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 SEPTEMBER 30, 1999
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 November 10, 1999 6,036,582 shares, $0.01 par value
----------------- ---------
Total No. of Pages 15
<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. (together with its subsidiaries, "Access" or the
"Company") is a Delaware corporation in the development stage. The Company
is an emerging pharmaceutical company focused on developing both novel low
development risk product candidates and technologies with longer-term major
product opportunities. The Company has proprietary patents or rights to five
technology platforms: synthetic polymers, bioerodible hydrogels, Residerm TM,
carbohydrate targeting technology and prevention and
treatment of viral disease, including HIV. In addition, Access' partner Block
Drug Company ("Block") is marketing in the United States Aphthasol TM, the
first FDA approved product for the treatment of canker sores. New formulations
and delivery forms are being developed to evaluate this product in additional
clinical indications. Access has licensed from Block the rights to this product
for additional indications including mucositis and oral diseases.
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, uncertainty associated with preclinical and clinical testing,
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, 1998.
Since its inception, Access has devoted its resources primarily to fund its
research and development programs. The Company has been unprofitable since
inception and to date has received limited 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. As of September 30, 1999, the Company's
accumulated deficit was $25,543,000 of which $8,894,000 was the result of the
write-off of purchased research.
2
<PAGE>
RECENT DEVELOPMENTS
The Company has engaged an investment bank to assist the Company in raising
funds to support the Company's research and development activities, working
capital requirements, acquisitions of complementary companies or technologies
and general corporate purposes. On July 20, 1999, with the assistance of an
investment bank, the Company completed the first closing of an offering of up
to $8 million of common stock at a per share price of $2.00 (the offering),
receiving gross proceeds of $3.0 million in such first closing, less issuance
costs of $213,000, from the private placement of 1,501,000 shares of Common
Stock. The placement agent for such offering received warrants to purchase
160,721 shares of Common Stock at $2.00 per share, in accordance with the
offering terms and elected to receive 106,217 shares of Common Stock in lieu
of certain sales commissions and expenses. There can be no assurances that any
additional closings of the private placement will take place.
On July 20, 1999, and simultaneously with the first closing of the offering,
Access Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary
of the Company (the "Merger Sub") merged with and into Virologix
Corporation, a Delaware corporation ("Virologix"), the separate existence of the
Merger Sub ceased, and Virologix became a wholly-owned subsidiary of the
Company and each outstanding share of Virologix' common stock was converted
into 0.231047 shares of the Company's common stock, representing 999,963
shares of common stock of the Company. The transaction has been accounted
for as a purchase.
If and when the Company satisfies all listing requirements, including minimum
share price and net equity 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.
Liquidity and Capital Resources
As of October 31, 1999 the Company's principal source of liquidity is
$1,449,000 of cash and cash equivalents. Working capital as of September 30,
1999 was $1,130,000, representing an increase in working capital of $121,000
as compared to the working capital as of December 31, 1998 of $1,009,000.
The increase in working capital at September 30, 1999 was due to first closing
of the offering offset by losses from operations in the first three quarters of
1999.
Since its inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $25,543,000 at September 30,
1999. The Company has funded its operations primarily through private sales
of its equity securities, contract research payments from corporate alliances
and the 1996 merger of Access Pharmaceuticals, Inc., a private Texas
corporation and Chemex Pharmaceuticals, Inc.
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 first quarter of 2000. The Company is
3
<PAGE>
dependent on raising additional capital to fund the development of its
technology and to implement its business plan. Such dependence will continue
at least until the Company begins marketing products resulting from its
technologies.
If prior to the end of January 2000, 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 second quarter
of 2000. 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. If the Company is unable to raise additional capital in the near
term, it may be forced to suspend operations.
The Company will require substantial funds to conduct research and
development programs, preclinical studies and clinical trials of its potential
products, including research and development with respect to the newly acquired
technology resulting from the acquisition of Virologix. 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 arrangements with potential corporate partners, public
or private financing, including the sale of up to an additional $5 million of
common stock at a price of $2 per share in the Company's current equity
offering, 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 or that any additional
closings of its current equity offering will occur. 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.
Third Quarter 1999
Compared to
Third Quarter 1998
Total research spending for the third quarter of 1999 was $349,000, as
compared to $481,000 for the same period in 1998, a decrease of $132,000. The
decrease in expenses was the result of lower external contract research costs
due to the completion of research contracts- $103,000; lower
4
<PAGE>
external development costs- $61,000; and lower salary and related costs-
$42,000; offset by higher scientific consulting costs- $67,000; and higher
other net costs totaling- $7,000. If the Company is successful in raising
additional capital, research spending is expected to increase in future
quarters as the Company intends to commence additional clinical trials, 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 $293,000 for the second quarter
of 1999, a decrease of $26,000 as compared to the same period in 1998. The
decrease in spending was primarily due to the following: lower salary and
related costs- $20,000; lower professional business expenses- $20,000; and
other net decreases totaling- $20,000; offset by higher patent costs mainly
due to the filing of a new patent- $34,000. If the Company is not successful
in raising additional capital, general and administrative spending will be
curtailed.
Depreciation and amortization was $84,000 for the second quarter 1999 as
compared to $39,000 for the same period in 1998 an increase of $45,000. The
increase in amortization is due to amortization of goodwill of $41,000
recorded due to the purchase of Virologix Corporation.
Total operating expenses in the third quarter of 1999 were $726,000 with
interest income of 8,000, and interest expense of $3,000 resulting in a loss for
the quarter of $771,000 or a $0.13 basic and diluted loss per common share.
Nine Months ended September 30, 1999
Compared to
Nine Months ended September 30, 1998
Research spending for the nine months ended September 30, 1999 was
$1,042,000 as compared to $1,417,000 for the same period in 1998, a decrease
of $375,000. The decrease in expenses was due to: lower external lab costs due
to the completion of research contracts- $412,000; lower external development
costs- $62,000; offset by higher scientific consulting costs- $82,000; and other
net increases totaling- $17,000. If the Company is successful in raising
additional capital, research spending is expected to increase in future quarters
as the Company intends to commence additional clinical trials, 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 $1,205,000 for the nine months ended
September 30, 1999, an increase of $136,000 as compared to the same period
in 1998. The increase was primarily due to the following: increased business
consulting expense primarily due to the issuance of warrants issued in
connection with consulting agreements- $249,000; and higher shareholder
expenses- $80,000; offset by lower salary and related expenses- $82,000; lower
patent expenses- $64,000; lower travel and entertainment expenses- $28,000;
and other net decreases totaling- $19,000.
Depreciation and amortization was $177,000 for the nine months ended
September 30, 1999 as compared to $169,000 for the same period in 1998, an
increase of $8,000. The increase in amortization is due to amortization of
goodwill of $41,000 recorded due to the purchase of Virologix Corporation
offset by lower depreciation reflecting that some major assets have been
fully depreciated.
5
<PAGE>
Accordingly, this resulted in a loss for the nine months ended September 30,
1999 of $2,398,000, or a $0.58 basic and diluted loss per common share.
Year 2000 Issue
The Year 2000 ("Y2K") issue is the result of computer programs using two
instead of four digits to represent the year. These computer programs may
erroneously interpret dates beyond the year 1999, which could cause system
failures or other computer errors, leading to disruptions in operations.
The Company has developed a three-phase program to limit or eliminate Y2K
exposures. Phase I involved the identification of those systems, applications
and third-party relationships from which the Company has exposure to Y2K
disruptions in operations. Phase II is the development and implementation of
action plans to achieve Y2K compliance in all areas prior to the end of the
third quarter of 1999. Also included in Phase II is the development of
contingency plans which would be implemented should Y2K compliance not be
achieved in order to minimize disruptions in operations. Phase III is the
final testing or equivalent certification of testing of each major area of
exposure to ensure compliance. The Company has completed its Y2K program
with the exception of the implementation of one new computer program
expected to be operational in December 1999.
The Company identified three major areas determined to be critical for
successful Y2K compliance: Area 1 includes financial, research and development
and administrative informational systems applications reliant on system
software; Area 2 includes research, development and quality applications
reliant on computer programs embedded in microprocessors; and Area 3
includes third-party relationships which may be affected by Area 1 and 2
exposures which exist in other companies.
With respect to Area 1, the Company completed an internal review and
contacted all software suppliers to determine major areas of Y2K exposure. In
research, development and quality applications (Area 2), the Company worked
with equipment manufactures to identify our exposures. With respect to Area 3,
the Company evaluated our reliance on third parties in order to determine
whether their Y2K compliance will adequately assure our uninterrupted
operations.
The Company has completed Phase I of our Y2K program with respect to all
three of the major areas. The Company relies on PC-based systems and does not
expect to incur material costs to transition to Y2K compliant systems in its
internal operations. However, even if the internal systems of the Company are
not materially affected by the Y2K Issue, the Company could be affected by
third-party relationships which, if not Y2K compliant prior to the end of 1999,
could have a material adverse impact on our operations. The Company has
completed Phase II contingency planning and continues to monitor its third party
relationships. Most if not all of the third parties have informed the Company
that they will be in compliance by the end of the year. Contingency plans for
the Company will be continually refined, as additional information becomes
available.
As of September 30, 1999, we have identified costs related to replacement or
remediation and
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testing of our Area 1 computer information systems. Having
completed the Phase I and Phase II evaluation, total costs to date are $6,000.
We estimate the potential future cost of our internal Y2K compliance programs
to be $3,000. The funds for these costs will be part of our current working
capital requirements. These costs will be expensed as incurred except for
equipment related costs.
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
On July 20, 1999 the Company sold to 20 individual accredited investors
an aggregate of 1,501,000 shares of Common Stock at $2.00 per
share. The placement agent for such offering received warrants to
purchase 160,721 shares of Common Stock at $2.00 per share in
accordance with the offering terms and elected to receive 106,217
shares of Common Stock in lieu of certain sales commissions and
expenses. The Company raised an aggregate of $3,002,000 in
gross proceeds. The shares issued in the Private Placement have
not been registered; however, a registration statement for the
resale of such shares is planned to be filed 30 days after the final
closing of the Private Placement. 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.
Also on July 20, 1999 and simultaneously with the first closing of
the private placement, Access Holdings, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company (the
"Merger Sub") merged with and into Virologix Corporation, a
Delaware corporation ("Virologix"), the separate existence of the
Merger Sub ceased, and Virologix became a wholly-owned
subsidiary of the Company and each outstanding share of
Virologix' common stock was converted into 0.231047 shares of
the Company's common stock, representing 999,963 shares of
common stock of the Company. Certain of the shareholders of
Virologix signed a six month lockup agreement and others signed
a one year lockup. The shares issued in conjunction with the
merger have not been registered; however, a registration statement
for the resale of such shares is required to be effective on or
before January 20, 2000. 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.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
7
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
2.2 Agreement of Merger and Plan of Reorganization, dated as
of February 23, 1999 among the Company, Access Holdings,
Inc. and Virologix Corporation (Incorporated by reference to
Exhibit 2.2 of the Company's Form 8-K filed on August 3,
1999)
10.18 Sales Agency Agreement
10.19 Registration Rights Agreement
27.1 Financial Data Schedule
Reports on Form 8-K:
On October 4, 1999, the Company filed a Current Report on Form
8-K/A related to Acquisition or Disposition of Assets, amending
the Form 8-K reporting such transaction filed August 3, 1999. On
February 23, 1999, the Company entered into an Agreement of
Merger and Plan of Reorganization, as amended (the "Agreement")
with Virologix Corporation, a Delaware corporation ("Virologix"),
and Access Holdings, Inc., a Delaware corporation and a wholly-
owned subsidiary of the Company (the "Merger Sub"). Pursuant
to the terms of the Agreement, on July 20, 1999 the Merger Sub
merged with and into Virologix, the separate existence of the
Merger Sub ceased, and Virologix became a wholly-owned
subsidiary of the Company and each outstanding share of
Virologix' common stock was converted into 0.231047 shares of
the Company's common stock, representing 999,963 shares of
common stock of the Company. The transaction has been
accounted for as a purchase.
8
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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: November 15, 1999 By: /s/ Kerry P. Gray
------------------- -------------------
Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 15, 1999 By: /s/ Stephen B. Thompson
------------------- -------------------------
Stephen B. Thompson
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------- -------------
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,026,000 $ 1,487,000
Accounts receivable 3,000 -
Prepaid expenses and other current assets 31,000 54,000
------------- -------------
Total current assets 2,060,000 1,541,000
------------- -------------
Property and equipment, at cost 1,016,000 1,007,000
Less accumulated depreciation
and amortization (880,000) (780,000)
------------- -------------
136,000 227,000
------------- -------------
Licenses, net 590,000 425,000
Investments 150,000 150,000
Goodwill 2,423,000 -
Other assets 8,000 8,000
------------- -------------
Total assets $ 5,367,000 $ 2,351,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 721,000 $ 395,000
Accrued insurance premiums 4,000 38,000
Deferred revenues 155,000 -
Current portion of obligations under
capital leases 50,000 99,000
------------- -------------
Total current liabilities 930,000 532,000
------------- -------------
Obligations under capital leases, net
of current portion - 24,000
------------- -------------
Total liabilities 930,000 556,000
------------- -------------
Commitments and contingencies - -
Stockholders' equity
Preferred stock - $.01 par value;
authorized 2,000,000 shares;
none issued or outstanding - -
Common stock - $.01 par value;
authorized 20,000,000 shares;
issued and outstanding, 6,036,582
at September 30, 1999 and
3,429,402 at December 31, 1998 60,000 34,000
Additional paid-in capital 29,920,000 24,906,000
Deficit accumulated during the
development stage (25,543,000) (23,145,000)
------------- -------------
Total stockholders' equity 4,437,000 1,795,000
------------- -------------
Total liabilities and
stockholders' equity $ 5,367,000 $ 2,351,000
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
10
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Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30, February 24, 1988
-------------------------- -------------------------- (inception) to
1999 1998 1999 1998 Sept 30, 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues
Research and development $ - $ - $ - $ - $ 2,711,000
Option income - - - - 2,149,000
Licensing revenues - - - - 325,000
------------ ------------ ------------ ------------ -------------
Total revenues - - - - 5,185,000
------------ ------------ ------------ ------------ -------------
Expenses
Research and development 349,000 481,000 1,042,000 1,417,000 11,407,000
General and administrative 293,000 319,000 1,205,000 1,069,000 9,532,000
Depreciation and amortization 84,000 39,000 177,000 169,000 1,446,000
Write-off of excess purchase price - - - - 8,894,000
------------ ------------ ------------ ------------ -------------
Total expenses 726,000 839,000 2,424,000 2,655,000 31,279,000
------------ ------------ ------------ ------------ -------------
Loss from operations (726,000) (839,000) (2,424,000) (2,655,000) (26,094,000)
------------ ------------ ------------ ------------ -------------
Other income (expense)
Interest and miscellaneous income 18,000 29,000 37,000 37,000 869,000
Interest expense (3,000) (4,000) (11,000) (18,000) (191,000)
------------ ------------ ------------ ------------ -------------
15,000 25,000 26,000 19,000 678,000
------------ ------------ ------------ ------------ -------------
Loss before income taxes (711,000) (814,000) (2,398,000) (2,636,000) (25,416,000)
Provision for income taxes - - - - 127,000
------------ ------------ ------------ ------------ -------------
Net loss $ (711,000) $ (814,000) $(2,398,000) $(2,636,000) $(25,543,000)
============ ============ ============ ============ =============
Basic and diluted loss per
common share $ (0.13) $ (0.24) $ (0.58) $ (1.10)
============ ============ ============ ============
Weighted average basic and diluted
common shares outstanding 5,469,021 3,322,668 4,116,746 2,393,068
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30, February 24, 1988
---------------------------- (inception) to
1999 1998 September 30, 1999
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows form operating activities:
Net loss $(2,398,000) $(2,636,000) $(25,543,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Write-off of excess purchase price - - 8,894,000
Warrants issued in payment of
consulting expense 296,000 - 865,000
Research expenses related to
common stock granted - 9,000 100,000
Depreciation and amortization 177,000 169,000 1,446,000
Deferred revenue 155,000 - 45,000
Licenses (100,000) - (100,000)
Change in operating assets and
liabilities:
Accounts receivable (3,000) 1,000 (4,000)
Prepaid expenses and other
current assets 23,000 39,000 (32,000)
Other assets - 2,000 (6,000)
Accounts payable and
accrued expenses (142,000) (145,000) (2,000)
------------ ------------ -------------
Net cash used in operating activities (1,992,000) (2,561,000) (14,337,000)
------------ ------------ -------------
Cash flows from investing activities:
Capital expenditures (3,000) (4,000) (1,171,000)
Sales of capital equipment - - 15,000
Purchase of Virologix (102,000) - (102,000)
Purchase of Tacora, net of cash acquired - - (124,000)
Other investing activities - (50,000) (150,000)
------------ ------------ -------------
Net cash used in investing activities (105,000) (54,000) (1,532,000)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from notes payable (80,000) - 641,000
Payments of principal on obligations
under capital leases (73,000) (149,000) (700,000)
Cash acquired in merger with Chemex - - 1,587,000
Proceeds from stock issuances, net 2,789,000 4,556,000 16,367,000
------------ ------------ -------------
Net cash provided by
financing activities 2,636,000 4,407,000 17,895,000
------------ ------------ -------------
Net increase in cash and cash
equivalents 539,000 1,792,000 2,026,000
Cash and cash equivalents at
beginning of period 1,487,000 438,000 -
------------ ------------ -------------
Cash and cash equivalents at
end of period $ 2,026,000 $ 2,230,000 $ 2,026,000
============ ============ =============
Cash paid for interest $ 11,000 $ 18,000 $ 188,000
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
Net liabilities assumed in acquisition
of Virologix Corporation 362,000 - 362,000
</TABLE>
The accompanying notes are an integral part of these statements.
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Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1999 and 1998
(unaudited)
(1) Interim Financial Statements
The consolidated balance sheet as of September 30, 1999 and the
consolidated statements of operations for the three and nine months
ended and cash flows for the nine months ended September 30,
1999 and 1998 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 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, 1998. The results of operations for the
period ended September 30, 1999 are not necessarily indicative of
the operating results which may be expected for a full year. The
consolidated balance sheet as of December 31, 1998 contains
financial information taken from the audited financial statements
as of that date.
(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 first quarter of 2000. The Company is
dependent on raising additional capital to fund the development of
its technology and to implement its business plan. Such dependence
will continue at least until the Company begins marketing products
resulting from its technologies.
If prior to the end of January 2000 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 second quarter of 2000.
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. If the Company is unable to raise
additional capital in the near term, it may be forced to suspend
operations.
The Company will require substantial funds to conduct research
and development programs, preclinical studies and clinical trials of
its potential products, including research and development with
respect to the newly acquired technology resulting from the
acquisition of
13
<PAGE>
Virologix. 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 arrangements with potential
corporate partners, public or private financing, including the sale
of up to an additional $5 million of common stock at a price of $2
per share in the Company's current equity offering, 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 or that any
additional closings of its current equity offering will occur. 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.
The Independent Auditor's Report on the Company's 1998
consolidated financial statements included an emphasis paragraph
regarding the uncertainty of the Company's ability to continue as
a going concern.
(3) Private Placement
The Company has engaged an investment bank to assist the
Company in raising funds to support the Company's research and
development activities, working capital requirements, acquisitions
of complementary companies or technologies and general corporate
purposes. On July 20, 1999, with the assistance of the investment
bank, the Company completed the first closing of an offering of up
to $8 million of common stock at a per share price of $2.00 (the
offering), receiving gross proceeds of $3.0 million in such first closing,
less issuance costs of $213,000, from the private placement of
1,500,000 shares of Common Stock. The placement agent for such
offering received warrants to purchase 160,721 shares of Common
Stock at $2.00 per share, in accordance with the offering terms
and elected to receive 106,217 shares of Common Stock in lieu of
certain sales commissions and expenses. There can be no
assurances that any additional closings of the private placement
will take place.
If and when the Company satisfies all listing requirements, including
minimum share price and net equity equirements, 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.
14
<PAGE>
(4) Merger
On July 20, 1999 and simultaneously with the first closing of the
offering, Access Holdings, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company (the "Merger Sub")
merged with and into Virologix Corporation, a Delaware
corporation ("Virologix"), the separate existence of the Merger
Sub ceased, and Virologix became a wholly-owned subsidiary of
the Company and each outstanding share of Virologix' common
stock was converted into 0.231047 shares of the Company's
common stock, representing 999,963 shares of common stock of
the Company. The transaction has been accounted for as a
purchase.
The following table reflects unaudited consolidated pro forma
results of operations of Access and Virologix on the basis that the
acquisition had taken place at the beginning of each period
presented. Such pro forma amounts are not necessarily indicative
of what the actual consolidated results of operations might have
been if the acquisition had been effective at the beginning of the
respective periods.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue $ - $ - $ - $ -
Net loss (731) (1,032) (2,738) (3,302)
Basic and diluted
net loss per share $ (0.12) $ (0.17) $ (0.45) $ (0.66)
</TABLE>
15
ACCESS PHARMACEUTICALS, INC.
A minimum of 1,500,000 and
a maximum of 4,000,000 Shares of Common Stock
SALES AGENCY AGREEMENT
Sunrise Securities Corp.
135 E. 57th Street
New York, New York 10022
July 20, 1999
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 1,500,000 (including "Affiliate Shares", as hereinafter
defined, if any) and a maximum of 4,000,000 shares of common
stock, par value $.01 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 1,500,000 and
a maximum of 4,000,000 Shares 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 1,500,000 and a maximum of 4,000,000
Shares shall be offered for sale to prospective investors in this
Offering ("Prospective Investors") at a purchase price of $2.00 per
Share (the "Purchase Price") of the Company's common stock, par
value $.01 (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 August 1,
1999, unless extended 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 __,
1999 (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 1,500,000 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 terminated
without any further obligation on the part of either party, except
as provided in Section 10 hereof.
2
<PAGE>
(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 1,500,000 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 1,500,000 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 4,000,000 Shares 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 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.
3
<PAGE>
(a) If subscriptions to purchase at least 1,500,000 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 $2.00 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 1,500,000 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 any 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 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 or any other action having a
similar effect on the Common Stock.
4
<PAGE>
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, 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
5
<PAGE>
Company's subsidiaries include
Tacora Corporation and, after the Closing, giving effect to the
merger of a wholly-owned subsidiary of the Company into
Virologix Corporation ("Virologix") with Virologix becoming a
wholly-owned subsidiary of the Company, Virologix (the
"Subsidiaries"), as described in the Memorandum.
(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. 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, which description may be an
aggregate description of such securities. 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.
(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,
6
<PAGE>
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, 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 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
7
<PAGE>
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 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 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
8
<PAGE>
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 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
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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 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:
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(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:
(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
11
<PAGE>
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.
(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
12
<PAGE>
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 1,500,000
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."
(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
13
<PAGE>
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, until August 1, 2000, 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). 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, (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,
prior to August 1, 2000, the Company will not, without your prior
written consent, change any terms of the Company's outstanding
stock options or warrants.
(xvi) For a period of four years after the date hereof, furnish
you, without charge, upon request, 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
14
<PAGE>
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.
(xx) Use its best efforts to secure the inclusion of the Common
Stock on Nasdaq as soon as it meets the qualification requirements.
15
<PAGE>
(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.
(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
16
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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 1,500,000 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 $2.00 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 1,500,000 shares
(including the Affiliate Shares) are received prior to the expiration
of the Offering Period and accepted by the Company, the
Company shall reimburse Robb Peck McCooey Clearing
Corporation, as a Selected Dealer, for its reasonable out-of-pocket
expenses which in the aggregate shall not exceed $20,000, in
connection with its sale of the Shares, upon submission of
appropriate documentation to the Company.
(d) If subscriptions to purchase at least 1,500,000 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 and delivery of any Shares, the
Company shall reimburse the Placement Agent for its reasonable
out-of-pocket expenses 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 Ehrenreich,
Eilenberg, Krause & Zivian, counsel for Virologix, 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.
17
<PAGE>
(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 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 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.
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.
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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 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
19
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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) 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
20
<PAGE>
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 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
21
<PAGE>
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 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.
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<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/ Preston Tsao
------------------
Preston Tsao
Managing Partner
23
ACCESS PHARMACEUTICALS, INC.
REGISTRATION RIGHTS AGREEMENT
for 1999 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
1,500,000 and a maximum of 4,000,000 shares ("Shares") of
common stock, $.01 par value per share (the "Common Stock"),
in a private placement (the "Private Placement"), conducted in
accordance with the Securities Act of 1933, as amended, and the
rules and regulations thereunder (collectively, the "Securities
Act").
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:
(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").
<PAGE>
(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
the final closing 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 two years after the final closing 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, subject to Section 2(f)) 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 two years after the final closing 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 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.
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<PAGE>
(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 two years
after the final closing 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. The Company may delay amending or
supplementing the prospectus for a period of up to 60 days if the
Company is then engaged in negotiations regarding a material
transaction that has not otherwise been publicly disclosed, and the
Inventors shall suspend their sale of Registrable Securities until an
appropriate supplement or prospectus has been forwarded to them
or the proposed transaction is abandoned.
(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 or counsel for each investor,
which may be counsel for the Placement Agent, 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, (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, and (IV) shall not
apply with respect to any Violation contained in a prospectus that
the Company has notified the Investors contains a Violation
pursuant to Section 2(f) above. 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
6
<PAGE>
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 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
7
<PAGE>
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) 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 20 day of July, 1999.
ACCESS PHARMACEUTICALS, INC.
By: /s/ Kerry P. Gray
------------------------
Kerry P. Gray
President and Chief Executive Officer
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