UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Commission File Number 0-9314
ACCESS PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 83-0221517
- ------------------------ --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
2600 Stemmons Frwy, Suite 176, Dallas, TX 75207
-----------------------------------------------
(Address of principal executive offices)
Telephone Number (214) 905-5100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding as
of August 14, 1998 3,426,695 shares, $0.01 par value
--------------- ---------
Total No. of Pages 14
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
The response to this Item is submitted as a separate section of this report.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Access Pharmaceuticals, Inc. ("Access" or the "Company") is a Delaware
corporation in the development stage. The Company is a site-directed drug
targeting company using bioresponsive carriers to target and control the release
of therapeutic agents into sites of disease activity and significantly improve
the side effect profile of the agents. The Company has proprietary patents or
rights to four technology platforms: synthetic polymers, Residerm(TM),
carbohydrate targeting technology and selective muscle and nerve delivery
systems. In addition, Access' partner Block Drug Company is marketing
Aphthasol(TM) in the United States, the first FDA approved product for the
treatment of canker sores. Access is currently licensing this product in
international markets and developing new delivery forms.
Except for the historical information contained herein, the following
discussions and certain statements in this Form 10-Q are forward-looking
statements that involve risks and uncertainties. In addition to the risks and
uncertainties set forth in this Form 10-Q, other factors could cause actual
results to differ materially, including but not limited to Access' research and
development focus, uncertainties associated with research and development
activities, future capital requirements, anticipated option and licensing
revenues, dependence on others, ability to raise capital, the year 2000 issue,
and other risks detailed in the Company's reports filed under the Securities
Exchange Act, including but not limited to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
Since its inception in February 1988, Access has devoted its resources
primarily to fund its research and development programs. The Company has
been unprofitable since inception and to date has not received any revenues
from the sale of products. No assurance can be given that the Company will
be able to generate sufficient product revenues to attain profitability on a
sustained basis or at all. The Company expects to incur losses for the next
several years as it continues to invest in product research and development,
preclinical studies, clinical trials and regulatory compliance. At June 30,
1998, the Company's accumulated deficit was approximately $21.6 million.
RECENT DEVELOPMENTS
On June 18, 1998, in conjunction with the first closing of a private placement,
the Company effected a recapitalization of the Company through a one-for-
twenty reverse stock split of its common stock, $0.04 par value per share (the
"Common Stock"), which decreased the number of authorized shares of
Common Stock from 60.0 million, at $0.04 par value per share, to 20.0
million shares, $0.01 par value per share, and decreased the authorized shares
of preferred stock
2
<PAGE>
of the Company from 10.0 million to 2.0 million (the
"Recapitalization"). The Recapitalization decreased the number of outstanding
shares of Common Stock from approximately 41.5 million to 2.1 million.
An investment bank has been engaged to assist the Company in raising funds
to support the Company's research and development activities. As discussed
below, from March to July 1998, the Company raised an aggregate of $5.0
million. Up to an additional $4.0 million may be raised. There can be no
assurances that any additional closings of the private placement will take
place.
The Company raised $1,200,000 in gross proceeds ($725,000 received on
March 20, 1998 and $475,000 received on April 11, 1998) less cash issuance
costs of $33,750, from the placement of 48 units, each unit consisting of 8,333
shares of Common Stock and warrants to purchase 8,333 shares of Common
Stock at an exercise price of $3.00 per share. The placement agent received
warrants to purchase 44,527 shares of Common Stock at $3.00 per share, in
accordance with the offering terms and elected to receive 45,277 shares of
Common Stock in lieu of certain sales commissions and expenses.
On June 18, 1998, the Company, assisted by an investment bank, raised an
aggregate of $2.9 million in gross proceeds, less cash issuance costs of
$202,000, from the first closing of a private placement of 953,573 shares of
Common Stock at $3.00 per share. The placement agent for such offering
received warrants to purchase 101,653 shares of Common Stock at $3.00 per
share, in accordance with the offering terms and elected to receive 62,949
shares of Common Stock in lieu of certain sales commissions and expenses.
Legal fees and other issuance costs were $122,000 through June 30, 1998.
The proceeds of the offering will be used to fund research and development,
working capital, acquisitions of complementary companies or technologies and
general corporate purposes.
On July 30, 1998, the Company raised an aggregate of $900,000 in gross
proceeds, less cash issuance costs of $24,000, from the second closing of a
private placement of 300,000 shares Common Stock at $3.00 per share. The
placement agent for such offering received warrants to purchase 33,445 shares
of Common Stock at $3.00 per share, in accordance with the offering terms
and elected to receive 34,450 shares of Common Stock in lieu of certain sales
commissions and expenses.
If and when the Company satisfies all listing requirements, the Company
intends to submit an application for listing on NASDAQ or an alternate
exchange. There can be no assurances that the Company will be listed on
NASDAQ or an alternate exchange.
All share numbers and prices referenced herein have been adjusted to reflect
the Recapitalization.
On June 8, 1998, the Company entered into an agreement to license from
Block Drug Company the rights to amlexanox oral paste 5% for certain
international markets. Amlexanox oral paste 5% was jointly developed by the
Company and Block Drug Company, and was subsequently purchased by
Block Drug Company with the Company receiving an up front fee and future
royalty payments. Amlexanox oral paste 5% is currently marketed in the
United States by Block Drug under the trademark Aphthasol TM. Aphthasol
TM was launched to the dental market in December 1997 and was launched
to the general practice physician market in June 1998. On July
3
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28, 1998, the Company announced that it signed a binding Letter of Intent with
Strakan Limited to license amlexanox 5% paste for the treatment of canker sores
for the United Kingdom and Ireland. Under the terms of the agreement, Strakan
Limited will be responsible for and bear all costs associated with the
regulatory approval process in the United Kingdom and European Community,
will pay milestones based on cumulative sales revenue and will pay a royalty
on sales.
Liquidity and Capital Resources
As of July 30, 1998 the Company's principal source of liquidity is $2,850,000
of cash and cash equivalents. Working capital as of June 30, 1998 was
$1,712,000, representing an increase in working capital of $1,928,000 as
compared to the working capital deficit as of December 31, 1997 of $216,000.
The increase in working capital at June 30, 1998 was due to $4.1 million in
gross proceeds received from the private placement of the Company's
Common Stock sold on June 18, 1998 and the private placement of units on
March 20 and April 11, 1998.
Since its inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $21,570,000 at June 30, 1998.
The Company has funded its operations primarily through private sales of its
equity securities, contract research payments from corporate alliances and the
January 1996 merger.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. The
Company expects that its existing capital resources will be adequate to fund the
Company's operations through the second quarter of 1999. The Company is
dependent on raising additional capital to fund its development of technology
and to implement its business plan. Such dependence will continue at least
until the Company begins marketing its new technologies.
If anticipated revenues are delayed or do not occur or the Company is
unsuccessful in raising additional capital on acceptable terms, the Company
would be required to curtail research and development and general and
administrative expenditures so that working capital would cover reduced
operations into the third quarter of 1999. There can be no assurance, however
that changes in the Company's operating expenses will not result in the
expenditure of such resources before such time.
The Company will require substantial funds to conduct research and
development programs, preclinical studies and clinical trials of its potential
products. The Company's future capital requirements and adequacy of
available funds will depend on many factors, including the successful
commercialization of amlexanox; the ability to establish and maintain
collaborative arrangements for research, development and commercialization
of products with corporate partners; continued scientific progress in the
Company's research and development programs; the magnitude, scope and
results of preclinical testing and clinical trials; the costs involved in
filing, prosecuting and enforcing patent claims; competing technological
developments; the cost of manufacturing and scale-up; and the ability to
establish and maintain effective commercialization activities and arrangements.
The Company intends to seek additional funding through research and
development or licensing
4
<PAGE>
arrangements with potential corporate partners,
public or private financing, or from other sources. The Company does not
have any committed sources of additional financing and there can be no
assurance that additional financing will be available on favorable terms, if at
all. In the event that adequate funding is not available, the Company may be
required to delay, reduce or eliminate one or more of its research or
development programs or obtain funds through arrangements with corporate
collaborators or others that may require the Company to relinquish greater or
all rights to product candidates at an earlier stage of development or on less
favorable terms than the Company would otherwise seek. Insufficient financing
may also require the Company to relinquish rights to certain of its technologies
that the Company would otherwise develop or commercialize itself. If adequate
funds are not available, the Company's business, financial condition and
results of operations will be materially and adversely affected.
Second Quarter 1998
Compared to
Second Quarter 1997
The Company had $50,000 in licensing revenue in the second quarter of 1997
as compared to no revenues in the second quarter 1998. Second quarter 1997
revenues were comprised of licensing income from an ongoing agreement with
an emerging pharmaceutical company which made certain milestone payments
and will make royalty payments in the future if a product is developed from
the technology.
Total research spending for the second quarter of 1998 was $501,000, as
compared to $538,000 for the same period in 1997, a decrease of $37,000.
The decrease in expenses was the result of lower salary and related costs-
$55,000; lower equipment rent- $26,000; and lower other net costs totaling-
$35,000; offset by higher internal lab costs- $57,000; higher external contract
research costs- $22,000. If the Company is successful in raising additional
capital, research spending is expected to increase in future quarters as the
Company intends to hire additional scientific management and staff and will
accelerate activities to develop the Company's product candidates. If the
Company is not successful in raising additional capital, research spending will
be curtailed.
Total general and administrative expenses were $359,000 for the second
quarter of 1998, a decrease of $65,000 as compared to the same period in
1997. The decrease in spending was primarily due to the following:
decreased general business consulting fees- $107,000; and lower director and
officer insurance costs- $51,000; offset by increased patent costs due to
the filing of new patents- $90,000; and other net increases totalling-
$3,000. If the Company is not successful in raising additional
capital, general and administrative spending will be curtailed.
Depreciation and amortization was $66,000 for the second quarter 1998 as
compared to $30,000 for the same period in 1997 reflecting the additional
depreciation of the assets acquired in the Tacora merger and amortization of
licenses.
Interest and miscellaneous income was $6,000 for the second quarter of 1998
as compared to $37,000 for the same period in 1997, a decrease of $31,000.
The decrease was due to lower interest income from lower cash balances in
1998.
Total operating expenses in the second quarter of 1998 were $926,000 with
interest income of $6,000, and interest expense of $5,000 resulting in a loss
for the quarter of $926,000 or a $0.42 basic and diluted loss per common
share.
5
<PAGE>
Six Months ended June 30, 1998
Compared to
Six Months ended June 30, 1997
Net revenues for the six months ended June 30, 1997 were $188,000 as
compared to no revenues for the same period in 1998. 1997 revenues were
comprised of licensing income from an ongoing agreement with an emerging
pharmaceutical company which made certain milestone payments and will
make royalty payments in the future if a product is developed from the
technology.
Research spending for the six months ended June 30, 1998 was $936,000 as
compared to $1,042,000 for the same period in 1997, a decrease of $106,000.
The decrease in expenses was due to: lower salary and related costs-
$113,000; lower equipment rent- $55,000; lower travel expenses- $26,000;
and other net decreases totaling- $21,000; offset by higher internal lab costs-
$72,000; and higher external lab costs- $37,000. If the Company is successful
in raising additional capital, research spending is expected to increase in
future quarters as the Company intends to hire additional scientific management
and staff and will accelerate activities to develop the Company's product
candidates. If the Company is not successful in raising additional capital,
research spending will be curtailed.
General and administrative expenses were $750,000 for the six months ended
June 30, 1998, a decrease of $79,000 as compared to the same period in
1997. The decrease was primarily due to the following: lower general business
consulting fees and expenses- $159,000; and lower director and officer
insurance costs- $58,000; offset by higher patent expenses- $130,000; and
other net increases totalling- $8,000.
Depreciation and amortization was $130,000 for the six months ended June 30,
1998 as compared to $62,000 for the same period in 1997 reflecting the
additional depreciation of the assets acquired in the Tacora merger and
amortization of licenses.
Interest and miscellaneous income was $8,000 for the six months ended June
30, 1998 as compared to $84,000 for the same period in 1997, a decrease of
$76,000. The decrease was due to lower interest income from lower cash
balances in 1998.
Accordingly, this resulted in a loss for the six months ended June 30, 1998 of
$1,822,000, or a $0.95 basic and diluted loss per common share.
Year 2000 Issue
The Company relies on PC-based systems and does not expect to incur
material costs to transition to Year 2000 compliant systems in its internal
operations. However, even if the internal systems of the Company are not
materially affected by the Year 2000 Issue, the Company could be affected
through disruptions in the operations of enterprises with which the Company
interacts. As such, there can be no assurance that the Year 2000 Issue will not
have a material adverse effect on the Company's business, financial condition
or results of operations.
6
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
On June 18, 1998, in conjunction with the first closing of a private placement,
the Company effected a recapitalization of the Company through a one-for-
twenty reverse stock split of its common stock, $0.04 par value per share (the
"Common Stock"), decreased the number of authorized shares of Common
Stock from 60.0 million shares, $0.04 par value per share, to 20.0 million
shares, par value $0.01 per share, and decreased the authorized shares of
preferred stock of the Company from 10.0 million to 2.0 million (the
"Recapitalization"). The Recapitalization decreased the number of outstanding
shares of Common Stock from approximately 41.5 million to 2.1 million.
On June 18, 1998 the Company sold to 25 individual accredited investors an
aggregate of 953,573 shares of Common Stock at $3.00 per share. The
placement agent for such offering received warrants to purchase 101,650
shares of Common Stock at $3.00 per share in accordance with the offering
terms and elected to receive 62,949 shares of Common Stock in lieu of certain
sales commissions and expenses. The Company raised an aggregate of
$2,900,000 in gross proceeds. The shares issued in the Private Placement have
not been registered; however, the Company has agreed to file a registration
statement for the resale of such shares no later than August 30, 1998. The
Company relied on Section 4(2) and/or 3(b) of the 1933 Securities Act of 1933
and the provisions of Regulation D as exemptions from the registration
thereunder. The proceeds of the offering will be used to fund research and
development, working capital, acquisitions of complementary companies or
technologies and general corporate purposes.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
The annual meeting of stockholders was held on June 12, 1998 in Tarrytown,
NY. At that meeting the following matters were submitted to a vote of the
stockholders of record. The proposals were approved by the stockholders, as
follows:
* Herbert H McDade, Jr., Kerry P. Gray and J. Michael Flinn were
reelected Directors for three year terms. The votes were: McDade 25,075,818
- - For and 196,290 - Withheld Authority; Gray 25,099,746 - For and 172,362 -
Withheld Authority; and, Flinn 25,230,408 - For and 41,700 - Withheld
Authority.
7
<PAGE>
* A proposal to amend the Company's 1995 stock option plan, as amended,
was approved with 19,175,592 - For, 499,504 - Against, and 48,636 -
Abstain.
* A proposal to ratify the appointment of KPMG Peat Marwick LLP as
independent certified public accountants for the Company for the fiscal year
ending December 31, 1998 was approved with 25,176,882 - For 38,773 - Against
and 56,453 - Abstain.
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: 3.8 Certificate of Amendment of Certificate of
Incorporation filed June 18, 1998
10.13 Agreement between Access Pharmaceuticals, Inc. and
Block Drug Company, Inc.
10.14 Sales Agency Agreement
10.15 Registration Rights Agreement
27.1 Financial Data Schedule
Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACCESS PHARMACEUTICALS, INC.
Date: August 14, 1998 By: /s/ Kerry P. Gray
--------------- ------------------
Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ Stephen B. Thompson
--------------- ------------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial and Accounting Officer)
8
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -------------
Assets (unaudited)
- ------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,174,000 $ 438,000
Accounts receivable 2,000 1,000
Prepaid expenses and other current assets 27,000 51,000
------------- -------------
Total Current Assets 2,203,000 490,000
------------- -------------
Property and Equipment, at cost 1,007,000 1,047,000
Less accumulated depreciation and amortization (722,000) (625,000)
------------- -------------
285,000 422,000
------------- -------------
Licenses, net of accumulated amortization
of $50,000 and $25,000 at June 30, 1998
and December 31, 1997, respectively 450,000 475,000
Other Assets 108,000 60,000
------------- -------------
Total Assets $ 3,046,000 $ 1,447,000
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 390,000 $ 434,000
Royalties payable - 53,000
Accrued insurance premium 13,000 38,000
Current portion of obligations under
capital leases 88,000 181,000
------------- -------------
Total Current Liabilities 491,000 706,000
------------- -------------
Obligations under capital leases,
net of current portion 75,000 142,000
------------- -------------
Total Liabilities 566,000 848,000
------------- -------------
Stockholders' Equity
Preferred stock, $.01 par value, authorized
2,000,000 Shares, none issued or outstanding
at June 30, 1998; $.01 par value, authorized
10,000,000 shares, none issued or
outstanding at December 31, 1997 - -
Common stock, $.01 par value, authorized
20,000,000 Shares, 3,092,245, issued and
outstanding at June 30, 1998; Authorized
3,000,000 shares, 1,630,450 issued and
outstanding at December 31,1997 31,000 16,000
Additional paid-in capital 24,019,000 20,331,000
Deficit accumulated during the
development stage (21,570,000) (19,748,000)
------------- -------------
Total Stockholders' Equity 2,480,000 599,000
------------- -------------
Total Liabilities and Stockholders' Equity $ 3,046,000 $ 1,447,000
============= =============
</TABLE>
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
9
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30, February 24, 1988
--------------------------- ---------------------------- (inception) to
1998 1997 1998 1997 June 30, 1998
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues
Research and development $ - $ - $ - $ - $ 2,711,000
Option income - - - - 2,149,000
Licensing revenues - 50,000 - 188,000 325,000
------------ ------------ ------------ ------------ ------------
Total Revenues - 50,000 - 188,000 5,185,000
------------ ------------ ------------ ------------ -------------
Expenses
Research and development 501,000 538,000 936,000 1,042,000 9,545,000
General and administrative 359,000 424,000 750,000 829,000 7,613,000
Depreciation and amortization 66,000 30,000 130,000 62,000 1,186,000
Write-offexcess purchase price - - - - 8,894,000
------------ ------------ ------------ ------------ -------------
Total Expenses 926,000 992,000 1,816,000 1,933,000 27,238,000
------------ ------------ ------------ ------------ -------------
Loss From Operations (926,000) (942,000) (1,816,000) (1,745,000) (22,053,000)
------------ ------------ ------------ ------------ -------------
Other Income (Expense)
Interest and miscellaneous income 6,000 37,000 8,000 84,000 782,000
Interest expense (5,000) (7,000) (14,000) (15,000) (172,000)
------------ ------------ ------------ ------------ -------------
1,000 30,000 (6,000) 69,000 610,000
------------ ------------ ------------ ------------ -------------
Loss Before Income Taxes (925,000) (912,000) (1,822,000) (1,676,000) (21,443,000)
Provision for Income Taxes - - - - 127,000
------------ ------------ ------------ ------------ -------------
Net Loss $ (925,000) $ (912,000) $(1,822,000) $(1,676,000) $(21,570,000)
============ ============ ============ ============ =============
Basic and Diluted Loss Per
Common Share $ (0.42) $ (0.58) $ (0.95) $ (1.07)
============ ============ ============ ============
Weighted Average Basic and Diluted
Common Shares Outstanding 2,209,775 1,569,566 1,920,564 1,569,566
============ ============ ============ ============
</TABLE>
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
10
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30, February 24, 1988
-------------------------- (inception) to
1998 1997 June 30, 1998
------------ ------------ -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Loss $(1,822,000) $(1,676,000) $(21,570,000)
Adjustments to reconcile net loss to
cash used in operating activities:
Write-off of excess purchase price - - 8,894,000
Consulting expense related to
warrants granted - - 532,000
Research expenses related to common
stock granted and donated equipment 8,000 - 108,000
Depreciation and amortization 130,000 62,000 1,186,000
Unearned revenue - - (110,000)
Change in operating assets
and liabilities:
Accounts receivable (1,000) (9,000) (3,000)
Prepaid expenses and other
current assets 24,000 46,000 (28,000)
Other assets 2,000 - (6,000)
Accounts payable and accrued
expenses (122,000) (288,000) 110,000
------------ ------------ --------------
Net Cash Used In Operating Activities (1,781,000) (1,865,000) (10,887,000)
------------ ------------ --------------
Cash Flows From Investing Activities
Capital expenditures (3,000) (24,000) (1,167,000)
Sales of capital equipment - - 6,000
Purchase of Tacora, net of cash acquired - - (124,000)
Other assets (50,000) - (100,000)
------------ ------------ --------------
Net Cash Used In Investing Activities (53,000) (24,000) (1,385,000)
------------ ------------ --------------
Cash Flows From Financing Activities
Proceeds from notes payable - - 721,000
Payments of principal on obligations under
capital leases (133,000) (77,000) (587,000)
Cash acquired in merger with Chemex - - 1,587,000
Proceeds from stock issuances, net 3,703,000 - 12,725,000
------------ ------------ --------------
Net Cash Provided By (Used In)
Financing Activities 3,570,000 (77,000) 14,446,000
------------ ------------ --------------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,736,000 (1,966,000) 2,174,000
Cash and Cash Equivalents at
Beginning of Period 438,000 4,428,000 -
------------ ------------ --------------
Cash and Cash Equivalents at
End of Period $ 2,174,000 $ 2,462,000 $ 2,174,000
============ ============ ==============
Cash paid for interest $ 14,000 $ 15,000 $ 164,000
Cash paid for income taxes - - 127,000
Supplemental disclosure of
noncash transactions
Payable accrued for fixed
asset purchase $ - $ - $ 47,000
Elimination of note payable
to Chemex Pharmaceuticals
due to merger - - 100,000
Stock issued for License on patents - - 500,000
Equipment purchases financed
through capital leases - - 82,000
Net liabilities assumed in
acquisition of Tacora Corporation - - 455,000
</TABLE>
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
11
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 1998 and 1997
(unaudited)
(1) Interim Financial Statements
The consolidated balance sheet as of June 30, 1998 and the consolidated
statements of operations for the three and six months ended and cash flows
for the six months ended June 30, 1998 and 1997 were prepared by management
without audit. In the opinion of management, all adjustments, including only
normal recurring adjustments necessary for the fair presentation of the
financial position, results of operations, and changes in financial position
for such periods, have been made. Certain reclassifications have been made to
prior year financial statements to conform with the June 30, 1998 presentation.
The accompanying Consolidated Balance Sheets and Statements of Operations have
been retroactively restated to reflect the Recapitalization including the
one-for-twenty reverse stock split.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. The results of operations for
the period ended June 30, 1998 are not necessarily indicative of the operating
results which may be expected for a full year. The consolidated balance sheet
as of December 31, 1997 contains financial information taken from the audited
financial statements as of that date.
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." In accordance with SFAS No. 128, the
Company has presented basic loss per share, computed on the basis of the
weighted average number of common shares outstanding during the period,
and diluted loss per share, computed on the basis of the weighted average
number of common shares and all dilutive potential common shares
outstanding during the period. The adoption of this new accounting standard,
which required the restatement of all presented periods' earnings per share
data, did not have a material impact on previously reported earnings per share.
Potentially dilutive effect of the Company's outstanding options and common
stock warrants has not been considered in the computation of diluted net loss
per common share since their inclusion would be anti-dilutive.
Effective with fiscal years beginning after December 15, 1997, companies are
required to adopt Statement of Financial Accounting Standards ("SFAS") No.
130 "Reporting Comprehensive Income." The Statement establishes standards
for the reporting and display of comprehensive income and its components in
a full set of general-purpose financial statements. Comprehensive income
includes net income and other comprehensive income, which comprises certain
specific items previously reported directly in stockholders' equity. Other
comprehensive income comprises items such as unrealized gains and losses on
debt and equity securities classified as available-for-sale securities, minimum
pension liability adjustments, and foreign currency translation adjustments.
12
<PAGE>
Since the Company does not currently have any of these other comprehensive
income items, SFAS No. 130 has no impact on the way the Company reports
or has reported its financial statements.
(2) Liquidity
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. The
Company expects that its existing capital resources will be adequate to fund the
Company's operations through the second quarter of 1999. The Company is
dependent on raising additional capital to fund its development of technology
and to implement its business plan. Such dependence will continue at least
until the Company begins marketing its new technologies.
If the anticipated revenues are delayed or do not occur or the Company is
unsuccessful in raising additional capital on acceptable terms, the Company
would be required to curtail research and development and general and
administrative expenditures so that working capital would cover reduced
operations into the third quarter of 1999. There can be no assurance, however
that changes in the Company's operating expenses will not result in the
expenditure of such resources before such time.
The Independent Auditor's Report on the Company's 1997 consolidated
financial statements included an emphasis paragraph regarding the uncertainty
of the Company's ability to continue as a going concern.
(3) Recapitalization
On June 18, 1998, in conjunction with the first closing of a private placement,
the Company effected a recapitalization of the Company through a one-for-
twenty reverse stock split of Access common stock, $.04 par value per share
(the "Common Stock"), which decreased the number of authorized shares of
Common Stock from 60.0 million shares, at $0.04 par value per share, to 20.0
million shares, par value $0.01 per share, and decreased the authorized shares
of preferred stock of the Company from 10.0 million to 2.0 million (the
"Recapitalization"). The Recapitalization decreased the number of outstanding
shares of Common Stock from approximately 41.5 million to 2.1 million.
If and when the Company satisfies all listing requirements, the Company
intends to submit an application for listing on NASDAQ or an alternate
exchange. There can be no assurances that the Company will be listed on
NASDAQ or an alternate exchange.
(4) Private Placement
The Company raised $1,200,000 in gross proceeds ($725,000 received on
March 20, 1998 and $475,000 received on April 11, 1998) less cash issuance
costs of $33,750, from the placement of 48 units, each unit consisting of 8,333
shares of Common Stock and warrants to purchase 8,333 shares of Common
Stock at an exercise price of $3.00 per share. The placement agent received
warrants to purchase 44,527 shares of Common Stock at $3.00 per share, in
accordance with the offering terms and elected to receive 45,277 shares of
Common Stock in lieu of certain sales commissions and expenses.
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On June 18, 1998, the Company, assisted by an investment bank, raised an
aggregate of $2.9 million in gross proceeds, less cash issuance costs of
$202,000, from the first closing of a private placement of 953,573 shares
Common Stock at $3.00 per share. The placement agent for such offering
received warrants to purchase 101,653 shares of Common Stock at $3.00 per
share, in accordance with the offering terms and elected to receive 62,949
shares of Common Stock in lieu of certain sales commissions and expenses.
Legal fees and other issuance costs were $122,000 through June 30, 1998.
The proceeds of the offering will be used to fund research and development,
working capital, acquisitions of complementary companies or technologies and
general corporate purposes.
On July 30, 1998, the Company raised an aggregate of $900,000 in gross
proceeds, less cash issuance costs of $24,000, from the second closing of a
private placement of 300,000 shares Common Stock at $3.00 per share. The
placement agent for such offering received warrants to purchase 33,445 shares
of Common Stock at $3.00 per share, in accordance with the offering terms
and elected to receive 34,450 shares of Common Stock in lieu of certain sales
commissions and expenses. The proceeds of the offering will be used to fund
research and development, working capital, acquisitions of complementary
companies or technologies and general corporate purposes.
The investment bank has been engaged to assist the Company in raising up to
an additional $4.0 million to fund research and development, working capital,
acquisitions of complementary companies or technologies and general
corporate purposes. There can be no assurances that any additional closings of
the private placement will take place.
14
AGREEMENT
BETWEEN
ACCESS PHARMACEUTICALS, INC.
AND
BLOCK DRUG COMPANY, INC
<PAGE>
ARTICLE 1 DEFINITIONS 1
1.1 Access 1
1.2 Access Know-How 2
1.3 Access Net Sales 2
1.4 Affiliate 3
1.5 Amlexanox 3
1.6 Block 3
1.7 Block-Chemex Agreement 3
1.8 Block Know-How 4
1.9 Block Net Sales 4
1.10 Dermatological Use 5
1.11 Effective Date 5
1.12 First Sale 5
1.13 Formulation 5
1.14 Improvement 5
1.15 Improvement Patent 5
1.16 Licensed Patents 5
1.17 Notice 6
1.18 Product 6
1.19 Revenue 6
1.20 Sublicense Net Sales 8
1.21 Takeda 8
1.22 Takeda License Agreement 8
1.23 Takeda Sublicensed Patents 8
1.24 Takeda Supply Agreement 9
1.25 Term 9
1.26 Territory 9
ARTICLE 2 GRANT 9
2.1 Grant 9
ARTICLE 3 ACCESS ROYALTIES 10
3.1 Royalty Rate for Direct Sales by Access 10
3.2 Royalty Rate in all Other Instances 10
3.3 No Offset on Other Royalties 10
ARTICLE 4 ADDITIONAL OBLIGATIONS OF THE PARTIES 11
4.1 Access to Pay Registration Fees and Costs 11
4.2 Access to Pay Takeda Royalties to Block 11
4.3 Advance Notice of Studies 11
4.4 Access to Provide Data 11
ARTICLE 5 ACCESS PAYMENT TERMS 12
5.1 Quarterly payments 12
5.2 Set-Off for Registration Fees 12
i
<PAGE>
ARTICLE 6 IMPROVEMENTS 13
6.1 Improvements by Access 13
6.2 Advance Notice of Studies 13
6.3 Access to Provide Data 13
6.4 Access to Pay Registration Fees and Costs 13
6.5 Access to Pay Takeda Royalties to Block 14
ARTICLE 7 ACCESS IMPROVEMENT ROYALTIES 14
7.1 Royalties from Access to Block 14
7.2 Royalties in Other Instances 14
7.3 Royalty Reduction 14
ARTICLE 8 BLOCK IMPROVEMENT RIGHTS AND OBLIGATIONS 15
8.1 Grant of Rights to Block 15
8.2 Royalties from Block to Access 15
8.3 Set-Off for Advance or Other Royalties 15
8.4 Block Royalty Reports 15
ARTICLE 9 TERM AND TERMINATION 16
9.1 Term 16
9.2 Termination for Breach 17
9.3 Rights to Survive 17
9.4 Reversion and Termination for Failure to Pay
Takeda License Fees 18
9.5 Termination by Takeda 18
ARTICLE 10 WARRANTIES 18
10.1 Exploitation of Licensed Rights 18
10.2 Access Indemnity 19
10.3 Block Indemnity 19
10.4 Obligations Regarding Patent Infringement 20
10.5 Claims by Third Parties 22
10.6 No Restrictions on Product 22
10.7 Power to Enter Into Agreement 22
10.8 No Other Warranties or Representations 23
ARTICLE 11 MISCELLANEOUS 23
11.1 New Jersey Law Applies 23
11.2 Alternative Dispute Resolution 23
11.3 No Agency or Employment 26
11.4 Notice 26
11.5 Severability 28
11.6 Entire Agreement/Merger 28
11.7 Amendment 28
11.8 Counterparts 29
11.9 No Waiver of Rights 29
ii
<PAGE>
11.10 Force Majeure 29
11.11 Further Assurances 29
11.12 Audit Rights 29
11.13 Binding Effect 30
11.14 No Strict Construction 30
11.15 Consent Not Unreasonably Withheld or Delayed 30
11.16 Bankruptcy 31
11.17 Assignment 31
11.18 Taxes 31
11.19 Cooperation on Publicity 31
11.20 Costs of Agreement 32
11.21 Headings for Convenience Only 32
11.22 Independent Contractor 32
11.23 No Finder's Fee 33
11.24 Notification of Infringement 33
11.25 References 33
11.26 Singular and Plural 33
11.27 Successors and Assigns 33
11.28 Validity and Severability 34
11.29 Waiver 34
11.30 Takeda Agreement Controlling 34
ARTICLE 12 TAKEDA CONSENT 35
12.1 Takeda Approval 35
iii
<PAGE>
This Agreement, dated this 5th day of March, 1998, is by and between
Block Drug Company, Inc., 257 Cornelison Avenue, Jersey City, New Jersey
07302 ("Block") and Access Pharmaceuticals, Inc., 2600 Stemmons Freeway,
Suite 176, Dallas, Texas 75207 ("Access").
WHEREAS Block has certain rights in and to a topical product for
treating aphthous ulcers containing amlexanox;
WHEREAS Access wishes to develop such product itself in various
countries and to seek partners in various countries to develop such product;
NOW THEREFORE, in consideration of the following mutual
promises and obligations and intending to be legally bound, the parties agree
as follows:
ARTICLE 1 DEFINITIONS
1.1 Access: means Access Pharmaceuticals, Inc. The term
"Access" shall, as required by the circumstances, also mean and include any
company or business entity that controls or is controlled by, either directly or
indirectly, Access Pharmaceuticals, Inc., its officers, agents and employees or
any partnership or joint venture in which Access Pharmaceuticals, Inc. is a
participant or any company or business entity that is under common control
with Access Pharmaceuticals, Inc. The term "control" means the power to
direct the affairs of such entity by
1
<PAGE>
reason of ownership of at least fifty percent (50%) of such entity by voting
stock, equity interest, contract or otherwise.
1.2 Access Know-How: means (a) any and all information in the
possession of Access at any time during the Term of this Agreement which
Access has the right to license or sublicense relating to the physical and
chemical analysis and stability of the Product, its clinical effects and
indications for use, and (b) any and all information in the possession of Access
as of the date of execution of this Agreement which Access the right to license
or sublicense relating to the method of use, packaging, formulation, or method
of administration of the Product that, at the time it is communicated to Block,
was not rightfully in Block's possession and was not common general
knowledge. Information relating to Takeda's process of manufacture of
amlexanox shall be excluded from the scope of Access Know-How.
1.3 Access Net Sales: For purposes of determining compensation
to Block for direct sales of Access under Paragraph 3.1 and Paragraph 7.1 of
this Agreement, "Access Net Sales" means gross revenues received by Access
on the sale of any Product less (a) trade discounts actually allowed; and (b)
when borne by Access in connection with the sale, transportation and handling
charges; sales, use and excise taxes; import duties, tariffs or other
governmental charges; and credits for claim or allowances, retroactive price
reductions, refunds, returns, and recalls. There shall not be any imputed gross
revenue for samples, free goods or other marketing programs whereby the
Product is given away to induce sales thereof. For purposes of determining
Net Sales, a sale shall be deemed to have occurred when the sale is invoiced
or
2
<PAGE>
when the Product is delivered, whichever occurs first. In the case of the
transfer or sale of Product by Access to an Affiliate or distributor of Access
for sales by such Affiliate or distributor, Net Sales shall be based upon the
greater of the total invoice price charged by Access to such Affiliate or
distributor or the total invoice price charged by such Affiliate or distributor
to its customers. Net Sales for countries outside the U.S. shall be calculated
by converting to U.S. currency using the exchange rate in effect on the last
business day of each month as published in the Wall Street Journal.
1.4 Affiliate: means any corporation or business entity controlled by,
controlling, or under common control with Access or Block, respectively. For
this purpose, "control" shall mean the direct or indirect beneficial ownership
of at least fifty percent (50%) of the voting stock, or at least a fifty percent
(50%) interest in the income of such corporation or other business entity, or
such other relationship as, in fact, constitutes actual control.
1.5 Amlexanox: means 2 - amino - 7 - isopropyl - 5 - oxo - 5H - [1]
benzopyrano - [2,3 - b] - pyridine - 3 - carboxylic acid (Takeda Code No.
AA-673).
1.6 Block: means Block Drug Company, Inc.
1.7 Block-Chemex Agreement: means that asset purchase and royalty
agreement between Block Drug Company, Inc. and Chemex Pharmaceuticals,
Inc., dated as of June 7, 1995.
3
<PAGE>
1.8 Block Know-How: means (a) any and all information in the
possession of Block at any time during the Term of this Agreement which
Block has the right to license or sublicense relating to the physical and
chemical analysis and stability of the Product, its clinical effects and
indications for use, and (b) any and all information in the possession of Block
as of the date of execution of this Agreement which Block the right to license
or sublicense relating to the method of use, packaging, formulation, or method
of administration of the Product that, at the time it is communicated to Access,
was not rightfully in the possession of Access and was not common general
knowledge. Information relating to Takeda's process of manufacture of
Amlexanox shall be excluded from the scope of Block Know-How.
1.9 Block Net Sales: means gross revenues received by Block on the
sale of any Product less (a) trade discounts actually allowed; and (b) when
borne by Block in connection with the sale, transportation and handling
charges; sales, use and excise taxes; import duties, tariffs or other
governmental charges; and credits for claim or allowances, retroactive price
reductions, refunds, returns, and recalls. There shall not be any imputed gross
revenue for samples, free goods or other marketing programs whereby the
Product is given away to induce sales thereof. For purposes of determining
Net Sales, a sale shall be deemed to have occurred when the sale is invoiced
or when the Product if delivered, whichever occurs first. In the base of the
transfer or sale of Product by Block to an Affiliate or distributor of Block for
sales by such Affiliate or distributor, Net Sales shall be based upon the
greater of the total invoice price charged by
4
<PAGE>
Block to such Affiliate or distributor or the total invoice price charged by
such Affiliate or distributor to its customers.
1.10 Dermatological Use: means all uses for the treatment of diseases
and disorders of the integument including, but not limited to, therapeutic,
prophylactic and immunological uses. For the purposes of this definition,
integument is skin and its appendages, including hair, hair follicles, sebaceous
glands, sweat glands, nails, and component and migratory cells of the skin.
1.11 Effective Date: means the date first set forth above.
1.12 First Sale: means the date on the first invoice to any customer
purchasing a Product or an Improvement on a country by country basis after
the Effective Date of this Agreement.
1.13 Formulation: means the topical formulation containing
Amlexanox attached hereto as Exhibit A.
1.14 Improvement: means all inventions, developments or
improvements, whether or not patentable, originated or acquired by either
party hereto that relate to the Product.
1.15 Improvement Patent: means any patent or patent application
covering any Improvement.
5
<PAGE>
1.16 Licensed Patents: means all patents and applications set forth in
Exhibit B to this Agreement and all Takeda Sublicensed Patents.
1.17 Notice: shall have the meaning set forth in Paragraph 11.4
hereof. "Notify" shall mean to provide Notice in accordance with Paragraph
11.4 hereof.
1.18 Product: means the Formulation and any topical formulation
containing Amlexanox for Dermatological Use, excluding any formulation for
treatment of the cause or symptoms of oral mucositis, covered by any claim
or any Licensed Patent in any country, whether or not granted.
1.19 Revenue: for purposes of determine compensation to Block for
sales to or by a sublicensee or other party of Access under Paragraph 3.2 and
Paragraph 7.2 of this Agreement, "Revenue" means the net profits received
by Access for the sale of the Products by Access or by any third party. As
used herein, "net profits" shall mean:
(a) the full amount of any nonrecurring or nonperiodic payments made
to Access by any third party as full or partial payment for any rights granted
to such third party relating to any Product or Improvement including, but not
limited to, milestone payments and reimbursement for fees expended to obtain
permission from any governmental authority to make, use or sell a Product or
Improvement (unless such fees have not been deducted under Paragraph 5.2
or 7.3 of this Agreement;
6
<PAGE>
(b) the full amount of any royalties, including advance royalties, or
other periodic or recurring payments, paid to Access by any third party as full
or partial payment for any rights granted to such third party relating to any
Product or Improvement;
(c ) the full fair market value of any non-monetary consideration paid
to Access by any third party as full or partial payment for any rights granted
to such third party relating to any Product or Improvement; and
(d) the net consideration received by Access for sales of any Product
or Improvement to any third party for resale. As used herein, "net
consideration" means the gross consideration received by Access for sales of
any Product or Improvement less either: (1) if Access manufactures such
Product or Improvement, Access' direct and indirect manufacturing costs
incurred in making such Product or Improvement, recorded on Access' books
in accordance with generally accepted principles; or (2) if Access has such
Product or Improvement made by a third party, Access' out-of-pocket
payments to such third party for such Product or Improvement. All
manufacturing costs and out-of-pocket payments are subject to audit by Block.
This audit right is in addition to and separate from Block's audit right
pursuant to Paragraph 11.12. Any royalties paid by Access to Block under this
Agreement or any other agreement and royalties paid be Access to any other
party for sales hereunder may also be deducted from gross consideration;
7
<PAGE>
(e) net profits shall not include any royalties or other payments made
by Block to Access under any provision of this Agreement, or any other
agreement.
1.20 Sublicensee Net Sales: means gross revenues received by the
sublicensee on the sale of any Product less (a) trade discounts actually
allowed; and (b) when borne by the sublicensee in connection with the sale,
transportation and handling charges; sales, use and excise taxes; import duties,
tariffs or other governmental charges; and credits for claim or allowances,
retroactive price reductions, refunds, returns, and recalls. There shall not be
any imputed gross revenue for samples, free goods or other marketing
programs whereby the Product is given away to induce sales thereof. For
purposes of determining Net Sales, a sale shall be deemed to have occurred
when the sale is invoiced or when the Product is delivered, whichever occurs
first. In the case of the transfer or sale of Product by the sublicensee to an
Affiliate or distributor of the sublicensee for sales by such Affiliate or
distributor, Net Sales shall be based upon the greater of the total invoice
price charged by the sublicensee to such Affiliate or distributor or the total
invoice price charged by such Affiliate or distributor to its customers.
1.21 Takeda: means Takeda Chemical Industries, Ltd., a Japanese
corporation and all parents, subsidiaries and affiliates thereof.
8
<PAGE>
1.22 Takeda License Agreement: means that agreement between
Chemex and Takeda dated November 12, 1987 regarding licensing of patent
rights from Takeda to Chemex. A copy of that agreement is set forth in
Exhibit C to this Agreement.
1.23 Takeda Sublicensed Patents: means any and all patent
applications and patents now or hereafter owned or controlled by Takeda in the
Territory relating to the Product, including any and all patents issuing or
maturing from such patent applications, or any reissue application, divisions
extensions, Improvements, and continuations-in-part thereof. Such current
Takeda Patents and patent applications in the Territory are listed in Exhibit D
to this Agreement.
1.24 Takeda Supply Agreement: means that agreement between
Chemex and Takeda dated November 12, 1987 regarding supply of material
from Takeda to Chemex. A copy of that agreement is set forth in Exhibit E
to this Agreement.
1.25 Term: means the term of this Agreement, as set forth in Article
9 hereof.
1.26 Territory: means all countries in the world in which Block has
been granted rights by Takeda except the United States of America and Israel.
Block has not been granted rights in Japan and other countries.
9
<PAGE>
ARTICLE 2 GRANT
2.1 Grant: Block hereby grants Access the exclusive right under the
Licensed Patents and the Block Know-How to make, use, have made and sell
or have sold any Product within the Territory during the Term, including the
right to make or have made outside the Territory for sale in the Territory.
The rights granted hereunder, however, are subject to the rights granted to
Block by Takeda as set forth in the Takeda License Agreement and the Takeda
Supply Agreement. Access agrees to be bound by the royalty provisions in
such agreements, as amended from time to time. Access shall have the right
to sublicense the rights granted hereunder within the Territory at its sole
discretion subject to approval by Takeda.
ARTICLE 3 ACCESS ROYALTIES
3.1 Royalty Rate for Direct Sales by Access: On a country by country
basis, if Access sells a Product directly to retail pharmacies or other
dispensaries, then Access shall pay to Block a royalty of * of Access
Net Sales of such Product in such country.
3.2 Royalty Rate in all Other Instances: For any consideration
received by Access for sales to or by a sublicensee or other party other than
as set forth in Paragraph 3.1, Access shall pay Block * of any
Revenue received by Access on any Product.
* - Confidential portions have been omitted and are on file separately with the
Commission
10
<PAGE>
3.3 No Offset on Other Royalties: No payment received by Block
from Access in accordance with Paragraphs 3.1 or 3.2 shall reduce or offset
any amounts paid as an advance royalty in the Block-Chemex Agreement. No
Access Net Sales of any Product or any sales by any party resulting in any
Revenue under Paragraph 3.2 shall be considered as any form of sale covered
by the Block-Chemex Agreement.
ARTICLE 4 ADDITIONAL OBLIGATIONS OF THE PARTIES
4.1 Access to Pay Registration Fees and Costs: Access or its
sublicensees shall pay all registration fees, clinical evaluation costs and any
other costs associated with obtaining approval to market any Product within
any country in the Territory.
4.2 Access to Pay Takeda Royalties to Block: Access shall pay all
royalties due to Takeda for sales of Products within the Territory directly to
Block, and Block shall be solely responsible for remitting all such payments
due to Takeda for sales of Product within the Territory under the terms of the
Takeda License Agreement.
4.3 Advance Notice of Studies: Access shall provide Block with no
less than sixty (60) days' advance written Notice of the commencement of any
study or other sponsored research relating to any Product. Access shall not
proceed with any study or other sponsored research without the written
approval of Block, which shall not be unreasonably withheld or delayed.
11
<PAGE>
4.4 Access to Provide Data: Access shall supply Block, without
compensation, with all clinical and other technical and scientific data that it
develops relating to any Product. Block may use this data at its discretion for
any purpose, including, but not limited to, filing of such data with regulatory
authorities outside the Territory for any purpose. Information pertaining to
side effects resulting from any use of Amlexanox in any type of application
will be exchanged by both parties hereto on an emergent basis, whenever such
information is obtained.
ARTICLE 5 ACCESS PAYMENT TERMS
5.1 Quarterly payments: Within thirty (30) days of the end of each
calendar quarter, commencing with the first full calendar quarter following the
Effective Date, Access shall submit to Block a written report setting forth the
Access Net Sales for such quarter and the calculation of the royalty payment
due Block for such quarter, provided however that the first such quarterly
report shall include Net Sales from the Effective Date to the end of the first
full calendar quarter. Access shall, with said written quarterly reports, pay
to Block the royalty amount due as indicated in said reports. In the event that
Access sublicenses a third party hereunder, the written report and payment to
Block shall be due within thirty (30) days of receipt of such third party
royalty report, which third party royalty report shall be due not later than
thirty (30) days after the end of each calendar quarter. The report from
Access to Block shall contain a copy of any such sublicensee royalty report.
12
<PAGE>
5.2 Set-Off for Registration Fees: On a country basis, Access shall
be entitled to reduce the amounts paid to Block in any quarterly payment by
up to * for all out-of-pocket expenses incurred under Paragraph 4.1,
up to an aggregate total off-set for all quarterly payments on Access Net Sales
of any Product or Revenue for any Product of * . Any reduction made
in any quarterly payment as a result of this Paragraph 5.2 shall be
accompanied by a written report setting forth the basis for such reduction.
ARTICLE 6 IMPROVEMENTS
6.1 Improvements by Access: Access may develop and register any
Improvement in the Territory. Access may not develop or register any
Improvement for the treatment of the cause or symptoms of oral mucositis
under the terms of this Agreement.
6.2 Advance Notice of Studies: Access shall provide Block with no
less than sixty (60) days' advance written Notice of the commencement of any
study or other sponsored research relating to any Improvement. Access shall
not proceed with any such study or other sponsored research without the
written approval of Block, which shall not be unreasonably withheld or
delayed.
6.3 Access to Provide Data: Access shall supply Block, without
compensation, with all clinical and other technical and scientific data that it
develops relating to any Improvement.
* - Confidential portions have been omitted and are on file separately with the
Commission
13
<PAGE>
Block may use this data at its discretion for any purpose, including filing such
data with regulatory authorities outside the Territory for any purpose.
6.4 Access to Pay Registration Fees and Costs: Access shall pay for
all registration fees, clinical evaluation costs and any other costs associated
with obtaining approval for it to market any Improvement within any country
within the Territory.
6.5 Access to Pay Takeda Royalties to Block: Access shall pay all
royalties due to Takeda for sales of Improvements within the Territory directly
to Block, and Block shall be solely responsible for remitting all such payments
due to Takeda for sales of any Improvement within the Territory under the
terms of the Takeda License Agreement.
ARTICLE 7 ACCESS IMPROVEMENT ROYALTIES
7.1 Royalties from Access to Block: On a country by country basis,
if Access sells any Improvement directly to retail pharmacies or other
dispensaries, then Access shall pay to Block a royalty of * of Access
Net Sales on such Improvement in such country. Payment shall be made in
accordance with the procedures set out in Paragraph 5.1.
7.2 Royalties in Other Instances: For any consideration received by
Access for sales to or by a sublicensee or other party other than as set forth
in Paragraph 7.1, Access shall pay
* - Confidential portions have been omitted and are on file separately with the
Commission
14
<PAGE>
Block * of any Revenue received by Access on any Improvement.
Payment shall be made in accordance with the procedures set out in Paragraph
5.1.
7.3 Royalty Reduction: On a country by country basis, Access shall
be entitled to reduce the amounts paid to Block in any quarterly payment by
up to * for the * out-of-pocket expenses incurred under
Paragraph 6.4 to develop and register the Improvement in such country up to
an aggregate total off-set of * of all such costs in such country. Any
reduction made in any quarterly payment as a result of this Paragraph shall be
accompanied by a written report setting forth the basis for such reduction.
ARTICLE 8 BLOCK IMPROVEMENT RIGHTS AND OBLIGATIONS
8.1 Grant of Rights to Block: Access hereby grants Block the
exclusive right under any Improvement Patent, if any, and Access Know-How,
if any, now existing or subsequently developed, to make, use, have made and
sell any Improvement outside the Territory during the Term, including, but not
limited to, the right to make or have made the Improvement, or any part
thereof, within the Territory for sale outside the Territory. Block shall have
the right to sublicense the rights granted hereunder outside the Territory at
its sole discretion.
8.2 Royalties from Block to Access: On a country by country basis,
Block shall pay Access a royalty of * of Block Net Sales or any
Sublicensee Net Sales (of any Block sublicensee) of any Improvement outside
the Territory.
* - Confidential portions have been omitted and are on file separately with the
Commission
15
<PAGE>
8.3 Set-Off for Advance or Other Royalties: Block shall be entitled
to offset any royalties otherwise due under Paragraph 8.2 by * . In no
event shall Block be required to pay royalties to Access under both the Block-
Chemex Agreement and Paragraph 8.2 of this Agreement for Block Net Sales
hereunder.
8.4 Block Royalty Reports: Within thirty (30) days of the end of each
calendar quarter, commencing with the first full calendar quarter following the
First Sale of any Improvement by Block or a Block sublicensee outside the
Territory, Block shall submit to Access a written report setting forth the Block
Net Sales for such quarter and the calculation of the royalty payment due
Access for such quarter including any setoff under Paragraph 8.2, provided
however, that the first such quarterly report shall include Block Net Sales from
the date of First Sale to the end of the first full calendar quarter. Block
shall, with said written quarterly report, pay to Access the royalty amount due
as indicated in said report. In the event that Block sublicenses a third party
hereunder, the written report and payment to Access shall be due within thirty
(30) days of receipt of such third party royalty report, which third party
royalty report shall be due no later than thirty (30) days after the end of each
calendar quarter. The report from Block to Access shall contain a copy of any
such sublicensee royalty report.
* - Confidential portions have been omitted and are on file separately with the
Commission
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ARTICLE 9 TERM AND TERMINATION
9.1 Term: The Term of this Agreement for any Product commences
on the Effective Date hereof and ends, on a country by country basis upon the
later of * years from the date of First Sale of a Product in such
country or the expiration, lapse, termination or unappealed or unappealable
determination of invalidity, unenforceability or nonallowability of the last
Licensed Patent in each country, if any. The Term for Improvements shall
commence on the Effective Date and shall end, on a country-by-country basis,
upon the later of ten (10) years from the date of First Sale of an Improvement
in such country or the expiration, lapse, termination or unappealed or
unappealable determination of invalidity, unenforceability or nonallowability
of the last Licensed Patent, if any, or Improvement Patent, if any, in each
country. In no event, however, shall the duty to pay royalties under this
Agreement for either party extend beyond * after the Effective Date.
Royalties payable to Takeda under the Takeda License Agreement shall not be
affected by any provision of this Paragraph.
At the conclusion of the Term, each party shall have a fully paid-up
worldwide nonexclusive license with respect to any Licensed Patent,
Improvement Patent, Block Know-How and Access Know-How, and no further
payments shall be made or required under this Agreement.
9.2 Termination for Breach: Either party may terminate this
Agreement on sixty (60) days' written Notice to the other if the other is in
default or breach of any material provision,
* - Confidential portions have been omitted and are on file separately with the
Commission
17
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provided, however, that if the party receiving such Notice cures or diligently
commences to cure the breach or default within such sixty (60) day period,
this Agreement shall continue in full force and effect. If such default or
breach of a material provision is a failure to pay any amount due and owing
hereunder, the terminating party may terminate this Agreement on thirty (30)
days' written Notice. If, however, the party receiving such Notice cures such
default or breach within such thirty-(30) day period, this Agreement shall
continue in full force and effect. Failure to terminate this Agreement for any
default or breach shall not constitute a waiver by the aggrieved party of its
right to terminate the Agreement for any other default or breach.
9.3 Rights to Survive: Termination shall not affect the rights of the
parties accruing up to the effective date of termination and thereafter as to
provisions which expressly survive termination.
9.4 Reversion and Termination for Failure to Pay Takeda License
Fees: If Access fails to make any payment to Block under Paragraph 4.2 or
Paragraph 6.5, then all rights granted to Access in this Agreement shall revert
to Block thirty (30) days after Notice to Access from Block of such failure to
pay. If Access makes all payments to Block required under Paragraphs 4.2
and 6.5 and any other required payments hereunder as set forth in such Notice
within the thirty (30) days, then such rights shall not revert to Block.
18
<PAGE>
9.5 Termination by Takeda: If the Takeda License Agreement or the
Takeda Supply Agreement is terminated or canceled by Takeda or by operation
of the Takeda License Agreement or the Takeda Supply Agreement for any
reason, this Agreement shall also terminate, effective as of the date of
termination of such agreement. Provide, however, Block shall give Access
Notice at least thirty (30) days prior to any such termination, and Access shall
have the right to cure any breach that is the cause of any termination. Block
shall use its reasonable commercial efforts to keep the Takeda License
Agreement and the Takeda Supply Agreement in effect during the Term of this
Agreement.
ARTICLE 10 WARRANTIES
10.1 Exploitation of Licensed Rights: Block makes no warranty or
representation that the use of any products, the practice of the Licensed
Patents, or the use of any trademark will result in the successful promotion,
marketing or sale of the Products. Access makes no warranty or
representation that the use of any Improvements, the practice of the
Improvements, or the use of any trademark will result in the successful
promotion, marketing or sale of the Improvements.
10.2 Access Indemnity: Access shall indemnify and hold Block
harmless against any and all liability, damage, loss, cost or expense (including
attorney's fees and expenses), hereinafter "Damages," resulting from any third
party claim made or suit brought against Block to the extent that such claim
or suit (i) is caused by Access' negligence or willful misconduct;
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(ii) is caused by Access' breach of any of the representations or warranties set
forth herein; or (iii) is caused by Access' breach of this Agreement. As the
parties intend fully indemnification, all costs, expenses and fees, including
attorney's fees and disbursements, incurred in enforcing this Paragraph 10.2
shall also be reimbursed. Upon filing of any such claim or suit, Block shall
immediately Notify Access thereof and shall permit Access at its cost to handle
and control such claim or suit. Block shall have the right to participate in
the defense of such claim or suit at its own expense.
10.3 Block Indemnity: Block shall indemnify and hold Access
harmless against any and all liability, damage, loss, cost or expense (including
attorneys' fees and expenses), hereinafter "Damages," resulting from any third
party claim made or suit brought against Access to the extent that such claim
or suit (i) is caused by Block's negligence or willful misconduct; (ii) is
caused by Block's breach of any of the representations and warranties set
forth herein; or (iii) is caused by Block's breach of this Agreement. As the
parties intend full indemnification, all costs, expenses and fees, including
attorneys' fees and disbursements, incurred in enforcing this Paragraph 10.3
shall also be reimbursed. Upon filing of any such claim or suit, Access shall
immediately Notify Block thereof and shall permit Block at its cost to handle
and control such claim or suit. Access shall have the right to participate in
the defense of such claim or suit at its own expense.
10.4 Obligations Regarding Patent Infringement: In the event of
alleged infringement of one or more patents licensed hereunder by a third
party:
20
<PAGE>
(a) each party shall Notify the other of any perceived or threatened
infringement of the Takeda patents by any third party as such party becomes
aware of such perceived or threatened infringement. Block shall Notify
Takeda of any such perceived or threatened infringement, and all actions with
respect to the Takeda Sublicensed Patents will be governed by Paragraph 12.1
of the Takeda Agreement;
(b) In the event of infringement of any patent owned or licensed by
Block and licensed under this Agreement, the party discovering the
infringement shall Notify the other party of such infringement. Block shall
have sixty (60) days from the date of such Notice to Notify Access of its
decision to enforce or not to enforce the patent. If Block elects not to
enforce such patent within such sixty (60) day period, then Access may, at its
option, enforce such patent. In the event of any legal action seeking to
enforce any patent owned by Block, both Access and Block may be named as party
plaintiff. No settlement, consent judgement or other voluntary final
disposition of such suit may be entered into by Block without the consent of
Access, which consent shall not be unreasonably withheld or delayed.
(d) In the event of infringement of any patent owned by Access and
licensed under this Agreement, the party discovering the infringement shall
Notify the other party of such infringement. Access shall have sixty (60) days
from the date of such Notice to Notify Block of its decision to enforce or not
to enforce the patent. If Access elects not to enforce such patent within such
sixty (60) day period, then Block may, at its option, enforce such patent. In
21
<PAGE>
the event of any legal action seeking to enforce any patent owned by Access,
both Access and Block may be named as party plaintiff. No settlement,
consent judgment or other voluntary final disposition of such suit may be
entered into by Block without the consent of Access, which consent shall not
be unreasonably withheld or delayed.
(e) In the event of any lawsuit against a third party hereunder, the
parties agree to cooperate with each other in all respects relating to the
lawsuit. Damages or any amount received in settlement of claims of
infringement, shall be apportioned as follows: (1) the party that actively
asserted the patent or patents found to be infringed or were covered by any
settlement of claims shall first be reimbursed for * of its out-of-pocket
expenses, including attorneys' fees, expended in actively asserting such patent
or patents; (2) out of the remainder, the party that did not actively assert
such patent or patents shall be reimbursed for * of its out-of-pocket
expenses, including attorneys' fees, expended in such lawsuit; and (3) the
party that actively asserted such patent or patents shall then receive any
remaining funds from such damage award or settlement. If both parties
actively asserted such patent or patents, then the parties will divide funds
from such damage award or settlement as follows: each party shall receive *
of its out-of-pocket expenses, including attorneys' fees, expended in such
lawsuit and the parties shall share any remaining funds equally. If the funds
from such damage award or settlement are not sufficient to compensate both
parties for * of their expenses, then the funds
* - Confidential portions have been omitted and are on file separately with the
Commission
22
<PAGE>
shall be divided in a ratio equal to the ratio of the out-of-pocket expenses,
including attorneys' fees, of each party.
10.5 Claims by Third Parties: In the event a party to this Agreement
is sued or threatened with suit by a third party and such action pertains to the
Products, the party being threatened shall give prompt Notice to the other
party. The parties agree to confer together in such event and consult with one
another with respect to the action to be taken.
10.6 No Restrictions on Product: Each party represents to the other
that it has no knowledge of violations of any law or regulation or restrictions
on the ability to make, use or sell the Product, other than ordinary
restrictions imposed in countries in which governmental approval is required,
but has not yet been obtained, to market in such countries and other than
restrictions imposed by the Takeda License Agreement and the Takeda Supply
Agreement.
10.7 Power to Enter Into Agreement: Each party represents that it has
no knowledge of any impediment to it entering into this Agreement except for
the required consent by Takeda to the Agreement.
10.8 No Other Warranties or Representations: Nothing in this
Agreement shall be construed as (a) a warranty or representation by Block or
Access as to the validity or scope of any patent; (b) a warranty or
representation that anything made, used, sold, or otherwise disposed of under
any license granted in this agreement is or will be free from infringement of
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<PAGE>
patents of third parties; (c) an obligation to bring or prosecute actions or
suits against third parties for infringement; or (d) conferring a right to use
in advertising, publicity or otherwise any trademark or tradename of Block.
Neither party makes any representation, extends any warranties of any
kind, either express or implied, or assumes any responsibilities whatever with
respect to use, sale, or other disposition by and party of any Product or
Improvement.
ARTICLE 11 MISCELLANSOUS
11.1 New Jersey Law Applies: This Agreement shall be interpreted
and construed in accordance with the laws of the State of New Jersey.
11.2 Alternative Dispute Resolution: All disputes relating to or
arising out of this Agreement or its subject matter shall be resolved by the
parties as set forth in this Paragraph 11.2 (a) In the event of a dispute,
Notice of a demand for a meeting of the parties to discuss and settle
a dispute ("Notice of meeting") may be given by either Party. Such
Notice shall be in writing and shall set a date no more than (10)
business days from the date of the Notice of Meeting on which the
parties shall meet during normal business hours at a mutually acceptable
place. If within five (5) days after the date of the meeting the parties
have not resolved their dispute(s), then the parties shall proceed as
provided below. Notwithstanding anything in this
24
<PAGE>
Paragraph 11.2 to the contrary, either party may seek equitable and injunctive
relief in any state or federal court in which jurisdiction and venue are proper.
(b) Any dispute not resolved within five (5) days after the meeting
shall be resolved by means of alternative dispute resolution, as provided in the
New Jersey Alternative Procedure for Dispute Resolution Act, N.J.S.A.
2A:23A-1 et seq. (the "Act"). Other than as set forth herein to the contrary,
the parties expressly waive the right to resolve all claims, disputes and issues
arising out of or relating to this Agreement by means of traditional litigation,
including the right to appeal, except as provided in the Act. Except as
otherwise provided in this Agreement, the Act shall govern the procedures and
methods for any ADR Proceeding. No punitive damages may be awarded in
any litigation or ADR proceeding.
(c) Notice of a demand for resolution of a dispute under the Act (a
"Notice of Dispute") given by either party shall be in writing specifying the
issue or issues in dispute.
(d) Within fifteen (15) days after a Notice of Dispute is given, each
party shall select two (2) prospective umpires from among (i) any retired judge
of the federal courts or state appellate courts of New Jersey or New York; (ii)
any retired managing partner of a law firm with no less than twenty-five (25)
partners; or (iii) such other person with such qualifications upon which the
parties agree. The umpires shall be free from bias and conflict of interest
with respect to either party and shall be in a position to immediately hear the
dispute and render a prompt resolution, but in no event later than six (6)
months from the date of the Notice of
25
<PAGE>
Dispute. Within fifteen (15) days after each party has selected its prospective
umpires, the parties shall agree to one (1) umpire from among the four (4)
prospective umpires to hear the dispute. In the event that the parties do not
agree on an umpire, the prospective umpires shall name the umpire.
The proceeding for the alternative resolution of a dispute (the "ADR
Proceeding") shall be held at a location with the State of New Jersey or New
York as selected by the umpire and shall commence no later than forty (40)
days after the Notice of Dispute is given.
The fees payable to the umpire shall be the usual hourly rate of such
umpire for consulting or dispute resolution services. All fees and expenses
associated with the ADR Proceeding incurred by the parties, including the
umpire fees, attorneys' fees and disbursements, shall be paid by the party
against whom the decision is rendered.
11.3 No Agency or Employment: Neither Block nor Access is to be
considered the agent or employee of the other for any purpose, and neither
party has the right or authority to enter into any contracts or assume
obligations for the other or to give any warranty or make any representation
on behalf of the other party except where and to the extent specifically
authorized in writing to do so.
11.4 Notice: Every notice or other communication required or
contemplated by this Agreement by either party shall be in writing.
26
<PAGE>
(a) Every notice or other communication required or contemplated by
this Agreement by either party shall be delivered to the other party by either:
personal delivery; or facsimile; or certified or registered mail, postage
prepaid, addressed to the party for whom such notice was intended; or by
overnight courier.
(b) Notice delivered in person shall be deemed to have been delivered
upon receipt by the party to whom such notice was sent.
(c ) Notice delivered by facsimile shall be deemed to have been
delivered at noon on the first business day after the date on which the
facsimile was sent.
(d) Notice by certified mail shall be deemed to have been delivered
on the date it is officially recorded as delivered to the intended recipient by
return receipt or equivalent, and in the absence of such record of delivery, the
effective date shall be presumed to have been the fifth (5th) business day after
it was deposited in the mail.
(e) Notice delivered by overnight courier shall be deemed to have
been delivered upon receipt by the party to whom such notice was sent.
(f) Unless Access receives notice to the contrary, all notices
directed to Block shall be sent to the attention of:
27
<PAGE>
John E. Peters, Esq.
Senior Vice President and
General Counsel
Block Drug Corporation
257 Cornelison Avenue
Jersey City, New Jersey 07302
Fax (201) 333-3585
(g) Unless Block receives notice to the contrary, all notices directed
to Access shall be sent to the attention of:
Kerry P. Gray
President and Chief Executive Officer
Access Pharmaceuticals, Inc.
2600 Stemmons Freeway, Suite 176
Dallas, Texas 75207
Fax: (214) 905-5101
11.5 Severability: Whenever possible, each section, subsection,
provision or condition of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any section,
subsection, provision or condition of this Agreement should be prohibited or
invalid under applicable law, such section, subsection, provision or condition
shall be considered separate and severable from this Agreement to the extent
of such prohibition or invalidity without invalidating the remaining sections,
subsections, provisions and conditions of this Agreement.
11.6 Entire Agreement/Merger: This Agreement sets forth the entire
agreement between the parties hereto pertaining to the subject matter hereof
and supersedes all negotiations,
28
<PAGE>
preliminary agreements, memoranda or letters of proposal or intent,
discussions and understandings of the parties hereto in connection with the
subject matter hereof. All discussions between the parties have been merged
into this Agreement, and neither party shall be bound by any definition,
condition, understanding, representation, warranty, covenant or provision other
than as expressly stated in or contemplated by this Agreement or as
subsequently shall be set forth in writing and executed by a duly authorized
representative of the party to be bound thereby.
11.7 Amendment: No amendment, change or modification of any of
the terms, provisions or conditions of this Agreement shall be effective unless
made in writing and signed on behalf of the parties hereto by their duly
authorized representatives.
11.8 Counterparts: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original document, but
all such separate counterparts shall constitute only one and the same
instrument.
11.9 No Waiver of Rights: No waiver of any term, provision, or
condition of this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such term, provision, or condition of this Agreement.
29
<PAGE>
11.10 Force Majeure: Neither party shall be liable hereunder to the
other party nor shall be in breach for failure to deliver, provided failure to
deliver is no greater than the delay in time caused by circumstances beyond
control for either party, including but not limited to acts of God, fires,
floods, riots, wars, civil disturbances, sabotage, accidents, labor disputes,
shortages, government actions (including but not limited to priorities,
requisitions, allocations and price adjustment restrictions) and inability to
obtain material, equipment, labor or transportation.
11.11 Further Assurances: The parties hereto shall each perform such
acts, execute and deliver such instruments and documents and do all such other
things as may be reasonably necessary to accomplish the transactions
contemplated in this Agreement.
11.12 Audit Rights: Each party shall keep books and records in
sufficient detail to permit the other to verify items including, but not limited
to, Access Revenue, Access Net Sales or Block Net Sales. Each party shall
have the right, upon reasonable Notice and during normal business hours, but
in no event more frequently than once during any twelve (12) month period or
more than two (2) years after the close of any party's fiscal year, to audit, or
have audited by a Certified Public Accountant, the relevant books and accounts
to verify the accuracy of the reported Net Sales and Access Revenue. In the
event such audit reveals that the audited party has mis-reported information by
more than * , that party, in addition to paying or reimbursing any
additional amounts due, shall pay the reasonable costs associated with such
audit. The parties shall maintain the results of any such audit in
* - Confidential portions have been omitted and are on file separately with the
Commission
30
<PAGE>
confidence. All records pertaining to any payment shall be maintained for not
less than five (5) years after the year of payment hereunder.
11.13 Binding Effect: This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
11.14 No Strict Construction: This Agreement has been prepared
jointly and shall not be strictly construed against either party.
11.15 Consent Not Unreasonably Withheld or Delayed: Whenever
provision is made in this Agreement for either party to secure the consent or
approval of the other, such consent or approval shall not unreasonably be
withheld or delayed, and whenever in this Agreement provisions made for one
party to object to or disapprove a matter, such objection or disapproval shall
not unreasonably be exercised.
11.16 Bankruptcy: At least thirty (30) days prior to filing a petition
in bankruptcy, each party must inform the other of its intention to file the
petition or of a third party's written Notice of its intention to file a
voluntary or an involuntary petition in bankruptcy.
11.17 Assignment: Block may assign this Agreement to any parent,
affiliate, subsidiary or entity in common control without the consent of
Access. Block may also assign this agreement to a third party, either alone
or as part of an agreement to dispose of all or a
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substantial part of its assets or business. In the event of an assignment, the
assignee shall have the identical rights granted to Block hereunder. Block may
assign this agreement to a third party as part of an agreement to dispose of a
substantial part of its business without the consent of Access. If Block wishes
to assign this agreement alone to a third party, however, such assignment shall
not take place without Access' written consent. If Access wishes to assign this
agreement, such assignment shall not take place without the written consent of
Block and Takeda.
11.18 Taxes: All taxes levied on account of royalties accruing under
this Agreement shall be paid by the receiving party. If laws or regulations
require withholding of taxes, the taxes will be deducted by the paying party
from remittable royalty payments and will be paid by the paying party to the
proper taxing authority. Proof of payment shall be sent to the receiving party
within sixty (60) days following payment.
11.19 Cooperation on Publicity: Access and Block shall not, except
as required by law and in interviews between professional sales representatives
and a potential prescribers of a Product or Improvement, use each other's
name in any manner, or issue any public statement disclosing the existence of,
or relating to, this Agreement or any of the activities conducted hereunder,
without the other party's prior written permission. To the extent this
Agreement triggers, in the opinion of counsel, an obligation for a party to file
a report with the SEC on Form 8-K, such party shall either (1) not file a copy
of this Agreement or (2) request SEC approval for the deletion of certain
confidential information identified jointly by parties and
32
<PAGE>
then file a redacted version of this Agreement. Access shall not publish, or
allow to be published, any manuscript, article, report or other form of oral or
written presentation regarding Amlexanox without the express written approval
of Block.
11.20 Costs of Agreement: The parties hereto shall each bear their
own costs and expenses (including attorneys' fees) incurred in connection with
the negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby.
11.21 Headings For Convenience Only: The titles, headings or
captions and paragraphs in this Agreement do not define, limit, extend, explain
or describe the scope or extent of this Agreement or any of its terms or
conditions and therefore shall not be considered in the interpretation,
construction or application of this Agreement.
11.22 Independent Contractor: Each party is an independent
contractor with respect to the other, and is not an agent, partner, joint
venture, or employer of the other. Neither party shall have any responsibility
for the hiring, termination, compensation or benefits of the other party's
employees. No employees or representatives of either party shall have any
authority to bind or obligate the other party for any sum or in any manner
whatsoever, or to create or impose any contractual or other liability on the
other party without said party's authorized written approval.
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<PAGE>
11.23 No Finder's Fee: The parties acknowledge that no "finder" has
been involved in bringing the parties together and that no compensation is due
to any third party(s) as a result of the execution of this Agreement.
11.24 Notification of Infringement: Each party shall promptly Notify
the other party of any infringement or misappropriation based upon or arising
from any of the intellectual property that is the subject of this agreement.
11.25 References: All references herein to articles, sections,
paragraphs and attachments shall be to articles, sections, paragraphs and
attachments of this Agreement.
11.26 Singular and Plural: The use herein of the singular form shall
also denote the plural form, and the use herein of the plural form shall denote
the singular form as in each case the context may require.
11.27 Successors and Assigns: This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns permitted under this Agreement.
11.28 Validity and Severability: Whenever possible, each clause,
subclause, provision or condition of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
clause, subclause, provision or condition of this Agreement
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<PAGE>
should be prohibited or invalid under applicable law, such clause, subclause,
provision or condition shall be considered separate and severable from this
Agreement to the extent of such prohibition or invalidity without invalidating
the remaining clauses, subclauses, provisions and conditions of this
Agreement.
11.29 Waiver: No waiver of any term, provision, or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further or continuing waiver of any
such term, provision, or condition of this Agreement.
11.30 Takeda Agreement Controlling: This Agreement is subject to
the Takeda License Agreement and the Takeda Supply Agreement. To the
extent that any term of this Agreement is inconsistent with either the Takeda
License Agreement or the Takeda Supply Agreement, such term shall be
controlled by and subject to the terms of the Takeda License Agreement and
the Takeda Supply Agreement.
ARTICLE 12 TAKEDA CONSENT
12.1 Takeda Approval: This Agreement shall be binding on the
parties but not become effective until receipt by Block of written approval
from Takeda for Block to enter into this Agreement. If Takeda disapproves
this Agreement or fails to approve the Agreement within six (6) months of the
Effective Date, then this Agreement shall be void in its entirety.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duty executed as of the day and year first above written.
ACCESS PHARMACEUTICALS, INC. BLOCK DRUG COMPANY, INC.
By: /s/ Kerry P. Gray By: /s/ Arthur J. Looney
--------------------------- -----------------------------
Kerry P. Gray Arthur J. Looney
Name Printed Name Printed
President and CEO Vice-President / General Manager
------------------- --------------------------------
Title Title
May 7, 1998 May 12, 1998
------------ -------------
Date Date
36
ACCESS PHARMACEUTICALS, INC.
A minimum of 18,666,667 and
a maximum of 52,000,000 Shares of Common Stock
SALES AGENCY AGREEMENT
Sunrise Securities Corp.
135 E. 57th Street
New York, New York 10022
June 18, 1998
Dear Sirs:
Access Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
proposes to offer for sale in a private offering (the "Offering") pursuant to
Rule 506 of Regulation D ("Regulation D") under the Securities Act of 1933,
as amended (the "Act"), a minimum of 18,666,667 (including "Affiliate
Shares", as hereinafter defined, if any) and a maximum of 52,000,000 shares
of common stock, par value $.04 per share (the "Shares"). This Offering is
being made solely to "accredited investors" as defined in Regulation D. This
is to confirm our agreement concerning your acting as our exclusive placement
agent (the "Placement Agent") in connection with the Offering.
The Company prepared and delivered to the Placement Agent copies of a
confidential private placement memorandum relating to, among other things,
the Company, the Shares and the terms of the sale of the Shares. Such
confidential private placement memorandum, including all exhibits thereto and
all documents delivered therewith and incorporated by reference therein, is
referred to herein as the "Memorandum" unless such confidential private
placement memoranda or any such exhibits or documents shall be
supplemented or amended in accordance with this Agreement, in which event
the term "Memorandum" shall refer to such confidential private offering
memorandum and such exhibits and documents as so supplemented or amended
from and after the time of delivery to the Placement Agent of such supplement
or amendment.
1. Appointment of Placement Agent.
On the basis of the representations and warranties contained herein, and
subject to the terms and conditions set forth herein, the Company hereby
appoints you as its Placement Agent and grants to you the exclusive right to
offer, as its agent, the Shares pursuant to the terms of this Agreement. On the
basis of such representations and warranties, and subject to such conditions,
<PAGE>
you hereby accept such appointment and agree to use your best efforts to
secure subscriptions to purchase a minimum of 18,666,667 and a maximum
of 52,000,000 Shares (less the number of shares sold in the Bridge Offering)
pursuant to the terms of this Agreement. The agency created hereby is not
terminable by the Company except upon termination of the Offering pursuant
to the terms of this Agreement or upon expiration of the Offering Period (as
hereinafter defined) in accordance with the terms of this Agreement.
2. Terms of the Offering.
(a) A minimum of 18,666,667 and a maximum of 52,000,000 Shares (less
the number of shares sold in the Bridge Offering) shall be offered for sale to
prospective investors in this Offering ("Prospective Investors") at a purchase
price of $0.15 per Share (the "Purchase Price") of the Company's common
stock, par value $.04 (the "Common Stock"). Officers, directors and
employees of the Company and the Placement Agent may purchase Shares on
the same terms and conditions as other investors (the "Affiliate Shares"). The
Affiliate Shares shall be included in determining whether the minimum and
maximum number of Shares have been subscribed for, and all references
herein to subscriptions from Prospective Investors shall be deemed to include
the Affiliate Shares.
(b) The Offering shall commence on the date hereof and shall
expire at 5:00 P.M., New York time, on June 30, 1998, unless extended from
time to time for up to an aggregate of 30 days by mutual agreement of the
Company and the Placement Agent. Such period, as the same may be so
extended, shall hereinafter be referred to as the "Offering Period".
(c) Each Prospective Investor who desires to purchase Shares
shall be required to deliver to the Placement Agent one copy of a subscription
agreement in the form annexed to the Memorandum (a "Subscription
Agreement"), including the investor questionnaire, and payment in the amount
necessary to purchase the number of Shares such Prospective Investor desires
to purchase. The Placement Agent shall not have any obligation to
independently verify the accuracy or completeness of any information
contained in any Subscription Agreement or the authenticity, sufficiency or
validity of any check or other form of payment delivered by any Prospective
Investor in payment for Shares.
(d) Pursuant to an Escrow Agreement, dated as of March 20,
1998 (the "Escrow Agreement"), the Placement Agent will establish a special
account with the United States Trust Company of New York (the "Escrow
Agent") entitled Access Pharmaceuticals, Inc. - Escrow Account (the "Special
Account"). The Placement Agent shall deliver each check received from a
Prospective Investor to the Escrow Agent for deposit in the Special Account
and shall deliver the executed copy of the Subscription Agreement received
from such Prospective Investor to the Company. The Company shall notify
the Placement Agent promptly of the acceptance or rejection of any
subscription. The Company shall not unreasonably reject any subscription.
(e) If subscriptions to purchase at least 18,666,667 Shares are not
received from Prospective Investors prior to the expiration of the Offering
Period and accepted by the Company, the Offering shall be canceled, all funds
received by the Escrow Agent on behalf of the Company shall be refunded in
full with interest, and this Agreement and the agency created hereby shall be
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terminated without any further obligation on the part of either party, except as
provided in Section 10 hereof.
(f) You may engage other persons selected by you to assist you
in the Offering (each such person being hereinafter referred to as a "Selected
Dealer") and you may allow such persons such part of the compensation
payable to you hereunder as you shall determine. Each Selected Dealer shall
be required to agree in writing to comply with the provisions of, and to make
the representations, warranties and covenants contained in Sections 5(b) and
6(b) hereof by executing a form of Selected Dealer Agreement attached hereto
as Exhibit I. On or prior to the Closing (as hereinafter defined), the
Placement Agent shall deliver a copy of each executed Selected Dealer
Agreement to the Company. By executing this Agreement, the Company
hereby agrees to make, and is deemed to make, the representations and
warranties to, and covenants and agreements with, each Selected Dealer
(including an agreement to indemnify such Selected Dealer under Section 9
hereof) who has executed the Selected Dealer Agreement as are contained in
this Agreement.
3. Closing.
(a) Subject to the conditions set forth in Section 8 hereof, if
subscriptions to purchase at least 18,666,667 Shares have been received prior
to the expiration of the Offering Period and accepted by the Company, the
initial closing under this Agreement (the "Closing") shall be held at the
offices of Squadron, Ellenoff, Plesent & Sheinfeld, LLP ("SEP&S"), 551 Fifth
Avenue, New York, New York, at 10:00 A.M., New York time, on the third
business day following the date upon which the Placement Agent receives
notice from the Company that subscriptions to purchase at least 18,666,667
Shares (including Affiliate Shares) have been so accepted or at such other
place, time and/or date as the Company and the Placement Agent shall agree
upon. The Company shall provide the notice required by the preceding
sentence as promptly as practicable. The date upon which the Closing is held
shall hereinafter be referred to as the "Closing Date."
(b) Subject to the conditions set forth in Section 8 hereof, if,
subsequent to the date the subscriptions referred to in Section 3(a) hereof are
received and accepted and prior to the expiration of the Offering Period,
additional subscriptions to purchase Shares are received from Prospective
Investors, which subscriptions are accepted by the Company, one or more
additional closings under this Agreement (each, an "Additional Closing") shall
be held at the offices of SEP&S at 10:00 A.M., New York time, on the third
business day following the date upon which the Placement Agent receives
notice from the Company that additional subscriptions have been so accepted,
or at such other place, time or date as the Company and the Placement Agent
shall agree upon. The Company shall notify the Placement Agent as promptly
as practicable whether any additional subscriptions so received have been
accepted. The date upon which any Additional Closing is held shall
hereinafter be referred to as an "Additional Closing Date."
Notwithstanding anything contained here into the contrary, in no event
shall the Company accept subscriptions to purchase in excess of 52,000,000
Shares (less the number of shares sold in the Bridge Offering) including
Affiliate Shares.
(c) At the Closing, or an Additional Closing, as the case may be,
the Company shall instruct the Escrow Agent to pay to the Placement Agent
at the Closing or an Additional Closing, from the funds deposited in the
Special Account in payment for the Shares, the amounts payable
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to the Placement Agent pursuant to Sections 4 and 7 of this Agreement.
Promptly after the Closing Date, or an Additional Closing Date, as the case
may be, the Company shall deliver to the purchasers of Shares certificates
representing the Shares to which they are entitled.
4. Compensation.
(a) If subscriptions to purchase at least 18,666,667 Shares
(including Affiliate Shares) are received from Prospective Investors prior to
the expiration of the Offering Period and accepted by the Company, you shall
be entitled, as compensation for your services as Placement Agent under this
Agreement, to an amount equal to 10% of the gross proceeds received by the
Company from the sale of the Shares. Such compensation is payable by the
Company on the Closing Date, or an Additional Closing Date, as the case may
be, with respect to the Shares sold on such date and may be paid, at the
Placement Agent's option, in part or in whole, in shares of the Common
Stock, valued at $.15 per share, net of commission, provided, however, that
any such shares of Common Stock shall not be included in the calculation of
the minimum or the maximum number of Shares offered for sale to
prospective investors in the Offering. Any such shares of Common Stock
issued pursuant to this paragraph shall be subject to the identical registration
rights granted pursuant to the Registration Rights Agreement (as defined
below) to investors in the Offering.
(b) If subscriptions to purchase at least 18,666,667 Shares
(including Affiliate Shares) have been received from Prospective Investors
prior to the expiration of the Offering Period and accepted by the Company,
the Company shall issue to you or, at your discretion, your Selected Dealers
or your designees, in addition to the amount set forth in Section 4(a) above,
warrants (the "Placement Agent Warrants") to purchase a number of Shares
of the Company equal to 10% of the aggregate number of Shares issued in the
Offering including Shares issued, if any, to the Placement Agent in satisfaction
of its selling commission or the non-accountable expense allowance. Each
Placement Agent Warrant will entitle the holder thereof for a five-year period
commencing on the first anniversary of the Closing Date or any Additional
Closing Date as the case may be, to purchase one share of Common Stock of
the Company at an exercise price equal to the Purchase Price per share (the
"Warrant Shares"). The Placement Agent Warrants shall be in the form
attached hereto as Exhibit II.
(c) Notwithstanding anything contained herein to the contrary, the
number of Shares upon which the commission provided for in Section 4(a) and
the Placement Agent Warrants described in Section 4(b) shall be based shall
include Shares with respect to which the Company unreasonably rejected
subscriptions.
(d) If the Offering is terminated by the Company (i) during the
Offering Period (provided you are actively pursuing the Offering during such
period), (ii) during the 30 day extension period (provided you are actively
pursuing the Offering during such period), or (iii) at the completion of the
Offering (provided that you shall have obtained offers to purchase at least the
required minimum), and within six months after such termination, the
Company completes the sale of any of its equity securities (including securities
convertible into equity securities) for cash, other than in connection with the
exercise of existing options, units, warrants, strategic alliances or pursuant
to a transaction incident to a sale of the Company, then in any such case, the
Company shall pay to you 13% of the gross sales price of such securities and
shall issue to you, on the terms
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set forth in Section 4, warrants to purchase 10% of the securities so sold at an
exercise price equal to the sales price per share.
(e) Notwithstanding anything herein to the contrary, all amounts
set forth in this Agreement are subject to adjustment for mergers,
recapitalizations, stock dividends and the like.
5. Representations and Warranties.
(a) Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Placement Agent and the
Selected Dealers that:
(i) The Memorandum, as supplemented or amended from time to
time, at all times during the period from the date hereof to and including the
later of the Closing Date and the expiration of the Offering Period, and the
last Additional Closing Date (if any), does not, and during such period will
not, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, all in light of the circumstances under which they were
made. Each contract, agreement, instrument, lease, license or other document
described in the Memorandum is accurately described therein in all material
respects.
(ii) No document provided by the Company to Prospective
Investors pursuant to Section 6(a)(vii) hereof, and no oral information provided
by the Company to Prospective Investors, contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Contracts to
which the Company is a party provided by the Company to Prospective
Investors shall not be deemed to contain any untrue statement of a material
fact or to omit to state any material fact if the contract so provided is a
true, correct and complete copy of such contract, as amended or modified through
the date it is so provided.
(iii) The Company has not, directly or indirectly, solicited any
offer to buy or offered to sell any Shares or any other securities of the
Company during the twelve-month period ending on the date hereof except as
may be described in the Memorandum or which would not be integrated with
the sale of the Shares in a manner that would require the registration of the
Offering pursuant to the Act and has no present intention to solicit any offer
to buy or offer to sell any Shares or any other securities of the Company other
than pursuant to this Agreement or pursuant to a registered public offering of
the Company's securities which may be commenced after the completion of
the Offering.
(iv) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, with
full power and authority, and all necessary consents, authorizations, approvals,
orders, licenses, certificates, and permits of and from, and declarations and
filings with (collectively, "Consents"), all federal, state, local, foreign, and
other governmental authorities and all courts and other tribunals, to own,
lease, license and use its properties and assets and to carry on its business in
the manner described in the Memorandum, except where the failure to have
obtained such Consents would not have a material adverse effect on the
Company and the Company has not received any notice of proceedings relating
to the revocation or modification of any such consent, authorization, approval,
order, license certificate,
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or permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding would result in a material adverse change in the
financial condition, results of operations, business, properties, assets,
liabilities or future prospects of the Company. The Company is duly qualified
to do business and is in good standing in every jurisdiction in which its
ownership, leasing, licensing or use of property and assets or the conduct of
its business makes such qualification necessary. The Company does not have any
subsidiaries, except as set forth in the Memorandum (the "Subsidiaries").
(v) Each of the Subsidiaries is a corporation duly organized,
validly existing, and in good standing under the laws of the respective
jurisdictions set forth in the Memorandum, with full power and authority, and
all necessary consents, authorizations, approvals, orders, licenses,
certificates, and permits of and from, and declarations and filings with, all
federal, state, local, foreign, and other governmental authorities and all
courts and other tribunals, to own, lease, license, and use its properties and
assets and to carry on its business in the manner described in the Memorandum.
Each of the Subsidiaries is duly qualified to do business and is in good
standing in every jurisdiction in which its ownership, leasing, licensing, or
use of property and assets or the conduct of its business makes such
qualification necessary.
(vi) The Company has, as of the date hereof, an authorized and
outstanding capitalization as set forth in the Memorandum (subject to
adjustment in connection with the 1-for-20 reverse stock split effected on the
date hereof). Each outstanding share of capital stock of the Company, and
each outstanding share of capital stock of each Subsidiary, is duly authorized,
validly issued, fully paid and nonassessable and has not been issued and is not
owned or held in violation of any preemptive rights set forth in the Company's
Certificate of Incorporation or By-laws, each as amended to date, or any
agreement to which the Company is a party and in the case of the Subsidiaries,
is owned of record and beneficially by the Company, free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts, except as may be described in the Memorandum.
There is no commitment, plan or arrangement to issue, and no outstanding
option, warrant or other right calling for the issuance of, any share of capital
stock of the Company or of any Subsidiary or any security or other instrument
which by its terms is convertible into, exercisable for or exchangeable for
shares of capital stock of the Company, except as may be described in the
Memorandum. There is outstanding no security or other instrument which by
its terms is convertible into or exchangeable for any class of shares of capital
stock of the Company or of any Subsidiary, except as may be described in the
Memorandum. The capital stock of the Company conforms to the description
thereof contained in the Memorandum.
(vii) The financial statements of the Company included in the
Memorandum (by incorporation by reference or otherwise) fairly present the
financial position, the results of operations, cash flows and the other
information purported to be shown therein at the respective dates and for the
respective periods to which they apply. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles consistently applied throughout the periods involved, are correct and
complete and are in accordance with the books and records of the Company.
There has at no time been a material adverse change in the financial condition,
results of operations, business, properties, assets, liabilities or future
prospects of the Company from the latest information set forth in the
Memorandum, except as may be described in such Memorandum as having occurred.
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(viii) There is no litigation, arbitration, governmental or other
proceeding (formal or informal) or claim or investigation pending or, to the
knowledge of the Company, threatened with respect to the Company, or any
of the Subsidiaries, or any of its or their operations, businesses, properties
or assets, except as may be described in the Memorandum or such as individually
or in the aggregate do not now have and will not in the future have a material
adverse effect upon the operations, business, properties or assets of the
Company and the Subsidiaries, taken as a whole. Neither the Company nor
any of its Subsidiaries is in violation of, or in default with respect to, any
law, rule, regulation, order, judgment or decree, except as may be described in
the Memorandum or such as in the aggregate do not now have and will not in the
future have a material adverse effect upon the operations, business, properties,
assets or future prospects of the Company and the Subsidiaries, taken as a
whole.
(ix) Any real property and buildings held under lease by the
Company or any of the Subsidiaries are held by it under valid, subsisting and
enforceable leases with such exceptions as in the aggregate are not material.
(x) Neither the Company, the Subsidiaries nor, to the knowledge
of the Company, any other party, is in violation or breach of or in default with
respect to, complying in any material respect with any contract, agreement,
instrument, lease, license, arrangement or understanding which is material to
the Company or any of the Subsidiaries, other than with respect to certain
payments to stockholders and creditors of Tacora Corporation as described in
the Memorandum, and each such contract, agreement, instrument, lease,
license, arrangement and understanding is in full force and effect and is the
legal, valid and binding obligation of the parties thereto enforceable as to
them in accordance with its terms (subject to applicable bankruptcy, insolvency
and other laws affecting the enforceability of creditors' rights generally and
to general equitable principles). Except as described in the Memorandum, the
Company and each of its Subsidiaries enjoys peaceful and undisturbed
possession under all real property leases under which it is operating. Neither
the Company, nor any of its Subsidiaries, is in violation or breach of, or in
default with respect to, any term of its Certificate of Incorporation or its By-
laws, each as amended to date.
(xi) There is no right under any patent, patent application,
trademark, trademark application, trade name, service mark, copyright,
franchise or other intangible property or asset (all of the foregoing being
herein called "Intangibles") necessary to the business of the Company or any
of the Subsidiaries as presently conducted or as the Memorandum indicates
they contemplate conducting, except as may be so designated in the
Memorandum and which the Company has the right or license to use as
necessary. To the Company's knowledge, except as described in the
Memorandum, neither the Company nor any of the Subsidiaries has infringed
nor is infringing with respect to Intangibles of others, and neither the
Company, nor any of its Subsidiaries, has received notice of infringement with
respect to asserted Intangibles of others. To the Company's knowledge,
except as described in the Memorandum, there is no Intangible of others which
has had or may in the future have a material adverse effect on the financial
condition, results of operations, business, properties, assets, liabilities or
future prospects of the Company or any of the Subsidiaries.
(xii) The Company has all requisite power and authority to
execute, deliver and perform this Agreement, the Subscription Agreements,
the Escrow Agreement, the Placement
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Agent Warrants and the Registration Rights Agreement made by the Company
for the benefit of purchasers of Shares (the "Registration Rights Agreement")
(collectively, the "Operative Agreements") and to consummate the transactions
contemplated by the Operative Agreements. All necessary corporate
proceedings of the Company have been duly taken to authorize the execution,
delivery and performance by the Company of the Operative Agreements. This
Agreement and the Escrow Agreement have been duly authorized, executed,
and delivered by the Company, are the legal, valid and binding obligations of
the Company and are enforceable as to the Company in accordance with their
terms (subject to applicable bankruptcy, insolvency and other laws affecting
the enforceability of creditors' rights generally and to general equitable
principles). The Subscription Agreements, the Placement Agent Warrants and
the Registration Rights Agreement have been duly authorized by the Company
and, when executed and delivered by the Company, will be the legal, valid and
binding obligations of the Company enforceable against it in accordance with
their respective terms (subject to applicable bankruptcy, insolvency and other
laws affecting the enforceability of creditors' rights generally and to general
equitable principles). No consent, authorization, approval, order, license,
certificate or permit of or from, or registration, qualification, declaration or
filing with, any federal, state, local, foreign or other governmental authority
or any court or other tribunal is required by the Company for the execution,
delivery or performance by the Company of the Operative Agreements or the
consummation of the transactions contemplated by the Operative Agreements,
except (A) the filing of a Notice of Sales of Securities on Form D pursuant to
Regulation D, (B) such consents, authorizations, approvals, registrations and
qualifications as may be required under securities or "blue sky" laws in
connection with the issuance, sale and delivery of the Shares and Placement
Agent Warrants pursuant to this Agreement and the Warrant Shares and Shares
underlying the Placement Agent Warrants upon exercise of the Placement
Agent Warrants and (C) the filing of a registration statement on Form S-3 and
any necessary consents, authorizations and approvals thereunder pursuant to
the Registration Rights Agreement. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement or understanding to which
the Company is a party or to which any of their properties or assets are
subject is required for the execution, delivery or performance of the Operative
Agreements or the consummation of the transactions contemplated by the
Operative Agreements, which has not been or will not be obtained prior to the
Closing or any Additional Closings and the execution, delivery and
performance of the Operative Agreements, and the consummation of the
transactions contemplated by the Operative Agreements, will not violate, result
in a breach of, conflict with or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate, call a default or
receive any right under any such contract, agreement, instrument, lease,
license, arrangement or understanding (except for any such violation,
breach or conflict which has been properly waived thereunder),
violate or result in a breach of
any term of the Company's Certificate of Incorporation or By-laws, each as
amended to date, or violate, result in a breach of or conflict with any law,
rule, regulation, order, judgment or decree binding on the Company or any of
the Subsidiaries, or to which any of its operations, businesses, properties or
assets are subject.
(xiii) The Shares, the Placement Agent Warrants and the Warrant
Shares conform to all statements relating thereto contained in the
Memorandum. The Shares, when issued and delivered to the subscribers
therefor, pursuant to the terms of this Agreement and the Subscription
Agreements, and the Warrant Shares, when issued and delivered pursuant to
the terms of the Placement Agent Warrants, shall be duly authorized, validly
issued, fully paid and nonassessable and shall not have been issued in violation
of any preemptive rights set forth in the Company's
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Certificate of Incorporation or By-laws, each as amended to date, or any
agreement to which the Company is a party.
(xiv) Subsequent to the dates as of which information is given in
the Memorandum, and except as may otherwise be properly described in the
Memorandum, (A) neither the Company nor any Subsidiary had, except in the
ordinary course of business, incurred any liability or obligation, primary or
contingent, for borrowed money, (B) there has not been any material change
in the capital stock, short-term debt or long-term debt of the Company or any
Subsidiary, (C) neither the Company nor any Subsidiary had entered into any
transaction not in the ordinary course of business, (D) the Company has not
purchased any of its outstanding capital stock nor declared or paid any
dividend or distribution of any kind on its capital stock, (E) neither the
Company nor any Subsidiary had sustained any material loss or interference
with its businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or
any legal or governmental proceeding or (F) there has not been any material
adverse change, or any development which the Company reasonably believes
could result in a prospective material adverse change, in the financial
condition results of operations, business, properties, assets, liabilities or
future prospects of the Company and the Subsidiaries taken as a whole, except
in each case as described in or contemplated by the Memorandum.
(xv) Neither the Company nor, to the knowledge of the Company,
any of its affiliates has, directly or through any agent, sold, offered for sale
or solicited offers to buy, nor will any of the foregoing directly buy (other
than pursuant to the Offering) any security of the Company, as defined in the
Act, which is or will be integrated with the sale of the Shares, the Placement
Agent Warrants or the Warrant Shares in a manner that would require the
registration, pursuant to the Act, of the Offering.
(xvi) Neither the Company nor, to the knowledge of the Company,
any of its affiliates has, directly or indirectly, taken any action designed to
cause or to result in, or that has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares or sold,
bid for, purchased, or paid anyone any compensation for soliciting purchases
of, the Shares.
(xvii) The Company and each of its Subsidiaries has good and
marketable title to all real and personal property owned by it, in each case
free and clear of any security interests, liens, encumbrances, equities, claims
and other defects, except such as do not materially and adversely affect the
value of such property and do not interfere with the use made or proposed to be
made of such property by the Company or any of the Subsidiaries, and any
real property and buildings held under lease by the Company are held under
valid, subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made or proposed to be made of
such property and buildings by the Company or any of the Subsidiaries, in
each case except as described in or contemplated by the Memorandum.
(xviii) No labor dispute with the employees of the Company or any
of the Subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the financial condition, results of operations,
business, properties, assets, liabilities or future
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prospects of the Company and the Subsidiaries taken as a whole, except as
described in or contemplated by the Memorandum.
(xix) The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; the Company has not been refused any insurance coverage sought or
applied for; and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from insurers of recognized financial
responsibility as may be necessary to continue its business at a cost that would
not materially and adversely affect the financial condition results of
operations, business, properties, assets, liabilities or future prospects of
the Company and the Subsidiaries taken as a whole, except as described in or
contemplated by the Memorandum.
(xx) The Company and the Subsidiaries taken as a whole have
filed all foreign, federal, state and local tax returns that are required to
be filed or has requested extensions thereof (except in any case in which the
failure so to file would not have a material adverse affect on the Company
and the Subsidiaries taken as a whole); and has paid all taxes required to be
paid by it and any other assessment, fine or penalty levied against it to the
extent that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good faith
or as described in or contemplated by the Memorandum.
(xxi) To the Company's knowledge, neither the Company nor any
Subsidiary is in violation of any federal or state law or regulation relating to
occupational safety and health or to the storage, handling or transportation of
hazardous or toxic materials and the Company and each Subsidiary have
received all permits, licenses or other approvals required of it under
applicable
federal and state occupational safety and health and environmental laws and
regulations to conduct their business, and the Company and each Subsidiary
is in compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, result in a material adverse change in the financial
condition, results of operations, business, properties, assets, liabilities or
future prospects of the Company, except as described in or contemplated by
the Memorandum.
(xxii) The Company and its Subsidiaries maintain 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.
(xxiii) The Company has timely filed all reports as required under
the Securities Exchange Act of 1934 (the "Exchange Act") and such reports,
as of their respective dates, did not contain any untrue statement of a material
fact or omit to state any material fact required to be
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stated therein or necessary to make the statements therein not misleading, all
in light of the circumstances under which they were made.
(b) Representations and Warranties of the Placement Agent and
Selected Dealers. The Placement Agent, and each Selected Dealer that the
Placement Agent may from time to time appoint, by signing the Selected
Dealer Agreement, hereby represent and warrant to, and agree with, the
Company and each other as to themselves only as follows:
(i) Neither the Placement Agent nor any Selected Dealer will
offer or sell any Shares to any investor which the Placement Agent or such
Selected Dealer did not have reasonable grounds to believe and did not believe,
was an "accredited investor".
(ii) Neither the Placement Agent nor any Selected Dealer will
offer or sell any Shares by means of any form of general solicitation or general
advertising, including, without limitation, the following:
(A) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar medium or broadcast over
television or radio; and
(B) any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
(iii) The Placement Agent and each Selected Dealer is a member
in good standing of the National Association of Securities Dealers, Inc. or a
registered representative thereof.
(iv) The representations and warranties contained in the
Certificate of Selected Dealer attached to the form of Selected Dealer
Agreement are true and correct as to the Selected Dealer which executed such
Certificate and are true and correct as to the Placement Agent as if it had
executed such a certificate.
(v) Each of the Placement Agent and each Selected Dealer has all
requisite power and authority to execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby. All necessary
corporate proceedings of the Placement Agent and each Selected Dealer have
been duly taken to authorize the execution, delivery and performance by the
Placement Agent and each Selected Dealer of this Agreement. This
Agreement has been duly authorized, executed, and delivered by the Placement
Agent and each Selected Dealer and is the legal, valid and binding obligation
of the Placement Agent and each Selected Dealer in accordance with its terms
(subject to applicable bankruptcy, insolvency and other laws affecting the
enforceability of creditors' rights generally and to general equitable
principles).
6. Covenants.
(a) Covenants of the Company. The Company covenants to the
Placement Agent and each Selected Dealer that it will:
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(i) Notify you immediately, and confirm such notice promptly in
writing, (A) when any event shall have occurred during the period
commencing on the date hereof and ending on the later of the Closing Date,
the expiration of the Offering Period and the last Additional Closing Date (if
any) as a result of which the Memorandum would include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (B) of
the receipt of any notification with respect to the modification, rescission,
withdrawal or suspension of the qualification or registration of the Shares or
of an exemption from such registration or qualification in any jurisdiction.
The Company will use its best efforts to prevent the issuance of any such
modification, rescission, withdrawal or suspension and, if any such
modification, rescission, withdrawal or suspension is issued and you so
request, to obtain the lifting thereof as promptly as possible.
(ii) Not supplement or amend the Memorandum unless you shall
have approved of such supplement or amendment in writing. If, at any time
during the period commencing on the date hereof and ending on the later of
the Closing Date, the expiration of the Offering Period or the last Additional
Closing Date (if any), any event shall have occurred as a result of which the
Memorandum contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or if, in the opinion of counsel to the
Company or counsel to the Placement Agent, it is necessary at any time to
supplement or amend the Memorandum to comply with the Act, Regulation D
or any applicable securities or "blue sky" laws, the Company will promptly
prepare an appropriate supplement or amendment (in form and substance
satisfactory to you) which will correct such statement or omission or which
will effect such compliance.
(iii) Deliver without charge to the Placement Agent such number
of copies of the Memorandum and any supplement or amendment thereto as
may reasonably be requested by the Placement Agent.
(iv) Not, directly or indirectly, solicit any offer to buy from,
or offer to sell to any person any Shares except through the Placement Agent.
(v) Not solicit any offer to buy or offer to sell Shares by any
form of general solicitation or advertising, including, without limitation, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio
or any seminar or meeting whose attendees have been invited by any general
solicitation or advertising.
(vi) Use its best efforts to qualify or register the Shares for
offering and sale under, or establish an exemption from such qualification or
registration under, the securities or "blue sky" laws of such jurisdictions as
you may reasonably request. The Company will not consummate any sale of
Shares in any jurisdiction or in any manner in which such sale may not be
lawfully made.
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(vii) At all times during the period commencing on the date hereof
and ending on the later of the Closing Date, the expiration of the Offering
Period and the last Additional Closing Date (if any), provide to each
Prospective Investor or his purchaser representative, if any, on request, such
information (in addition to that contained in the Memorandum) concerning the
Offering, the Company and any other relevant matters as it possesses or can
acquire without unreasonable effort or expense and extend to each Prospective
Investor or his purchaser representative, if any, the opportunity to ask
questions of, and receive answers from, the Company concerning the terms
and conditions of the Offering and the business of the Company and to obtain
any other additional information, to the extent it possesses the same or can
acquire it without unreasonable effort or expense, as such Prospective Investor
or purchaser representative may consider necessary in making an informed
investment decision or in order to verify the accuracy of the information
furnished to such Prospective Investor or purchaser representative, as the case
may be.
(viii) Before accepting any subscription to purchase Shares from,
or making any sale to, any Prospective Investor, have reasonable grounds to
believe and actually believe that (A) such Prospective Investor meets the
suitability requirements for investing in the Shares set forth in the
Memorandum and (B) such Prospective Investor is an accredited investor.
(ix) Notify you promptly of the acceptance or rejection of any
subscription. The Company shall not unreasonably reject any subscription for
Shares unless it pays the Placement Agent its compensation pursuant to Section
4 with respect thereto. Any subscription unreasonably rejected shall be
deemed to have been accepted for purposes of determining whether at least
18,666,667 Shares (including Affiliate Shares) have been sold solely for the
purpose of determining whether the Placement Agent is entitled to its
compensation pursuant to Section 4 hereof and this subsection (ix).
(x) File five (5) copies of a Notice of Sales of Securities on
Form D with the Securities and Exchange Commission (the "Commission") no later
than 15 days after the first sale of the Shares. The Company shall file
promptly such amendments to such Notices on Form D as shall become
necessary and shall also comply with any filing requirement imposed by the
laws of any state or jurisdiction in which offers and sales are made. The
Company shall furnish you with copies of all such filings.
(xi) Place the following legend on all certificates representing
the Shares and the Placement Agent Warrants:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended or any state securities laws and neither the
securities nor any interest therein may be offered, sold, transferred, pledged
or otherwise disposed of except pursuant to an effective registration statement
under such act or such laws or an exemption from registration under such act
and such laws which, in the opinion of counsel for the holder, which counsel
and opinion are reasonably satisfactory to counsel for this corporation, is
available."
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(xii) Not, directly or indirectly, engage in any act or activity
which may jeopardize the status of the offering and sale of the Shares as exempt
transactions under the Act or under the securities or "blue sky" laws of any
jurisdiction in which the Offering may be made. Without limiting the
generality of the foregoing, and notwithstanding anything contained herein to
the contrary, the Company shall not, during the six (6) months following
completion of the Offering, (A) directly or indirectly, engage in any offering
of securities which, if integrated with the Offering in the manner prescribed
by Rule 502(a) of Regulation D and applicable releases of the Commission,
may jeopardize the status of the Offering and sale of the Shares as exempt
transactions under Regulation D or (B) engage in any offering of securities,
without the opinion of counsel reasonably satisfactory to the Placement Agent,
to the effect that such offering would not result in integration with this
Offering, or if integration would so result, that such integration would not
jeopardize the status of this Offering as an exempt transaction under
Regulation D.
(xiii) Apply the net proceeds from the sale of the Shares for the
purposes set forth under the caption "Use of Proceeds" in the Memorandum
in substantially the manner indicated thereunder.
(xiv) Not, during the period commencing on the date hereof and
ending on the later of the Closing Date, the expiration of the Offering Period
and the last Additional Closing Date (if any), issue any press release or other
communication or hold any press conference with respect to the Company, its
financial condition, results of operations, business, properties, assets,
liabilities or future prospects or the Offering, without your prior written
consent.
(xv) Not, for a period of 24 months from the effective date (the
"Effective Date") on which the registration statement pursuant to which the
Shares and Warrant Shares sold in the Offering are registered, as the same
may be amended from time to time shall have been declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, without your prior written consent, offer, issue, sell, contract to
sell, grant any option for the sale of or otherwise dispose of, directly or
indirectly, any shares of Common Stock (or any security or other instrument
which by its terms is convertible into, exercisable for, or exchangeable for
shares of Common Stock), and not engage in any offering under Regulation
S for a 30 month period regardless of the sales price without your prior
written consent. Notwithstanding the foregoing, the Company will be able to
sell, transfer or dispose of (A) the securities issuable under this Agreement,
(B) shares of Common Stock issuable upon the exercise of stock options under
any stock option plan of the Company, warrants and other commitments, each
of which are outstanding on the date hereof and which are described in the
Memorandum, (C) options granted after the date hereof under existing stock
option plans, provided that the shares underlying the options granted to certain
officers and directors of the Company are subject to the lock-up provided in
Section 8(g) hereof , (D) securities disposed of in strategic alliances and (E)
shares of Common Stock sold at a price at or over $8.00 per share (based on
the current capitalization and to be adjusted for stock splits). Additionally,
for a period of 24 months after the date hereof the Company will not, without
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your prior written consent, change any terms of the Company's outstanding
stock options or warrants.
(xvi) For a period of five years after the date hereof, furnish
you, without charge, the following:
(A) within 90 days after the end of each fiscal year, three (3)
copies of financial statements certified by independent certified public
accountants,
including a balance sheet, statement of income and statement of cash flows of
the Company and its then existing subsidiaries, with supporting schedules,
prepared in accordance with generally accepted accounting principles,
as at the end of such fiscal year and for the 12 months then ended, which may
be on a consolidated basis, copies of which financial statements shall also be
furnished to the purchasers in this Offering and, within 45 days after the end
of each fiscal quarter, three (3) copies of unaudited interim financial
statements, as at the end of such quarter and for the three (3) months then
ended;
(B) as soon as practicable after they have been sent to stockholders
of the Company or filed with the Commission, three (3) copies of each annual
and interim financial and other report or communication sent by the Company
to its stockholders or filed with the Commission; and
(C) as soon as practicable, two copies of every press release and
every material news item and article in respect of the Company or its affairs
which was released by the Company.
(xvii) Comply in all respects with its obligations under the
Operative Agreements.
(xviii) Not, prior to the completion of the Offering, bid for,
purchase, attempt to induce others to purchase, or sell, directly or indirectly,
any Shares or any other securities of the Company of the same class and series
as the Shares in violation of the provisions of Regulation M under the
Exchange Act.
(xix) Not, for a period of eighteen (18) months from the date
hereof, solicit any offer to buy from or offer to sell (except in an
underwritten public offering) to any person introduced to the
Company by you in connection
with the Offering, who is not a stockholder of the Company at the time of
such solicitation, directly or indirectly, any securities of the Company or of
any other entity, or provide the name of any such person to any other
securities broker or dealer or selling agent, except as otherwise required by
law. In the event that the Company or any of its officers, directors or
affiliates, directly or indirectly, solicits offers to buy from or offers to
sell to any such person any such securities or provides the name of any such
person to any other securities broker or dealer or selling agent, and such
person purchases such securities or
purchases securities from any such other securities
broker or dealer or selling agent within such eighteen month period except in
connection with an underwritten public offering, the Company shall pay to the
Placement Agent an amount equal to 10% of the aggregate purchase price of
the securities so purchased by such person. Set forth on Schedule A hereto
is a list of persons and entities introduced to the Company by the Placement
Agent.
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(xx) Use its best efforts to cause a 20 to 1 reverse stock split
of its Common Stock within one year from the date hereof.
(xxi) Use its best efforts to secure the inclusion of the Common
Stock on Nasdaq as soon as it meets the qualification requirements.
(xxii) For a period of three years from the Closing Date, the
Placement Agent shall have the right to designate one individual for election
to the Company's Board of Directors and if the Placement Agent exercises
such right, the Company shall use its best efforts to cause such individual to
be elected. In addition, in the event the Placement Agent does not exercise
such right, the Company shall permit a representative of the Placement Agent
to attend and observe all Board of Directors meetings. In both events, the
Company shall reimburse the Placement Agent for the travel costs and
expenses incurred in attending such Board of Directors meetings, including,
but not limited to, a round-trip airline ticket and hotel accommodations, if
needed.
(xxiii) Not, for a period of 36 months from the Closing Date,
without your prior written consent, offer, sell, contract to sell, grant an
option for the sale of or otherwise dispose of, directly or indirectly, any
security which converts at a rate which is not fixed at the time of the
issuance thereof, including, without limitation, any floating rate
convertible preferred stock.
(b) Covenants of the Placement Agent and Selected Dealers.
(i) Neither the Placement Agent nor any Selected Dealer, by
signing the Selected Dealer Agreement, will accept the subscription of any
person unless immediately before accepting such subscription the Placement
Agent or such Selected Dealer has reasonable grounds to believe and does
believe that (A) such person is an accredited investor and (B) all
representations made and information furnished by such person in the
Subscription Agreement and related documents are true and correct in all
material respects. The Placement Agent and Selected Dealers agree to notify
the Company promptly if the Placement Agent or a Selected Dealer, as
applicable, shall, at any time during the period after delivery of the documents
furnished by such person to the Company in connection with subscription for
Shares and immediately before the sale of Shares to such person, no longer
reasonably believe one or more of the foregoing matters with respect to such
person.
(ii) Neither the Placement Agent nor any Selected Dealer will
solicit purchasers of Shares other than in the jurisdictions in which such
solicitation may, upon the advice of counsel, be made under applicable
securities or "blue sky" laws and in which the Placement Agent or such
Selected Dealer, as the case may be, is qualified so to act.
(iii) Neither the Placement Agent nor any Selected Dealer will
sell any Shares to any investor unless a Memorandum is furnished to such
investor within a reasonable time prior thereto.
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(iv) Upon notice from the Company that the Memorandum is to
be amended or supplemented (which the Company will promptly give upon
becoming aware of any untrue statement of a material fact required to be
stated in the Memorandum or omission to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading), the Placement Agent and each Selected
Dealer, if any, will immediately cease use of the Memorandum until the
Placement Agent and such Selected Dealers have received such amendment or
supplement and thereafter will make use of the Memorandum only as so
amended or supplemented, and the Placement Agent and each Selected Dealer,
if any, will deliver a copy of such amendment or supplement to each
Prospective Investor to whom a copy of the Memorandum had previously been
delivered (and who had not returned such copy) and whose subscription had
not been rejected.
7. Payment of Expenses.
(a) The Company hereby agrees to pay all fees, charges and
expenses of the Offering, including, without limitation, all fees, charges, and
expenses in connection with (i) the preparation, printing, reproduction, filing,
distribution and mailing of the Memorandum, and all other documents relating
to the offering, purchase, sale and delivery of the Shares, and any supplements
or amendments thereto, including the fees and expenses of counsel to the
Company, and the cost of all copies thereof, (ii) the issuance, sale, transfer
and delivery of the Shares and the Placement Agent Warrants, including any
transfer or other taxes payable thereon and the fees of any Transfer Agent,
Warrant Agent or Registrar, (iii) the registration or qualification of the
Shares or the securing of an exemption therefrom under state or foreign "blue
sky" or securities laws, including, without limitation, filing fees payable in
the jurisdictions in which such registration or qualification or exemption
therefrom is sought, the costs of preparing preliminary, supplemental and final
"Blue Sky Surveys" relating to the offer and sale of the Shares and the fees
and disbursements of counsel actually incurred to the Placement Agent in
connection with such "blue sky" matters, (iv) the filing fees, if any, payable
to the Commission; and (v) the retention of the Escrow Agent, including the
fees and expenses of the Escrow Agent for serving as such and the fees and
expenses of its counsel.
(b) If subscriptions to purchase at least 18,666,667 shares
(including the Affiliate Shares) are received prior to the expiration of the
Offering Period and accepted by the Company, the Company shall pay to the
Placement Agent a non-accountable expense allowance equal to 3% of the
gross proceeds. Such amounts (less amounts, if any, previously paid to you
in respect of such non-accountable expense allowance) shall be paid by the
Company out of the funds received from the sale of the Shares or, at the
Placement Agent's option, in part or in whole, in shares of Common Stock
valued at $.15 per share, net of commission. Any such shares of Common
Stock issued pursuant to this paragraph shall be entitled to the identical
registration rights granted pursuant to the Registration Rights Agreement to
investors in the Offering.
(c) If subscriptions to purchase at least 18,666,667 shares
(including the Affiliate Shares) are not received prior to the expiration of the
Offering Period or if this Agreement is terminated by the Placement Agent
pursuant to Section 8 hereof prior to the issuance, sale
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and delivery of any Shares, the Company shall reimburse the Placement Agent
for its reasonable out-of-pocket expense hereunder (including, without
limitation, the reasonable fees and expenses of counsel) and pay any
compensation due with respect to unreasonably rejected subscriptions.
8. Conditions of Placement Agent's Obligations. The obligations
of the Placement Agent pursuant to this Agreement shall be subject, in its
discretion, to the continuing accuracy of the representations and warranties of
the Company contained herein and in each certificate and document
contemplated under this Agreement to be delivered to the Placement Agent,
as of the date hereof and as of the Closing Date (and, if applicable, each
Additional Closing Date) to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) At the Closing and each Additional Closing, as the case may
be, the Placement Agent shall have received the favorable opinion of Bingham
Dana LLP, counsel for the Company, and the opinion of patent counsels for
the Company, dated the date of delivery, addressed to the Placement Agent,
in substantially the form of Exhibit III-1 and Exhibit III-2 hereto,
respectively.
(b) On or prior to the Closing Date and each Additional Closing
Date, as the case may be, the Placement Agent shall have been furnished such
information, documents and certificates as it may reasonably require for the
purpose of enabling it to review the matters referred to in this Section 8 and
in order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties, covenants, agreements or conditions herein
contained, or as it may otherwise reasonably request.
(c) At the Closing and each Additional Closing, as the case may
be, the Placement Agent shall have received a certificate of the chief executive
officer and of the chief financial officer of the Company, dated the Closing
Date or such Additional Closing Date, as the case may be, to the effect that,
as of the date of this Agreement and as of the Closing Date or such Additional
Closing Date, as the case may be, the representations and warranties of the
Company contained herein were and are accurate, and that as of the Closing
Date or such Additional Closing Date, as the case may be, the obligations to
be performed by the Company hereunder on or prior thereto have been fully
performed.
(d) All proceedings taken in connection with the issuance, sale
and delivery of the Shares shall be reasonably satisfactory in form and
substance to you and your counsel.
(e) There shall not have occurred, at any time prior to the
Closing or, if applicable, an Additional Closing, as the case may be, (i) any
domestic or international event, act or occurrence which has materially
disrupted, or in
your reasonable opinion will in the immediate future materially disrupt, the
securities markets; (ii) a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market; (iii) any outbreak
of major hostilities or other national or international calamity affecting
securities markets in the United States; (iv) any banking moratorium declared
by a state or federal authority; (v) any moratorium declared in foreign
exchange trading by major international banks or other persons; (vi) any
material interruption in the mail service or other means of communication
within the United States; (vii) any material
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adverse change in the business, properties, assets, results of operations or
financial condition of the Company; or (viii) any change in the market for
securities in general or in political, financial or economic conditions which,
in your reasonable business judgment, makes it inadvisable to proceed with the
offering, sale and delivery of the Shares.
(f) The Placement Agent shall have received an agreement
reflecting the provisions of Section 6(a)(xv) hereof.
(g) The Placement Agent shall have received from certain officers
or directors of the Company agreements to the effect that such officers and
directors will not, without the Placement Agent's prior written consent, offer
to acquire or sell, issue, acquire or sell, contract to acquire or sell, grant
any option for the acquisition or sale of or otherwise acquire or dispose of,
directly or indirectly, any shares of Common Stock (or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock) for a period of 24 months from
the effective date of a Registration Statement for the resale of the Shares.
This paragraph shall not be applicable to the Escrow Agent or to an officer or
director who has terminated service to the Company.
Any certificate or other document signed by any officer of the
Company on behalf of the Company and delivered to you or to your counsel
as required hereunder shall be deemed a representation and warranty by the
Company hereunder as to the statements made therein. If any condition to
your obligations hereunder has not been fulfilled as and when required to be
so fulfilled, you may terminate this Agreement or, if you so elect, in writing
waive any such conditions which have not been fulfilled or extend the time for
their fulfillment. In the event that you elect to terminate this Agreement, you
shall notify the Company of such election in writing. Upon such termination,
neither party shall have any further liability or obligation to the other except
as provided in Section 10 hereof.
9. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Placement Agent, the Selected Dealers, their officers, directors, stockholders,
employees, agents, advisors, consultants and counsel, and each person, if any,
who controls the Placement Agent or a Selected Dealer within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), against any and all loss, liability, claim,
damage and expense whatsoever (which shall include, for all purposes of this
Section 9, without limitation, attorneys' fees and any and all reasonable
expenses whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever and any and
all amounts paid in settlement of any claim or litigation) as and when incurred
arising out of, based upon or in connection with (i) any untrue statement or
alleged untrue statement of a material fact contained in (A) the Memorandum
or in any document delivered or statement made pursuant to Section 6(a)(vii),
or (B) in any application or other document or communication (in this Section
9 collectively called an "application") executed by or on behalf of the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to
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register or qualify the Shares under the "blue sky" or securities laws thereof
or in order to secure an exemption from such registration or qualification or
filed with the Commission; or any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, all in light of the circumstances in which made, unless
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company as stated in Section 9(b) with
respect to the Placement Agent expressly for inclusion in the Memorandum or
in any application, as the case may be; or (ii) any breach of any
representation, warranty, covenant or agreement of the Company contained in
this Agreement or any Operative Agreement. The foregoing agreement to
indemnify shall be in addition to any liability the Company may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against the Placement Agent, a Selected
Dealer or any of their officers, directors, stockholders, employees, agents,
advisors, consultants and counsel, or any controlling persons of the Placement
Agent or a Selected Dealer (an "indemnified party"), in respect of which
indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the
Company (the "indemnifying party") in writing of the institution of such action
(but the failure so to notify shall not relieve the indemnifying party from any
liability it may have other than pursuant to this
Section 9(a) unless such failure materially prejudices
the indemnifying party), and the indemnifying party shall
promptly assume the defense of such action, including the employment of one
counsel (reasonably satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party 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 such indemnified party unless the employment of
such counsel shall have been authorized in writing by the indemnifying party
in connection with the defense of such action or the indemnifying party shall
not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available
to one or more of the indemnifying parties and it would be inappropriate for
the same counsel to represent both parties due to actual or potential differing
interests between them, in any of which events such fees and expenses shall
be borne by the indemnifying party and the indemnifying party shall not have
the right to direct the defense of such action on
behalf of the indemnified party or parties. Anything
in this paragraph to the contrary notwithstanding, the
indemnifying party shall not be liable for any settlement of any such claim or
action effected without its written consent. The Company agrees promptly to
notify the Placement Agent of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the sale of the Shares, the Memorandum or any application.
(b) The Placement Agent agrees to indemnify and hold harmless
the Company, its officers, directors, employees, agents and counsel, and each
other person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to the Placement Agent in Section
9(a), but only with respect to statements or omissions, if any, made in the
Memorandum in reliance upon and in conformity with written information
furnished to the Company as stated in this Section 9(b)
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with respect to the Placement Agent expressly for inclusion in the
Memorandum. If any action shall be brought against the Company or any
other person so indemnified based on the Memorandum and in respect of
which indemnity may be sought against the Placement Agent pursuant to this
Section 9(b), the Placement Agent shall have the rights and duties given to the
indemnifying party, and the Company and each other person so indemnified
shall have the rights and duties given to the indemnified parties, by the
provisions of Section 9(a). The foregoing agreement to indemnify shall be in
addition to any liability the Placement Agent may otherwise have, including
liabilities arising under this Agreement.
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 9(a)
or 9(b) but it is found in a final judicial determination, not subject to
further appeal, that such indemnification may not be enforced in such case, even
though this Agreement expressly provides for indemnification in such case, or
(ii) any indemnified or indemnifying party seeks contribution under the Act,
the Exchange Act, or otherwise, then the Company (including for this purpose
any contribution made by or on behalf of any officer, director, employee,
agent or counsel of the Company or any controlling person of the Company),
on the one hand, and the Placement Agent and the Selected Dealers (including
for this purpose any contribution by or on behalf of an indemnified party), on
the other hand, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, in such proportions
as are appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Placement Agent and the Selected Dealers, on the other
hand; provided, however, that if applicable law does not permit such
allocation, then other relevant equitable considerations such as the relative
fault of the Company and the Placement Agent and the Selected Dealers in
connection with the facts which resulted in such losses, liabilities, claims,
damages and expenses shall also be considered. The relative benefits received
by the Company, on the one hand, and the Placement Agent and the Selected
Dealers, on the other hand, shall be deemed to be in the same proportion as
(x) the total proceeds from the Offering (net of compensation payable to the
Placement Agent pursuant to Section 4 hereof but before deducting expenses)
received by the Company, and (y) the compensation received by the Placement
Agent pursuant to Section 4 hereof or, in the case of a Selected Dealer, the
allowance paid to such Selected Dealer.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission or alleged
omission relates to information supplied by the Company or by the Placement
Agent and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged statement, omission
or alleged omission. The Company and the Placement Agent agree that it
would be unjust and inequitable if the respective obligations of the Company
and the Placement Agent and the Selected Dealers for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
9(c). In no case shall the Placement Agent or a Selected Dealer be
responsible for a portion of the contribution obligation in excess of the
compensation received by it pursuant to Section 4 hereof or the Selected
Dealer Agreement, as the case may be, less the aggregate amount of any
damages that such Placement Agent or Selected Dealer has
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otherwise been required to pay in respect of the same or any substantially
similar claim. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 9(c), each person, if any, who controls the Placement Agent or
a Selected Dealer within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, stockholder, employee, agent
and counsel of the Placement Agent and the Selected Dealers shall have the
same rights to contribution as the Placement Agent or the Selected Dealer, and
each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and each officer, director,
employee, agent and counsel of the Company shall have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 9(c). Anything in this Section 9(c) to the contrary notwithstanding, no
party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 9(c) is
intended to supersede any right to contribution under the Act, the Exchange
Act or otherwise.
10. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants and
agreements at the Closing Date and, if applicable, each Additional Closing
Date, and such representations, warranties, covenants and agreements,
including the indemnity and contribution agreements contained in Section 9,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Placement Agent or any indemnified
person, or by or on behalf of the Company or any person or entity which is
entitled to be indemnified under Section 9(b), and shall survive termination of
this Agreement or the issuance, sale and delivery of the Shares. In addition,
notwithstanding any election hereunder or any termination of this Agreement,
and whether or not the terms of this Agreement are otherwise carried out, the
provisions of Sections 6(a)(xvii), 7, 9, 10 and 12 shall survive termination of
this Agreement and shall not be affected in any way by such election or
termination or failure to carry out the terms of this Agreement or any part
thereof.
11. Notices. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to the
Placement Agent, shall be mailed, delivered or telexed or telegraphed and
confirmed by letter, to its address set forth above, with a copy to Kenneth R.
Koch, Esq. At Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth
Avenue, New York, New York 10176 or if sent to the Company, shall be
mailed, delivered or telexed or telegraphed and confirmed by letter, to Access
Pharmaceuticals, Inc., 2600 Stemmons Freeway, Suite 176, Dallas, Texas
75207, with a copy to Jack Concannon, Esq. At Bingham Dana LLP, 150
Federal Street, Boston, Massachusetts 02110. All notices hereunder shall be
effective upon receipt by the party to which it is addressed.
12. Assignment. This Agreement shall not be assigned by any
party hereto without the prior written consent of the other parties hereto.
13. Parties. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Placement Agent and the Company and the
persons and entities referred to in Section 9
22
<PAGE>
who are entitled to indemnification or contribution and their respective
successors, legal representatives and assigns (which shall not include any
purchaser, as such, of Shares), and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of or
by virtue of this Agreement or any provision herein contained.
14. Construction. This Agreement shall be construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws.
15. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
16. Entire Agreement. This Agreement, including the Exhibits
attached hereto, constitutes the entire agreement between the parties hereto and
supersedes all previous negotiations, agreements and commitments with respect
thereto, and may only be amended by a written document, signed by duly
authorized officers or representatives of each of the parties hereto.
17. Option to Terminate Agreement. The Placement Agent shall
have the option to terminate this Agreement in the event that the Memorandum
is not satisfactory to the Placement Agent in its sole discretion.
23
<PAGE>
If the foregoing correctly sets forth the understanding between us,
please so indicate in the space provided below for that purpose, whereupon
this letter shall constitute a binding agreement among us.
Very truly yours,
ACCESS PHARMACEUTICALS, INC.
By: /s/ Kerry P. Gray
--------------------
Kerry P. Gray
President
Accepted as of the date first above written.
New York, New York
SUNRISE SECURITIES CORP.
By: /s/ Alan Swerdloff
--------------------
Alan Swerdloff
Vice President
24
<PAGE>
Schedule A
None
25
ACCESS PHARMACEUTICALS, INC.
REGISTRATION RIGHTS AGREEMENT
for 1998 Bridge Offering and Private Placement
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
by Access Pharmaceuticals, Inc., a corporation formed under the laws of the
State of Delaware (the "Company"), for the benefit of the investors listed on
Schedule I hereto (collectively, the "Investors" and, individually, an
"Investor").
RECITALS
A. The Investors desire to purchase from the Company, and the Company
desires to issue and sell to the Investors, a minimum of 16 and a maximum of
60 Units (the "Units"), each Unit consisting of 166,667 shares (the "Bridge
Offering Shares") of Common Stock, par value $.04 per share ("Common
Stock") and Warrants (the "Warrants") to purchase 166,667 shares (the
"Warrant Shares") in a bridge offering (the "Bridge Offering"), and a
minimum of 18,666,667 and a maximum of 52,000,000 shares (less the
number of shares sold in the Bridge Offering) (the "Primary Offering
Shares") of Common Stock in a private placement (the "Private Placement"),
both conducted in accordance with the Securities Act of 1933, as amended,
and the rules and regulations thereunder (collectively, the "Securities Act").
The Bridge Offering Shares, the Warrant Shares and the Primary Offering
Shares referenced in this Recital A are herein called the "Shares".
B. As further inducement for the Investors to purchase the Shares from the
Company, the Company desires to undertake to register under the Securities
Act, the resale of the Shares, in accordance with the terms hereof.
AGREEMENTS
The Company and the Investors covenant and agree as follows:
1. Definitions. For the purposes of this Agreement:
<PAGE>
(a) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
statements or similar documents in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document by the Securities and Exchange Commission (the "SEC").
(b) The term "Registrable Securities" means (i) the Investors' Shares, (ii)
Shares, if any, issued to Sunrise Securities Corp.
in satisfaction of the selling commission and expense
allowance and (iii) any Shares issued as (or issuable
upon the conversion or exercise of any convertible security, warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of the Shares, including, but not
limited to, the shares underlying the Placement Agent's Warrants, and
excluding in all cases, however, any Registrable Securities sold by an Investor
in a transaction in which its registration rights under this Agreement are not
assigned pursuant to Section 9 of this Agreement.
(c) The term "Investor" includes (i) each Investor (as defined above) and
(ii) each person who is a permitted transferee or assignee of the Registrable
Securities pursuant to Section 9 of this Agreement.
2. Obligations of the Company. In connection with the registration of the
resale of Registrable Securities pursuant to this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC, within thirty (30) days after (i) the close
of the Company's Private Placement, a resale registration statement or
registration statements (the "Registration Statement") with respect to all
Registrable Securities included therein, and use its best efforts to cause the
Registration Statement to become effective as soon as reasonably possible after
such filing, and, with respect to any registration that does not involve an
underwriting, to keep the Registration Statement effective pursuant to Rule 415
under the Securities Act for a period of at least seven years after the close of
the Company's Private Placement, or such shorter period as prescribed by
Rule 144 promulgated under the Securities Act or during which the Registrable
Securities are sold, or until there are no more Registrable Securities, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any 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 in
which they were made, not misleading.
(b) Prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to the Registration Statement and any
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective (i) for such period as
may be required by the Securities Act with respect to an underwritten offering
and (ii) for at least seven years after the close of the Company's Private
Placement, or such shorter period as prescribed by Rule 144, or until there are
no more Registrable Securities, with respect to a non-underwritten offering,
and during such periods to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by the Registration
Statement
(c) Furnish promptly to each Investor whose Registrable Securities are
included in the Registration Statement such number of copies of a prospectus,
including a preliminary
2
<PAGE>
prospectus, and all amendments and supplements thereto, and of such other
documents as such Investor may reasonably request in order to facilitate the
disposition of Registrable Securities owned by such Investor.
(d) Use its reasonable efforts to register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
Blue Sky laws of such jurisdiction as shall be reasonably requested by the
Investors who hold a majority in interest of the Registrable Securities covered
by the Registration Statement and, with respect to a non-underwritten offering,
prepare and file in those jurisdictions such amendments (including post-
effective amendments) and supplements and to take such other actions as may
be necessary to maintain such registration and qualification in effect at all
times for a period of at least seven years after the close of the Company's
Private Placement, or such shorter period as prescribed by Rule 144 or during
which the Registrable Securities are sold, or until there are no more
Registrable Securities, and to take all other actions necessary or advisable to
enable the disposition of such securities in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or
as a condition thereto to (i) qualify to do business, file a general consent to
service of process or subject itself to general taxation in any such states or
jurisdictions or (ii) provide any undertaking or make any change in its
Certificate of Incorporation or bylaws.
(e) If the Registration Statement relates to an underwritten offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations, with the Underwriter's Representative.
(f) Notify the Investors who hold Registrable Securities being sold (or in
the event of an underwritten offering, the Underwriter's Representative), at
any time when a prospectus relating to Registrable Securities covered by the
Registration Statement is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. The Company shall use its best efforts promptly
to amend or supplement the Registration Statement to correct any such untrue
statement or omission.
(g) Notify the Investors who hold Registrable Securities being sold (or in
the event of an underwritten offering, the Underwriter's Representative) of the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose.
The Company will make every reasonable effort to prevent the issuance of any
stop order and, if any stop order is issued, to obtain the lifting thereof at
the earliest possible time.
(h) Permit a single firm of counsel, designated as selling shareholders'
counsel by the holders of a majority in interest of the Registrable Securities
being sold, to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing, and shall
not file any document in a form to which such counsel reasonably objects.
3
<PAGE>
(i) Make generally available to its security holders as soon as practicable,
but not later than forty five (45) days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of the Registration Statement.
(j) At the request of the Investors who hold a majority in interest of the
Registrable Securities being sold, furnish to the underwriters, if any, on the
date that Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement (i) an opinion, dated
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, and (ii) a
letter, dated such date, from the independent certified public accountants of
the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters.
(k) Make available for inspection by any underwriters participating in the
offering and the counsel, accountants or other agents retained by such
underwriter, all pertinent financial and other records, corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by such underwriters
in connection with the Registration Statement.
(l) If the Shares are then listed on a national securities exchange, use its
best efforts to cause the Registrable Securities to be listed on such exchange
if the listing of such Registrable Securities is then permitted under the rules
of such exchange, or if the Shares are not then listed on a national securities
exchange, use its best efforts to facilitate the quotation of the Shares on
NASDAQ, and use its best efforts to cause continued listing of the Shares so
long as the Registration Statement is in effect under the Securities Act.
(m) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement.
(n) Take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities sold pursuant to the Registration
Statement and to enable such certificates to be in such denominations and
registered in such names as the Investors or any underwriters may
reasonably request.
(o) Take all other actions reasonably necessary to expedite and facilitate
disposition by the Investors of the Registrable Securities pursuant to the
Registration Statement.
3. Obligations of the Investors. In connection with the registration of the
Registrable Securities pursuant to this Agreement, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to each Investor that
such Investor shall furnish to the Company in writing such information
regarding itself, the Registrable Securities held by it,
4
<PAGE>
and the intended methods of disposition of such securities as shall be
reasonably required to effect the registration of the Registrable Securities and
shall execute such documents in connection with such registration as the
Company may reasonably request. At least thirty (30) days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Investor of the information the Company requires from each such
Investor (the "Requested Information") if it elects to have any of his
Registrable Securities included in the Registration Statement. If within seven
(7) business days of the filing date the Company has not received in writing
the Requested Information from an Investor (a "Non-Responsive Investor"),
then the Company may file the Registration Statement without including
Registrable Securities of such Non-Responsive Investor.
(b) Each Investor by his acceptance of the Registrable Securities agrees to
cooperate with the Company in connection with the preparation and filing of
any Registration Statement hereunder, unless such Investor has notified the
Company in writing of its election to exclude all of its Registrable Securities
from the Registration Statement.
(c) In the event Investors holding a majority in interest of the Registrable
Securities select underwriters for the offering, each Investor agrees to enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations and market stand-off obligations, with the managing
underwriter of such offering and to take such other actions as are reasonably
required in order to expedite or facilitate the disposition of the Registrable
Securities, unless such Investor has notified the Company in writing of its
election to exclude all of his Registrable Securities from the Registration
Statement.
(d) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 2(f), such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 2(f) and, if so desired by the Company,
such Investor shall deliver to the Company (at the expense of the Company)
or destroy (and deliver to the Company a certificate of such destruction) all
copies, other than the permanent file copies then in such Investor's possession,
of the prospectus covering such Registrable Securities current at the time of
receipt of such notice.
(e) No Investor may participate in any underwritten registration hereunder
unless such Investor (i) agrees to sell such Investor's Registrable Securities
on the basis provided in any underwriting arrangements approved by the Investors
entitled hereunder to approve such arrangements, (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay such Investor's pro rata portion of all
underwriting discounts and commissions.
4. Expenses of Registration. All expenses, including, without limitation,
all registration, listing, filing and qualification fees, printers and
accounting fees, the fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one firm of counsel for the Investors
shall be borne by the Company.
5
<PAGE>
5. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor, the directors, if any, of such Investor, the officers,
if any, of such Investor who sign the Registration Statement, each person, if
any, who controls such Investor, any underwriter (as defined in the Securities
Act) for the Investors and each person,
if any, who controls any such underwriter
within the meaning of the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), against any losses, claims, damages,
expenses or liabilities, joint or several) to which any of them may become
subject under the Securities Act, the Exchange Act, other federal or state law
or otherwise, insofar as such losses, claims, damages, expenses or liabilities
(or actions or proceedings, whether commenced or threatened, in respect
thereof, arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein 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 or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law. Subject to the restrictions set
forth in Section 5(c) with respect to the number of legal counsel, the Company
will reimburse the Investors and each such underwriter or controlling person,
promptly as such expenses are incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding. Notwithstanding
anything contained in this Agreement to the contrary, the indemnity agreement
contained above in this Section 5(a): (I) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld, (II) shall not apply to any such
case for any such loss, claim, damage, liability or action arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by the Investors or any such underwriter or controlling person, as
the case may be, and (III) with respect to any preliminary prospectus, shall not
inure to the benefit of any person from whom the person asserting any such
claim purchased the Registrable Securities that are the subject thereof (or to
the benefit of any person controlling such person) if the untrue statement or
omission of material fact contained the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Investors or any such underwriter or controlling person and shall
survive the transfer of the Registrable Securities by an Investor pursuant to
Section 7.
(b) To the extent permitted by law, each Investor, severally and not jointly,
will indemnify and hold harmless, to the same extent and in the same manner
set forth in Section 5(a), the Company, each of its directors, each of its
officers who have signed the Registration Statement, each person, if any, who
controls the Company within the meaning of the Securities Act or the
Exchange Act, any underwriter and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such holder or underwriter, against any losses, claims,
damages or liabilities, joint or several) to which any of
6
<PAGE>
them may become subject, under the Securities Act, the Exchange Act, other
federal or state law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Investor expressly for use in connection with such
registration; and such Investor will reimburse any legal or other expenses
reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Investor shall be liable under this Section 5(b) for only that
amount of losses, claims, damages and liabilities as does not exceed the
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such registration. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such indemnified
party and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 7. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above, with respect to information about such persons so
furnished in writing by such persons expressly for inclusion in the Registration
Statement
(c) Promptly after receipt by an indemnified party under this Section 5 of
notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 5, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
satisfactory to the indemnifying party; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
for the indemnifying party, representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The Company
shall pay for only one legal counsel for the Investors.
Such legal counsel shall be selected by the Investors holding a majority
in interest of the Registrable Securities. The failure to deliver
written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall relieve such indemnifying party
of any liability to the indemnified party under this Section 5 only to
the extent prejudicial to its ability to defend such action, but
the omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under section 5. The indemnification required by this Section 5 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, promptly as such expense, loss, damage or liability
is incurred and is due and payable.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would
otherwise be liable under this Section 5 to the extent permitted by law;
provided, however, that (i) no contribution shall be made under circumstances
where the maker would not have been liable for indemnification under the fault
standards set forth in this Section 5, (ii) no seller of Registrable Securities
guilty of fraudulent misrepresentation (within the meaning of Section 11 of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation, and (iii)
7
<PAGE>
contribution by any seller of Registrable Securities shall be limited in amount
to the amount of proceeds received by such seller from the sale of such
Registrable Securities.
6. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Investors the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration, the Company
agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after ninety (90) days after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public.
(b) File with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act.
(c) Furnish to each Investor, so long as such Investor owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144 (at any time after
90 days after the effective date of the first registration statement filed by
the Company), the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing the Investors of any rule or regulation of
the SEC which permits the selling of any such securities without registration.
7. Assignments of Registration Rights. The rights to have the Company
register securities pursuant to this Agreement may be assigned by the Investors
to transferees or assignees of such securities provided that (i) the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned, (ii) such
assignment is in accordance with and permitted by all other agreements
between the Company and the transferor or assignor, and (iii) such
assignments shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. The term "Investors" as used in this
Agreement shall include permitted assignees.
8. Miscellaneous.
(a) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered or sent
by registered mail, return receipt requested, addressed (i) if to the Company,
Access Pharmaceuticals, Inc., 2600 Stemmons Freeway, Suite 176, Dallas,
Texas 75207, Attention: President, with a copy to Jack Concannon, Esq. of
Bingham Dana LLP, 151 Federal Street, Boston, Massachusetts 02110, and
(ii) if to an Investor, at the address set forth under his or her name in the
subscription agreement executed by such Investor in connection with its
investment, or at such other address as each such party furnishes by notice
given in accordance with this Section 8(a).
8
<PAGE>
(b) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, will not operate as a waiver thereof. No waiver will be effective
unless and until it is in writing and signed by the party giving the waiver.
(c) This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of New York, as such laws
are applied by New York courts to agreements entered into and to be
performed in New York by and between residents of New York. This
Agreement shall be binding upon each Investor and its heirs, estate, legal
representatives, successors and permitted assignees and shall inure to the
benefit of the Company and its successors and assigns. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove
invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
(d) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only by a writing executed by the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 8(d) shall be binding upon
such Investor and the Company.
(e) Any such person is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities.
If the Company receives conflicting instructions, notices or elections from two
or more persons or entities with respect to the same Registrable Securities,
then the Company shall be entitled to act upon the basis of the instructions,
notice or election received from the registered owner of such Registrable
Securities.
Dated this 18 day of June, 1998.
---- ACCESS PHARMACEUTICALS, INC.
By: /s/ Kerry P. Gray
-------------------
Kerry P. Gray
President and Chief Executive Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON
FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,174
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