the Underwriters, and dated the
time of purchase or the additional time of purchase, as the case may be, with
reproduced copies for each of the other Underwriters and in form satisfactory to
Brobeck, Phleger & Harrison, LLP, counsel for the Underwriters stating that:
(i) The statements in the Prospectus
relating to U.S. patent matters, under the captions "Risk Factors - Our
Business depends on the existence of collaborative relationships to be
successful; We may incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property rights; Our
success will depend partly on our ability to operate without infringing on or
misappropriating the proprietary rights of others;" and "Business Licensing
Agreements; Patents and Proprietary Technology", insofar as such statements
constitute matters of law, legal conclusions, or summaries of legal matters
or proceedings, are correct in all material respects and present fairly the
facts and information purported to be shown.
(ii) With respect to the patents and
patent applications referred to in the Prospectus (the "Patents and Patent
Applications"), and the license agreements referred to in the Registration
Statement (the "License Agreements") that are listed in Schedule I to the
opinion, the sections of the Registration Statement entitled "Risk Factors -
Our Business depends on the existence of collaborative relationships to be
successful; We may incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property rights; Our
success will depend partly on our ability to operate without infringing on or
misappropriating the proprietary rights of others;" and "Business - Licensing
Agreements; Patents and Proprietary Technology", at the time the Registration
Statement became effective, did not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
(iii) With respect to the Patents and
Patent Applications and the License Agreements, the sections of the
Prospectus entitled "Risk Factors - Our Business depends on the existence of
collaborative relationships to be successful; We may incur substantial costs
as a result of litigation or other proceedings relating to patent and other
intellectual property rights; Our success will depend partly on our ability
to operate without infringing on or misappropriating the proprietary rights
of others;" and "Business - Licensing Agreements; Patents and Proprietary
Technology", as of its date and as of the Closing Date, do not contain any
untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading.
(iv) To the best of such counsel's
knowledge, except as described in the Prospectus, and with the exception of
proceedings before the U.S. Patent and Trademark Office, there are no
pending, or threatened, legal or governmental proceedings relating to any of
the Patents and Patent Applications.
(v) To the best of such counsel's
knowledge, the License Agreements listed in Schedule I to the opinion grant
the Company rights in the patents and/or patent applications referred to in
the Prospectus that are listed in Schedule I to the opinion, and such License
Agreements are validly binding and enforceable under federal case law
relating to the licensing of patent rights.
(vi) To the best of such counsel's
knowledge, the Company owns each of the Patents and Patent Applications.
(vii) To the best of such counsel's
knowledge, no security interests have been recorded in the U.S. Patent and
Trademark Office with respect to any of the Patents and Patent Applications.
(viii) To the best of such counsel's
knowledge, no liens have been recorded against the Company with respect to
any of the Patents and Patent Applications.
(ix) To the best of such counsel's
knowledge, except as described in the Prospectus, and except for any rights
reserved to the United States Government, no third party has any rights to
any of the Patents and Patent Applications that are referred to in the
Prospectus and listed in Schedule I to the opinion.
(x) To the best of such counsel's
knowledge, except as described in the Prospectus, no interference has been
declared or provoked with respect to any of the Patents and Patent
Applications.
(xi) To the best of such counsel's
knowledge, the Company has not received any notice challenging the validity
or enforceability of any of the Patents and Patent Applications.
(xii) While there can be no guarantee that
any particular patent application will issue as a patent, each of the U.S.
Patent Applications that are referred to in the Prospectus and listed in
Schedule I to the opinion, was property filed, and is being properly and
diligently prosecuted, in the U.S. Patent and Trademark Office.
(xiii) For each U.S. patent application
listed in Schedule I to the opinion, all information known, to date, to be
"material to patentability", as defined in 37 C.F.R. ss. 1.56(b), has been
disclosed, or will be disclosed pursuant to 37 C.F.R. ss. 1.97, to the U.S.
Patent and Trademark Office.
(xiv) Without any searches specifically
having been conducted, or having been required to have been conducted, for
the purpose of rendering the opinion, and while there can be no guarantee
that any particular patent application will issue as a patent, each of the
U.S. patent applications that are referred to in the Prospectus and listed in
Schedule I to the opinion, discloses patentable subject matter.
(xv) To the best of such counsel's
knowledge, without any searches having been conducted for the purpose of
rendering the opinion, no third party is infringing any of the Patents and
Patent Applications.
(xvi) To the best of such counsel's
knowledge, no claim that is presently pending has been asserted against the
Company relating to the potential infringement of, or conflict with, any
patents, trademarks, copyrights, trade secrets, or proprietary rights, of
others.
(d) The Company shall furnish to you at the time of purchase and
at the additional time of purchase, as the case may be, an opinion of [Francoise
Monod], counsel for the Company, addressed to the Underwriters, and dated the
time of purchase or the additional time of purchase, as the case may be, with
reproduced copies for each of the other Underwriters and in form satisfactory to
Brobeck, Phleger & Harrison, LLP, counsel for the Underwriters,
(i) conflict with or violate any provision of the STATUTS of
DAS SAS, the articles of incorporation or other governing documents
("Organizational Documents") of the Company, or if any Investor is a corporation
or a partnership, the Organizational Documents of such Investor;
(ii) violate, conflict with or result in the breach or
termination of, or constitute a default, event of default (or an event which
with notice, lapse of time, or both, would constitute a default or event of
default), under the terms of, (I) any written contracts, agreements,
commitments, leases, licenses, mortgages, bonds, notes or other undertakings, or
(ii) any permits, authorizations, approvals, registrations and licenses, grants,
subsidies or financial assistance granted by or obtained from any governmental,
administrative or regulatory body, department, agency, commission, authority or
similar instrumentality ("Governmental Authority") to which the Company or DAS
SAS is a party;
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<PAGE>
(iii) constitute a violation by the Company, DAS SAS or any
of the Investors of any applicable laws, rules or regulations of any
Governmental Authority or any judgments, orders, rulings or awards of any court,
arbitrator or other judicial authority or any other Governmental Authority to
the Company or DAS SAS are subject.
(e) The sale and issuance of the Exchange Shares in accordance
with the Exchange constitute transactions exempt from the registration
requirements of Section 5 of the Act were effected in compliance, in all
respects, with applicable U.S. state securities laws, do not constitute an
"APPEL PUBLIC A L'EPARGNE" as defined for French law purposes in article 6-I al.
1 of the ordinance no. 67-833 of September 28, 1967 as modified by law no.
95-546 of July 2, 1998 or a private placement subject to the information
requirements set froth in the COMMISSION DES OPERATIONS DE BOURSE (COB)
regulation no. 98-09 and shall not otherwise cause the Company or DAS SAS to
become subject to any requirements imposed by French law upon companies deemed
for French law purposes to have made an offering of securities to the public.
(f) No Consent, waiver, approval, authorization, exemption,
registration, license or declaration of or by, or filing with, any Governmental
Authority or any third party was required to be made or obtained by any of the
Company, DAS SAS or any of the Investors in connection with the consummation of
the Exchange.
(g) You shall have received from PriceWaterhouse Coopers LLP,
letters dated, respectively, the date of this Agreement and the time of purchase
and additional time of purchase, as the case may be, and addressed to the
Underwriters (with reproduced copies for each of the Underwriters) in the forms
heretofore approved by WDR.
(h) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the favorable opinion of
Brobeck, Phleger & Harrison LLP, counsel for the Underwriters, dated the time of
purchase or the additional time of purchase, as the case may be, as to the
matters referred to in subparagraphs (iv), (v), (viii) (with respect to the
Shares only), (ix) and (x) of paragraph (a) of this Section 6.
In addition, such counsel shall state that such counsel have
participated in conferences with officers and other representatives of the
Company, counsel for the Company, representatives of the independent public
accountants of the Company and representatives of the Underwriters at which the
contents of the Registration Statement and Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus (except as to matters
referred to with respect to the Shares under subparagraph (viii) of paragraph
(a) of this Section 6), on the basis of the foregoing (relying as to materiality
to a large extent upon the opinions of officers and other
20
<PAGE>
representatives of the Company), no facts have come to the attention of such
counsel which lead them to believe that the Registration Statement or any
amendment thereto at the time such Registration Statement or amendment became
effective contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus as of its date or any supplement
thereto as of its date contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
comment with respect to the financial statements and schedules and other
financial and statistical data included in the Registration Statement or
Prospectus).
(i) No amendment or supplement to the Registration Statement or
Prospectus shall be filed prior to the time the Registration Statement becomes
effective to which you object in writing.
(j) The Registration Statement shall become effective, or if Rule
430A under the Act is used, the Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) under the Act, at or before 5:00 P.M., New
York City time, on the date of this Agreement, unless a later time (but not
later than 5:00 P.M., New York City time, on the second full business day after
the date of this Agreement) shall be agreed to by the Company and you in writing
or by telephone, confirmed in writing; PROVIDED, HOWEVER, that the Company and
you and any group of Underwriters, including you, who have agreed hereunder to
purchase in the aggregate at least 50% of the Firm Shares may from time to time
agree on a later date.
(k) Prior to the time of purchase or the additional time of
purchase, as the case may be, (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued under the Act
or proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the
Registration Statement and all amendments thereto, or modifications thereof, if
any, shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and (iii) the Prospectus and all amendments or
supplements thereto, or modifications thereof, if any, shall not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they are made, not misleading.
(l) Between the time of execution of this Agreement and the time
of purchase or the additional time of purchase, as the case may be, (i) no
material and unfavorable change, financial or otherwise (other than as referred
to in the Registration Statement and
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Prospectus), in the business, condition or prospects of the Company and its
Subsidiaries taken as a whole shall occur or become known and (ii) no
transaction which is material and unfavorable to the Company shall have been
entered into by the Company or any of its Subsidiaries.
(m) The Company will, at the time of purchase or additional time
of purchase, as the case may be, deliver to you a certificate of two of its
executive officers to the effect that the representations and warranties of the
Company as set forth in this Agreement are true and correct as of each such
date, that the Company shall perform such of its obligations under this
Agreement as are to be performed at or before the time of purchase and at or
before the additional time of purchase, as the case may be and the conditions
set forth in paragraphs (f) and (g) of this Section 6 have been met.
(n) You shall have received signed letters, dated the date of
this Agreement, from each of the directors, officers and stockholders of the
Company to the effect that such persons shall not sell, offer or agree to sell,
contract to sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock of the Company or securities convertible
into or exchangeable or exercisable for Common Stock or warrants or other rights
to purchase Common Stock or any other securities of the Company that are
substantially similar to the Common Stock for a period of 180 days after the
date of the Prospectus without WDR's prior written consent.
(o) The Company shall have furnished to you such other documents
and certificates as to the accuracy and completeness of any statement in the
Registration Statement and the Prospectus as of the time of purchase and the
additional time of purchase, as the case may be, as you may reasonably request.
(p) The Shares shall have been approved for quotation on NASDAQ,
subject only to notice of issuance at or prior to the time of purchase or the
additional time of purchase, as the case may be.
(q) Between the time of execution of this Agreement and the time
of purchase or additional time of purchase, as the case may be, there shall not
have occurred any downgrading, nor shall any notice or announcement have been
given or made of (i) any intended or potential downgrading or (ii) any review or
possible change that does not indicate an improvement, in the rating accorded
any securities of or guaranteed by the Company or any Subsidiary by any
"nationally recognized statistical rating organization," as that term is defined
in Rule 436(g)(2) under the Act.
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<PAGE>
7. EFFECTIVE DATE OF AGREEMENT; TERMINATION. This Agreement shall
become effective (i) if Rule 430A under the Act is not used, when you shall have
received notification of the effectiveness of the Registration Statement, or
(ii) if Rule 430A under the Act is used, when the parties hereto have executed
and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be subject
to termination in the absolute discretion of you or any group of Underwriters
(which may include you) which has agreed to purchase in the aggregate at least
50% of the Firm Shares, if, since the time of execution of this Agreement or the
respective dates as of which information is given in the Registration Statement
and Prospectus, (y) there has been any material adverse and unfavorable change,
financial or otherwise (other than as referred to in the Registration Statement
and Prospectus), in the operations, business, condition or prospects of the
Company and its Subsidiaries taken as a whole, which would, in your judgment or
in the judgment of such group of Underwriters, make it impracticable to market
the Shares, or (z) there shall have occurred any downgrading, or any notice
shall have been given of (i) any intended or potential downgrading or (ii) any
review or possible change that does not indicate an improvement, in the rating
accorded any securities of or guaranteed by the Company or any Subsidiary by any
"nationally recognized statistical rating organization", as that term is defined
in Rule 436(g)(2) under the Act or, if, at any time prior to the time of
purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended or limitations or minimum prices shall have
been established on the New York Stock Exchange, the American Stock Exchange or
the Nasdaq National Market, or if a banking moratorium shall have been declared
either by the United States or New York State authorities, or if the United
States shall have declared war in accordance with its constitutional processes
or there shall have occurred any material outbreak or escalation of hostilities
or other national or international calamity or crisis of such magnitude in its
effect on the financial markets of the United States as, in your judgment or in
the judgment of such group of Underwriters, to make it impracticable to market
the Shares.
If you or any group of Underwriters elects to terminate this Agreement
as provided in this Section 7, the Company and each other Underwriter shall be
notified promptly by letter or telegram.
If the sale to the Underwriters of the Shares, as contemplated by this
Agreement, is not carried out by the Underwriters for any reason permitted under
this Agreement or if such sale is not carried out because the Company shall be
unable to comply with any of the terms of this Agreement, the Company shall not
be under any obligation or liability under this Agreement (except to the extent
provided in Sections 4(n), 5 and 9 hereof), and the Under-
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writers shall be under no obligation or liability to the Company under this
Agreement (except to the extent provided in Section 9 hereof) or to one
another hereunder.
8. INCREASE IN UNDERWRITERS' COMMITMENTS. Subject to Sections 6 and 7,
if any Underwriter shall default in its obligation to take up and pay for the
Firm Shares to be purchased by it hereunder (otherwise than for a reason
sufficient to justify the termination of this Agreement under the provisions of
Section 7 hereof) and if the number of Firm Shares which all Underwriters so
defaulting shall have agreed but failed to take up and pay for does not exceed
10% of the total number of Firm Shares, the non-defaulting Underwriters shall
take up and pay for (in addition to the aggregate number of Firm Shares they are
obligated to purchase pursuant to Section 1 hereof) the number of Firm Shares
agreed to be purchased by all such defaulting Underwriters, as hereinafter
provided. Such Shares shall be taken up and paid for by such non-defaulting
Underwriter or Underwriters in such amount or amounts as you may designate with
the consent of each Underwriter so designated or, in the event no such
designation is made, such Shares shall be taken up and paid for by all
non-defaulting Underwriters pro rata in proportion to the aggregate number of
Firm Shares set opposite the names of such non-defaulting Underwriters in
Schedule A.
Without relieving any defaulting Underwriter from its obligations
hereunder, the Company agrees with the non-defaulting Underwriters that it will
not sell any Firm Shares hereunder unless all of the Firm Shares are purchased
by the Underwriters (or by substituted Underwriters selected by you with the
approval of the Company or selected by the Company with your approval).
If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or you shall have the right
to postpone the time of purchase for a period not exceeding five business days
in order that any necessary changes in the Registration Statement and Prospectus
and other documents may be effected.
The term Underwriter as used in this Agreement shall refer to and
include any Underwriter substituted under this Section 8 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
If the aggregate number of Shares which the defaulting Underwriter or
Underwriters agreed to purchase exceeds 10% of the total number of Shares which
all Underwriters agreed to purchase hereunder, and if neither the non-defaulting
Underwriters nor the Company shall make arrangements within the five business
day period stated above for the purchase of all the Shares which the defaulting
Underwriter or Underwriters agreed to purchase hereunder, this Agreement shall
be terminated without further act or deed and without any li-
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<PAGE>
ability on the part of the Company to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company. Nothing in this paragraph, and no action taken hereunder, shall relieve
any defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
9. INDEMNITY AND CONTRIBUTION.
(a) The Company agrees to indemnify, defend and hold harmless
each Underwriter, its partners, directors and officers, and any person who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, and the successors and assigns of all of the foregoing
persons from and against any loss, damage, expense, liability or claim
(including the reasonable cost of investigation) which, jointly or severally,
any such Underwriter or any such person may incur under the Act, the Exchange
Act, the common law or otherwise, insofar as such loss, damage, expense,
liability or claim arises out of or is based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or in the Registration Statement as amended by any post-effective
amendment thereof by the Company) or in a Prospectus (the term Prospectus for
the purpose of this Section 9 being deemed to include any Preliminary
Prospectus, the Prospectus and the Prospectus as amended or supplemented by the
Company), or arises out of or is based upon any omission or alleged omission to
state a material fact required to be stated in either such Registration
Statement or Prospectus or necessary to make the statements made therein not
misleading, except insofar as any such loss, damage, expense, liability or claim
arises out of or is based upon any untrue statement or alleged untrue statement
of a material fact contained in and in conformity with information furnished in
writing by or on behalf of any Underwriter through you to the Company expressly
for use with reference to such Underwriter in such Registration Statement or
such Prospectus or arises out of or is based upon any omission or alleged
omission to state a material fact in connection with such information required
to be stated in such Registration Statement or such Prospectus or necessary to
make such information not misleading.
If any action, suit or proceeding (together, a "Proceeding") is
brought against an Underwriter or any such person in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
Underwriter or such person shall promptly notify the Company in writing of the
institution of such Proceeding and the Company shall assume the defense of such
Proceeding, including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses; PROVIDED, HOWEVER, that
the omission to so notify the Company shall not relieve the Company from any
liability which the Company may have to any Underwriter or any such person or
otherwise. Such Underwriter or such person shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of
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such Underwriter or of such person unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the defense of
such Proceeding or the Company shall not have, within a reasonable period of
time in light of the circumstances, employed counsel to have charge of the
defense of such Proceeding or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from, additional to or in conflict with those available to the
Company (in which case the Company shall not have the right to direct the
defense of such Proceeding on behalf of the indemnified party or parties), in
any of which events such fees and expenses shall be borne by the Company and
paid as incurred (it being understood, however, that the Company shall not be
liable for the expenses of more than one separate counsel (in addition to any
local counsel) in any one Proceeding or series of related Proceedings in the
same jurisdiction representing the indemnified parties who are parties to such
Proceeding). The Company shall not be liable for any settlement of any
Proceeding effected without its written consent but if settled with the written
consent of the Company, the Company agrees to indemnify and hold harmless any
Underwriter and any such person from and against any loss or liability by reason
of such settlement. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
sentence of this paragraph, then the indemnifying party agrees that it shall be
liable for any settlement of any Proceeding effected without its written consent
if (i) such settlement is entered into more than 60 business days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement and (iii) such indemnified party
shall have given the indemnifying party at least 30 days' prior notice of its
intention to settle. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened Proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such Proceeding and does not include an admission of fault, culpability or a
failure to act, by or on behalf of such indemnified party.
(b) Each Underwriter severally agrees to indemnify, defend and
hold harmless the Company, its directors and officers, and any person who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, and the successors and assigns of all of the foregoing
persons from and against any loss, damage, expense, liability or claim
(including the reasonable cost of investigation) which, jointly or severally,
the Company or any such person may incur under the Act, the Exchange Act, the
common law or otherwise, insofar as such loss, damage, expense, liability or
claim arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in and in conformity with information
furnished in writing by or on behalf of such Un-
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<PAGE>
derwriter through you to the Company expressly for use with reference to such
Underwriter in the Registration Statement (or in the Registration Statement as
amended by any post-effective amendment thereof by the Company) or in a
Prospectus, or arises out of or is based upon any omission or alleged omission
to state a material fact in connection with such information required to be
stated in such Registration Statement or such Prospectus or necessary to make
such information not misleading.
If any Proceeding is brought against the Company or any such person in
respect of which indemnity may be sought against any Underwriter pursuant to the
foregoing paragraph, the Company or such person shall promptly notify such
Underwriter in writing of the institution of such Proceeding and such
Underwriter shall assume the defense of such Proceeding, including the
employment of counsel reasonably satisfactory to such indemnified party and
payment of all fees and expenses; PROVIDED, HOWEVER, that the omission to so
notify such Underwriter shall not relieve such Underwriter from any liability
which such Underwriter may have to the Company or any such person or otherwise.
The Company or such person shall have the right to employ its own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
the Company or such person unless the employment of such counsel shall have been
authorized in writing by such Underwriter in connection with the defense of such
Proceeding or such Underwriter shall not have, within a reasonable period of
time in light of the circumstances, employed counsel to have charge of the
defense of such Proceeding or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to or in conflict with those available to such
Underwriter (in which case such Underwriter shall not have the right to direct
the defense of such Proceeding on behalf of the indemnified party or parties,
but such Underwriter may employ counsel and participate in the defense thereof
but the fees and expenses of such counsel shall be at the expense of such
Underwriter), in any of which events such fees and expenses shall be borne by
such Underwriter and paid as incurred (it being understood, however, that such
Underwriter shall not be liable for the expenses of more than one separate
counsel (in addition to any local counsel) in any one Proceeding or series of
related Proceedings in the same jurisdiction representing the indemnified
parties who are parties to such Proceeding). No Underwriter shall be liable for
any settlement of any such Proceeding effected without the written consent of
such Underwriter but if settled with the written consent of such Underwriter,
such Underwriter agrees to indemnify and hold harmless the Company and any such
person from and against any loss or liability by reason of such settlement.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second sentence of this
paragraph, then the indemnifying party agrees that it shall be liable for any
settlement of any Proceeding effected without its written consent if (i) such
settlement is entered into more than 60 business days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
not have reimbursed the
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<PAGE>
indemnified party in accordance with such request prior to the date of such
settlement and (iii) such indemnified party shall have given the indemnifying
party at least 30 days' prior notice of its intention to settle. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened Proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such Proceeding.
(c) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 9 in respect of any losses, damages, expenses, liabilities or claims
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, damages, expenses,
liabilities or claims (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, damages, expenses, liabilities or
claims, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same respective proportions as the total
proceeds from the offering (net of underwriting discounts and commissions but
before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, bear to the aggregate
public offering price of the Shares. The relative fault of the Company on the
one hand and of the Underwriters on the other shall be determined by reference
to, among other things, whether the untrue statement or alleged untrue statement
of a material fact or omission or alleged omission relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, damages, expenses, liabilities and claims referred to in this subsection
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating, preparing to defend or
defending any Proceeding.
(d) The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in subsec-
28
<PAGE>
tion (c) above. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by such Underwriter
and distributed to the public were offered to the public exceeds the amount of
any damage which such Underwriter has otherwise been required to pay by reason
of such untrue statement or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 9 are several in proportion
to their respective underwriting commitments and not joint.
(e) The indemnity and contribution agreements contained in this
Section 9 and the covenants, warranties and representations of the Company
contained in this Agreement shall remain in full force and effect regardless of
any investigation made by or on behalf of any Underwriter, its partners,
directors or officers or any person (including each partner, officer or director
of such person) who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, or by or on behalf of the Company,
its directors or officers or any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, and shall
survive any termination of this Agreement or the issuance and delivery of the
Shares. The Company and each Underwriter agree promptly to notify each other of
the commencement of any Proceeding against it and, in the case of the Company,
against any of the Company's officers or directors in connection with the
issuance and sale of the Shares, or in connection with the Registration
Statement or Prospectus.
10. NOTICES. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
Warburg Dillon Read LLC, 299 Park Avenue, New York, N.Y. 10171-0026, Attention:
Syndicate Department and, if to the Company, shall be sufficient in all respects
if delivered or sent to the Company at the offices of the Company at
____________________, Attention: __________________.
11. GOVERNING LAW; CONSTRUCTION. This Agreement and any claim,
counterclaim or dispute of any kind or nature whatsoever arising out of or in
any way relating to this Agreement ("Claim"), directly or indirectly, shall be
governed by, and construed in accordance with, the laws of the State of New
York. The Section headings in this Agreement have been inserted as a matter of
convenience of reference and are not a part of this Agreement.
12. SUBMISSION TO JURISDICTION. Except as set forth below, no Claim
may be commenced, prosecuted or continued in any court other than the courts of
the State of New York located in the City and County of New York or in the
United States District Court for
29
<PAGE>
the Southern District of New York, which courts shall have jurisdiction over the
adjudication of such matters, and the Company consents to the jurisdiction of
such courts and personal service with respect thereto. The Company hereby
consents to personal jurisdiction, service and venue in any court in which any
Claim arising out of or in any way relating to this Agreement is brought by any
third party against WDR or any indemnified party. Each of WDR and the Company
(on its behalf and, to the extent permitted by applicable law, on behalf of its
stockholders and affiliates) waives all right to trial by jury in any action,
proceeding or counterclaim (whether based upon contract, tort or otherwise) in
any way arising out of or relating to this Agreement. The Company agrees that a
final judgment in any such action, proceeding or counterclaim brought in any
such court shall be conclusive and binding upon the Company and may be enforced
in any other courts in the jurisdiction of which the Company is or may be
subject, by suit upon such judgment.
13. PARTIES AT INTEREST. The Agreement herein set forth has been and
is made solely for the benefit of the Underwriters and the Company and to the
extent provided in Section 9 hereof the controlling persons, directors and
officers referred to in such section, and their respective successors, assigns,
heirs, personal representatives and executors and administrators. No other
person, partnership, association or corporation (including a purchaser, as such
purchaser, from any of the Underwriters) shall acquire or have any right under
or by virtue of this Agreement.
14. COUNTERPARTS. This Agreement may be signed by the parties in one
or more counterparts which together shall constitute one and the same agreement
among the parties.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Underwriters and the Company and their successors and assigns and any successor
or assign of any substantial portion of the Company's and any of the
Underwriters' respective businesses and/or assets.
16. MISCELLANEOUS. WDR, an indirect, wholly owned subsidiary of
[ ], is not a bank and is separate from any affiliated bank, including
any U.S. branch or agency of WDR. Because WDR is a separately incorporated
entity, it is solely responsible for its own contractual obligations and
commitments, including obligations with respect to sales and purchases of
securities. Securities sold, offered or recommended by WDR are not deposits,
are not insured by the Federal Deposit Insurance Corporation, are not
guaranteed by a branch or agency, and are not otherwise an obligation or
responsibility of a branch or agency.
30
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the Underwriters, please so indicate in the space provided below for
the purpose, whereupon this letter and your acceptance shall constitute a
binding agreement among the Company and the Underwriters, severally.
Very truly yours,
DRUGABUSE SCIENCES, INC.
By:
-----------------------------
Name:
Title:
Accepted and agreed to as of the
date first above written, on
behalf of themselves
and the other several Underwriters
named in Schedule A
WARBURG DILLON READ LLC
By: WARBURG DILLON READ LLC
By: __________________________
Title:
By: __________________________
Title:
31
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Shares
- ----------- -----------
Warburg Dillon Read LLC
FleetBoston Robertson Stephens Inc.
-----------
Total...............................
===========
32
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DRUGABUSE SCIENCES, INC.
Philippe Pouletty, M.D. and Elizabeth Greetham certify that:
They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of DrugAbuse Sciences, Inc., a California corporation
(the "Corporation").
The Articles of Incorporation of the Corporation are hereby amended
and restated to read in their entirety as set forth on EXHIBIT A attached
hereto.
The attached Amended and Restated Articles of Incorporation have been
duly approved by the Board of Directors of this Corporation.
The attached Amended and Restated Articles of Incorporation have
been duly approved by the required vote of the outstanding shares of Common
Stock and Preferred Stock entitled to vote in accordance with the Articles of
Incorporation of this Corporation and Sections 902 and 903 of the California
Corporations Code. The total number of shares of Common Stock entitled to
vote with respect to the attached Amended and Restated Articles of
Incorporation was 3,380,450 shares of Common Stock and the total number of
shares of Preferred Stock entitled to vote with respect to the attached
Amended and Restated Articles of Incorporation was 4,860,632 shares of
Preferred Stock; 375,556 shares of which were Series A Preferred Stock,
1,316,063 shares of which were Series B Preferred Stock, 932,456 shares of
which were Series C Preferred Stock and 2,236,557 shares of which were Series
D Preferred Stock. The number of shares of Common Stock and Preferred Stock
voting in favor of the Amended and Restated Articles of Incorporation equaled
or exceeded the vote required. The percentage vote required was a majority
of the outstanding shares of Common Stock; a majority of the outstanding
shares of
<PAGE>
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, voting together as a single class; and a
majority of the outstanding shares of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred
Stock voting together as a single class and on an as-converted basis.
The undersigned further declare under penalty of perjury under the
laws of the State of California that the matters set forth in this certificate
are true and correct of their own knowledge.
Executed at Menlo Park, California on _________ ___, 2000:
------------------------------------------------
Philippe Pouletty, M.D., CHIEF EXECUTIVE OFFICER
------------------------------------------------
Elizabeth Greetham, SECRETARY
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
DRUGABUSE SCIENCES, INC.
ARTICLE I
The name of this Corporation is DrugAbuse Sciences, Inc.
ARTICLE II
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares the Corporation shall have the authority to issue is 50,000,000
shares of Common Stock, $0.001 par value per share, and 5,000,000 shares of
Preferred Stock, $0.001 par value per share. Preferred Stock may be issued from
time to time in one or more series.
The Preferred Stock authorized by these Amended and Restated Articles
of Incorporation may be issued from time to time in one or more series. The
Board of Directors is hereby authorized, within the limitations and restrictions
stated in these Amended and Restated Articles of Incorporation, to determine or
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them. The
Board of Directors is also authorized to increase or decrease the number of
shares of any series, prior or subsequent to the issue of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE IV
Shareholders shall not be entitled to cumulate their votes for the
election of directors of the corporation. This Article IV shall become effective
only when the corporation becomes, and only for so long as the corporation
remains, a listed corporation within the meaning of Section 301.5 of the
California Corporations Code.
<PAGE>
ARTICLE V
1. LIMITATION OF DIRECTORS' LIABILITY. The liability of the
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
2. INDEMNIFICATION OF CORPORATE AGENTS. The Corporation is
authorized to provide indemnification of agents (as defined in Section 317 of
the California Corporations Code) through bylaw provisions, agreements with
agents, votes of shareholders or disinterested directors or otherwise, to the
fullest extent permissible under California law.
3. REPEAL OR MODIFICATION. Any repeal or modification of the
foregoing provisions of this Article IV shall not adversely affect any right or
protection of an agent of this Corporation existing at the time of such
amendment, repeal or modification.
* * *
2
<PAGE>
BYLAWS
OF
DRUGABUSE SCIENCES, INC.
<PAGE>
BYLAWS OF
DRUGABUSE SCIENCES, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - CORPORATE OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 PRINCIPAL OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II - MEETINGS OF SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . .1
2.1 PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.3 SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.4 NOTICE OF SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . .2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . . . . . . .2
2.6 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.7 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . . .3
2.8 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT. . . . . . . . . . . . .4
2.10 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS . . . . . . .5
2.11 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.12 INSPECTORS OF ELECTION. . . . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.2 NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . . . . . . . . .7
3.4 RESIGNATION AND VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . .7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . . . . . . .8
3.6 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.7 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . .8
3.8 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.9 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.10 ADJOURNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.11 NOTICE OF ADJOURNMENT . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . . . . . .9
3.13 FEES AND COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . . . . .9
3.14 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV - COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 MEETINGS AND ACTION OF COMMITTEES. . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 REMOVAL AND RESIGNATION OF OFFICERS. . . . . . . . . . . . . . . . . . . 11
5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.6 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.7 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.8 VICE PRESIDENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.10 CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND
OTHER AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . 13
6.2 INDEMNIFICATION OF OTHERS. . . . . . . . . . . . . . . . . . . . . . . . 14
6.3 PAYMENT OF EXPENSES IN ADVANCE . . . . . . . . . . . . . . . . . . . . . 14
6.4 INDEMNITY NOT EXCLUSIVE. . . . . . . . . . . . . . . . . . . . . . . . . 14
6.5 INSURANCE INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 14
6.6 CONFLICTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER . . . . . . . . . . . . . . 15
7.2 MAINTENANCE AND INSPECTION OF BYLAWS . . . . . . . . . . . . . . . . . . 15
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. . . . . . . . . . 16
7.4 INSPECTION BY DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . 16
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER. . . . . . . . . . . . . . . . . . 16
7.6 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . . . . . . . 17
ARTICLE VIII GENERAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. . . . . . . . . . 17
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. . . . . . . . . . . . . . . . 18
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. . . . . . . . . . . . 18
8.4 CERTIFICATES FOR SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 18
8.5 LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.6 CONSTRUCTION; DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.1 AMENDMENT BY SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 AMENDMENT BY DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE>
BYLAWS
OF
DRUGABUSE SCIENCES, INC.
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The board of directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State
of California. If the principal executive office is located outside such
state and the corporation has one or more business offices in such state,
then the board of directors shall fix and designate a principal business
office in the State of California.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the board of directors. In the absence
of any such designation, shareholders' meetings shall be held at the
principal executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the second
Tuesday of May at 10:00 a.m. However, if such day falls on a legal holiday,
then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or
by one or more shareholders holding
<PAGE>
shares in the aggregate entitled to cast not less than fifty percent (50%) of
the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled
to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these
bylaws, that a meeting will be held at the time requested by the person or
persons calling the meeting, so long as that time is not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after receipt of
the request, then the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10)
(or, if sent by third-class mail pursuant to Section 2.5 of these bylaws,
thirty (30)) nor more than sixty (60) days before the date of the meeting.
The notice shall specify the place, date, and hour of the meeting and (i) in
the case of a special meeting, the general nature of the business to be
transacted (no business other than that specified in the notice may be
transacted) or (ii) in the case of the annual meeting, those matters which
the board of directors, at the time of giving the notice, intends to present
for action by the shareholders (but subject to the provisions of the next
paragraph of this Section 2.4 any proper matter may be presented at the
meeting for such action). The notice of any meeting at which directors are to
be elected shall include the name of any nominee or nominees who, at the time
of the notice, the board intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Corporations Code of
California (the "Code"), (ii) an amendment of the articles of incorporation,
pursuant to Section 902 of the Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of the Code, (iv) a voluntary
dissolution of the corporation, pursuant to Section 1900 of the Code, or (v)
a distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of the Code, then the
notice shall also state the general nature of that proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of shareholders shall be given either
(i) personally or (ii) by first-class mail or (iii) by third-class mail but
only if the corporation has outstanding shares held of record by five hundred
(500) or more persons (determined as provided in Section 605 of the Code) on
the record date for the shareholders' meeting, or (iv) by telegraphic or
other written communication. Notices not personally delivered shall be sent
charges prepaid
2
<PAGE>
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written
communication to the corporation's principal executive office, or if
published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at
the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the
shareholder at that address, then all future notices or reports shall be
deemed to have been duly given without further mailing if the same shall be
available to the shareholder on written demand of the shareholder at the
principal executive office of the corporation for a period of one (1) year
from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting
except as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting
is fixed or if the adjournment is for more than forty-five (45) days from the
date set for the original meeting, then notice of the adjourned meeting shall
be given. Notice of any such adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
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2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these
bylaws, subject to the provisions of Sections 702 through 704 of the Code
(relating to voting shares held by a fiduciary, in the name of a corporation
or in joint ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as
may be otherwise provided in the articles of incorporation, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote of the shareholders. Any shareholder entitled to vote on
any matter may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or, except when the matter is the election
of directors, may vote them against the proposal; but, if the shareholder
fails to specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares which the shareholder is
entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum)
shall be the act of the shareholders, unless the vote of a greater number or
a vote by classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate
a number of votes greater than the number of votes which such shareholder
normally is entitled to cast) if the candidates' names have been placed in
nomination prior to commencement of the voting and the shareholder has given
notice prior to commencement of the voting of the shareholder's intention to
cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination
either (i) by giving one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which that
shareholder's shares are normally entitled or (ii) by distributing the
shareholder's votes on the same principle among any or all of the candidates,
as the shareholder thinks fit. The candidates receiving the highest number of
affirmative votes, up to the number of directors to be elected, shall be
elected; votes against any candidate and votes withheld shall have no legal
effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and
notice, if a quorum be present either in person or by proxy, and if, either
before or after the meeting, each person entitled to vote, who was not
present in person or by proxy, signs a written waiver of notice or a consent
to the holding of the meeting or an approval of the minutes thereof. The
waiver of notice or consent or approval need not specify either the business
to be transacted or the purpose of any annual or special meeting of
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shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section
2.4 of these bylaws, the waiver of notice or consent or approval shall state
the general nature of the proposal. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened. Attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by the
Code to be included in the notice of the meeting but not so included, if that
objection is expressly made at the meeting.
2.10 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat , the board of directors may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than ten
(10) days before the date of any such meeting, and in such event only
shareholders of record on the date so fixed are entitled to notice and to
vote, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date, except as otherwise provided
in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held
The record date for any other purpose shall be as provided in Article
VIII of these bylaws.
2.11 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the
secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i) the
person who executed the proxy revokes it prior to the time of voting by
delivering a writing to the corporation stating that the proxy is revoked or
by executing a subsequent proxy and presenting it to the meeting or by voting
in person at the meeting, or (ii) written notice of the death or incapacity
of the maker of that proxy is received by the corporation before the vote
pursuant to that proxy is counted; provided, however, that no proxy shall be
valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The dates contained on the forms of
proxy presumptively determine the order of execution, regardless of the
postmark dates on the envelopes in which
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they are mailed. The revocability of a proxy that states on its face that it
is irrevocable shall be governed by the provisions of Sections 705(e) and
705(f) of the Code.
2.12 INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its
adjournment. If no inspector of election is so appointed, then the chairman
of the meeting may, and on the request of any shareholder or a shareholder's
proxy shall, appoint an inspector or inspectors of election to act at the
meeting. The number of inspectors shall be either one (1) or three (3). If
inspectors are appointed at a meeting pursuant to the request of one (1) or
more shareholders or proxies, then the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector
fails to appear or fails or refuses to act, then the chairman of the meeting
may, and upon the request of any shareholder or a shareholder's proxy shall,
appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the
voting power of each, the number of shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
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The number of directors of the corporation shall not be less than five
(5) nor more than nine (9). The exact number of directors shall be nine (9)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders.
The indefinite number of directors may be changed, or a definite number may
be fixed without provision for an indefinite number, by a duly adopted
amendment to the articles of incorporation or by an amendment to this bylaw
duly adopted by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption at a
meeting, or the shares not consenting in the case of an action by written
consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of
the outstanding shares entitled to vote thereon. No amendment may change the
stated maximum number of authorized directors to a number greater than two
(2) times the stated minimum number of directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a
director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and
qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of
directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote
of the shareholders or by court order may be filled only by the affirmative
vote of a majority of the shares represented and voting at a duly held
meeting at which a quorum is present (which shares voting affirmatively also
constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected
shall hold office until the next annual meeting of the shareholders and until
a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or
convicted of a felony, (iii) if the authorized number of directors is
increased, or (iv) if the shareholders fail, at any meeting of shareholders
at which any director or directors are elected, to elect the number of
directors to be elected at that meeting.
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The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of California that has been designated from time
to time by resolution of the board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
corporation. Special meetings of the board may be held at any place within or
outside the State of California that has been designated in the notice of the
meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all directors participating in
the meeting can hear one another; and all such directors shall be deemed to
be present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any
vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4)
days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight
(48) hours before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director
or to a person at the office of the director who the person giving the notice
has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the
meeting is to be held at the principal executive office of the corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in
Section 3.10 of these bylaws. Every act or decision done or made by a
majority of the directors present at a duly held meeting at which a quorum is
present shall be regarded as the act of the board of directors, subject to
the provisions of Section 310 of the Code (as to approval of contracts or
transactions in which a director has a
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direct or indirect material financial interest), Section 311 of the Code (as
to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting.
A waiver of notice need not specify the purpose of any regular or special
meeting of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before
the adjourned meeting takes place, in the manner specified in Section 3.7 of
these bylaws, to the directors who were not present at the time of the
adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action
by written consent shall have the same force and effect as a unanimous vote
of the board of directors. Such written consent and any counterparts thereof
shall be filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall
not be construed to preclude any director from serving the corporation in any
other capacity as an officer, agent, employee or otherwise and receiving
compensation for those services.
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3.14 APPROVAL OF LOANS TO OFFICERS**
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the
vote of a majority of the authorized number of directors. Any committee, to
the extent provided in the resolution of the board, shall have all the
authority of the board, except with respect to:
(a) the approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in
any committee;
(c) the fixing of compensation of the directors for serving
on the board or any committee;
(d) the amendment or repeal of these bylaws or the adoption
of new bylaws;
(e) the amendment or repeal of any resolution of the board
of directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined
by the board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
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* This section is effective only if it has been approved by the shareholders
in accordance with Sections 315(b) and 152 of the Code.
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4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7
(special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of
notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment),
and Section 3.12 (action without meeting), with such changes in the context
of those bylaws as are necessary to substitute the committee and its members
for the board of directors and its members; provided, however, that the time
of regular meetings of committees may be determined either by resolution of
the board of directors or by resolution of the committee, that special
meetings of committees may also be called by resolution of the board of
directors, and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion
of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these bylaws. Any number of offices may be
held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of
an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and
perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except
in case of an officer chosen by the board of directors, by any officer upon
whom such power of removal may be conferred by the board of directors.
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Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice
to the rights, if any, of the corporation under any contract to which the
officer is a party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and
perform such other powers and duties as may from time to time be assigned to
him by the board of directors or as may be prescribed by these bylaws. If
there is no president, then the chairman of the board shall also be the chief
executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and
shall, subject to the control of the board of directors, have general
supervision, direction, and control of the business and the officers of the
corporation. He shall preside at all meetings of the shareholders and, in the
absence or nonexistence of a chairman of the board, at all meetings of the
board of directors. He shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have
such other powers and duties as may be prescribed by the board of directors
or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform
all the duties of the president and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of
directors, these bylaws, the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if
special, how
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authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names
of all shareholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares, and
the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law
or by these bylaws. He shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by these
bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the corporation, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings, and shares. The books of account shall at all
reasonable times be open to inspection by any director.
The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the board of directors. He shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all of his transactions as chief financial officer and of
the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the board of directors
or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation.
For purposes of this Article VI, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the
corporation, (ii) who is or was serving at the request of the corporation as
a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who
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was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of
such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other
than directors and officers) against expenses (as defined in Section 317(a)
of the Code), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding (as defined in Section
317(a) of the Code), arising by reason of the fact that such person is or was
an agent of the corporation. For purposes of this Article VI, an "employee"
or "agents of the corporation (other than a director or officer) includes any
person (i) who is or was an employee or agent of the corporation, (ii) who is
or was serving at the request of the corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or
for which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the
corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemnified party to
repay such amount if it shall ultimately be determined that the indemnified
party is not entitled to be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation against any liability asserted against or
incurred by such person in such capacity or arising out of such person's
status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
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<PAGE>
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the shareholders or
an agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or
other amounts were paid, which prohibits or otherwise limits indemnification;
or
(2) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its
shareholders listing the names and addresses of all shareholders and the
number and class of shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and
has filed a Schedule 14B with the Securities and Exchange Commission relating
to the election of directors, may (i) inspect and copy the records of
shareholders' names, addresses, and shareholdings during usual business hours
on five (5) days' prior written demand on the corporation, (ii) obtain from
the transfer agent of the corporation, on written demand and on the tender of
such transfer agent's usual charges for such list, a list of the names and
addresses of the shareholders who are entitled to vote for the election of
directors, and their shareholdings, as of the most recent record date for
which that list has been compiled or as of a date specified by the
shareholder after the date of demand. Such list shall be made available to
any such shareholder by the transfer agent on or before the later of five (5)
days after the demand is received or five (5) days after the date specified
in the demand as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in
person or by an agent or attorney of the shareholder or holder of a voting
trust certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if
its principal executive office is not in the State of California, at its
principal business office in California the original or a copy of these
bylaws as amended to date, which bylaws shall be open to inspection by the
shareholders at all reasonable times during office hours. If the principal
executive office of the
15
<PAGE>
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of
these bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees
of the board of directors shall be kept at such place or places as are
designated by the board of directors or, in absence of such designation, at
the principal executive office of the corporation. The minutes shall be kept
in written form, and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written
form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as
the holder of a voting trust certificate. The inspection may be made in
person or by an agent or attorney and shall include the right to copy and
make extracts. Such rights of inspection shall extend to the records of each
subsidiary corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the
physical properties of the corporation and each of its subsidiary
corporations. Such inspection by a director may be made in person or by an
agent or attorney. The right of inspection includes the right to copy and
make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of
the fiscal year adopted by the corporation. Such report shall be sent at
least fifteen (15) days (or, if sent by third-class mail, thirty-five (35)
days) before the annual meeting of shareholders to be held during the next
fiscal year and in the manner specified in Section 2.5 of these bylaws for
giving notice to shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of
the fiscal year, (ii) an income statement, (iii) a statement of changes in
financial position for the fiscal year, and (iv) any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit
from the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
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7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
thereafter, a copy of a balance sheet as of the end of such fiscal year and
an income statement and statement of changes in financial position for such
fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the then current
fiscal year ended more than thirty (30) days before the date of the request,
and for a balance sheet of the corporation as of the end of that period, then
the chief financial officer shall cause that statement to be prepared, if not
already prepared, and shall deliver personally or mail that statement or
statements to the person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the shareholders
its annual report for the last fiscal year, the statements referred to in the
first paragraph of this Section 7.6 shall likewise be delivered or mailed to
the shareholder or shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared
without audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
chief financial officer, the secretary or assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent, and exercise
on behalf of this corporation all rights incident to any and all shares of
any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power
of attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or
the shareholders entitled to exercise any rights in respect of any other
lawful action (other than action by shareholders by written consent without a
meeting), the board of directors may fix, in advance, a record date, which
shall not be more than sixty (60) days before any such action. In that case,
only shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of
17
<PAGE>
any shares on the books of the corporation after the record date so fixed,
except as otherwise provided in the Code.
If the board of directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable
resolution or the sixtieth (60th) day before the date of that action,
whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the corporation, and only the
persons so authorized shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The board
of directors may authorize the issuance of certificates for shares partly
paid provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All
certificates shall be signed in the name of the corporation by the chairman
of the board or the vice chairman of the board or the president or a vice
president and by the chief financial officer or an assistant treasurer or the
secretary or an assistant secretary, certifying the number of shares and the
class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it
may be issued by the corporation with the same effect as if that person were
an officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter
is surrendered to the corporation and cancelled at the same time. The board
of directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
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<PAGE>
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account
of the alleged loss, theft or destruction of the certificate or the issuance
of the replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Code shall govern the construction of
these bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that if the articles of
incorporation of the corporation set forth the number of authorized directors
of the corporation, then the authorized number of directors may be changed
only by an amendment of the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1
of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw
changing the authorized number of directors (except to fix the authorized
number of directors pursuant to a bylaw providing for a variable number of
directors), may be adopted, amended or repealed by the board of directors.
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<PAGE>
DRUGABUSE SCIENCES
COMMON STOCK
INCORPORATED UNDER THE LAWS CUSIP 26223Q 10 8
OF THE STATE OF CALIFORNIA SEE REVERSE FOR CERTAIN DEFINITIONS
- -------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT
IS THE OWNER OF
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES, $.001 PAR VALUE, OF THE COMMON STOCK OF
- --------------------------DRUGABUSE SCIENCES, INC.-----------------------------
(hereinafter called the "Corporation"), transferable on the books of the
Corporation in person, or by duly authorized attorney, upon surrender of this
certificate properly endorsed. This certificate is not valid until
countersigned by a Transfer Agent and registered by a Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
DRUGABUSE SCIENCES, INC.
SEAL
/s/ Elizabeth M. Greetham /s/ Philippe Pouletty
CHIEF FINANCIAL OFFICER AND CHAIRMAN AND
CORPORATE SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT
AND REGISTRAR
/s/ J.J. Riccio
AUTHORIZED OFFICER
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-- ................. Custodian .................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..................................................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, ___________________________ hereby sell, assign and transfer
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF
ASSIGNEE.
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated, ____________________________
________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
Signature Guaranteed:
________________________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-1B.
<PAGE>
Exhibit 5.1
March __, 2000
DrugAbuse Sciences, Inc.
1430 O'Brien Drive, Suite E
Menlo Park, California 94025
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No.
333-96049) originally filed by DrugAbuse Sciences, Inc. (the "Company") with the
Securities and Exchange Commission (the "Commission") on February 3, 2000, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of up to
4,600,000 shares of the Company's Common Stock (the "Shares"). The Shares, which
include an over-allotment option granted by the Company to the Underwriters to
purchase up to 600,000 additional shares of the Company's Common Stock, are to
be sold to the Underwriters by the Company as described in the Registration
Statement for resale to the public. As your counsel in connection with this
transaction, we have examined the proceedings taken and are familiar with the
proceedings proposed to be taken by you in connection with the sale and issuance
of the Shares.
It is our opinion that, upon completion of the proceedings being taken
in order to permit such transactions to be carried out in accordance with the
securities laws of the various states where required, the Shares being sold by
the Company, when issued and sold in the manner described in the Registration
Statement and in accordance with the resolutions adopted by the Board of
Directors of the Company, will be legally and validly issued, fully paid and
non-assessable.
We consent to the use of this opinion as an exhibit to said
Registration Statement and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "AGREEMENT") is made and entered
into this ___ day of _________, ____, between DrugAbuse Sciences, a
California corporation (the "COMPANY"), and _______________ ("INDEMNITEE").
A. Indemnitee, as a member of the Company's Board of Directors
and/or an officer of the Company, performs valuable services for the Company;
B. The Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for corporate directors, officers,
employees, controlling persons, agents and fiduciaries, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance.
C. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, controlling persons, agents and fiduciaries to expensive
litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited.
D. The shareholders of the Company have adopted Bylaws (the
"BYLAWS") providing for the indemnification of the officers, directors,
agents and employees of the Company to the maximum extent authorized by the
California Corporations Code, as amended ("CODE").
E. Indemnitee does not regard the current protection available for
the Company's directors, officers, employees, controlling persons, agents and
fiduciaries as adequate under the present circumstances, and Indemnitee and
other directors, officers, employees, controlling persons, agents and
fiduciaries of the Company may not be willing to serve or continue to serve
in such capacities without additional protection.
F. The Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Company and its directors, officers, employees,
controlling persons, agents and fiduciaries with respect to indemnification
of such directors.
G. The Company (i) desires to attract and retain the involvement
of highly qualified individuals, such as Indemnitee, to serve the Company
and, in part, in order to induce Indemnitee to be involved with the Company,
and (ii) wishes to provide for the indemnification and advancing of expenses
to Indemnitee to the maximum extent permitted by law.
H. In view of the considerations set forth above, the Company
desires that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, in consideration of Indemnitee's service to the
Company, the parties hereto agree as follows:
<PAGE>
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to
indemnify Indemnitee to the fullest extent permitted by law, even if such
indemnification is not specifically authorized by the other provisions of
this Agreement, the Company's Articles of Incorporation, the Company's Bylaws
or by statute. In the event of any change after the date of this Agreement in
any applicable law, statute or rule which expands the right of a California
corporation to indemnify a member of its Board of Directors or an officer,
employee, controlling person, agent or fiduciary, it is the intent of the
parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits afforded by such change. In the event of any change in any
applicable law, statute or rule which narrows the right of a California
corporation to indemnify a member of its Board of Directors or an officer,
employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 3 hereof.
2. ADDITIONAL INDEMNITY. Subject only to the limitations set
forth in Section 3 hereof, the Company hereby further agrees to hold harmless
and indemnify Indemnitee:
(a) against any and all expenses (including attorneys'
fees), witness fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred by Indemnitee in connection with any threatened,
pending or completed action, claim, suit, arbitration, alternative dispute
resolution mechanism, investigation, or any other proceeding, whether civil,
criminal, administrative or investigative (including any appeal therefrom and
including an action by or in the right of the Company) to which Indemnitee
is, was, or at any time becomes a party, or is threatened to be made a party,
by reason of the fact that Indemnitee is, was, or at any time becomes a
director, officer, employee or agent of the Company, or is or was serving or
at any time serves at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise (collectively, a "PROCEEDING"); and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Company under the Articles of Incorporation of the Company
and the Code.
3. LIMITATIONS ON ADDITIONAL INDEMNITY.
(a) No indemnity pursuant to Section 2 hereof shall be paid
by the Company for any of the following:
(i) except to the extent the aggregate of losses to
be indemnified thereunder exceeds the sum of such losses for which the
Indemnitee is indemnified pursuant to Section 1 hereof or pursuant to any
Directors' and Officers' Insurance purchased and maintained by the Company;
(ii) in respect to remuneration paid to Indemnitee if
it shall be determined by a final judgment or other final adjudication that
such remuneration was in violation of law;
2
<PAGE>
(iii) on account of any Proceeding in which judgment is
rendered against Indemnitee for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(iv) on account of any Proceeding to the extent that
Indemnitee is a plaintiff, a counter-complainant or a cross-complainant
therein (other than a Proceeding referred to in Section 8 hereof) unless such
Proceeding was authorized in the specific case by action of the Board of
Directors;
(v) on account of Indemnitee's conduct which is the
subject of any Proceeding described in Section 7(c)(ii) hereof; or
(vi) if a final decision by a Court having
jurisdiction in the matter shall determine that such indemnification is not
lawful (and, in this respect, both the Company and Indemnitee have been
advised that the Securities and Exchange Commission believes that
indemnification for liabilities arising under the federal securities laws is
against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication).
(b) In addition to those limitations set forth above in
paragraph (a) of this Section 3, no indemnity pursuant to Section 2 hereof in
an action by or in the right of the Company shall be paid by the Company for
any of the following:
(i) in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Company in the
performance of Indemnitee's duty to the Company and its shareholders, unless
and only to the extent that the court in which such Proceeding is or was
pending shall determine upon application that, in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for expenses and then only to the extent that the court shall
determine;
(ii) of amounts paid in settling or otherwise
disposing of a pending action without Court approval; or
(iii) of expenses incurred in defending a pending
action which is settled or otherwise disposed of without court approval.
(iv) on account of Indemnitee's acts or omissions that
involve intentional misconduct or a knowing and culpable violation of law;
(v) on account of acts or omissions that Indemnitee
believes to be contrary to the best interests of the Company or its
shareholders or that involve the absence of good faith on the part of
Indemnitee;
(vi) with respect to any transaction from which
Indemnitee derived an improper personal benefit;
3
<PAGE>
(vii) on account of acts or omissions that show a
reckless disregard for Indemnitee's duty to the Company or its shareholders
in circumstances in which Indemnitee was aware, or should have been aware, in
the ordinary course of performing such Indemnitee's duties, of a risk of
serious injury to the Company or its shareholders;
(viii) on account of acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of
Indemnitee's duty to the Company or its shareholders;
(ix) to the extent prohibited by Section 310 of the
California Corporations Code, "Contracts In Which Director Has Material
Financial Interest; Validity," or;
(x) to the extent prohibited by Section 316 of the
California Corporations Code, "Corporate Actions Subjecting Directors To
Joint And Several Liability; Actions; Damages."
4. CONTRIBUTION. If the indemnification provided in Sections 1
and 2 hereof is unavailable by reason of a Court decision described in
Section 3(a)(vi) hereof based on grounds other than any of those set forth in
Sections 3(a)(ii) through (v) hereof or in Sections 3(b)(i) through (x)
hereof, then in respect of any threatened, pending or completed action, suit
or proceeding in which the Company is jointly liable with Indemnitee (or
would be if joined in such action, suit or proceeding), the Company shall
contribute to the amount of expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred and
paid or payable by Indemnitee in such proportion as is appropriate to reflect
(i) the relative benefits received by the Company on the one hand and
Indemnitee on the other hand from the transaction from which such action,
suit or proceeding arose, and (ii) the relative fault of the Company on the
one hand and of Indemnitee on the other in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the
Company on the one hand and of Indemnitee on the other shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such expenses, judgments, fines or settlement amounts. The
Company agrees that it would not be just and equitable if contribution
pursuant to this Section 4 were determined by pro rata allocation or any
other method of allocation which does not take account of the foregoing
equitable considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
the Company contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of the Company (or is or was serving at
the request of the Company as a director, officer employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise) and shall continue thereafter so long as Indemnitee
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal or investigative, by
reason of the fact that Indemnitee was an officer or director of the Company
or serving in any other capacity referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than 30 days
after receipt by Indemnitee of notice of the commencement of any action, suit
or proceeding, Indemnitee will, if
4
<PAGE>
a claim in respect thereof is to be made against the Company under this
Agreement, notify the Company of the commencement thereof; but the omission
so to notify the Company will not relieve it from any liability which it may
have to Indemnitee otherwise than under this Agreement. With respect to any
such action, suit or proceeding as to which Indemnitee notifies the Company
of the commencement thereof:
(a) the Company will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, to the extent that
it may wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Company to
Indemnitee of its election to assume the defense thereof, the Company will
not be liable to Indemnitee under this Agreement for any legal or other
expenses subsequently incurred by Indemnitee in connection with the defense
thereof other than reasonable costs of investigation or as otherwise provided
below. Indemnitee shall have the right to employ its counsel in such action,
suit or proceeding but the fees and expenses of such counsel incurred after
notice from the Company of its assumption of the defense thereof shall be at
the expense of Indemnitee unless (i) the employment of counsel by Indemnitee
has been authorized by the Company, (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of the defense of such action or (iii) the Company
shall not in fact have employed counsel to assume the defense of such action,
in each of which cases the fees and expenses of Indemnitee's separate counsel
shall be at the expense of the Company. The Company shall not be entitled to
assume the defense of any action, suit or proceeding brought by or on behalf
of the Company or as to which Indemnitee shall have made the conclusion
provided for in (ii) above; and
(c) the Company shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent. The Company shall be permitted
to settle any action except that it shall not settle any action or claim in
any manner which would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Neither the Company nor Indemnitee will
unreasonably withhold its consent to any proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Indemnitee employs his own counsel
pursuant to Section 6(b)(i) through (iii) above, the Company shall advance to
Indemnitee, prior to any final disposition of any threatened or pending
action, suit or proceeding, whether civil, criminal, administrative or
investigative, any and all reasonable expenses (including legal fees and
expenses) incurred in investigating or defending any such action, suit or
proceeding within ten business days after receiving copies of invoices
presented to Indemnitee for such expenses; and
(b) Indemnitee agrees that Indemnitee will reimburse the
Company for all reasonable expenses paid by the Company in defending any
Proceeding in the event and only to the extent it shall be ultimately
determined by a final judicial decision (from which there is no right of
appeal) that Indemnitee is not entitled, under applicable law, the Company's
Bylaws, this Agreement or otherwise, to be indemnified by the Company for
such expenses.
5
<PAGE>
(c) Notwithstanding the foregoing, the Company shall not be
required to advance such expenses to Indemnitee if Indemnitee (i) commences
or is a party to any action, suit or proceeding as a plaintiff unless such
advance is specifically approved by a majority of the Board of Directors, or
(ii) is a party to an action, suit or proceeding brought by the Company and
approved by a majority of the Board of Directors which alleges willful
misappropriation of corporate assets by Indemnitee, disclosure of
confidential information in violation of Indemnitee's fiduciary or
contractual obligations to the Company, or any other willful and deliberate
breach in bad faith of Indemnitee's duty to the Company or its shareholders.
8. ENFORCEMENT. In the event Indemnitee brings any action to
enforce rights or to collect moneys due under this Agreement and is
successful in such action, the Company shall reimburse Indemnitee for all of
Indemnitee's reasonable fees and expenses in bringing and pursuing such
action.
9. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
the Company effectively to bring suit to enforce such rights.
10. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee
by this Agreement shall not be exclusive of any other right which Indemnitee
may have or hereafter acquire under any statute, provision of the Company's
Articles of Incorporation or Bylaws, agreement, vote of shareholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
11. SURVIVAL OF RIGHTS. The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director,
officer, employee or other agent of the Company and shall inure to the
benefit of Indemnitee's heirs, executors and administrators.
12. NOTICE. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five calendar days after deposit
with the U.S. Postal Service or other applicable postal service, if delivered
by first class mail, postage prepaid, (b) upon delivery, if delivered by
hand, (c) one business day after the business day of deposit with Federal
Express or similar overnight courier, freight prepaid, or (d) one day after
the business day of delivery by facsimile transmission, if deliverable by
facsimile transmission, with copy by first class mail, postage prepaid, and
shall be addressed if to Indemnitee, at Indemnitee's address as set forth
beneath Indemnitee's signature to this Agreement and if to the Company at the
address of its principal corporate offices (attention: Chief Executive
Officer) or at such other address as such party may designate by ten calendar
days' advance written notice to the other party hereto.
13. SEVERABILITY. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including, without limitations, each portion of this
Agreement containing any provision held to
6
<PAGE>
be invalid, void or otherwise unenforceable, that is not itself invalid, void
or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
14. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of California.
15. BINDING EFFECT. This Agreement shall be binding upon
Indemnitee and upon the Company, its successors and assigns, and shall inure
to the benefit of Indemnitee, his heirs, personal representatives and assigns
and to the benefit of the Company, its successors and assigns.
16. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is
in writing signed by all parties hereto. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
17. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth
the entire understanding between the parties hereto and supersedes and merges
all previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
18. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in
this Agreement shall be construed as giving the Indemnitee any right to be
retained in the employ of the Company or any of its subsidiaries.
19. CORPORATE AUTHORITY. The Board of Directors and shareholders
of the Company have approved the terms of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
COMPANY:
DrugAbuse Sciences
By _____________________________
Philippe Pouletty,
President
Address:____________________________
_____________________________
INDEMNITEE
____________________________________
XXXXXX
Address:____________________________
_____________________________
8
<PAGE>
DRUGABUSE SCIENCES, INC.
2000 STOCK INCENTIVE PLAN
(AS ADOPTED EFFECTIVE _______ __, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 Committee Composition. . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Committee Responsibilities . . . . . . . . . . . . . . . . . . . . . . . .1
2.3 Committee for Non-Officer Grants . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS. . . . . . . . . . . . . . . . . . . . . . .2
3.1 Basic Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.2 Annual Increase in Shares. . . . . . . . . . . . . . . . . . . . . . . . .2
3.3 Additional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE 4. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
4.1 Nonstatutory Stock Options and Restricted Shares . . . . . . . . . . . . .2
4.2 Incentive Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE 5. OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5.1 Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .3
5.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5.4 Exercisability and Term. . . . . . . . . . . . . . . . . . . . . . . . . .3
5.5 Effect of Change in Control. . . . . . . . . . . . . . . . . . . . . . . .3
5.6 Modification or Assumption of Options. . . . . . . . . . . . . . . . . . .3
5.7 Buyout Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE 6. PAYMENT FOR OPTION SHARES. . . . . . . . . . . . . . . . . . . . . . . .4
6.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
6.2 Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
6.3 Exercise/Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
6.4 Exercise/Pledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
6.5 Promissory Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
6.6 Other Forms of Payment . . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE 7. RESTRICTED SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
7.1 Restricted Stock Agreement . . . . . . . . . . . . . . . . . . . . . . . .5
7.2 Payment for Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
7.3 Vesting Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
7.4 Voting and Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE 8. PROTECTION AGAINST DILUTION. . . . . . . . . . . . . . . . . . . . . . .5
8.1 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
8.2 Dissolution or Liquidation . . . . . . . . . . . . . . . . . . . . . . . .6
i
<PAGE>
8.3 Reorganizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE 9. DEFERRAL OF DELIVERY OF SHARES . . . . . . . . . . . . . . . . . . . . .6
ARTICLE 10. AWARDS UNDER OTHER PLANS. . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE 11. LIMITATION ON RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . .7
11.1 Retention Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
11.2 Shareholders' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . .7
11.3 Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE 12. WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . .7
12.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
12.2 Share Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE 13. LIMITATION ON PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . .7
13.1 Scope of Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . .7
13.2 Basic Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
13.3 Reduction of Payments . . . . . . . . . . . . . . . . . . . . . . . . . .8
13.4 Overpayments and Underpayments. . . . . . . . . . . . . . . . . . . . . .8
13.5 Related Corporations. . . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE 14. FUTURE OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .9
14.1 Term of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
14.2 Amendment or Termination. . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE 15. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE 16. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
ii
<PAGE>
DRUGABUSE SCIENCES, INC.
2000 STOCK INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective as of the date of
the Company's initial public offering. The purpose of the Plan is to promote
the long-term success of the Company and the creation of shareholder value by
(a) encouraging Employees, Outside Directors and Consultants to focus on
critical long-range objectives, (b) encouraging the attraction and retention
of Employees, Outside Directors and Consultants with exceptional
qualifications and (c) linking Employees, Outside Directors and Consultants
directly to shareholder interests through increased stock ownership. The
Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares or Options (which may constitute incentive stock options or
nonstatutory stock options).
The Plan shall be governed by, and construed in accordance
with, the laws of the State of California (except their choice-of-law
provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered
by the Committee. The Committee shall consist exclusively of two or more
directors of the Company, who shall be appointed by the Board. In addition,
the composition of the Committee shall satisfy:
(a) Such requirements as the Securities and
Exchange Commission may establish for administrators acting under
plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue
Service may establish for outside directors acting under plans
intended to qualify for exemption under section 162(m)(4)(C) of
the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a)
select the Employees, Outside Directors and Consultants who are to receive
Awards under the Plan, (b) determine the type, number, vesting requirements
and other features and conditions of such Awards, (c) interpret the Plan and
(d) make all other decisions relating to the operation of the Plan. The
Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also
appoint a secondary committee of the Board, which shall be composed of two or
more directors of the
<PAGE>
Company who need not satisfy the requirements of Section 2.1. Such secondary
committee may administer the Plan with respect to Employees and Consultants
who are not considered officers or directors of the Company under section 16
of the Exchange Act, may grant Awards under the Plan to such Employees and
Consultants and may determine all features and conditions of such Awards.
Within the limitations of this Section 2.3, any reference in the Plan to the
Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. The aggregate number of Options and
Restricted Shares awarded under the Plan shall not exceed (a) 750,000 plus
(b) the aggregate number of Common Shares remaining available for grants
under all Predecessor Plans on the date of the Company's initial public
offering plus (c) the additional Common Shares described in Sections 3.2 and
3.3. No additional grants shall be made under the Predecessor Plans after
the date of the Company's initial public offering. The limitations of this
Section 3.1 and Section 3.2 shall be subject to adjustment pursuant to
Article 8.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each
year, commencing with the year 2001, the aggregate number of Options and
Restricted Shares that may be awarded under the Plan shall automatically
increase by a number equal to the lesser of (a) 6% of the total number of
Common Shares then outstanding or (b) 2,000,000.
3.3 ADDITIONAL SHARES. If Options granted under this Plan
or a Predecessor Plan are forfeited or terminate for any other reason before
being exercised, then the corresponding Common Shares shall again become
available for the grant of Options or Restricted Shares under this Plan. If
Common Shares issued upon the exercise of Options granted under this Plan or
a Predecessor Plan are forfeited, then such Common Shares shall again become
available for the grant of NSOs and Restricted Shares under this Plan. If
Restricted Shares issued under this Plan or a Predecessor Plan are forfeited,
then the corresponding Common Shares shall again become available for the
grant of NSOs and Restricted Shares under this Plan. The aggregate number of
Common Shares that may be issued under the Plan upon the exercise of ISOs
shall not be increased when Restricted Shares or other Common Shares are
forfeited.
ARTICLE 4. ELIGIBILITY.
4.1 NONSTATUTORY STOCK OPTIONS AND RESTRICTED SHARES. Only
Employees, Outside Directors and Consultants shall be eligible for the grant
of NSOs and Restricted Shares.
4.2 INCENTIVE STOCK OPTIONS. Only Employees who are
common-law employees of the Company, a Parent or a Subsidiary shall be
eligible for the grant of ISOs. In addition, an Employee who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Company or any of its Parents or Subsidiaries shall not be eligible for
the grant of an ISO unless the requirements set forth in section 422(c)(6) of
the Code are satisfied.
2
<PAGE>
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under
the Plan shall be evidenced by a Stock Option Agreement between the Optionee
and the Company. Such Option shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the
Plan. The provisions of the various Stock Option Agreements entered into
under the Plan need not be identical. Options may be granted in
consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that a new Option will be granted automatically
to the Optionee when he or she exercises a prior Option and pays the Exercise
Price in the form described in Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall
specify the number of Common Shares subject to the Option and shall provide
for the adjustment of such number in accordance with Article 8. Options
granted to any Optionee in a single fiscal year of the Company shall not
cover more than 1,000,000 Common Shares, except that Options granted to a new
Employee in the fiscal year of the Company in which his or her service as an
Employee first commences shall not cover more than 2,000,000 Common Shares.
The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Article 8.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall
specify the Exercise Price; provided that the Exercise Price under an ISO
shall in no event be less than 100% of the Fair Market Value of a Common
Share on the date of grant, and the Exercise Price under an NSO shall in no
event be less than 50% of the Fair Market Value of a Common Share on the date
of grant. In the case of an NSO, a Stock Option Agreement may specify an
Exercise Price that varies in accordance with a predetermined formula while
the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement
shall specify the date or event when all or any installment of the Option is
to become exercisable. The Stock Option Agreement shall also specify the
term of the Option; provided that the term of an ISO shall in no event exceed
10 years from the date of grant. A Stock Option Agreement may provide for
accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end
of its term in the event of the termination of the Optionee's service.
5.5 EFFECT OF CHANGE IN CONTROL. The Committee may
determine, at the time of granting an Option or thereafter, that such Option
shall become exercisable as to all or part of the Common Shares subject to
such Option in the event that a Change in Control occurs with respect to the
Company or in the event that the Optionee is subject to an Involuntary
Termination after a Change in Control. However, in the case of an ISO, the
acceleration of exercisability shall not occur without the Optionee's written
consent. In addition, acceleration of exercisability may be required under
Section 8.3.
5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Committee may modify, extend or assume
outstanding options or may accept the cancellation of outstanding options
(whether granted by the Company or by another issuer) in return for the grant
of new options for the same or a different number of shares and at the same
or a different exercise price. The foregoing notwithstanding, no
modification of an Option shall,
3
<PAGE>
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
5.7 BUYOUT PROVISIONS. The Committee may at any time (a)
offer to buy out for a payment in cash or cash equivalents an Option
previously granted or (b) authorize an Optionee to elect to cash out an
Option previously granted, in either case at such time and based upon such
terms and conditions as the Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common
Shares issued upon exercise of Options shall be payable in cash or cash
equivalents at the time when such Common Shares are purchased, except as
follows:
(a) In the case of an ISO granted under the Plan,
payment shall be made only pursuant to the express provisions of
the applicable Stock Option Agreement. The Stock Option Agreement
may specify that payment may be made in any form(s) described in
this Article 6.
(b) In the case of an NSO, the Committee may at
any time accept payment in any form(s) described in this
Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2
is applicable, all or any part of the Exercise Price may be paid by
surrendering, or attesting to the ownership of, Common Shares that are
already owned by the Optionee. Such Common Shares shall be valued at their
Fair Market Value on the date when the new Common Shares are purchased under
the Plan. The Optionee shall not surrender, or attest to the ownership of,
Common Shares in payment of the Exercise Price if such action would cause the
Company to recognize compensation expense (or additional compensation
expense) with respect to the Option for financial reporting purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is
applicable, all or any part of the Exercise Price and any withholding taxes
may be paid by delivering (on a form prescribed by the Company) an
irrevocable direction to a securities broker approved by the Company to sell
all or part of the Common Shares being purchased under the Plan and to
deliver all or part of the sales proceeds to the Company.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes
may be paid by delivering (on a form prescribed by the Company) an
irrevocable direction to pledge all or part of the Common Shares being
purchased under the Plan to a securities broker or lender approved by the
Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes
may be paid by delivering (on a form prescribed by the Company) a
full-recourse promissory note.
4
<PAGE>
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section
6.6 is applicable, all or any part of the Exercise Price and any withholding
taxes may be paid in any other form that is consistent with applicable laws,
regulations and rules.
ARTICLE 7. RESTRICTED SHARES.
7.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted
Shares under the Plan shall be evidenced by a Restricted Stock Agreement
between the recipient and the Company. Such Restricted Shares shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various
Restricted Stock Agreements entered into under the Plan need not be identical.
7.2 PAYMENT FOR AWARDS. Restricted Shares may be sold or
awarded under the Plan for such consideration as the Committee may determine,
including (without limitation) cash, cash equivalents, full-recourse
promissory notes and services rendered.
7.3 VESTING CONDITIONS. Each Award of Restricted Shares may
or may not be subject to vesting. Vesting shall occur, in full or in
installments, upon satisfaction of the conditions specified in the Restricted
Stock Agreement. A Restricted Stock Agreement may provide for accelerated
vesting in the event of the Participant's death, disability or retirement or
other events. The Committee may determine, at the time of granting
Restricted Shares or thereafter, that all or part of such Restricted Shares
shall become vested in the event that a Change in Control occurs with respect
to the Company or in the event that the Participant is subject to an
Involuntary Termination after a Change in Control.
7.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted
Shares awarded under the Plan shall have the same voting, dividend and other
rights as the Company's other shareholders. A Restricted Stock Agreement,
however, may require that the holders of Restricted Shares invest any cash
dividends received in additional Restricted Shares. Such additional
Restricted Shares shall be subject to the same conditions and restrictions as
the Award with respect to which the dividends were paid.
ARTICLE 8. PROTECTION AGAINST DILUTION.
8.1 ADJUSTMENTS. In the event of a subdivision of the
outstanding Common Shares, a declaration of a dividend payable in Common
Shares or a combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares,
corresponding adjustments shall automatically be made in each of the
following:
(a) The number of Options and Restricted Shares
available for future Awards under Article 3;
(b) The limitations set forth in Section 5.2;
(c) The number of Common Shares covered by each
outstanding Option; or
5
<PAGE>
(d) The Exercise Price under each outstanding
Option.
In the event of a declaration of an extraordinary dividend payable in a form
other than Common Shares in an amount that has a material effect on the price
of Common Shares, a recapitalization, a spin-off or a similar occurrence, the
Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of the foregoing. Except as provided in this
Article 8, a Participant shall have no rights by reason of any issuance by
the Company of stock of any class or securities convertible into stock of any
class, any subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease in the number
of shares of stock of any class.
8.2 DISSOLUTION OR LIQUIDATION. To the extent not
previously exercised, Options shall terminate immediately prior to the
dissolution or liquidation of the Company.
8.3 REORGANIZATIONS. In the event that the Company is a
party to a merger or other reorganization, outstanding Options and Restricted
Shares shall be subject to the agreement of merger or reorganization. Such
agreement shall provide for (a) the continuation of the outstanding Awards by
the Company, if the Company is a surviving corporation, (b) the assumption of
the outstanding Awards by the surviving corporation or its parent or
subsidiary, (c) the substitution by the surviving corporation or its parent
or subsidiary of its own awards for the outstanding Awards, (d) full
exercisability or vesting and accelerated expiration of the outstanding
Awards or (e) settlement of the full value of the outstanding Awards in cash
or cash equivalents followed by cancellation of such Awards.
ARTICLE 9. DEFERRAL OF DELIVERY OF SHARES.
The Committee (in its sole discretion) may permit or require an
Optionee to have Common Shares that otherwise would be delivered to such
Optionee as a result of the exercise of an Option converted into amounts
credited to a deferred compensation account established for such Optionee by
the Committee as an entry on the Company's books. Such amounts shall be
determined by reference to the Fair Market Value of such Common Shares as of
the date when they otherwise would have been delivered to such Optionee. A
deferred compensation account established under this Article 9 may be
credited with interest or other forms of investment return, as determined by
the Committee. An Optionee for whom such an account is established shall have
no rights other than those of a general creditor of the Company. Such an
account shall represent an unfunded and unsecured obligation of the Company
and shall be subject to the terms and conditions of the applicable agreement
between such Optionee and the Company. If the conversion of Options is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such conversion, including (without
limitation) the settlement of deferred compensation accounts established
under this Article 9.
ARTICLE 10. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs.
Such awards may be settled in the form of Common Shares issued under this
Plan. Such Common Shares shall be treated for all purposes under the Plan
like Restricted Shares and shall, when issued, reduce the number of Common
Shares available under Article 3.
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ARTICLE 11. LIMITATION ON RIGHTS.
11.1 RETENTION RIGHTS. Neither the Plan nor any Award
granted under the Plan shall be deemed to give any individual a right to
remain an Employee, Outside Director or Consultant. The Company and its
Parents, Subsidiaries and Affiliates reserve the right to terminate the
service of any Employee, Outside Director or Consultant at any time, with or
without cause, subject to applicable laws, the Company's certificate of
incorporation and by-laws and a written employment agreement (if any).
11.2 SHAREHOLDERS' RIGHTS. A Participant shall have no
dividend rights, voting rights or other rights as a shareholder with respect
to any Common Shares covered by his or her Award prior to the time when a
stock certificate for such Common Shares is issued or, in the case of an
Option, the time when he or she becomes entitled to receive such Common
Shares by filing a notice of exercise and paying the Exercise Price. No
adjustment shall be made for cash dividends or other rights for which the
record date is prior to such time, except as expressly provided in the Plan.
11.3 REGULATORY REQUIREMENTS. Any other provision of the
Plan notwithstanding, the obligation of the Company to issue Common Shares
under the Plan shall be subject to all applicable laws, rules and regulations
and such approval by any regulatory body as may be required. The Company
reserves the right to restrict, in whole or in part, the delivery of Common
Shares pursuant to any Award prior to the satisfaction of all legal
requirements relating to the issuance of such Common Shares, to their
registration, qualification or listing or to an exemption from registration,
qualification or listing.
ARTICLE 12. WITHHOLDING TAXES.
12.1 GENERAL. To the extent required by applicable federal,
state, local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Company shall not be required to issue any Common Shares or make any cash
payment under the Plan until such obligations are satisfied.
12.2 SHARE WITHHOLDING. To the extent that applicable law
subjects a Participant to tax withholding obligations, the Committee may
permit such Participant to satisfy all or part of such obligations by having
the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any
Common Shares that he or she previously acquired. Such Common Shares shall
be valued at their Fair Market Value on the date when they are withheld or
surrendered.
ARTICLE 13. LIMITATION ON PAYMENTS.
13.1 SCOPE OF LIMITATION. This Article 13 shall apply to an
Award only if:
(a) The independent auditors most recently
selected by the Board (the "Auditors") determine that the after-
tax value of such Award to the Participant, taking into account the
effect of all federal, state and local income
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taxes, employment taxes and excise taxes applicable to the Participant
(including the excise tax under section 4999 of the Code), will be
greater after the application of this Article 13 than it was before
the application of this Article 13; or
(b) The Committee, at the time of making an Award
under the Plan or at any time thereafter, specifies in writing
that such Award shall be subject to this Article 13 (regardless of
the after-tax value of such Award to the Participant).
If this Article 13 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
13.2 BASIC RULE. In the event that the Auditors determine
that any payment or transfer by the Company under the Plan to or for the
benefit of a Participant (a "Payment") would be nondeductible by the Company
for federal income tax purposes because of the provisions concerning "excess
parachute payments" in section 280G of the Code, then the aggregate present
value of all Payments shall be reduced (but not below zero) to the Reduced
Amount. For purposes of this Article 13, the "Reduced Amount" shall be the
amount, expressed as a present value, which maximizes the aggregate present
value of the Payments without causing any Payment to be nondeductible by the
Company because of section 280G of the Code.
13.3 REDUCTION OF PAYMENTS. If the Auditors determine that
any Payment would be nondeductible by the Company because of section 280G of
the Code, then the Company shall promptly give the Participant notice to that
effect and a copy of the detailed calculation thereof and of the Reduced
Amount, and the Participant may then elect, in his or her sole discretion,
which and how much of the Payments shall be eliminated or reduced (as long as
after such election the aggregate present value of the Payments equals the
Reduced Amount) and shall advise the Company in writing of his or her
election within 10 days of receipt of notice. If no such election is made by
the Participant within such 10-day period, then the Company may elect which
and how much of the Payments shall be eliminated or reduced (as long as after
such election the aggregate present value of the Payments equals the Reduced
Amount) and shall notify the Participant promptly of such election. For
purposes of this Article 13, present value shall be determined in accordance
with section 280G(d)(4) of the Code. All determinations made by the Auditors
under this Article 13 shall be binding upon the Company and the Participant
and shall be made within 60 days of the date when a Payment becomes payable
or transferable. As promptly as practicable following such determination and
the elections hereunder, the Company shall pay or transfer to or for the
benefit of the Participant such amounts as are then due to him or her under
the Plan and shall promptly pay or transfer to or for the benefit of the
Participant in the future such amounts as become due to him or her under the
Plan.
13.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of
uncertainty in the application of section 280G of the Code at the time of an
initial determination by the Auditors hereunder, it is possible that Payments
will have been made by the Company which should not have been made (an
"Overpayment") or that additional Payments which will not have been made by
the Company could have been made (an "Underpayment"), consistent in each case
with the calculation of the Reduced Amount hereunder. In the event that the
Auditors, based upon the
8
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assertion of a deficiency by the Internal Revenue Service against the Company
or the Participant which the Auditors believe has a high probability of
success, determine that an Overpayment has been made, such Overpayment shall
be treated for all purposes as a loan to the Participant which he or she
shall repay to the Company, together with interest at the applicable federal
rate provided in section 7872(f)(2) of the Code; provided, however, that no
amount shall be payable by the Participant to the Company if and to the
extent that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall promptly
be paid or transferred by the Company to or for the benefit of the
Participant, together with interest at the applicable federal rate provided
in section 7872(f)(2) of the Code.
13.5 RELATED CORPORATIONS. For purposes of this Article 13,
the term "Company" shall include affiliated corporations to the extent
determined by the Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 14. FUTURE OF THE PLAN.
14.1 TERM OF THE PLAN. The Plan, as set forth herein, shall
become effective on the date of the Company's initial public offering. The
Plan shall remain in effect until it is terminated under Section 14.2.
14.2 AMENDMENT OR TERMINATION. The Board may, at any time
and for any reason, amend or terminate the Plan. An amendment of the Plan
shall be subject to the approval of the Company's shareholders only to the
extent required by applicable laws, regulations or rules. The amendment or
termination of the Plan shall not affect any Award previously granted under
the Plan. No Awards shall be granted under the Plan after the termination
thereof. The Plan shall terminate automatically 10 years after its adoption
by the Board, unless (a) the Plan is extended by the Board and (b) the
extension is approved within 12 months by a vote of the shareholders of the
Company.
ARTICLE 15. DEFINITIONS.
15.1 "AFFILIATE" means any entity other than a Subsidiary, if
the Company and/or one or more Subsidiaries own not less than 50% of such
entity.
15.2 "AWARD" means any award of an Option or a Restricted
Share under the Plan.
15.3 "BOARD" means the Company's Board of Directors, as
constituted from time to time.
15.4 "CAUSE" shall mean (a) the unauthorized use or
disclosure of the confidential information or trade secrets of the Company,
which use or disclosure causes material harm to the Company, (b) conviction
of, or a plea of "guilty" or "no contest" to, a felony under the laws of the
United States or any State thereof, (c) gross negligence, (d) willful
misconduct or (e) a failure to perform assigned duties that continues after
the Participant has received written notice of such failure from the Board.
The foregoing, however, shall not be
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deemed an exclusive list of all acts or omissions that the Company (or the
Parent, Subsidiary or Affiliate employing the Participant) may consider as
grounds for the discharge of the Participant without Cause.
15.5 "CHANGE IN CONTROL" means:
(a) The consummation of a merger or consolidation
of the Company with or into another entity or any other corporate
reorganization, if persons who were not shareholders of the
Company immediately prior to such merger, consolidation or other
reorganization own immediately after such merger, consolidation or
other reorganization 50% or more of the voting power of the
outstanding securities of each of (i) the continuing or surviving
entity and (ii) any direct or indirect parent corporation of such
continuing or surviving entity;
(b) The sale, transfer or other disposition of
all or substantially all of the Company's assets;
(c) A change in the composition of the Board, as
a result of which 50% or fewer of the incumbent directors are
directors who either (i) had been directors of the Company on the
date 24 months prior to the date of the event that may constitute
a Change in Control (the "original directors") or (ii) were
elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the
election or nomination and the directors whose election or
nomination was previously so approved; or
(d) Any transaction as a result of which any
person is the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing at least 50% of the total voting power
represented by the Company's then outstanding voting securities.
For purposes of this Subsection (d), the term "person" shall have
the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude (i) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or of a Parent or Subsidiary and (ii) a corporation owned directly
or indirectly by the shareholders of the Company in substantially
the same proportions as their ownership of the common stock of the
Company.
A transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
15.6 "CODE" means the Internal Revenue Code of 1986, as amended.
15.7 "COMMITTEE" means a committee of the Board, as described in
Article 2.
15.8 "COMMON SHARE" means one share of the common stock of the
Company.
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15.9 "COMPANY" means DrugAbuse Sciences, Inc., a California
corporation.
15.10 "CONSULTANT" means a consultant or adviser who provides
bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as
an independent contractor. Service as a Consultant shall be considered
employment for all purposes of the Plan, except as provided in Section 4.2.
15.11 "EMPLOYEE" means a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate.
15.12 "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
15.13 "EXERCISE PRICE" means the amount for which one Common
Share may be purchased upon exercise of an Option, as specified in the
applicable Stock Option Agreement.
15.14 "FAIR MARKET VALUE" means the market price of Common
Shares, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by
the Committee shall be based on the prices reported in THE WALL STREET
JOURNAL. Such determination shall be conclusive and binding on all persons.
15.15 "INVOLUNTARY TERMINATION" means the termination of the
Participant's service by reason of:
(a) The involuntary discharge of the Participant
by the Company (or the Parent, Subsidiary or Affiliate employing
him or her) for reasons other than Cause; or
(b) The voluntary resignation of the Participant
following (i) a material adverse change in his or her title,
stature, authority or responsibilities with the Company (or the
Parent, Subsidiary or Affiliate employing him or her), (ii) a
material reduction in his or her base salary or (iii) receipt of
notice that his or her principal workplace will be relocated by
more than 30 miles.
15.16 "ISO" means an incentive stock option described in
section 422(b) of the Code.
15.17 "NSO" means a stock option not described in sections 422
or 423 of the Code.
15.18 "OPTION" means an ISO or NSO granted under the Plan and
entitling the holder to purchase Common Shares.
15.19 "OPTIONEE" means an individual or estate who holds an
Option.
15.20 "OUTSIDE DIRECTOR" means a member of the Board who is
not an Employee. Service as an Outside Director shall be considered
employment for all purposes of the Plan, except as provided in Section 4.2.
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15.21 "PARENT" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
15.22 "PARTICIPANT" means an individual or estate who holds an
Award.
15.23 "PLAN" means this DrugAbuse Sciences, Inc. 2000 Stock
Incentive Plan, as amended from time to time.
15.24 "PREDECESSOR PLAN" means the DrugAbuse Sciences, Inc.
1994 Stock Plan, the DrugAbuse Sciences, Inc. 1999 Stock Plan A or the
DrugAbuse Sciences, Inc. 1999 Stock Plan B.
15.25 "RESTRICTED SHARE" means a Common Share awarded under
the Plan.
15.26 "RESTRICTED STOCK AGREEMENT" means the agreement between
the Company and the recipient of a Restricted Share that contains the terms,
conditions and restrictions pertaining to such Restricted Share.
15.27 "STOCK OPTION AGREEMENT" means the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
15.28 "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, if
each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
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ARTICLE 16. EXECUTION.
To record the adoption of the Plan by the Board on January 13,
2000, the Company has caused its duly authorized officer to execute this
document in the name of the Company.
DRUGABUSE SCIENCES, INC.
By: _________________________________
Title: ______________________________
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DRUGABUSE SCIENCES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED EFFECTIVE _______ __, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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SECTION 1. PURPOSE OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . .1
(a) Committee Composition. . . . . . . . . . . . . . . . . . . . . . . . . . .1
(b) Committee Responsibilities . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 3. ENROLLMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . .1
(a) Offering Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(b) Accumulation Periods . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(c) Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(d) Duration of Participation. . . . . . . . . . . . . . . . . . . . . . . . .2
(e) Applicable Offering Period . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 4. EMPLOYEE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . .2
(a) Frequency of Payroll Deductions. . . . . . . . . . . . . . . . . . . . . .2
(b) Amount of Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . .3
(c) Changing Withholding Rate. . . . . . . . . . . . . . . . . . . . . . . . .3
(d) Discontinuing Payroll Deductions . . . . . . . . . . . . . . . . . . . . .3
(e) Limit on Number of Elections . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 5. WITHDRAWAL FROM THE PLAN . . . . . . . . . . . . . . . . . . . . . . . .3
(a) Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
(b) Re-Enrollment After Withdrawal . . . . . . . . . . . . . . . . . . . . . .3
SECTION 6. CHANGE IN EMPLOYMENT STATUS. . . . . . . . . . . . . . . . . . . . . . .4
(a) Termination of Employment. . . . . . . . . . . . . . . . . . . . . . . . .4
(b) Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(c) Death. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES . . . . . . . . . . . . . . . . . .4
(a) Plan Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(b) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(c) Number of Shares Purchased . . . . . . . . . . . . . . . . . . . . . . . .4
(d) Available Shares Insufficient. . . . . . . . . . . . . . . . . . . . . . .5
(e) Issuance of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
(f) Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
(g) Unused Cash Balances . . . . . . . . . . . . . . . . . . . . . . . . . . .5
(h) Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . . . .6
(a) Five Percent Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
(b) Dollar Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
</TABLE>
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<TABLE>
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SECTION 9. RIGHTS NOT TRANSFERABLE. . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 10. NO RIGHTS AS AN EMPLOYEE. . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 11. NO RIGHTS AS A SHAREHOLDER. . . . . . . . . . . . . . . . . . . . . . .7
SECTION 12. SECURITIES LAW REQUIREMENTS.. . . . . . . . . . . . . . . . . . . . . .7
SECTION 13. STOCK OFFERED UNDER THE PLAN. . . . . . . . . . . . . . . . . . . . . .7
(a) Authorized Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(b) Anti-Dilution Adjustments. . . . . . . . . . . . . . . . . . . . . . . . .8
(c) Reorganizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 14. AMENDMENT OR DISCONTINUANCE . . . . . . . . . . . . . . . . . . . . . .8
SECTION 15. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(a) Accumulation Period. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(b) Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(c) Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(d) Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(e) Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(f) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(g) Corporate Reorganization . . . . . . . . . . . . . . . . . . . . . . . . .9
(h) Eligible Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(i) Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(j) Fair Market Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(k) IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
(l) Offering Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(m) Participant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(n) Participating Company. . . . . . . . . . . . . . . . . . . . . . . . . . 10
(o) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(p) Plan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(q) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(r) Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(s) Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 15. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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DRUGABUSE SCIENCES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board effective as of the date of the
IPO. The purpose of the Plan is to provide Eligible Employees with an
opportunity to increase their proprietary interest in the success of the Company
by purchasing Stock from the Company on favorable terms and to pay for such
purchases through payroll deductions. The Plan is intended to qualify under
section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by
the Committee. The Committee shall consist exclusively of two or more directors
of the Company, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret
the Plan and make all other policy decisions relating to the operation of the
Plan. The Committee may adopt such rules, guidelines and forms as it deems
appropriate to implement the Plan. The Committee's determinations under the
Plan shall be final and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two
overlapping Offering Periods shall commence in each calendar year. The Offering
Periods shall consist of the 24-month periods commencing on each May 1 and
November 1, except that the first Offering Period shall commence on the date of
the IPO and end on April 30, 2002.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two
Accumulation Periods shall commence in each calendar year. The Accumulation
Periods shall consist of the six-month periods commencing on each May 1 and
November 1, except that the first Accumulation Period shall commence on the date
of the IPO and end on October 31, 2000.
(c) ENROLLMENT. Any individual who, on the day preceding the
first day of an Offering Period, qualifies as an Eligible Employee may elect to
become a Participant in the Plan for such Offering Period by executing the
enrollment form prescribed for this purpose by the Committee. The enrollment
form shall be filed with the Company at the prescribed location not later than
10 business days prior to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a
Participant shall continue to participate in the Plan until he or she ceases to
be an Eligible Employee, withdraws from the Plan under Section 5(a) or reaches
the end of the Accumulation Period in which his or
<PAGE>
her employee contributions were discontinued under Section 4(d) or 8(b). A
Participant who discontinued employee contributions under Section 4(d) or
withdrew from the Plan under Section 5(a) may again become a Participant, if
he or she then is an Eligible Employee, by following the procedure described
in Subsection (c) above. A Participant whose employee contributions were
discontinued automatically under Section 8(b) shall automatically resume
participation at the beginning of the earliest Accumulation Period ending in
the next calendar year, if he or she then is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating
the Purchase Price under Section 7(b), the applicable Offering Period shall be
determined as follows:
(i) Once a Participant is enrolled in the Plan for an
Offering Period, such Offering Period shall continue to apply to
him or her until the earliest of (A) the end of such Offering
Period, (B) the end of his or her participation under
Subsection (d) above or (C) re-enrollment for a subsequent
Offering Period under Paragraph (ii) or (iii) below.
(ii) In the event that the Fair Market Value of Stock on
the last trading day before the commencement of the Offering
Period for which the Participant is enrolled is higher than on the
last trading day before the commencement of any subsequent
Offering Period, the Participant shall automatically be re-enrolled for
such subsequent Offering Period.
(iii) Any other provision of the Plan notwithstanding, the
Company (at its sole discretion) may determine prior to the
commencement of any new Offering Period that all Participants
shall be re-enrolled for such new Offering Period.
(iv) When a Participant reaches the end of an Offering
Period but his or her participation is to continue, then such
Participant shall automatically be re-enrolled for the Offering
Period that commences immediately after the end of the prior
Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may
purchase shares of Stock under the Plan solely by means of payroll deductions.
Payroll deductions, as designated by the Participant pursuant to Subsection (b)
below, shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall
designate on the enrollment form the portion of his or her Compensation that he
or she elects to have withheld for the purchase of Stock. Such portion shall be
a whole percentage of the Eligible Employee's Compensation, but not less than 1%
nor more than 15%.
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to
change the rate of payroll withholding, he or she may do so by filing a new
enrollment form with the Company
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at the prescribed location at any time. The new withholding rate shall be
effective as soon as reasonably practicable after such form has been received
by the Company. The new withholding rate shall be a whole percentage of the
Eligible Employee's Compensation, but not less than 1% nor more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes
to discontinue employee contributions entirely, he or she may do so by filing a
new enrollment form with the Company at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Company. (In addition, employee contributions may
be discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make
more than two elections under Subsection (c) or (d) above during any
Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the
Plan by filing the prescribed form with the Company at the prescribed location
at any time before the last day of an Accumulation Period. As soon as
reasonably practicable thereafter, payroll deductions shall cease and the entire
amount credited to the Participant's Plan Account shall be refunded to him or
her in cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who
has withdrawn from the Plan shall not be a Participant until he or she
re-enrolls in the Plan under Section 3(c). Re-enrollment may be effective only
at the commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an
Eligible Employee for any reason, including death, shall be treated as an
automatic withdrawal from the Plan under Section 5(a). (A transfer from one
Participating Company to another shall not be treated as a termination of
employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment
shall not be deemed to terminate when the Participant goes on a military leave,
a sick leave or another BONA FIDE leave of absence, if the leave was approved by
the Company in writing. Employment, however, shall be deemed to terminate 90
days after the Participant goes on a leave, unless a contract or statute
guarantees his or her right to return to work. Employment shall be deemed to
terminate in any event when the approved leave ends, unless the Participant
immediately returns to work.
(c) DEATH. In the event of the Participant's death, the amount
credited to his or her Plan Account shall be paid to a beneficiary designated by
him or her for this purpose on
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the prescribed form or, if none, to the Participant's estate. Such form
shall be valid only if it was filed with the Company at the prescribed
location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account
on its books in the name of each Participant. Whenever an amount is deducted
from the Participant's Compensation under the Plan, such amount shall be
credited to the Participant's Plan Account. Amounts credited to Plan Accounts
shall not be trust funds and may be commingled with the Company's general assets
and applied to general corporate purposes. No interest shall be credited to
Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock
purchased at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the
last trading day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the
last trading day before the commencement of the applicable
Offering Period (as determined under Section 3(e)) or, in the case
of the first Offering Period under the Plan, 85% of the price at
which one share of Stock is offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each
Accumulation Period, each Participant shall be deemed to have elected to
purchase the number of shares of Stock calculated in accordance with this
Subsection (c), unless the Participant has previously elected to withdraw from
the Plan in accordance with Section 5(a). The amount then in the Participant's
Plan Account shall be divided by the Purchase Price, and the number of shares
that results shall be purchased from the Company with the funds in the
Participant's Plan Account. The foregoing notwithstanding, no Participant shall
purchase more than 2,000 shares of Stock with respect to any Accumulation Period
nor more than the amounts of Stock set forth in Sections 8(b) and 13(a). The
Committee may determine with respect to all Participants that any fractional
share, as calculated under this Subsection (c), shall be (i) rounded down to the
next lower whole share or (ii) credited as a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the
aggregate number of shares that all Participants elect to purchase during an
Accumulation Period exceeds the maximum number of shares remaining available for
issuance under Section 13(a), then the number of shares to which each
Participant is entitled shall be determined by multiplying the number of shares
available for issuance by a fraction, the numerator of which is the number of
shares that such Participant has elected to purchase and the denominator of
which is the number of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of
Stock purchased by a Participant under the Plan shall be issued to him or her as
soon as reasonably practicable after the close of the applicable Accumulation
Period, except that the Committee may determine that such shares shall be held
for each Participant's benefit by a broker designated by
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the Committee (unless the Participant has elected that certificates be issued
to him or her). Shares may be registered in the name of the Participant or
jointly in the name of the Participant and his or her spouse as joint tenants
with right of survivorship or as community property.
(f) TAX WITHHOLDING. To the extent required by applicable
federal, state, local or foreign law, a Participant shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any shares of Stock under the Plan until such obligations are
satisfied.
(g) UNUSED CASH BALANCES. An amount remaining in the
Participant's Plan Account that represents the Purchase Price for any fractional
share shall be carried over in the Participant's Plan Account to the next
Accumulation Period. Any amount remaining in the Participant's Plan Account
that represents the Purchase Price for whole shares that could not be purchased
by reason of Subsection (c) above, Section 8(b) or Section 13(a) shall be
refunded to the Participant in cash, without interest.
(h) SHAREHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's shareholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Stock under
the Plan if such Participant, immediately after his or her election to purchase
such Stock, would own stock possessing more than 5% of the total combined voting
power or value of all classes of stock of the Company or any parent or
Subsidiary of the Company. For purposes of this Subsection (a), the following
rules shall apply:
(i) Ownership of stock shall be determined after
applying the attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock
that he or she has a right or option to purchase under this or any
other plan; and
(iii) Each Participant shall be deemed to have the right
to purchase 2,000 shares of Stock under this Plan with respect to
each Accumulation Period.
(b) DOLLAR LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall purchase Stock with a Fair Market Value in
excess of the following limit:
(i) In the case of Stock purchased during an Offering
Period that commenced in the current calendar year, the limit
shall be equal to (A) $25,000 minus (B) the Fair Market Value of
the Stock that the Participant previously purchased in the current
calendar year (under this Plan and all other employee
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stock purchase plans of the Company or any parent or Subsidiary of the
Company).
(ii) In the case of Stock purchased during an Offering
Period that commenced in the immediately preceding calendar year,
the limit shall be equal to (A) $50,000 minus (B) the Fair Market
Value of the Stock that the Participant previously purchased
(under this Plan and all other employee stock purchase plans of
the Company or any parent or Subsidiary of the Company) in the
current calendar year and in the immediately preceding calendar
year.
(iii) In the case of Stock purchased during an Offering
Period that commenced in the second preceding calendar year, the
limit shall be equal to (A) $75,000 minus (B) the Fair Market
Value of the Stock that the Participant previously purchased
(under this Plan and all other employee stock purchase plans of
the Company or any parent or Subsidiary of the Company) in the
current calendar year and in the two preceding calendar years.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner
attempts to transfer, assign or otherwise encumber his or her rights or interest
under the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall
confer upon the Participant any right to continue in the employ of a
Participating Company for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Participating Companies or of
the Participant, which rights are hereby expressly reserved by each, to
terminate his or her employment at any time and for any reason, with or without
cause.
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SECTION 11. NO RIGHTS AS A SHAREHOLDER.
A Participant shall have no rights as a shareholder with respect
to any shares of Stock that he or she may have a right to purchase under the
Plan until such shares have been purchased on the last day of the applicable
Accumulation Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the
issuance and delivery of such shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company's securities may then be traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The number of shares of Stock available
for purchase under the Plan shall be 375,000 (subject to adjustment pursuant to
this Section 13). On May 1 of each year, commencing with May 1, 2001, the
aggregate number of shares of Stock available for purchase during the life of
the Plan shall automatically be increased by the number of shares necessary to
cause the number of shares then available for purchase to be restored to 375,000
(subject to adjustment pursuant to this Section 13).
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares
of Stock offered under the Plan, the 2,000-share limitation described in
Section 7(c) and the price of shares that any Participant has elected to
purchase shall be adjusted proportionately by the Committee for any increase or
decrease in the number of outstanding shares of Stock resulting from a
subdivision or consolidation of shares or the payment of a stock dividend, any
other increase or decrease in such shares effected without receipt or payment of
consideration by the Company, the distribution of the shares of a Subsidiary to
the Company's shareholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan
notwithstanding, immediately prior to the effective time of a Corporate
Reorganization, the Offering Period and Accumulation Period then in progress
shall terminate and shares shall be purchased pursuant to Section 7, unless the
Plan is continued or assumed by the surviving corporation or its parent
corporation. The Plan shall in no event be construed to restrict in any way the
Company's right to undertake a dissolution, liquidation, merger, consolidation
or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the
Plan at any time and without notice. Except as provided in Section 13, any
increase in the aggregate number of shares of Stock to be issued under the Plan
shall be subject to approval by a vote of the shareholders of the Company. In
addition, any other amendment of the Plan shall be subject to approval by a vote
of the shareholders of the Company to the extent required by an applicable
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law or regulation. The Plan shall terminate automatically 10 years after its
adoption by the Board, unless (a) the Plan is extended by the Board and (b)
the extension is approved within 12 months by a vote of the shareholders of
the Company.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Company, as
constituted from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of the Board, as described in
Section 2.
(e) "COMPANY" means DrugAbuse Sciences, Inc., a California
corporation.
(f) "COMPENSATION" means (i) salaries and commissions paid in
cash to a Participant by a Participating Company plus (ii) any pre-tax
contributions made by the Participant under section 401(k) or 125 of the Code.
"Compensation" shall exclude bonuses, incentive compensation (other than
commissions), overtime pay, shift premiums, all non-cash items, moving or
relocation allowances, cost-of-living equalization payments, car allowances,
tuition reimbursements, imputed income attributable to cars or life insurance,
severance pay, fringe benefits, contributions or benefits received under
employee benefit plans, income attributable to the exercise of stock options,
and similar items. The Committee shall determine whether a particular item is
included in Compensation.
(g) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete
liquidation or dissolution of the Company.
(h) "ELIGIBLE EMPLOYEE" means any employee of a Participating
Company whose customary employment is for more than five months per calendar
year and for more than 20 hours per week. The foregoing notwithstanding, an
individual shall not be considered an Eligible Employee if his or her
participation in the Plan is prohibited by the law of any country which has
jurisdiction over him or her or if he or she is subject to a collective
bargaining agreement that does not provide for participation in the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(j) "FAIR MARKET VALUE" means the market price of Stock,
determined by the Committee as follows:
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(i) If the Stock was traded on The Nasdaq National
Market on the date in question, then the Fair Market Value shall
be equal to the last-transaction price quoted for such date by The
Nasdaq National Market;
(ii) If the Stock was traded on a stock exchange on the
date in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date; or
(iii) If none of the foregoing provisions is applicable,
then the Fair Market Value shall be determined by the Committee in
good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in THE WALL STREET JOURNAL or as reported
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.
(k) "IPO" means the initial offering of Stock to the public
pursuant to a registration statement filed by the Company with the Securities
and Exchange Commission.
(l) "OFFERING PERIOD" means a 24-month period with respect to
which the right to purchase Stock may be granted under the Plan, as determined
pursuant to Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to
participate in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each
present or future Subsidiary designated by the Committee as a Participating
Company.
(o) "PLAN" means this DrugAbuse Sciences, Inc. 2000 Employee
Stock Purchase Plan, as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each
Participant pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may
purchase Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Company.
(s) "SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
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SECTION 16. EXECUTION.
To record the adoption of the Plan by the Board on January 13,
2000, the Company has caused its duly authorized officer to execute this
document in the name of the Company.
DRUGABUSE SCIENCES, INC.
By:___________________________
Title:________________________
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DRUGABUSE SCIENCES, INC.
2000 DIRECTORS' STOCK OPTION PLAN
(AS ADOPTED EFFECTIVE _______ __, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 Committee Composition. . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Committee Responsibilities . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS. . . . . . . . . . . . . . . . . . . . . . .1
3.1 Basic Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3.2 Annual Increase in Shares. . . . . . . . . . . . . . . . . . . . . . . . .2
3.3 Additional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. . . . . . . . . . . .2
4.1 Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
4.2 Initial Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
4.3 Annual Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
4.4 Accelerated Exercisability . . . . . . . . . . . . . . . . . . . . . . . .2
4.5 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4.6 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4.7 Affiliates of Non-Employee Directors . . . . . . . . . . . . . . . . . . .3
4.8 Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE 5. PAYMENT FOR OPTION SHARES. . . . . . . . . . . . . . . . . . . . . . . .3
5.1 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5.2 Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5.3 Exercise/Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.4 Other Forms of Payment . . . . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE 6. PROTECTION AGAINST DILUTION. . . . . . . . . . . . . . . . . . . . . . .4
6.1 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
6.2 Dissolution or Liquidation . . . . . . . . . . . . . . . . . . . . . . . .4
9.3 Reorganizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE 7. LIMITATION ON RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . .5
7.1 Shareholders' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . .5
7.2 Regulatory Requirements. . . . . . . . . . . . . . . . . . . . . . . . . .5
7.3 Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE 8. FUTURE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . .5
8.1 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
8.2 Amendment or Termination . . . . . . . . . . . . . . . . . . . . . . . . .5
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ARTICLE 9. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE 10. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
</TABLE>
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DRUGABUSE SCIENCES, INC.
2000 DIRECTORS' STOCK OPTION PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective as of the date of
the Company's initial public offering. The purpose of the Plan is to promote
the long-term success of the Company and the creation of shareholder value by
(a) encouraging Non-Employee Directors to focus on critical long-range
objectives, (b) encouraging the attraction and retention of Non-Employee
Directors with exceptional qualifications and (c) linking Non-Employee
Directors directly to shareholder interests through increased stock
ownership. The Plan seeks to achieve this purpose by providing for automatic
and non-discretionary grants of Options to Non-Employee Directors.
The Plan shall be governed by, and construed in accordance
with, the laws of the State of California (except their choice-of-law
provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered
by the Committee. The Committee shall consist exclusively of two or more
directors of the Company, who shall be appointed by the Board. In addition,
the composition of the Committee shall satisfy such requirements as the
Securities and Exchange Commission may establish for administrators acting
under plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall
interpret the Plan and make all decisions relating to the operation of the
Plan. The Committee may adopt such rules or guidelines as it deems
appropriate to implement the Plan. The Committee's determinations under the
Plan shall be final and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. The aggregate number of Common Shares
subject to Options granted under the Plan shall not exceed (a) 200,000 plus
(b) the additional Common Shares described in Sections 3.2 and 3.3. The
limitations of this Section 3.1 and Section 3.2 shall be subject to
adjustment pursuant to Article 6.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each
year, commencing with the year 2001, the aggregate number of Common Shares
available for the grant of Options under the Plan shall automatically be
increased by the number necessary to cause the total number of Common Shares
then available to be restored to 200,000.
<PAGE>
3.3 ADDITIONAL SHARES. If Options are forfeited or
terminate for any other reason before being exercised, then the Common Shares
subject to such Options shall again become available for the grant of Options
under the Plan.
ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
4.1 ELIGIBILITY. Only Non-Employee Directors shall be
eligible for the grant of Options under the Plan.
4.2 INITIAL GRANTS. Each Non-Employee Director who first
becomes a member of the Board after the date of the Company's initial public
offering shall receive a one-time grant of an Option covering 20,000 Common
Shares. Such Option shall be granted on the date when such Non-Employee
Director first joins the Board. Subject to the Non-Employee Director's
continuing service, Options granted under this Section 4.2 shall become
exercisable in equal monthly installments over the 48-month period commencing
on the date of grant, except that all of the first 12 installments shall
become exercisable on the first anniversary of the date of grant. A
Non-Employee Director who previously was an Employee shall not receive a
grant under this Section 4.2.
4.3 ANNUAL GRANTS. Upon the conclusion of each regular
annual meeting of the Company's shareholders held in the year 2001 or
thereafter, each Non-Employee Director who will continue serving as a member
of the Board thereafter shall receive an Option covering 5,000 Common Shares,
except that such Option shall not be granted in the calendar year in which
the same Non-Employee Director received the Option described in Section 4.2.
Subject to the Non-Employee Director's continuing service, Options granted
under this Section 4.3 shall become exercisable in full on the first
anniversary of the date of grant. A Non-Employee Director who previously was
an Employee shall be eligible to receive grants under this Section 4.3.
4.4 ACCELERATED EXERCISABILITY. All Options granted to a
Non-Employee Director under this Article 4 shall also become exercisable in
full in the event of:
(a) The termination of such Non-Employee
Director's service because of death or total and permanent
disability; or
(b) A Change in Control with respect to the
Company, except as provided in the next following sentence.
If the Company and the other party to the transaction constituting a Change
in Control agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in fact
is so treated, then the acceleration of exercisability shall not occur to the
extent that the Company's independent accountants and such other party's
independent accountants separately determine in good faith that such
acceleration would preclude the use of "pooling of interests" accounting.
Acceleration of exercisability may also be required by Section 6.3.
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4.5 EXERCISE PRICE. The Exercise Price under all Options
granted to a Non-Employee Director under this Article 4 shall be equal to
100% of the Fair Market Value of a Common Share on the date of grant, payable
in one of the forms described in Article 5.
4.6 TERM. All Options granted to a Non-Employee Director
under this Article 4 shall terminate on the earliest of (a) the 10th
anniversary of the date of grant or (b) the date 12 months after the
termination of such Non-Employee Director's service for any reason.
4.7 AFFILIATES OF NON-EMPLOYEE DIRECTORS. The Committee may
provide that the Options that otherwise would be granted to a Non-Employee
Director under this Article 4 shall instead be granted to an affiliate of
such Non-Employee Director. Such affiliate shall then be deemed to be a
Non-Employee Director for purposes of the Plan, provided that the
service-related vesting and termination provisions pertaining to the Options
shall be applied with regard to the service of the Non-Employee Director.
4.8 STOCK OPTION AGREEMENT. Each grant of an Option under
the Plan shall be evidenced by a Stock Option Agreement between the Optionee
and the Company. Such Option shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the
Plan.
ARTICLE 5. PAYMENT FOR OPTION SHARES.
5.1 CASH. All or any part of the Exercise Price may be paid
in cash or cash equivalents.
5.2 SURRENDER OF STOCK. All or any part of the Exercise
Price may be paid by surrendering, or attesting to the ownership of, Common
Shares that are already owned by the Optionee. Such Common Shares shall be
valued at their Fair Market Value on the date when the new Common Shares are
purchased under the Plan. The Optionee shall not surrender, or attest to the
ownership of, Common Shares in payment of the Exercise Price if such action
would cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
5.3 EXERCISE/SALE. All or any part of the Exercise Price
and any withholding taxes may be paid by delivering (on a form prescribed by
the Company) an irrevocable direction to a securities broker approved by the
Company to sell all or part of the Common Shares being purchased under the
Plan and to deliver all or part of the sales proceeds to the Company.
5.4 OTHER FORMS OF PAYMENT. At the sole discretion of the
Committee, all or any part of the Exercise Price and any withholding taxes
may be paid in any other form that is consistent with applicable laws,
regulations and rules.
ARTICLE 6. PROTECTION AGAINST DILUTION.
6.1 ADJUSTMENTS. In the event of a subdivision of the
outstanding Common Shares, a declaration of a dividend payable in Common
Shares or a combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of
3
<PAGE>
Common Shares, corresponding adjustments shall automatically be made in each
of the following:
(a) The number of Options available for future
grants under Article 3;
(b) The number of Common Shares covered by each
outstanding Option; or
(c) The Exercise Price under each outstanding
Option.
In the event of a declaration of an extraordinary dividend payable in a form
other than Common Shares in an amount that has a material effect on the price
of Common Shares, a recapitalization, a spin-off or a similar occurrence, the
Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of the foregoing. Except as provided in this
Article 6, an Optionee shall have no rights by reason of any issuance by the
Company of stock of any class or securities convertible into stock of any
class, any subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease in the number
of shares of stock of any class.
6.2 DISSOLUTION OR LIQUIDATION. To the extent not
previously exercised, Options shall terminate immediately prior to the
dissolution or liquidation of the Company.
6.3 REORGANIZATIONS. In the event that the Company is a
party to a merger or other reorganization, outstanding Options shall be
subject to the agreement of merger or reorganization. Such agreement shall
provide for (a) the continuation of the outstanding Options by the Company,
if the Company is a surviving corporation, (b) the assumption of the
outstanding Options by the surviving corporation or its parent or subsidiary,
(c) the substitution by the surviving corporation or its parent or subsidiary
of its own options for the outstanding Options, (d) full exercisability and
accelerated expiration of the outstanding Options or (e) settlement of the
full value of the outstanding Options in cash or cash equivalents followed by
cancellation of such Options.
ARTICLE 7. LIMITATION ON RIGHTS.
7.1 SHAREHOLDERS' RIGHTS. A Optionee shall have no dividend
rights, voting rights or other rights as a shareholder with respect to any
Common Shares covered by his or her Option prior to the time when he or she
becomes entitled to receive such Common Shares by filing a notice of exercise
and paying the Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.
7.2 REGULATORY REQUIREMENTS. Any other provision of the
Plan notwithstanding, the obligation of the Company to issue Common Shares
under the Plan shall be subject to all applicable laws, rules and regulations
and such approval by any regulatory body as may be required. The Company
reserves the right to restrict, in whole or in part, the delivery of Common
Shares pursuant to any Option prior to the satisfaction of all legal
requirements relating
4
<PAGE>
to the issuance of such Common Shares, to their registration, qualification
or listing or to an exemption from registration, qualification or listing.
7.3 WITHHOLDING TAXES. To the extent required by applicable
federal, state, local or foreign law, an Optionee or his or her successor
shall make arrangements satisfactory to the Company for the satisfaction of
any withholding tax obligations that arise in connection with the Plan. The
Company shall not be required to issue any Common Shares or make any cash
payment under the Plan until such obligations are satisfied.
ARTICLE 8. FUTURE OF THE PLAN.
8.1 TERM OF THE PLAN. The Plan, as set forth herein, shall
become effective on the date of the Company's initial public offering. The
Plan shall remain in effect until it is terminated under Section 8.2.
8.2 AMENDMENT OR TERMINATION. The Board may, at any time
and for any reason, amend or terminate the Plan. An amendment of the Plan
shall be subject to the approval of the Company's shareholders only to the
extent required by applicable laws, regulations or rules. The amendment or
termination of the Plan shall not affect any Option previously granted under
the Plan. No Options shall be granted under the Plan after the termination
thereof. The Plan shall terminate automatically 10 years after its adoption
by the Board, unless (a) the Plan is extended by the Board and (b) the
extension is approved within 12 months by a vote of the shareholders of the
Company.
ARTICLE 9. DEFINITIONS.
9.1 "BOARD" means the Company's Board of Directors, as
constituted from time to time.
9.2 "CHANGE IN CONTROL" means:
(a) The consummation of a merger or consolidation
of the Company with or into another entity or any other corporate
reorganization, if persons who were not shareholders of the
Company immediately prior to such merger, consolidation or other
reorganization own immediately after such merger, consolidation or
other reorganization 50% or more of the voting power of the
outstanding securities of each of (i) the continuing or surviving
entity and (ii) any direct or indirect parent corporation of such
continuing or surviving entity;
(b) The sale, transfer or other disposition of
all or substantially all of the Company's assets;
(c) A change in the composition of the Board, as
a result of which 50% or fewer of the incumbent directors are
directors who either (i) had been directors of the Company on the
date 24 months prior to the date of the event that may constitute
a Change in Control (the "original directors") or (ii) were
elected, or nominated for election, to the Board with the
affirmative votes of at
5
<PAGE>
least a majority of the aggregate of the original directors who
were still in office at the time of the election or nomination
and the directors whose election or nomination was previously so
approved; or
(d) Any transaction as a result of which any
person is the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing at least 50% of the total voting power
represented by the Company's then outstanding voting securities.
For purposes of this Subsection (d), the term "person" shall have
the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude (i) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or of a Parent or Subsidiary and (ii) a corporation owned directly
or indirectly by the shareholders of the Company in substantially
the same proportions as their ownership of the common stock of the
Company.
A transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
9.3 "CODE" means the Internal Revenue Code of 1986, as
amended.
9.4 "COMMITTEE" means a committee of the Board, as described
in Article 2.
9.5 "COMMON SHARE" means one share of the common stock of
the Company.
9.6 "COMPANY" means DrugAbuse Sciences, Inc., a California
corporation.
9.7 "EMPLOYEE" means a common-law employee of the Company, a
Parent or a Subsidiary.
9.8 "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
9.9 "EXERCISE PRICE" means the amount for which one Common
Share may be purchased upon exercise of such Option, as specified in the
applicable Stock Option Agreement.
9.10 "FAIR MARKET VALUE" means the market price of Common
Shares, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by
the Committee shall be based on the prices reported in THE WALL STREET
JOURNAL. Such determination shall be conclusive and binding on all persons.
9.11 "NON-EMPLOYEE DIRECTOR" means a member of the Board who
is not an Employee.
6
<PAGE>
9.12 "OPTION" means an option granted under the Plan and
entitling the holder to purchase Common Shares. Options do not qualify as
incentive stock options described in section 422(b) of the Code.
9.13 "OPTIONEE" means an individual or estate who holds an
Option.
9.14 "PARENT" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
9.15 "PLAN" means this DrugAbuse Sciences, Inc. 2000
Directors' Stock Option Plan, as amended from time to time.
9.16 "STOCK OPTION AGREEMENT" means the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
9.17 "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, if
each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
ARTICLE 10. EXECUTION.
To record the adoption of the Plan by the Board on January 13,
2000, the Company has caused its duly authorized officer to execute this
document in the name of the Company.
DRUGABUSE SCIENCES, INC.
By: ________________________________
Title: _____________________________
7
<PAGE>
AGREEMENT
BY AND BETWEEN:
On behalf of UNIVERSITE PARIS V, RENE DESCARTES, Department of Pharmaceutical
and Biological Sciences (FACULTE DES SCIENCES PHARMACEUTIQUES ET BIOLOGIQUES),
12 Rue de l'Ecole de Medecine, 75270, Paris CEDEX 06, France, represented by its
President, Mr. Pierre Daumard, duly authorized for the purposes hereof,
Hereinafter referred to as the "University"
AND:
DRUGABUSE SCIENCES SAS, a French simplified corporation (SOCIETE PAR ACTIONS
SIMPLIFIEE), having its principal office at 2 Rue de Crucy, 44000, Nantes,
France, and represented by Mrs. Maryvonne Hiance in her capacity as Chief
Executive Officer, duly authorized for the purposes hereof,
Hereinafter referred to as "DAS SAS"
AND:
DRUGABUSE SCIENCES INC., a corporation organized under the laws of California,
having its principal office at Menlo Park, California, USA, and represented by
Dr. Philippe Pouletty in his capacity as Chairman of the Board of Directors,
duly authorized for the purposes hereof,
Hereinafter referred to as "DAS Inc."
RECITALS
WHEREAS, The DAS Group develops anti-cocaine antibodies, known as [****], for
the treatment of addicts.
DAS SAS develops these antibodies at its premises located within the Department
of Pharmaceutical and Biological Sciences of Universite de Paris V, Rene
Descartes, with which DAS SAS has signed an agreement covering occupation of the
premises and delivery of services. DAS has also recently signed, on
June 8, 1999, production and licensing agreements with Pasteur Merieux Serums &
Vaccins, a subsidiary of Rhone Poulenc.
DAS is developing the COC-AB product worldwide through the various companies
within the DAS Group.
Patent applications have been filed for the antibodies in Europe and the United
States in DAS Inc.'s name.
DAS SAS is a subsidiary of DAS Inc.
<PAGE>
NOW, THEREFORE, IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1
In this agreement, the following terms will have the meanings ascribed to them
below:
1.1 "Antibody" means the [****].
1.2 "DAS Group" means DAS SAS and DAS Inc., including their respective
subsidiaries, meaning those companies in which they hold at least 50% of
the capital stock and/or voting rights and whose business concerns the
marketing of the Antibody.
1.3 "Net Sales" means the amount effectively received by the DAS Group
worldwide from the sale of the Antibody to independent third parties
(including but not limited to sub-licensees and distributors) less:
[****]
[****]
[****]
[****]
ARTICLE 2
The DAS Group undertakes to commercialize the Antibody worldwide, through DAS
SAS within France and DAS Inc. and its subsidiaries for the rest of the world.
ARTICLE 3
3.1 In consideration for the knowledge and know-how contributed by the
University and the work performed under the arrangement for delivery of
services specified above, the DAS Group undertakes to [****] by the DAS
Group.
3.2 The total cumulative amount [****]
3.3 [****], which constitute the University's [****], will be paid [****]
3.4 DAS SAS undertakes to [****] it will [****]
ARTICLE 4
4.1 The DAS Group will retain exclusive legal title in and to all patentable
and non-patentable inventions related to the COC-AB antibodies developed
by Universite de Paris V, Rene Descartes, provided the goal of the
research and development work in question is the Antibody or improved
versions thereof.
2
<PAGE>
These patentable and non-patentable inventions will not give rise to any
compensation in addition to that defined in Article 3 above. Universite de Paris
V, Rene Descartes, hereby waives all present and future industrial property
rights concerning COC-AB products and technologies, including in particular the
products covered by the DAS Group's patents and patent applications
No. US 5817 770 and No. PCT/US98/05450.
4.2 Universite de Paris V will promptly notify the various research and
development service providers referred to in subsection 4.1 above of
their obligation to inform DAS SAS of any patentable or non-patentable
results achieved and to assist the staff responsible for such inventions
to obtain patent protection, where applicable. In all cases, the staff
responsible for the invention will be listed as being the inventors in
any resulting applications for industrial property protection.
ARTICLE 5
The contracting parties undertake to keep all information covered by this
agreement strictly confidential. In addition, they undertake to ensure that all
research and development information will only be disclosed to their employees
or various service providers on a strictly need-to-know basis.
Information held by a party will be deemed to be non-confidential if it is:
- Already in the public domain before disclosure to another party; or
- Disclosed to the public other than by an act or omission of another
party; or
- Disclosed to the other party by a third party not bound by any
confidentiality obligation.
ARTICLE 6
The present Agreement is governed by French law.
Any disputes arising under this agreement or in relation thereto will be
referred to the competent Paris Courts.
3
<PAGE>
Signed in Paris on June 8, 1999,
In three original copies, comprising one for each party.
For Universite de Paris V:
Mr. Pierre Daumard
President
/s/ Pierre Daumard
- ----------------------
Pierre Daumard
For DAS SAS: For DAS Inc.:
/s/ Maryvonne Hiance /s/ Philippe Pouletty
- ----------------------- ----------------------------------------
Maryvonne Hiance Dr. Philippe Pouletty
Chief Executive Officer Chairman of the Board of Director
4
<PAGE>
AGREEMENT FOR THE TRANSFER OF
SCIENTIFIC AND TECHNICAL KNOWLEDGE
AND FOR THE COMMERCIAL EXPLOITATION OF RESEARCH RESULTS
BY AND BETWEEN:
On behalf of the Pharmaceutical and Biological Sciences Department (LA
FACULTE DES SCIENCES PHARMACEUTIQUES ET BIOLOGIQUES) of UNIVERSITE PARIS V,
RENE DESCARTES, 12 Rue de l'Ecole de Medecine, 75270 Paris Cedex 06,
represented by its President, Mr. Pierre Daumard, duly authorized for the
purposes hereof,
hereinafter the "University",
DRUGABUSE SCIENCES SAS, a French simplified connection (SOCIETE ANONYME
SIMPLIFIEE), having its principal office at 166 Boulevard du Montparnasse,
75014 Paris, represented by Mrs. Maryvonne Hiance, acting in her capacity as
Chief Executive Officer, duly authorized for the purposes hereof.
hereinafter the "DAS S.A.S.",
DRUGABUSE SCIENCES INC., a US company located in Hillsborough, California,
USA, represented by Dr. Philippe Pouletty, acting as Chairman of the Board of
Directors, duly authorized for the purposes hereof,
hereinafter the "DAS Inc.",
RECITALS
WHEREAS,
The DAS Group, a SUBSIDIARY OF DAS INC., is developing new products for the
treatment and prevention of drug addiction and alcoholism.
DAS S.A.S. is developing some of its products at its laboratory in the
Pharmacy Department in Paris, with which DAS S.A.S., signed an agreement for
the occupancy of premises and for the provision of services on JULY 17, 1997.
DAS is developing the COC-AB product worldwide through various companies that
are members of the DAS Group. An agreement was signed on September 6, 1999
with the University for the COC-AB product, concerning compensation and the
intellectual property rights relating to the provision of development and
other services provided by the University.
Patent applications have been filed for these antibodies in Europe and in the
United States of America, exclusively in the name of DAS Inc.
<PAGE>
In Europe, DAS S.A.S. today (the date of signature of this Agreement), hired
a research team for the development of its products (5 individuals), signed
contracts with specialized consultants to monitor its research, and set up a
European scientific committee (6 French researchers).
The laboratory of Professor Galons (Organic Chemistry Laboratory II
(LABORATOIRE DE CHIMIE ORGANIQUE II) in the Pharmacy Department at Universite
Rene Descartes does most of its work in the following area of research:
cellular and molecular biology applied to diagnosis and treatment. Its field
of research includes but it is not limited to fundamental research on
methamphetamine immunogens and dopamine receptor ligands, which are the
subject of this agreement for the commercial exploitation of research.
Pursuant to Act no. 99-587 on Innovation and Research of July 12, 1999, the
University wishes, by means of this contractual agreement, to develop
cooperation with DAS for the commercial exploitation of the research
performed by its laboratory and the work performed jointly with DAS.
Many regulations implementing the Act of July 12, 1999, have not yet been
issued at this time. If it should turn out that one or more provisions of
those regulations is/are contrary to this Agreement, they shall be modified
accordingly by means of a supplementary agreement.
In addition, it is stipulated that the DAS Group also wishes the University
to provide it with services for the development of products for the treatment
and prevention of drug addiction and alcoholism other than the COC-AB
antibodies. Research may also be performed and services provided by Organic
Chemistry Laboratory 2 (LABORATOIRE DE CHIMIE ORGANIQUE 2) headed by
Professor Herve Galons, in accordance with future, individual agreements for
the provision of services. It must be recalled that [**********].
NOW, THEREFORE, THE ABOVE-MENTIONED PARTIES HAVE AGREED AS FOLLOWS:
ARTICLE 1
In this Agreement, the following terms shall have the meanings ascribed to
them below:
1.1 "Products" means [**********].
1.2 "DAS Group" means DAS S.A.S. and DAS Inc., along with their
subsidiaries, i.e., those companies in which they owe more than 50% of
the capital stock and/or voting rights, the business of which is to
introduce the Products onto the market.
1.3 "Net Sales" means [**********] (including but not limited to
sublicensees and distributors), [**********]:
- [**********];
- [**********];
- [**********];
2
<PAGE>
- [**********].
1.4 "Results" means the results of the research work on the Products
which are the subject hereof, regardless of whether these results are
patentable inventions.
ARTICLE 2
The purpose of this Agreement is to establish a cooperative relationship
between the DAS Group and the University, on behalf of the Organic Chemistry
2 (LABORATOIRE DE CHIMIE ORGANIQUE 2) headed by Professor Herve Galons, for
research on the Products developed both by the Group and Universite Rene
Descartes, and shall govern the rights and obligations of the parties arising
therefrom.
ARTICLE 3
3.1 The Results shall be owned by the Party which obtained them.
3.2 Where Results were obtained through the joint and indivisible efforts
of both Parties, they shall be owned by the both Parties, each in equal
shares, i.e., 50% by each Party.
3.3 The DAS Group shall file all patent applications for the Results
owned by it, at its discretion.
The DAS Group shall, subject to the express consent of the
University, file, in the United States and the countries of the
European Union, applications for the Results owned by the University
and those jointly owned by both Parties.
Where the Results are owned by the University, the DAS Group shall
act for and on behalf of the University, with its express consent;
where the Results are owned jointly the DAS Group shall file patent
applications for and on behalf of both Parties, and the University
undertakes promptly to grant its consent.
The University shall appoint the DAS Group as its agent to do
whatever is necessary in connection with the aforementioned filings,
and promptly to provide all documents to be signed and all papers
instruments required in this regard. The DAS Group shall [**********].
3.4 If one of the Parties, or both Parties, believe it appropriate to
file a patent application for Results owned by the University or
jointly owned by them in one or more countries other than those
referred to in subsection 3.3 above, they shall agree on the terms of
filing and on the costs to be paid by each, provided, however that
under all circumstances, the DAS Group shall have the right to make
any such filing on the terms set out in subsection 3.3 above,
provided that it pays the costs thereof.
3.5 The University Organic Chemistry Laboratory 2, headed by Professor
Herve Galons, is obligated to inform DAS of the Results in the field
identified in article 1 above.
3
<PAGE>
3.6 In all cases, the staff who are responsible for the invention shall
be cited as the inventors in any resulting applications for
industrial property protection.
ARTICLE 4
4.1 The University shall grant the DAS Group a worldwide, exclusive
license for the exploitation, manufacture and marketing of all of the
Results, along with an option to grant sub-licenses for all of the
Results, including all patents filed in its name or jointly owned by
it. This exclusive worldwide license shall remain in force
throughout the entire time period in which the Results are protected
by intellectual property rights.
4.2 In consideration for the exclusive worldwide license granted by the
University under subsection 4.1, the DAS Group undertakes to pay
[**********], commencing on the date on which the first national
authorization for placing each Product on the market is issued, and
for a period of five years from that date. [**********].
4.3 The aggregate cumulative amount of the fees [**********] exclusive
worldwide license, which shall continue in accordance with the terms
of subsection 4.1.
4.4 This fee, [**********].
4.5 DAS S.A.S. undertakes to keep special, separate accounts in which it
shall enter the number of products [**********].
4.6 The DAS Group undertakes to seriously exploit the Products through
DAS S.A.S. in France and DAS Inc. and its other subsidiaries for the
rest of the world.
ARTICLE 5
This Agreement is entered into for a term [**********].
In all instances, all obligations assumed by the University with respect to
patent licenses during the term of validity of this Agreement toward DAS, as
well as the fee payment obligations toward Universite Rene Descartes, shall
be complied with throughout the term of said obligations, even if it is
longer than the term of this Agreement.
The Organic Chemistry Laboratory 2, headed by Professor Herve Galons of the
Universite Paris V, Rene Descartes, undertakes throughout the term of this
Agreement not to sign any research or development contracts with a third
party concerning the research, technology or products relating to [**********].
ARTICLE 6
The parties to this Agreement undertake to keep all information covered by
the Agreement strictly confidential. They shall ensure that the information
communicated to their employees or to various service providers or to those
providing research and development services will only be disclosed on a
strictly need-to-know basis.
4
<PAGE>
Information belonging to either party shall be deemed non-confidential when:
- - it is a matter of public knowledge before communicated to the other party,
or
- - it is disclosed to the public other than by an act or omission on the part
of the other Party, or
- - it is communicated to the other party by a third party which is not subject
to a confidentiality obligation.
The Parties undertake not to make any disclosure concerning the Results
before a patent application is filed without the prior, written consent of
the other Party.
ARTICLE 7
This Agreement is governed by French law.
Any dispute that may arise in connection with or relate to this Agreement
shall be referred to the competent Paris courts.
Signed in Paris on March 3, 2000
In three original copies, comprising one for each party.
/s/ Pierre Daumar /s/ Maryvonne Hiance
- --------------------------------- ------------------------
Universite Paris V Rene Descartes Drug Abuse Sciences SA
/s/ Philippe Pouletty
-----------------------------
DrugAbuse Sciences Inc.
5
<PAGE>
[DELOITTE & TOUCHE LLP LETTERHEAD]
LETTER REGARDING CHANGE IN INDEPENDENT ACCOUNTANTS
Exhibit 16.1
March 6, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir or Madam:
We have read the fist paragraph under the heading "Change in Independent
Accountants" included in Amendment No. 2 to Registration Statement
No. 333-96049 of Drub Abuse Sciences, Inc. on Form S-1, which is expected to
be filed with the Securities and Exchange Commission on or about March 7,
2000, and are in agreement with the comments contained therein.
Yours truly,
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
CC: Ms. Elizabeth M. Gretham, Chief Financial Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 6, 2000 relating to the consolidated financial statements
of DrugAbuse Sciences, Inc. and its subsidiary (companies in the development
stage), which appear in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, CA
March 7, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF COUNSEL
We consent to the reference to us under the heading "Experts" in this
Registration Statement on Form S-1.
/s/ RAEVENTER LAW GROUP
Raeventner Law Group
March 7, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES F-3 AND F-4 OF THE COMPANY'S FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<CASH> 0 1,039,315 19,224,406
<SECURITIES> 0 0 0
<RECEIVABLES> 0 416,040 1,014,638
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 1,590,603 20,612,172
<PP&E> 0 336,270 396,935
<DEPRECIATION> 0 (38,825) (81,954)
<TOTAL-ASSETS> 0 1,997,048 21,036,632
<CURRENT-LIABILITIES> 0 591,468 1,180,909
<BONDS> 0 0 0
0 0 0
0 1,692 4,861
<COMMON> 0 1,457 2,721
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 1,997,048 21,036,632
<SALES> 0 0 0
<TOTAL-REVENUES> 0 810,607 1,124,605
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 1,382,412 2,083,553 7,503,658
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,065 15,464 122,496
<INCOME-PRETAX> (1,300,163) (1,192,343) (6,228,002)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (1,300,163) (1,192,343) (6,228,002)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,300,163) (1,192,343) (6,228,002)
<EPS-BASIC> (0.61) (0.58) (7.50)
<EPS-DILUTED> (0.61) (0.58) (7.50)
</TABLE>
