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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-15070
Alpha 1 Biomedicals, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 52-1253406
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6707 Democracy Boulevard, Suite 111
Bethesda, Maryland 20817-1129
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(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: 301-564-4400
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value (Title of Class)
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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
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The approximate aggregate market value of voting stock held by nonaffiliates of
the registrant is $870,000 as of March 24, 1997.*
The number of shares of registrant's Common Stock outstanding as of March 24,
1997: 11,477,429
Documents Incorporated by Reference
-----------------------------------
Document Form 10-K Part(s)
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None
*The number of shares held by nonaffiliates was determined by excluding from the
number of shares outstanding 1,821,318 shares of Common Stock held by directors
and officers outstanding at March 24, 1997. Exclusion of shares held by any
person should not be construed to indicate that such person possesses the power,
directly or indirectly, to direct or cause the direction of management and
policies of the registrant, or that such person controls, is controlled by or is
under common control with the registrant.
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6
PART I
ITEM 1. BUSINESS
General
Alpha 1 Biomedicals, Inc. (the "Company" or "Alpha 1") is a pharmaceutical
research and development company focusing on the development of products to
treat a variety of human diseases. The Company plans to utilize a virtual
product development strategy, which is an approach that will not require it to
maintain its own research and development laboratories or manufacturing
facilities. The strategy consists of (i) identifying, evaluating and
in-licensing pharmaceutical product opportunities that appear to have
significant commercial potential; (ii) designing preclinical and/or clinical
protocols to test such products; (iii) utilizing third party contract
manufacturers to supply clinical grade material and third party contract
research organizations to perform pre-clinical and/or clinical studies in
accordance with its designed protocols; and (iv) pursuing sublicense
arrangements with established pharmaceutical companies to support late stage
clinical testing and ultimately marketing if regulatory approval is obtained.
At the current time, Alpha 1 employs four individuals. These employees are
responsible for general corporate activities, product development planning and
the selection and management of the various external resources necessary to
conduct preclinical and clinical studies. Alpha 1 has no plans to invest in
laboratory or manufacturing infrastructure or to hire personnel to undertake
activities that are generally available from reliable outside suppliers. Alpha 1
believes that this strategy will maximize its ability to allocate resources
rapidly to different projects and reduce risk.
The product development activities of the Company have been substantially
suspended pending receipt of additional financing.
FIRST COMMERCIAL DEVELOPMENT -- THYMOSIN ALPHA 1
Alpha 1's first commercial development project focused on a 28 amino acid
peptide, called Thymosin alpha 1, shown to regulate the immune system in animal
models. The commercial development of this product was licensed to SciClone
Pharmaceuticals, Inc. ("SciClone") in November 1994, whose trademark for the
product is Zadaxin(R). SciClone has received regulatory approval to market
Zadaxin Thymosin alpha 1 as a therapy for hepatitis B in three Asian countries
- -- the Peoples Republic of China, Singapore and the Republic of the Philippines.
SciClone has advised the Company that new drug applications for Zadaxin are
under review in eleven countries and that it plans to file approximately ten
additional new drug applications to market Zadaxin in Asia, the Middle East and
Latin America during 1997.
Should SciClone be successful in its efforts to commercialize Zadaxin, of which
there is no assurance, Alpha 1 is entitled to receive certain royalties on
SciClone's net sales revenue from licensed products that range from 3% to 7%
depending on SciClone's rights in the country in which the sales occur. Alpha
1's right to receive royalties continues at least until September 30, 2002. If
at the end of this eight-year period the Company has not realized
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royalty payments in the amount of $35 million, then SciClone's royalty
obligation will continue until the earlier of (i) the payment to the Company of
royalties aggregating $35 million or (ii) September 30, 2009. In 1996, the
Company entered into an agreement with SciClone whereby the Company received a
nonrefundable payment of royalties in the amount of $500,000, which is included
in revenue in 1996. In exchange, the Company agreed that after royalty payments
totaling $1.75 million have been made, the Company will forgo future royalties,
if and when earned, in an amount equal to $2.5 million. Approximately $1.3
million, plus accrued interest thereon, of the first $1.75 million in royalties
has been committed by the Company for repayment to certain vendors.
PRODUCT UNDER DEVELOPMENT -- THYMOSIN BETA 4
The Company has established a plan to develop a proprietary peptide called
Thymosin beta 4 as a treatment for Adult Respiratory Distress Syndrome ("ARDS").
To date, the Company has conducted limited pharmacology and toxicology testing
in animals. Additional animal testing will be required before Thymosin beta 4
can be tested in humans. The development and testing of Thymosin beta 4 is
contingent upon the receipt of substantial additional funding.
Originally isolated from calf thymus, Thymosin beta 4 is a chemically
synthesized copy of a natural human peptide, consisting of 43 amino acid
residues. Thymosin beta 4 is found in high concentration in blood platelets,
white blood cells and in a majority of other tissues, and has been shown to be a
unique peptide with well-characterized biochemical properties and actions.
Thymosin beta 4 is believed to be involved in a wide variety of cellular and
physiological processes as shown by the enhancement of antigen presentation by
macrophages in mice, macrophage migration inhibition in guinea pigs and
phenotypic changes in T-cell lines. In animal models of septic shock, Thymosin
beta 4 has been shown to reduce death in a dose-dependent manner, presumably by
modulating pathologic mediators of inflammation and cell death.
Biological distribution of Thymosin beta 4 suggests a more general function in
addition to its role as an immune factor. Thymosin beta 4 is actively involved
in the cellular microfilament system, functioning as an actin sequestering
peptide and potent regulator of actin polymerization in all living eukaryotic
cells. Actin is an abundant protein and plays a central role in cell structure
and motility. When actin is released from dying or injured cells, it polymerizes
to actin filaments. The presence of large quantities of filaments of actin in
blood vessels can be damaging and fatal. Extracellular filamentous actin may
play a role in stimulating the immune system.
Based on these characteristics, the Company believes that Thymosin beta 4 could
be used as a treatment for ARDS. ARDS is a condition in which previously healthy
individuals are subject to a life-threatening disorder associated with an
inflammatory onslaught in response to infection (sepsis) or injury. ARDS
represents a major cause of death among young adults and is the result of loss
of regulation of normal host defense processes, resulting in runaway
inflammatory tissue injury.
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ARDS, often considered the lethal end-point to an underlying disease, occurs
when pathogens or toxins from a localized infection or injury spread through the
bloodstream to the entire body. Invasion into the bloodstream by bacteria, their
toxic metabolites or other toxins causes the release of substances which damage
the blood vessel walls and other tissues of the lungs. This triggers a cascade
of events, which eventually leads to hypotension with low systemic vascular
resistance, lung failure and death. Overall mortality from ARDS may approach 60
percent, and in the presence of neoplasm it may reach 90 percent.
Although it is estimated that 95% of all ARDS cases are caused by infections of
some kind, an infection is not the only event that can lead to ARDS. Five
percent of the cases are individuals with severe injury or major trauma without
signs of infection.
The Company believes that Thymosin beta 4, administered intravenously to
patients, may be able to affect the release and nature of substances which
damage lung vasculature and tissue that lead to ARDS. As an actin-sequestering
peptide and immune modulator, Thymosin beta 4 has been shown to have a
modulatory influence on inflammatory mediators of disease and the inflammatory
responses that lead to direct pulmonary capillary injury (endothelial cell
damage), microvascular leak (pulmonary extravasation and edema),
microcirculatory ischemia (further endothelial cell damage), and lung
dysfunction and failure - all symptoms associated with ARDS.
PRODUCT DEVELOPMENT RELATING TO THYMOSIN BETA 4
The Company suspended development of Thymosin beta 4 as a treatment for cystic
fibrosis in February 1996. Since that time, the Company has designed plans for
the preclinical and clinical testing of Thymosin beta 4 for the treatment of
ARDS associated with septic shock. In December 1996 and January 1997, two United
States patents were granted, to which the Company has exclusive license,
protecting the use of Thymosin beta 4 for the treatment of septic shock.
Management believes, but cannot be certain, that these patents afford
exclusivity to the use of Thymosin beta 4 for the treatment of ARDS, known to be
the lethal outcome of septic shock. (See "Proprietary Rights.")
In March 1997, the Company commenced limited funding of a research contract with
a major United States university to determine the effect of Thymosin beta 4 in a
sheep model of ARDS. This model is generally recognized as the most relevant
animal model for predicting the efficacy of drug treatments for various
pulmonary conditions, particularly ARDS. This contract represents a commitment
by the Company of $68,298.
Product development activities necessary to support the filing of an
Investigational New Drug Application ("IND") for human clinical testing include:
- Manufacturing of preclinical supplies
- Pharmacology studies
- Toxicology studies
- Manufacture of clinical supplies
- Development of radioimmunoassay for Thymosin beta 4
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Some of these activities have been completed, while others have been suspended.
Additional studies will be required to further assess the safety of Thymosin
beta 4 in animals for further assurance of safety in humans. The Company does
not at present have sufficient funds to complete these preclinical activities.
MANUFACTURING
Alpha 1 will manufacture Thymosin beta 4 by contract through qualified outside
sources. The Company has decided that investment in product development, rather
than investment in manufacturing plants, is prudent especially when the outcome
of clinical trials and likelihood of approval cannot be predicted. This
manufacturing strategy reduces financial risk associated with building a
manufacturing facility and increases the chances for success by relying on
experienced third parties.
Contract manufacturing sites have been identified for the synthesis of the
peptide, production of the bulk pharmaceutical chemical and finished drug.
Contractors are selected on the basis of their supply capability, ability to
produce a drug substance in accordance with current Good Manufacturing Practice
("GMP") requirements and meet Company-established specifications.
COMPETITION
The Company is engaged in a business that is highly competitive. Research and
development activities for the development of drugs to treat ARDS patients are
being sponsored or conducted by private and public institutions and by major
pharmaceutical companies located in the United States and a number of foreign
countries. Many of these companies and institutions have financial and human
resources that are substantially greater than those of the Company, and that
have extensive experience in conducting research and development activities and
clinical testing and in obtaining the regulatory approvals necessary to market
pharmaceutical products.
Currently, there is no specific therapy that is available or effective for the
treatment of patients with ARDS.
GOVERNMENT REGULATIONS
Regulation by governmental authorities in the United States and foreign
countries will be a significant factor in the manufacture and marketing of the
Company's products and in its ongoing research and product development
activities. Any product developed by the Company will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical and clinical
testing and other approval procedures by the U.S. Food and Drug Administration
(the "FDA") and similar health authorities in foreign countries. Various federal
statutes and regulations also govern or influence the manufacturing, labeling,
storage, record keeping and marketing of such products. The process of obtaining
these approvals and the subsequent compliance with appropriate federal statutes
and regulations require the expenditure of substantial resources. Any failure by
the Company to obtain regulatory approval, or any delay in obtaining such
approvals, could adversely affect the marketing of
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products being developed by the Company, its ability to receive product or
royalty revenues and its liquidity and capital resources.
Preclinical testing in the laboratory must be conducted to evaluate the
potential efficacy and the safety of the investigational drug. The results of
these studies are submitted to the FDA as part of an IND, which must be reviewed
and approved before clinical testing can begin. Typically, clinical evaluation
involves a three stage process. In Phase I, trials are conducted with a small
number of subjects to determine the safety profile, the pattern of drug
distribution and metabolism. In Phase II, trials are conducted with groups of
patients afflicted with a specific disease in order to determine preliminary
efficacy, optimal dosages and expanded evidence of safety. In Phase III, large
scale, multi-center, comparative trials are conducted with patients afflicted
with a target disease in order to provide enough data for the statistical proof
of efficacy and safety required by the FDA and other regulatory authorities
The results of the preclinical and clinical testing with detailed information on
manufacturing are submitted to the FDA in the form of a New Drug Application
("NDA") or a Product License Application ("PLA") accompanied by an Establishment
License Application ("ELA") for approval to commence commercial sales. In
responding to an NDA, PLA or ELA, the FDA may grant marketing approval, request
additional information or deny the application if the FDA determines that the
application does not satisfy its regulatory approval criteria. Therefore, even
if the Company completes Phase III clinical trials for certain of its products,
there can be no assurance that the FDA will grant marketing approvals, or if
granted, that they will be granted on a timely basis. If the FDA does approve a
product, it may require, among other things, post-marketing testing, including
potentially expensive Phase IV studies, and surveillance to monitor the safety
and effectiveness of the drug. In addition, the FDA may in some circumstances
impose restrictions on the use of the drug that may be difficult and expensive
to administer. Product approvals may be withdrawn if compliance with regulatory
requirements are not maintained or if problems occur after the product reaches
the market.
Under the Orphan Drug Act, the FDA may designate a product or products as having
Orphan Drug status to treat "a rare disease or condition" which is a disease or
condition that affects populations of less than 200,000 individuals in the
United States, or, if victims of a disease number more than 200,000, the sponsor
establishes that it does not realistically anticipate its product sales will be
sufficient to recover its costs. If a product is designated as an Orphan Drug,
then the sponsor is entitled to receive certain incentives to undertake the
development and marketing of the product. One such incentive is market
exclusivity. The sponsor that obtains the first marketing for a designated
Orphan Drug for a given indication is eligible to receive marketing exclusivity
for a period of seven years. There may be multiple designations of Orphan Drug
status for a given drug and for different indications. However, only the sponsor
of the first approved NDA (or PLA) for a given drug for its use in treating a
given rare disease may receive marketing exclusivity for such use. Even if a
sponsor of a product for an indication for use with an Orphan Drug designation
is the first to obtain FDA approval of an NDA (or PLA) for that designation and
obtains marketing exclusivity, another sponsor's application for the same drug
product may be approved by the FDA during the period of exclusivity if the FDA
concludes that it is clinically superior.
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While it may be advantageous to obtain Orphan Drug status for Thymosin beta 4
for the treatment of ARDS, there can be no assurance that the precise scope of
protection that is currently afforded by Orphan Drug status will be available in
the future or that the current level of exclusivity will remain in effect.
PROPRIETARY RIGHTS
A United States composition of matter patent for Thymosin beta 4, which expires
in 1998, is held by The George Washington University ("GWU"). No corresponding
foreign patent filings were made. The rights under the U.S. patent have been
licensed by GWU to Hoffmann-La Roche Inc. ("HLR"), which in turn has licensed
the U.S. patent rights to the Company on a sole and exclusive basis. Under its
license agreement with HLR, the Company is obligated to pay HLR a royalty of 8%
on net sales (excluding sales for research purposes) in the United States until
the expiration of ten years from the date of the first commercial sale. If,
during this period, the FDA approves Thymosin beta 4 for sale by a competitor,
the royalty due HLR will be reduced to 4%. HLR is responsible for the royalty
due GWU under the primary license agreement.
Under a research agreement with GWU, the Company has funded Thymosin beta 4
research at GWU and is entitled to a sole and exclusive world-wide license to
any patents that result from such research. Under the research agreement, the
Company is obligated to pay GWU a royalty of 4% of net sales of Thymosin beta 4.
Pursuant to the research agreement, the Company has exclusive rights to patent
applications filed in the United States and in Europe disclosing the use of
Thymosin beta 4 for the treatment of septic shock and associated syndromes
including ARDS. Two U.S. patents have issued. The first patent, No. 5,578,570,
entitled "Method of Treating Septic Shock Using Thymosin beta 4," issued
November 26, 1996; the second patent, No. 5,593,964, entitled "Method of
Treating Septic Shock By Preventing Actin Polymerization," issued on January 14,
1997.
There is no assurance that any of the pending patent applications, to which the
Company has rights, will result in the issuance of patents or that any patents
issued will not be subject to challenge. In the case of a claim of patent
infringement, there is no assurance that the Company will be able to afford the
expense of any litigation that may be necessary to enforce its proprietary
rights.
EMPLOYEES
Alpha 1 utilizes a product development strategy that involves contracting out
research, development and manufacturing functions to third parties partially in
order to minimize the expense and overhead associated with the maintenance of
permanent employees and laboratory and manufacturing facilities. Consistent with
this strategy, Alpha 1 currently has a total of four employees.
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FORWARD LOOKING STATEMENTS
Any statements which are not actual facts contained in this document are forward
looking statements that involve risks and uncertainties, including but not
limited to, those relating to product demand, pricing, market acceptance, the
effect of economic conditions, intellectual property rights and litigation,
clinical trials, governmental regulations, competitive products, risks in
product and technology development, the results of financing efforts, the
ability to complete transactions and other risks identified in the Company's
Securities and Exchange Commission filings.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Bethesda, Maryland where it
leases approximately 550 square feet of office space.
ITEM 3. LEGAL PROCEEDINGS
In March 1996, a complaint against the Company was filed by a former consultant
to the Company in the Circuit Court for Wayne County, Michigan, alleging
negligence, fraud, and detrimental reliance and claiming entitlement to
indemnification. The consultant was seeking legal expenses and related costs
associated with the investigation of the consultant by the Securities and
Exchange Commission. On July 19, 1996, the complaint was dismissed. On August
15, 1996, the plaintiff filed a Notice of Appeal. In December 1996, a settlement
was entered into pursuant to which the Company agreed to make a payment to the
plaintiff of $10,000 and the appeal was subsequently dismissed. The Company
entered into a settlement solely to avoid the greater cost of continuing the
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The outstanding equity securities of the Company consist solely of shares of
Common Stock. On February 28, 1997, the Company's outstanding Class C Warrants
expired. Since May 25, 1995, the Common Stock has been traded on the OTC
Bulletin Board under the symbols ALBM. Prior to that date, the stock was traded
on the NASDAQ National Market. The Common Stock was initially issued to the
public in 1986.
The following table sets forth the high and low closing prices as reported by
OTC Bulletin Board for the Common Stock since May 25, 1995. Prior to that date,
prices represent the high and low closing market prices reported by the NASDAQ
National Market.
Common Stock
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High Low
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For the year ended
December 31, 1996:
First Quarter 11/16 1/6
Second Quarter 7/16 3/16
Third Quarter 9/32 1/10
Fourth Quarter 17/64 1/16
For the year ended
December 31, 1995:
First Quarter 29/32 1/2
Second Quarter
April 1-May 24 5/8 15/32
May 25 - June 30 9/16 3/10
Third Quarter 7/10 15/64
Fourth Quarter 13/32 5/32
As of March 17, 1997, there were approximately 1,525 holders of record of the
Common Stock.
The Company has not paid a dividend on the Common Stock and does not anticipate
that any cash dividends will be paid in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
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4
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
BALANCE SHEET DATA December 31,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ (1,733,049) $ (256,612) $ 3,273,945 $ 13,748,345 $ 1,055,928
Total assets 313,268 1,197,447 4,917,011 17,310,252 3,476,916
Total noncurrent liabilities - - 371,250 421,151 362,373
Accumulated deficit (37,260,497) (35,624,470) (31,532,273) (20,225,328) (14,582,694)
Stockholders' equity (deficit) (1,638,231) (37,204) 3,683,743 14,953,563 2,082,977
STATEMENTS OF OPERATIONS
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 542,243 $ 105,591 $ 720,383 $ 1,374,751 $ 65,683
------------ ------------ ------------ ------------ ------------
Expenses
Cost of sales - - 131,875 701,561 -
Research and product development 1,052,352 2,751,744 2,840,814 2,074,080 2,017,949
General and administrative 968,568 2,060,891 8,606,641 4,227,066 2,145,742
------------ ------------ ------------ ------------ ------------
Total expenses 2,020,920 4,812,635 11,579,330 7,002,707 4,163,691
------------ ------------ ------------ ------------ ------------
Operating loss (1,478,677) (4,707,044) (10,858,947) (5,627,956) (4,098,008)
Equity in loss of VTI - (181,026) (347,455) (328,750) (221,400)
Gain on sale of VTI - 646,628 - - -
Interest expense (132,066) - - - -
Other (expense) income (25,284) 149,245 (100,543) 314,072 156,702
------------ ------------ ------------ ------------ ------------
Net loss $ (1,636,027) $ (4,092,197) $(11,306,945) $ (5,642,634) $ (4,162,706)
============ ============ ============ ============ ============
Net loss per common share $ (0.18) $ (0.46) $ (1.26) $ (0.68) $ (0.57)
============ ============ ============ ============ ============
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was organized to engage in the development of pharmaceutical
products for the treatment of diseases or conditions that arise as the result of
immune system disorders, chronic viral infections, cancer and autoimmune
disease. Since it was founded in 1982 and through mid-1994, the primary focus of
the Company was on efforts to commercialize Thymosin alpha 1 as a treatment for
various disease indications or as a vaccine adjuvant. During this period, the
Company's resources were primarily devoted to the evaluation of Thymosin alpha 1
as a treatment for chronic hepatitis B. In April 1994, the results of the
Company's Phase III multicenter clinical trial for this indication were
analyzed. These results did not show a statistically significant difference
between the response of the treatment group and the placebo group. This led the
Company to conclude that, without further testing, the results of the Phase III
trial would not support an NDA to the U.S. Food and Drug Administration for
approval of Thymosin alpha 1 as a sole treatment for chronic hepatitis B.
Further testing, in the view of the Company, would be needed to support an NDA
and would require a commitment of resources beyond its financial capacity.
In August 1994, the Company entered into a license agreement with SciClone
Pharmaceuticals, Inc. ("SciClone") which became effective September 30, 1994
(the "New SciClone License Agreement") and which supersedes the original license
agreement between the parties entered into in 1990 (the "Original SciClone
License Agreement"). Under the New SciClone License Agreement, the Company
granted to SciClone an exclusive license to the Company's patent and other
proprietary rights with respect to Thymosin alpha 1 to develop, test, make, use
and sell Thymosin alpha 1 and products containing Thymosin alpha 1 (collectively
"Licensed Products") for all human and animal therapeutic and diagnostic uses.
The license covers all countries of the world, except for several countries
where the rights to Thymosin alpha 1 are held by other licensees of the Company.
In consideration for the license, the Company is entitled to receive a royalty
on SciClone's net sales revenue from Licensed Products that ranges from 3% to 7%
depending on whether SciClone's rights in the country in which the sales occur
were acquired under the New SciClone License Agreement or the Original SciClone
License Agreement and on whether SciClone has patent protection or comparable
market exclusivity in such country. The Company's right to receive royalties
continues until September 30, 2002. If at the end of such period the Company has
not realized royalty payments of at least $35 million, then SciClone's royalty
obligation will continue until the earlier of (i) the payment to the Company of
royalties aggregating $35 million or (ii) September 30, 2009.
In 1996, the Company entered into an agreement with SciClone, whereby the
Company received a nonrefundable payment of royalties in the amount of $500,000.
In exchange, the Company agreed that, after additional royalty payments totaling
$1,750,000 have been made, the Company will forgo future royalties, if and when
earned, in an amount equal to $2,500,000.
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Under the New SciClone License Agreement, the decision whether to continue the
commercial development of Thymosin alpha 1 is at the sole discretion of
SciClone. While the Company understands that SciClone is continuing with its
efforts to commercialize Thymosin alpha 1 and has announced receipt of licenses
to market Thymosin alpha 1 in several countries, there is no assurance either
that SciClone will be successful or as to the amount of the royalty payments
that the Company would receive based on SciClone's commercial sales.
As a consequence of the New SciClone License Agreement, the Company is no longer
engaged in the commercial development of Thymosin alpha 1. It is the Company's
current intention, subject to the receipt of the necessary financing, to focus
on the prospects for the commercialization of Thymosin beta 4, an actin-binding
peptide to which the Company holds certain proprietary rights.
RESULTS OF OPERATIONS
Revenues for the year ended December 1996 were $542,243 as compared to $105,591
for the year ended December 31, 1995, and $720,383 for the year ended December
31, 1994.
Revenues in 1996 consisted of royalty payments totaling $17,243, a $500,000
nonrefundable royalty payment in exchange for the agreement of the Company to
forgo $2.5 million in possible future royalty payments, and a payment for
consulting services of $25,000, all of which was provided by SciClone, whereas
revenues in the 1995 and 1994 periods were primarily the result of product sales
to and related consulting services for SciClone.
Expenses in 1996 totaled $2,020,920, as compared to $4,812,635 in 1995 and
$11,579,330 in 1994. The decrease in expenses in 1996 from 1995 primarily
reflects the effects of the Company suspending research activities and the
effect of an expense reduction program initiated during early 1996. The cost
reduction program included termination of all ongoing research and development
activities, a reduction of leased spaced, a reduction of certain salaries and
the severance of administrative staff. The Company now employs a staff of four
and has closed all facilities, except for its headquarters space. During April
1996, the Company further reduced its costs by subletting its headquarters and
by relocating to more economical office space. The decrease in expenses in 1995
from 1994 was attributable primarily to higher expenses in 1994 as a result of
non-recurring general and administrative expenses in connection with (i) the
Company's arbitration proceedings with SciClone and negotiation of the New
SciClone License Agreement and (ii), the closing of the Company's Sunnyvale,
California facility. The 1995 expenses were reduced as a result of staff
reductions and related costs.
The net effect of operating activities was a net operating loss of $1,478,677 in
1996 as compared to net operating losses of $4,707,044 in 1995 and $10,858,947
in 1994.
Other (expense) income for each of the three years primarily reflects changes
recorded as a result of fluctuation in the value of short term investments
recorded in accordance with Statement of Financial Accounting Standards
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("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
During 1995, the Company sold its 50% interest in Viral Technologies, Inc. In
1995, the Company recorded a gain on the sale of the Company's interest in VTI
of $646,628. Equity losses of VTI for 1995 and 1994 reflect payments to VTI for
the conduct of clinical activities of $181,026 and $347,455, respectively. As a
result of the sale, there were no such payments made in 1996.
Interest expenses for 1996 total $132,066, representing amounts due under the
terms of the vendor letter agreements with certain major vendors.
On January 1, 1994, the Company, as required, adopted SFAS No. 115 "Accounting
for Certain Investments in Debt and Equity Securities." Under the requirement,
short term investments must be stated at values which approximate current
market. The SFAS No. 115 unrealized losses recorded for 1996, 1995 and 1994 were
$0, $37,091 and $386,995, respectively.
In 1996, the Company adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." The fair value accounting requirement
of SFAS No. 123 would not have a material effect on the Company's net income and
earnings per share.
CAPITAL RESOURCES AND LIQUIDITY
Since its inception in 1982, the Company's activities have consisted of
conducting research and development, sponsoring clinical trials of its
proprietary products, the construction and equipping of laboratory and
production facilities, and the manufacture of products for research, testing and
clinical trials. The Company's accumulated deficit of $37,260,497 through
December 31, 1996 has been primarily funded by the proceeds from the issuance of
equity securities (and interest earned on such funds), the licensing of
technology developed or acquired by the Company and limited product sales.
The Company has delayed its development program for Thymosin beta 4, and has no
products that have received regulatory approval. The Company has not generated
significant revenues from operations and does not anticipate generating product
revenues for the foreseeable future. The Company will require substantial
funding in order to re-activate and conduct its research and development
activities and to manufacture and market the products which the Company intends
to develop.
During 1996, revenues consisted of consulting services and royalty income from
SciClone. These revenue sources are substantially below the level required to
cover fully the Company's expenses or to provide adequate cash flow. On March
12, 1997, the Company concluded a private placement of four units consisting of
Common Stock and Class D Warrants from which the Company received $200,000. Each
unit consists of 500,000 shares of Common Stock and 165,000 Class D Warrants
each having an exercise price of $0.10 per warrant and a term of ten years. The
proceeds of the offering will be used in part to conduct preclinical animal
studies at a major United States university using the Company's product,
Thymosin beta 4, and to fund its operations into the second quarter of 1997. The
Company currently believes, based on its existing resources, that it will have
sufficient cash to sustain its operations to the
13
<PAGE> 14
middle of the second quarter of 1997. If additional financing cannot be obtained
prior to that time, the Company likely will be forced to discontinue operations.
During 1995, the Company refocused its research efforts to Thymosin beta 4.
Research activities and preclinical studies were initiated and accelerated based
on anticipated cash resources that the Company expected to materialize through a
proposed merger. In anticipation of the merger and the cash that was to become
available, the Company commenced placing orders for the conduct of research
studies and for the purchase of Thymosin beta 4 material totaling $2,704,000. In
January 1996, the Company learned of the issuance of a U.S. patent that could
block the commercialization of Thymosin beta 4 as a mucolytic for the treatment
for cystic fibrosis. Thereafter, the merger agreement was terminated by mutual
agreement.
The Company continues to pursue strategic alliances or other partnership
arrangements with entities interested in and with resources to develop Thymosin
beta 4, or other business transactions which would allow the Company to generate
resources to assure continuation of the Company's operations.
As a result of the termination of research and development activities during
1996, the Company canceled research orders with certain vendors. The Company was
able to cancel approximately $1,200,000 of work on outstanding orders of
approximately $2,700,000. Management entered into separate letter agreements
with four vendors, which in the aggregate totaled $1,323,000, to defer payment
in exchange for a commitment to the vendors of revenues received by the Company
in the future under the SciClone license agreement until the full amounts of the
liabilities have been liquidated. In the event that sufficient funding is
obtained for the Thymosin beta 4 program, all amounts then due would become
payable immediately. During 1996, $132,066 of interest was accrued with respect
to the vendor agreements.
During 1996, the Company subleased its former corporate headquarters facilities
which exceeded requirements as a result of staff reductions, and leased space at
a more economical facility which accommodates the Company's requirements for its
current full time staff.
The effect of inflation and changing prices on the continuing operations of the
Company is not expected to be significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements begin on the following page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Alpha 1 Biomedicals, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Alpha 1 Biomedicals, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on the financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Washington, DC
March 24, 1997
15
<PAGE> 16
ALPHA 1 BIOMEDICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
---- ----
ASSETS
- ------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 153,725 $ 546,797
Short term investments - 284,538
Prepaid insurance 61,048 130,951
Other current assets 3,677 15,753
------------ ------------
Total current assets 218,450 978,039
Fixed assets, net 6,344 59,530
Proprietary rights, net - 64,672
Due from related party 72,643 80,596
Other assets 15,831 14,610
------------ ------------
Total assets $ 313,268 $ 1,197,447
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities
Accounts payable $ 165,084 $ 258,051
Accrued expenses 463,393 976,600
Letter agreements with vendors 1,323,022 -
------------ ------------
Total current liabilities 1,951,499 1,234,651
------------ ------------
Stockholders' equity (deficit)
Preferred stock, $.001 par value per share,
1,000,000 authorized; no shares issued - -
Common stock, par value $.001 per share,
20,000,000 shares authorized; 9,102,429 and
8,977,429 issued and outstanding, respectively 9,102 8,977
Additional paid-in capital 35,613,164 35,578,289
Accumulated deficit (37,260,497) (35,624,470)
------------ ------------
Total stockholders' equity (deficit) (1,638,231) (37,204)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 313,268 $ 1,197,447
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
ALPHA 1 BIOMEDICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues
Product sales, royalties and consulting $ 542,243 $ 105,591 $ 720,383
------------ ------------ ------------
Total revenues 542,243 105,591 720,383
------------ ------------ ------------
Expenses
Cost of sales - - 131,875
Research and product
development 1,052,352 2,751,744 2,840,814
General and administrative 968,568 2,060,891 8,606,641
------------ ------------ ------------
Total expenses 2,020,920 4,812,635 11,579,330
------------ ------------ ------------
Operating loss (1,478,677) (4,707,044) (10,858,947)
Equity in loss of VTI - (181,026) (347,455)
Gain on sale of VTI - 646,628 -
Interest expense (132,066) - -
Other (expense) income (25,284) 149,245 (100,543)
------------ ------------ ------------
Net loss $ (1,636,027) $ (4,092,197) $(11,306,945)
============ ============ ============
Net loss per common share $ (0.18) $ (0.46) $ (1.26)
============ ============ ============
Weighted average number
of common shares outstanding 9,068,959 8,977,429 8,976,114
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
ALPHA 1 BIOMEDICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,636,027) $ (4,092,197) $(11,306,945)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 12,517 47,947 281,490
Amortization 64,672 258,686 258,686
Equity in losses of VTI - 181,026 347,455
Litigation settlement in common stock (60,000) 200,000 -
Loss on disposal/writedown of fixed assets 26,969 32,703 1,558,799
Loss on short term investments 34,028 37,091 386,995
Sale of short term investments 250,510 3,425,406 5,947,549
Loss on write-down of inventory - - 540,841
Changes in operating assets and liabilities:
Increase in inventory - - (57,054)
Decrease (increase) in prepaid insurance 69,903 22,259 (75,389)
Decrease in other current assets 12,076 206,260 145,917
Decrease (increase) in due from related party 7,953 28,504 (109,100)
(Increase) decrease in other assets (1,221) 73,300 (35,162)
Decrease in accounts payable (92,967) (128,904) (1,042,580)
(Decrease) increase in accrued expenses (453,207) 301,537 352,391
Increase in letter agreements with vendors 1,323,022 - -
Decrease in unearned revenue - - (383,331)
Decrease in other liabilities - - (49,901)
------------ ------------ ------------
Net cash (used in) provided by operating activities (441,772) 593,618 (3,239,339)
------------ ------------ ------------
Cash flows from investing activities:
Advances to VTI - (181,026) (347,455)
Purchases of fixed assets - - (1,287,131)
Proceeds from the sale of fixed assets 13,700 120,500 177,739
------------ ------------ ------------
Net cash provided by (used in) investing activities 13,700 (60,526) (1,456,847)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock/warrants 35,000 - 37,125
------------ ------------ ------------
Net cash provided by financing activities 35,000 - 37,125
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (393,072) 533,092 (4,659,061)
Cash and cash equivalents at beginning of period 546,797 13,705 4,672,766
------------ ------------ ------------
Cash and cash equivalents at end of period $ 153,725 $ 546,797 $ 13,705
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
ALPHA 1 BIOMEDICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common stock Additional Total
--------------------------- paid-in Accumulated stockholders'
Shares Amount capital deficit equity (deficit)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 8,964,929 $ 8,965 $ 35,169,926 $(20,225,328) $ 14,953,563
Issuance of stock upon exercise of options 12,500 12 37,113 - 37,125
Net loss - - - (11,306,945) (11,306,945)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 8,977,429 8,977 35,207,039 (31,532,273) 3,683,743
Expiration of stock options - - 371,250 - 371,250
Net loss - - - (4,092,197) (4,092,197)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 8,977,429 8,977 35,578,289 (35,624,470) (37,204)
Issuance of common stock 125,000 125 34,875 - 35,000
Net loss - - - (1,636,027) (1,636,027)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 9,102,429 $ 9,102 $ 35,613,164 $(37,260,497) $ (1,638,231)
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
ALPHA 1 BIOMEDICALS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
ORGANIZATION AND NATURE OF OPERATIONS
Alpha 1 Biomedicals, Inc. (the "Company"), a Delaware corporation, was
incorporated in 1982. The Company operates predominantly in a single industry
segment, the biotechnology industry, which consists of researching and
developing new pharmaceutical products for the treatment of diseases or
conditions that arise as a result of immune system disorders, including chronic
viral infections, cancer and autoimmune disease.
The Company has delayed its development program for Thymosin beta 4 during 1996
and has no products that have received regulatory approval. The Company has not
generated significant revenues from operations and does not anticipate
generating product revenues for the foreseeable future. The Company will require
substantial funding in order to re-activate and conduct its research and
development activities and to manufacture and market the products which the
Company intends to develop. Management plans to continue to pursue strategic
alliances or other partnership arrangements with entities interested in and with
resources to develop Thymosin beta 4, or other business transactions which would
allow the Company to generate resources to assure continuation of the Company's
operations.
Cash and short-term investment balances at December 31, 1996 total $153,725.
This amount, based on the Company's commitments, was insufficient to satisfy
current requirements beyond March 1997. On March 12, 1997, the Company closed a
private equity placement of four units consisting of Common Stock and Class D
Warrants. Each unit consists of 500,000 shares of Common Stock and 165,000 Class
D Warrants each having an exercise price of $0.10 per warrant and a term of ten
years. The proceeds of the offering will be used in part to initiate preclinical
animal studies at a major United States university using the Company's product,
Thymosin beta 4, and to fund its operations for the second quarter of 1997. In
the event that substantial funding is not obtained, the Company likely will be
forced to discontinue operations. During the first quarter of 1996, the board of
directors approved a plan which provides for termination of all ongoing research
and development activities, a reduction of leased space, a reduction of certain
salaries and the severance of administrative staff. Also, during the first
quarter of 1996, management reached agreements with its major vendors to defer
approximately $1,323,000 in payments that are due in exchange for a commitment
to the vendors to make payments from revenues to be received by the Company in
the future under the SciClone license agreement until the full amount of the
liabilities have been liquidated.
Should the Company obtain substantial additional funding, other factors
including competition, dependence on third parties, uncertainty regarding
patents, protection of proprietary rights, manufacturing of peptides and
technology obsolescence could have a significant impact on the Company and its
operations.
20
<PAGE> 21
Significant Events
Thymosin alpha 1. From 1982 to 1994 the Company sponsored and conducted research
activities primarily on its product Thymosin alpha 1 as a potential treatment
for chronic hepatitis B.
During 1994, several events relating to Thymosin alpha 1 had a significant
impact on the business and the future direction of the Company. These events
included the results of a Phase III clinical study and a license agreement
entered into with SciClone. As a consequence of these events, the Company
substantially reduced its operations and eliminated its manufacturing
capability.
In April 1994, the Company's Phase III clinical study evaluating the use of
Thymosin alpha 1 as a treatment for chronic hepatitis B was unblinded. The
results from the trial did not appear to show statistically significant
differences between the treatment and placebo groups. The Company concluded that
the results of the trial would not support a New Drug Application to the U.S.
Food and Drug Administration ("FDA") for the approval of six months of therapy
with Thymosin alpha 1 as a sole treatment for chronic hepatitis B.
Effective September 30, 1994, as part of the settlement of an arbitration
proceeding, the Company entered into a new license agreement with SciClone
expanding the scope of the exclusive license granted to SciClone to manufacture,
use and sell Thymosin alpha 1 for all uses. The new license agreement was
coupled with a release by each party of the other from any and all prior claims
and a termination of the arbitration proceeding without any damages to either
party. As a consequence of the new license agreement with SciClone, the Company
no longer is engaged in the commercial development, manufacture or sale of
Thymosin alpha 1. As expanded, the license covers all countries of the world
except for Italy, Spain and Portugal, which have been licensed by the Company to
Sclavo, S.p.A., an Italian pharmaceutical company. Should Sclavo's rights in any
of the three countries terminate for any reason, the proprietary rights in that
country automatically are conveyed to SciClone under the terms of the New
SciClone License Agreement. In consideration for the expanded SciClone license
agreement, the Company will be entitled to receive a royalty on SciClone's net
sales revenue from products covered by the license that ranges from 3% to 7%
depending on whether SciClone's rights in the country in which the sales occur
were acquired under the new license agreement or the original license agreement
and on whether SciClone has patent protection or comparable market value
exclusivity in such country. The license agreement provides that the Company's
right to receive royalties continues until September 30, 2002, except that, if
by September 30, 2002 the Company has not realized royalty payments of at least
$35 million, SciClone's royalty obligation will continue until the earlier of
(i) the payment to the Company of royalties aggregating $35 million or (ii)
September 30, 2009. Under the license agreement, the decision whether to
continue the commercial development of Thymosin alpha 1 is at the sole
discretion of SciClone. During the second half of 1996, the parties entered into
a royalty agreement whereby the Company relinquished possible future royalty
payments of $2.5 million, after receipt of $1.75 million in royalties, in
consideration for a nonrefundable payment of $500,000, which was made prior to
the end of 1996.
21
<PAGE> 22
Thymosin beta 4. In December 1994, the Company reached a decision to focus its
development efforts on Thymosin beta 4, a chemically synthesized copy of a
natural hormone-like peptide that has shown promise in animal testing and
laboratory studies as a treatment for pulmonary diseases including cystic
fibrosis. During mid-1995, the Company entered into agreements with peptide
manufacturers to produce a small quantity of Thymosin beta 4 in order to provide
material for the conduct of several preclinical studies to be performed by
contract service organizations. Data from these preclinical studies was to
support the submission of an Investigational New Drug ("IND") application for
the treatment of cystic fibrosis. The Company concluded that in order to
continue development of Thymosin beta 4 rapidly for the IND submission,
additional capital would be required. In that regard, the Company identified an
investment partner, and in November 1995, entered into a definitive merger
agreement which, subject to stockholder approval and the satisfaction of other
conditions precedent, was scheduled to close in the first part of 1996.
Subsequent to December 31, 1995, the Company learned of an issued U.S. patent,
licensed to another entity, to which a license may be required in order to
commercialize Thymosin beta 4 as a treatment for cystic fibrosis. Thereafter,
the merger agreement was terminated by mutual agreement and the Company
suspended the further development of Thymosin beta 4. The Company has been
unsuccessful in its efforts to obtain a license to the patented technology which
likely would be required to finance a development program involving Thymosin
beta 4 as a potential treatment for cystic fibrosis.
The Company has designed a new clinical development plan using Thymosin beta 4
to treat conditions other than cystic fibrosis which would include methods of
use in a manner that does not infringe any existing patent. The Company is
focused on the use of Thymosin beta 4 as a treatment for Adult Respiratory
Distress Syndrome ("ARDS"), a lethal condition often the result of septic shock.
Although management believes that ARDS is an important clinical opportunity,
significant additional financing will be required before any work can begin on
the Thymosin beta 4 development program.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates. Estimates are used
when accounting for research projects, depreciation and amortization, asset
write-downs, employee benefit plans and income taxes.
Cash, cash equivalents and short term investments
Cash and cash equivalents consist of highly liquid U.S. government and U.S.
government-backed securities with original maturities of ninety days or less,
and short term investments consist of securities received from the sale of Viral
Technologies, Inc. ("VTI"). On January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." As of December 31, 1995, the
securities had an aggregate fair value of $285,000 and a cost of $322,000.
22
<PAGE> 23
The Company recorded an unrealized loss of $37,000 associated with these
securities which is included in the statement of operations for the year ended
December 31, 1995. During 1996, the Company sold all remaining VTI securities.
Investment in VTI joint venture
The Company sold its investment in VTI during 1995. During the period prior to
such sale, the Company followed the equity method of accounting for the
investment (Note 4).
Fixed assets
Fixed assets are stated at cost less accumulated depreciation. Expenditures for
maintenance and repairs which do not significantly prolong the useful lives of
the assets are charged to expense. Depreciation is computed using the
straight-line method over estimated useful lives of two to ten years, or over
the term of the lease (Note 5).
Letter agreements with vendors
During 1996, the Company entered into four separate letter agreements with
research companies which allows the Company to defer payments of current
obligations. The four letter agreements may be due on demand, but stipulate that
a percentage of future royalties received from SciClone will be used to pay down
their obligation. Approximately $1,100,000 of the letter agreements accrue
interest at an annual rate of 12%. Total accrued interest at December 31, 1996
is $132,066.
Proprietary rights
Proprietary rights, which consisted of costs of rights purchased (Note 3) and
patents obtained, have been amortized, on a straight-line basis, over periods up
to 15 years (based on the estimated useful lives of the rights and patents
acquired). All such rights became fully amortized during 1996.
Research and development
Research and development costs are expensed as incurred. Research and
development performed by third parties is expensed based upon the third party's
stage of product development.
Income taxes
The Company accounts for income taxes using the asset and liability approach
(SFAS No. 109 "Accounting for Income Taxes") which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities.
Fair value of financial instruments
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosures about Fair Value of Financial
Instruments," as amended by SFAS No. 119, "Disclosure about Derivative
23
<PAGE> 24
Financial Instruments and Fair Value of Financial Instruments," which requires
the disclosure of estimated fair values of financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. SFAS No. 107 excludes certain financial instruments and all non-financial
instruments. Accordingly, the estimated fair values are only indicative of
individual financial instruments' values and should not be considered an
indication of the fair value of the Company. The estimated fair values of the
Company's cash and cash equivalents, due from related party, accounts payable,
letter agreements with vendors and accrued expenses approximate their carrying
values.
Loss per share
Loss per share is computed by dividing the net loss by the weighted average
number of shares of Common Stock outstanding during the period. Common Stock
equivalent shares are not included in the calculation as their effect is
antidilutive.
NOTE 3 - PROPRIETARY RIGHTS AND LICENSES
Under a series of license agreements entered into since 1982 with Hoffmann-La
Roche, Inc. and its foreign affiliate ("HLR") and with The George Washington
University ("GWU"), the Company acquired certain proprietary rights to Thymosin
alpha 1 both in the United States and a number of foreign countries. In 1994,
the Company expanded the scope of its exclusive sublicense to SciClone, of the
Company's rights with respect to Thymosin alpha 1, to cover all countries (other
than Italy, Spain and Portugal) (Note 1). Under the SciClone license agreement,
SciClone is responsible for payment on behalf of the Company of all royalties
due to HLR, GWU and the University of Texas (from which HLR acquired certain
rights to Thymosin alpha 1).
The Company holds the proprietary rights to Thymosin beta 4 in the United States
under the license from HLR pursuant to which the Company is obligated to pay HLR
a royalty of 8% on commercial sales (or 4% of commercial sales, if the FDA has
approved Thymosin beta 4 for sale by a competitor) until the expiration of ten
years from the date of the first commercial sale. The Company also has a
worldwide license to certain uses of Thymosin beta 4 under a research agreement
with GWU under which the Company is obligated to pay GWU a royalty of 4% on
commercial sales.
NOTE 4 - RELATED PARTIES
Viral Technologies, Inc.
In April 1986, the Company sold 50% of its right, title and interest in a newly
developed technology which may be useful in the diagnosis, prevention and
treatment of Acquired Immune Deficiency Syndrome ("AIDS") to CEL-SCI Corporation
("CEL-SCI"), a publicly held company. Simultaneously with the sale of the
technology, the Company entered into a joint venture with CEL-SCI whereby each
party contributed its interests in the technology and $10,000 in cash to Viral
Technologies, Inc. ("VTI"), a newly created corporation, in exchange for a 50%
interest each in VTI.
24
<PAGE> 25
In November 1995, as a result of the Company's decision to concentrate its
efforts on Thymosin beta 4 technology, the Company sold its 50% interest in VTI
to CEL-SCI for which the Company received 159,170 shares of CEL-SCI common stock
valued at the market price of $646,628. As of December 31, 1995, the Company had
sold 80,000 of the CEL-SCI shares realizing net proceeds of $259,387. The market
value of the remaining shares at December 31, 1995 was $284,538. During the
first quarter of 1996, the remaining 79,170 shares were sold realizing net
proceeds of $250,510.
Prior to the sale of its investment in VTI in 1995, the Company recognized
$181,026 and $347,455 in 1995 and 1994, respectively, in VTI losses as a result
of funds provided for operations.
Note Due from Related Party
In 1994, the Company entered into a note receivable agreement with Allan
Goldstein, Chairman of the Board of Directors, which accrues interest monthly at
an annual rate of 11.5%. On February 27, 1996, the Company amended its note
receivable with Dr. Goldstein to forgo principal payments for nine months in
exchange for a reduction in his salary. Interest on the note continues to accrue
monthly.
In addition to his employment with the Company, Dr. Goldstein is also Chairman
of the Department of Biochemistry and Molecular Biology at GWU. The Company has
not funded any research personally conducted by Dr. Goldstein, and anticipates
that any future funding will also be limited to research projects performed by
principal investigators at GWU other than Dr. Goldstein. Payments made under the
research agreement totaling $196,079 and $275,457 were made during the years
ended December 31, 1995 and 1994, respectively. No funding was provided during
1996.
NOTE 5 - BALANCE SHEET INFORMATION
Fixed assets consist of the following (in thousands):
December 31,
----------------------
1996 1995
------- ---------
Furniture and equipment $ 40 $ 206
Leasehold improvements -- 6
------- ---------
40 212
Less accumulated depreciation 34 152
------- ---------
$ 6 $ 60
======= =========
25
<PAGE> 26
Accrued expenses consist of the following (in thousands):
December 31,
----------------------
1996 1995
------- ---------
Interest $ 132 $ --
Litigation settlement 105 200
Research projects 36 741
Other 190 36
------- ---------
$ 463 $ 977
======= =========
NOTE 6 - STOCKHOLDERS' EQUITY
Common Stock and Warrants
In January 1993, the Company announced its intention to redeem all outstanding
Class B Warrants and in connection therewith reduced the exercise price of the
Class B Warrants from $12.00 to $10.00 per share and augmented the consideration
to be received upon the exercise of each Class B Warrant by including a Class C
Warrant in addition to one share of Common Stock. The Class C Warrant entitled
the holder to purchase one share of Common Stock at a price of $19.00. On
February 28, 1997, all Class C Warrants expired.
Warrants
A warrant to purchase 20,000 shares of the Company's common stock was issued in
February 1995 in settlement of a suit filed against the Company. The warrant has
an exercise of $1.00 per share and expires February 2, 1998.
In April 1994, the Board of Directors adopted a Shareholders Rights Plan,
pursuant to which it declared a dividend distribution of one Preferred Stock
Purchase Right (Right) for each outstanding share of Common Stock. The dividend
distribution was payable to stockholders of record at the close of business
April 29, 1994.
The Rights can become exercisable only if a person or group acquires more than
25% of the Common Stock or announces a tender offer the consummation of which
would result in ownership by a person or group of more than 25% of the Common
Stock. Each Right would then entitle the holder to purchase one-thousandth
(1/1,000) of a share of a new series of preferred stock at an exercise price of
$16.00.
If the Company is acquired in a merger or other business combination transaction
with, or a significant portion of the Company's business is acquired by, a
person or group that has acquired more than 25% of its outstanding Common Stock,
each Right will entitle its holder (other than such person or group or any of
their affiliates or associates) to purchase, at the then-current exercise price
of the Right, a number of the acquiring company's common shares having a value
that is twice such exercise price. In addition, if a person or group acquires
more than 25% of the Company's outstanding Common Stock, each Right will entitle
its holder (other than such person or group or any of their affiliates or
associates) to purchase, at the then-current
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<PAGE> 27
exercise price of the Right, a number of shares of Common Stock having a market
value that is twice such exercise price.
Prior to the time that the Rights become exercisable, they are redeemable at the
option of the Board of Directors at a redemption price of $0.01 per Right. The
Board of Directors is required to redeem the rights in the event of an all-cash
tender offer for all of the outstanding shares of the Common Stock that meets
certain requirements. The Rights will expire on April 29, 2004.
Stock Option Plans
Stock Based Compensation
The Company accounts for stock based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
APB No. 25, compensation cost is measured as the excess, if any, of the quoted
market price on the Company's stock at the date of the grant over the exercise
price of the quoted market price on the Company's stock at the date of the grant
over the exercise price of the option granted. Compensation cost for stock
options, if any, is recognized ratably over the vesting period. Generally, the
Company's policy is to grant options with an exercise price equal to the quoted
market price of the Company's stock on the grant date. The Company has adopted
the disclosure only provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock Based Compensation." The fair value
accounting requirement of SFAS No. 123 would not have a material effect on the
Company's net income and earnings per share.
Incentive Stock Option Plan
The Company has an Incentive Stock Option Plan established in 1986, and since
amended from time to time, under which options to purchase shares of Common
Stock of the Company may be granted by the Company to any employee. All options
granted under the Plan are exercisable at a price equal to the fair market value
of the Common Stock on the date of the grant. The Plan authorizes the issuance
of up to 1,500,000 shares of Common Stock.
1987 Non-qualified Stock Option Plan
The 1987 Non-Qualified Stock Option Plan was adopted by the Board of Directors
and approved by the stockholders in 1987. The Plan provides for grants of stock
options to any employee. The Plan authorizes the issuance of up to 1,000,000
shares of Common Stock.
Directors Stock Option Plan
The Directors Stock Option Plan was adopted by the Board of Directors and
approved by the stockholders in 1987. Under the Plan, options to purchase 10,000
shares of Common Stock are granted automatically to each person who becomes a
director after April 10, 1987 and who, at the time such person becomes a
director, is not an employee of the Company. Options granted under the Plan have
an exercise price per share equal to the fair market value of the Common Stock
on the date of the grant. In 1992, the Plan was amended, with the approval of
stockholders at the 1992 Annual Meeting (i) to add an automatic
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<PAGE> 28
annual grant to each non-employee director of an option to purchase 5,000 shares
of Common Stock if the individual is reelected as a Director at the Annual
Meeting, and (ii) to increase to 200,000 the number of shares of Common Stock
issuable under the Plan. Options granted under the Plan have a ten-year term and
become exercisable in 20% increments beginning on the date of the grant and on
each anniversary date thereafter.
Options outstanding and exercisable
The following table summarizes the Company's stock option activity for 1994,
1995 and 1996:
Number of Exercise Weighted Average
Shares Price Range Exercise Price
Options outstanding
December 31, 1993 1,018,973 $1.00 to $16.25 $7.65
Options granted 20,000 $1.00 $1.00
Options exercised 12,500 $1.00 to $6.25 $2.05
Options terminated 253,966 $1.00 to $16.25 $9.36
------- --------------- -----
Options outstanding
December 31, 1994 772,507 $0.44 to $16.25 $7.00
Options granted 1,350,000 $0.44 to $0.69 $0.46
Options terminated 486,834 $1.00 to $16.25 $5.07
------- --------------- -----
Options outstanding
December 31, 1995 1,635,673 $0.44 to $16.25 $2.18
Options terminated 1,246,000 $0.44 to $16.25 $0.46
--------- --------------- -----
Options outstanding
December 31, 1996 389,673 $0.53 to $16.25 $7.16
=======
The following table summarizes information about the options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
-------------Options Outstanding----------- ----Options Exercisable-----
Weighted-
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
<S> <C> <C> <C> <C> <C> <C>
$0.53 - $1.375 136,673 7.5 $0.81 130,375 $0.80
$6.25 - $8.125 37,500 2.6 $6.88 37,500 $6.88
$9.50 - $10.50 107,000 5.1 $9.77 105,000 $9.75
$14.00 - $16.25 108,500 5.5 $14.63 108,500 $14.63
------- -------
389,673 381,375
======= =======
</TABLE>
At December 31, 1996, 381,375 options, with an average exercise price of $7.15
per share, were exercisable. At December 31, 1995, 354,548 options, with an
average exercise price of $7.75, were exercisable. At December 31, 1994, 581,951
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<PAGE> 29
options, with an average exercise price of $7.60, were exercisable. At December
31, 1996, 1,723,426 shares were available for future grants.
In October 1995, the Company granted 1,245,000 options with vesting contingent
upon shareholder approval of a proposed merger transaction (Note 1). Subsequent
to December 31, 1995, these options were canceled due to the termination of the
merger on February 8, 1996.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) retirement plan whereby the Company matches a
portion of the employees' salary reduction contributions. During February 1996,
the Company ceased to make contributions to the Plan. Company contributions to
the plan were $3,284, $21,152 and $62,320 in 1996, 1995 and 1994, respectively.
NOTE 8 - INCOME TAXES
Deferred tax assets are comprised of the following (in thousands):
December 31, December 31,
1996 1995
------------- -------------
Net operating loss carryforwards $ 14,934 $ 14,193
Capital Loss 166 166
Research and development tax credit 611 588
Other 163 --
--------- ---------
15,874 14,947
Valuation allowance (15,874) (14,947)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
The change in the valuation allowance is primarily attributable to 1996 losses.
The Company has provided a full valuation allowance for deferred tax assets
since realization of these future benefits cannot be reasonably assured. If the
Company achieves profitability, these deferred tax assets would be available to
offset future income tax liabilities and expense, subject to certain
limitations.
At December 31, 1996, the Company had net operating loss and research and
development tax credit carryforwards of approximately $37.3 million and $0.6
million, respectively, for income tax purposes which expire in various years
through 2011. Certain substantial changes in the Company's ownership would
result in an annual limitation on the amount of the net operating loss
carryforwards which can be utilized.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
In July 1992, the Company commenced a five year operating lease for headquarters
office space in Bethesda, Maryland. In April 1996, the Company subleased the
office space for rates below the Company's current lease rates and recorded a
loss of approximately $53,000 for the rate differential. In April 1996, the
Company entered into a separate sublease agreement for new headquarters space.
The sublease agreement, under which the rent was prepaid
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<PAGE> 30
by the Company, expires in March 1997. During March 1997, the Company entered
into a one-year lease agreement for the same headquarters space. The Company has
an operating lease for production facility space in Sunnyvale, California, which
expires in January 2002. The Sunnyvale lease was assigned to a third party in
March 1995 on the same terms for the remaining term of the underlying lease. The
Company's aggregate rent expense was $127,771, $350,308, and $462,567 for the
years ended December 31, 1996, 1995 and 1994, respectively.
During 1994, several suits were filed against the Company, its Chairman, and
former Chief Executive Officer, alleging the Company and certain of its officers
made or are responsible for false or misleading public statements regarding the
Company, Thymosin alpha 1, the results of Thymosin alpha 1 in the treatment of
chronic hepatitis B, and the prospects for success of Thymosin alpha 1 in
clinical trials and the impact on the Company. The suits were consolidated as a
single action, and in a consolidated amended complaint, the plaintiffs expanded
their claims to include the allegation that the Company made false and
misleading public statements concerning its ability to satisfy its contractual
obligation to supply product to SciClone. On March 13, 1995, the district court
issued an order dismissing all claims except for the claim regarding a public
statement made by the Company concerning its ability to supply product to
SciClone. On September 26, 1995, the parties filed a Stipulation of Settlement
with the District Court under which the Company would issue 500,000 shares of
its Common Stock and make a $100,000 payment in settlement of the remaining
claim. The $100,000 payment in settlement was placed in an escrow account in
September 1995. During 1996, the Company issued 125,000 of the 500,000 shares.
During February 1997, the remaining 375,000 shares were issued. At December 31,
1996, the expense for the settlement stipulated under the agreement has been
accrued. Although the Company believed the remaining claim was without merit, it
entered into the settlement agreement to avoid continuing costs of litigation.
In March 1996, the Company received a complaint which was filed by a former
consultant to the Company in the Circuit Court for Wayne County, Michigan,
alleging negligence, fraud, statutory indemnification and detrimental reliance.
The plaintiff was seeking legal expenses and related costs associated with the
investigation of the consultant by the Securities and Exchange Commission.
Following removal of the case to the U.S. District Court for the Eastern
District of Michigan, the complaint, on July 19, 1996, was dismissed by the
Court. The plaintiff appealed. Subsequent to 1996, in consideration of the
Company making a payment of $10,000, which was accrued for in 1996, the parties
executed a Stipulation of Dismissal with Prejudice. While the Company continues
to believe that the claims are without merit, it has entered into the settlement
agreement to avoid the continuing cost of litigation.
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<PAGE> 31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors. Information concerning each director of the
Company, consisting of the nominee's age, period of service as a director of the
Company, a brief description of his principal occupation and business experience
during the past five years, and certain other directorships held is set forth
below.
ALLAN L. GOLDSTEIN, PH.D., AGE 59, DIRECTOR SINCE 1982
Dr. Goldstein, Ph.D., Chairman of the Board and Chief Scientific
Advisor. Dr. Goldstein is a founder of the Company and also is Professor and
Chairman of the Department of Biochemistry and Molecular Biology at The
George Washington University School of Medicine and Health Sciences, a
position he has held since 1978. Prior to 1986, Dr. Goldstein served as
Chief Executive Officer and Treasurer of Alpha 1. Dr. Goldstein is currently
a part-time employee of Alpha 1 and devotes a portion of his time to the
business of the Company.
JOSEPH C. MCNAY, AGE 63, DIRECTOR SINCE 1987
Mr. McNay has been the Chairman and Director of Essex Investment
Management Company, Inc., a registered investment advisor, since 1976. He is
also a director of SofTech, Inc. and MPSI Systems, Inc.
ALBERT ROSENFELD, AGE 76, DIRECTOR SINCE 1982
Mr. Rosenfeld has been a Consultant on Future Programs for the March of
Dimes Birth Defects Foundation since 1973, and Adjunct Professor in the
Department of Human Biological Chemistry and Genetics at the University of Texas
Medical Branch, Galveston, Texas. He is a frequent author and lecturer on
scientific matters.
MICHAEL L. BERMAN, PH.D., AGE 47, DIRECTOR SINCE 1995
Dr. Berman was elected as President and Chief Executive Officer of the
Company in November 1994. He joined the Company in early 1994 as Vice
President for new commercial programs. From 1988 to 1993, Dr. Berman was Vice
President and Scientific Director and then Director of Business Development
with Oncologix, Inc. He is also a director of Prototek, Inc. and Peptomers,
Inc.
(b) Identification of Executive Officers. Information concerning each
executive officer of the Company (other than executive officers who also are
directors), consisting of such person's age, position, and offices held with the
Company and the period for which such person has held such positions or offices
and the business expertise of such person during the past five years is set
forth below. Executive officers are elected annually by the Board of Directors
and are subject to removal at the discretion of the Board of Directors.
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<PAGE> 32
Robert J. Lanham
Robert J. Lanham, Vice President and Chief Financial Officer. Mr.
Lanham joined Alpha 1 in 1987 as Vice President, Finance and Administration
and Corporate Secretary. He was elected Treasurer in 1989 and has served as
Chief Financial Officer since February 1995.
(c) Section 16(a) Beneficial Ownership Compliance. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires that each of the Company's
directors and executive officers, and any beneficial owner of more than 10% of
the Common Stock, file with the Securities and Exchange Commission (the "SEC")
initial reports of beneficial ownership of the Common Stock and reports of
changes in beneficial ownership of the Common Stock. Such persons also are
required by SEC regulations to furnish the Company with copies of all such
reports. Based solely on its review of the copies of such reports furnished to
the Company for the year ended December 31, 1996, and on the written
representations made by such persons that no other reports were required, the
Company is not aware of any instances of noncompliance with Section 16(a) during
1996.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the compensation
in each of the last three fiscal years of the Company's President and Chief
Executive Officer and each other executive officer whose 1996 combined salary
and bonus exceeded $100,000 (the "named executive officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Long Term
Compensation(1) Compensation All Other
Name and --------------- Awards ---------
Principal Position Year Salary Bonus Options(2) Compensation
---- ----- ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Michael L. Berman(3) 1996 $150,000 $ 0 0 $ 2,456 (4)
President and Chief 1995 $150,986 $ 5,000 580,000 $ 7,365
Executive Officer 1994 $ 81,312 $10,000 20,000 $ 3,109
Robert J. Lanham 1996 $106,148 $ 0 0 $ 4,616 (5)
Vice President, Finance 1995 $113,211 $ 0 215,000 $ 8,255
& Chief Financial Officer 1994 $ 98,945 $ 0 0 $ 107,968
</TABLE>
(1) None of the above-named executive officers received perquisites or other
personal benefits in excess of the lesser of $50,000 or 10% of such
individuals salary plus annual bonus.
(2) Consists of options to purchase shares of Common Stock granted under the
Company's employee stock option plans. No options were granted during
1996. During 1995, options issued to Dr. Berman and Mr. Lanham of
500,000 and 200,000, respectively, were granted subject to shareholder
approval of the merger with Alpha 1 Acquisition Corporation. The merger
transaction was terminated by mutual agreement on February 8, 1996, and
as a result, such options were canceled. Additionally, during 1995, Dr.
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<PAGE> 33
Berman was issued an option to purchase 80,000 shares which vested in 12
equal monthly amounts, and Mr. Lanham was issued an option to purchase
15,000 shares, which vested in 24 equal monthly amounts. During 1994,
Dr. Berman was issued an option to purchase 20,000 shares which vested
immediately.
(3) Dr. Berman was first employed by the Company in March 1994.
(4) Consists of (i) $730 in matching contributions to the Company's 401(k)
Plan and (ii) $1,726 of premiums paid by the Company for long-term
disability insurance.
(5) Consists of (i) $542 in matching contributions to the Company's 401(k)
Plan, and (ii) $4,074 of premiums paid by the Company for long-term
disability and life insurance.
Aggregate Option Exercises in 1996 and Year-End Stock Option Values
<TABLE>
<CAPTION>
Value of
Shares Number of Unexercised Unexercised In-the
Acquired Options at Year-End Money Options at Year-End(1)
on Value ------------------- ------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allan L. Goldstein 0 0 150,000 0 0 0
Michael L. Berman 0 0 100,000 0 0 0
Robert J. Lanham 0 0 86,048 625 0 0
</TABLE>
(1) All options have an exercise price that exceeds the market price.
Employment Agreements
In January 1995, the Company entered into an employment agreement with Dr.
Michael Berman pursuant to which he served as the Company's President and Chief
Executive Officer. The agreement was for a one-year term and provided for an
annual salary of $150,000. Pursuant to the agreement, the Company issued to Dr.
Berman a ten-year option to purchase 80,000 shares of Common Stock at an
exercise price of $.69 per share (the market price of the Common Stock on the
date of the grant), which vested in 12 equal monthly installments over the term
of the employment agreement. Since January 1996, Dr. Berman has continued as the
President and Chief Executive Officer of the Company without an employment
agreement at an annual salary of $150,000.
In February 1995, the Company entered into an employment agreement with Mr.
Robert J. Lanham with a one-year term and an annual salary of $115,000. As of
February 1996, Mr. Lanham continues as Vice President and Chief Financial
Officer, without an employment agreement at an annual salary of $115,000.
Compensation Committee Interlocks and Insider Participation
The Board of Directors as a whole is responsible for determining the
compensation payable to the chief executive officer and to other executive
officers of the Company. When the Board gives consideration to the
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<PAGE> 34
compensation of an executive officer who also is a director, that director does
not participate in the Board's deliberations.
In May 1994, the Company extended a loan in the amount of $149,000 to Dr.
Goldstein, the Company's Chairman of the Board, for the purpose of enabling Dr.
Goldstein to meet a margin call on a brokerage account collateralized by the
Common Stock of the Company at a time when the Board of Directors concluded that
it would be contrary to the best interest of the Company for Dr. Goldstein to
effect a sale of the shares. The loan was unsecured, and had an interest rate
equal to the prime rate, with all principal and interest due on the December 31,
1994 maturity date. The loan was repaid on January 1, 1995, in part with the
proceeds of a second unsecured loan to Dr. Goldstein from the Company in the
amount of $115,617. This second loan has an interest rate of 11.5% and is to be
repaid in 24 equal monthly installments. During February 1996, the parties
amended the loan agreement to provide for the suspension of installment payments
for twelve months, with interest continuing to accrue. During March 1997, the
parties further amended the terms of the loan agreement to suspend installment
payments for an additional nine months, with interest continuing to accrue. At
February 28, 1997, the outstanding principal balance was $72,643.
In November 1994, the Company entered into an agreement with SciClone
Pharmaceuticals, Inc. ("SciClone") pursuant to which the Company agreed to make
the services of Dr. Goldstein available to consult with SciClone concerning
SciClone's efforts to commercialize Thymosin alpha 1. The agreement covered an
initial one-year term and provided for an automatic renewal annually for
additional one-year terms unless terminated by either party upon 30 days'
notice. Under the Agreement, the Company was paid an initial retainer of
$50,000, and was entitled to receive an additional retainer of $50,000 payable
upon the commencement of each successive one-year term. In addition, the Company
was paid a consulting fee for Dr. Goldstein's services at the rate of $250 per
hour, with a minimum, initial annual consulting fee of $50,000. The agreement
was renewed in November 1995 for an additional year, but amending the terms to
provide for a $25,000 retainer and minimum consulting fees of $25,000. The
agreement terminated in October 1996. In view of the additional demands on the
time and attention of Dr. Goldstein required by reason of this consulting
arrangement, the Company agreed to pay Dr. Goldstein as compensation the annual
retainer and all consulting fees earned by the Company under the agreement.
During March 1997, Mr. McNay, as a participant in the private placement units
offering, purchased one unit at the offering price of $50,000. The unit
consisted of 500,000 shares of Common Stock and 165,000 Class D Warrants each of
which is exercisable to purchase one share of Common Stock at an exercise price
of $0.10 per share.
Compensation of Directors
Each nonemployee director is paid an annual fee of $5,000, plus $1,250 per
meeting for attendance at meetings in person and is reimbursed for expenses
incurred in attending meetings of the Board of Directors. Each current
nonemployee director and any new nonemployee director also is a participant in
the Company's Directors Stock Option Plan pursuant to which (i) each nonemployee
director at the time of his or her initial election or appointment is granted an
option to purchase 10,000 shares of Common Stock and (ii) each
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<PAGE> 35
nonemployee director received annually an option to purchase 5,000 shares of
Common Stock at the time of his or her reelection as a director. Such options
have an exercise price equal to the fair market value of the Common Stock on the
date of the grant and vest in annual increments of 20% beginning on the date of
the grant.
Compensation Committee Report
The objective of the Board of Directors is to provide for compensation
arrangements for the Company's executive officers that are competitive within
the industry and that promote the Company's goal of enhancing shareholder value.
The components of the Company's compensation arrangements for its executive
officers consist of base salary, bonuses and stock options.
Base Salary. The base salaries of executive officers are established by contract
or otherwise at levels that the Board (based on the advice of the chief
executive officer as to officers other than the chief executive officer)
believes are necessary to attract and retain executives of a caliber essential
to the Company's success. The compensation levels required to achieve this
objective are determined primarily by a comparison to the salaries paid to
executives at comparable levels of responsibility by companies principally in
the same industry of a similar size. However, no particular level within the
competitive range is targeted. Adjustments to salary levels may be made from
time to time based upon the foregoing factors and after giving consideration to
the individual performance factors.
Bonus. Although the Company does not have an established bonus plan, individual
bonuses are paid to executive officers as provided for under the terms of
individual employment agreements or are awarded from time to time in recognition
of a particular contribution or achievement of an executive officer. Bonuses
paid to executive officers other than the chief executive officer usually are
determined by the chief executive officer in consultation with the Board of
Directors. No bonuses were paid to executive officers during 1996.
Stock Options. Because the Company to date has realized only limited revenues
from operations and seeks to maximize the resources available to devote to
product development, the Board has placed significant emphasis on stock option
awards as a non-cash means of executive compensation. Under the Company's stock
option plans, options are awarded at an exercise price equal to the fair market
value of the Common Stock on the date of the grant and generally become
exercisable over a period of years, thereby aligning the compensation realizable
by executives with increases in shareholder value. The size of individual awards
is based on a combination of factors, with a principal emphasis on salary
levels, but with consideration also given to the number of vested and unvested
stock options previously awarded to the executive officer and individual
performance criteria. During 1996, no stock options were granted.
35
<PAGE> 36
Dr. Berman, the Company's President and Chief Executive Officer has served
without the benefit of an employment agreement since January 1996. His
compensation has been at the rate of $150,000 since that time, which is the same
level that it was under his employment contract.
Allan L. Goldstein
Michael L. Berman
Joseph C. McNay
Albert Rosenfeld
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 24, 1997, unless otherwise indicated,
certain information concerning the beneficial ownership of Common Stock (i) by
each director, (ii) by each named executive officer, (iii) by an investor
reporting to own beneficially more than 5% of the outstanding Common Stock, and
(iv) by all directors and executive officers of the Company as a group, in each
case as reported to the Company by such persons
Percentage of
Name and Address of Outstanding
Beneficial Owner (1) Number of Shares (2) Shares (3)
- -------------------- -------------------- ----------
Allan L. Goldstein 536,124 (4) 4.5%
Joseph C. McNay 800,000 (5) 6.7%
Albert Rosenfeld 23,100 (6) *
Michael L. Berman 473,901 (7) 4.0%
Robert J. Lanham 252,720 (8) 2.2%
Roger H. Samet 1,172,050 (9) 9.9%
All directors and executive officers 2,085,845 (10) 16.5%
- -----------------------------------
* Constitutes less than 1% of the outstanding shares of Common Stock.
(1) Unless otherwise indicated, the address of the beneficial owner is c/o
Alpha 1 Biomedicals, Inc., 6707 Democracy Boulevard, Suite 111, Bethesda,
Maryland 20817.
(2) A beneficial owner of a security includes a person who directly or
indirectly has or shares voting or investment power with respect to
such security. Voting power is the power to vote or direct the voting
of the security and investment power is the power to dispose or direct
the disposition of the security. Each person listed has advised the
Company that, except as otherwise indicted below, such person has, or
upon the exercise of the stock options or Class D Warrants indicated
will have,
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<PAGE> 37
sole voting power and sole investment power with respect to the shares
indicated.
(3) The percentages represent the total number of shares of Common Stock
shown in the adjacent column divided by the sum of (i) the issued and
outstanding shares of Common Stock as of March 24, 1997, and (ii) all
shares of Common Stock, if any, issuable upon the exercise of stock
options or Class D Warrants held by such person or group that were
exercisable on March 24, 1997, or will become exercisable within 60
days thereafter.
(4) Consists of (i) 90,285 shares of Common Stock owned directly by Dr.
Goldstein and 339,633 shares of Common Stock which he has a right to
acquire pursuant to the exercise of immediately exercisable options
granted under the Company's 1986 Incentive Stock Option Plan and 1987
Non-Qualified Stock Option Plan over which Dr. Goldstein has, or upon
exercise of such options will have, sole voting and sole investment
power and (ii) 11,000 shares held in trust for the benefit of Dr.
Goldstein's daughter, as to which he serves as a co-trustee, 51,103
shares held by Dr. Goldstein's wife and 44,103 shares held by Dr.
Goldstein's wife as custodian for their minor child, all with respect
to which Dr. Goldstein shares voting and investment power.
(5) Consists of 612,000 shares of Common Stock owned directly by Mr. McNay and
23,000 shares of Common Stock issuable upon the exercise of the
immediately exercisable portion of options granted under the Company's
Directors Stock Option Plan and Class D Warrants exercisable to purchase
165,000 shares of Common Stock.
(6) Consists of 10,100 shares of Common Stock owned directly by Mr. Rosenfeld
and 13,000 shares of Common Stock issuable upon the exercise of the
immediately exercisable portion of options granted under the Company's
Directors Stock Option Plan.
(7) Consists of 68,000 shares of Common Stock owned directly by Dr. Berman and
384,451 shares issuable upon exercise of immediately exercisable stock
options under the Company's 1986 Incentive Stock Option Plan and
Non-Qualified Stock Option Plan, and Class D Warrants exercisable to
purchase 21,450 shares of Common Stock.
(8) Consists of 54,727 shares of Common Stock owned directly by Mr. Lanham and
181,493 shares issuable upon exercise of immediately exercisable stock
options under the Company's 1986 Incentive Stock Option Plan and 1987
Non-qualified Stock Option Plan and Class D Warrants exercisable to
purchase 16,500 shares of Common Stock.
(9) Consists of 880,000 shares of Common Stock, and Class D Warrants
exercisable to purchase 292,050 shares of Common Stock.
(10) Consists of 835,112 shares of Common Stock owned directly by all
directors and executive officers of the Company as a group, the right
to acquire through the exercise of stock options 941,577 shares of
Common Stock that were exercisable on March 24, 1997, or that will
become exercisable within 60 days thereafter, and 106,206 shares of
Common
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<PAGE> 38
Stock owned by wives and children of directors and executive officers, and
Class D Warrants exercisable to purchase 202,950 shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11 Executive Compensation -- Compensation Committee Interlocks and
Insider Participation."
38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements
The Financial Statements of the Company for the year ended December 31,
1996, filed as part of this Annual Report on Form 10-K, are on the pages
set forth below:
Page Number
of this
Form 10-K
A. Report of Independent Accountants 15
B. Balance Sheets at December 31, 1996 16
and 1995
C. Statements of Operations 17
for the years ended December 31,
1996, 1995 and 1994
D. Statements of Cash Flows 18
for the years ended December 31, 1996,
1995 and 1994
E. Statements of Stockholders' Equity 19
(Deficit) for the years ended
December 31, 1996, 1995, and 1994
F. Notes to Financial Statements 20-30
2. Financial Statement Schedules
None are included because they are not applicable or not required,
or because the required information is included in the Financial
Statements or the Notes thereto.
3. Exhibits Required by Item 601 of Securities and Exchange Commission
Regulation S-K
39
<PAGE> 40
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Reference **
- ------- ---------------------- ------------
No.
---
<S> <C> <C>
3.1 Restated Certificate of Exhibit 3.1 to Registration
Incorporation of Company Statement No. 33-9370, Amendment
No. 1 (filed 11/26/86)
3.2 Amendment to Restated Certificate Exhibit 3.2 to the Company's
of Incorporation of Company Transitional Report on Form 10-K,
File No. 1-15070 (filed 3/18/91)
3.3 Bylaws of Company Exhibit 3.2 to Registration
Statement No. 33-9370 (filed
10/8/86)
3.4 Amendment No. 1 to Bylaws of Exhibit 4.7, Registration
Company adopted 8/11/89 Statement No. 33-34551, Amendment
No. 3 (filed 6/21/90)
3.5 Amendment No. 2 to Bylaws of Exhibit 4.8, Registration
Company adopted 6/18/90 Statement No. 33-34551, Amendment
No. 3 (filed 6/21/90)
3.6 Amendment No. 3 to Bylaws of Exhibit 3.6 to the Company's
Company adopted 11/30/90 Transitional Report on Form 10-K,
File No. 1-15070 (filed 3/18/91)
4.1 Form of Stock Certificate Exhibit 4.1 to Registration
Statement No. 33-9370, Amendment
No. 1 (filed 11/26/86)
4.2 Rights Agreement, dated as of Exhibit 1 to the Company's
April 29, 1994, between the Registration Statement on Form
Company and American Stock 8-K, dated May 2, 1994
Transfer & Trust Company, as
Rights Agent
4.3 Warrant Agreement, Filed herewith
dated March 12, 1997
10.1 Commercial Text Agreement between Exhibit 10.10, Registration
the Company and F. Hoffmann-La Statement No. 33-9370 (filed
Roche, Inc., dated September 15, 10/8/86)
1982, and amended August 7, 1984
and September 18, 1986
10.2 Thymosin Fraction 5 License Exhibit 10.11, Registration
Agreement between the Company and Statement No. 33-9370 (filed
F. Hoffmann-La Roche & Co. Limited 10/8/86)
Company, dated January 1, 1985
</TABLE>
40
<PAGE> 41
<TABLE>
<S> <C> <C>
10.3 Thymosin Alpha 1 License Agreement Exhibit 10.12, Registration
between the Company and F. Statement No. 33-9370 (filed
Hoffmann-La Roche & Co. Limited 10/8/86)
Company, dated August 5, 1986
10.4 Thymosin Alpha 1 License Exhibit 10.19 to the Company's
Agreements between the Company and Annual Report on Form 10-K, File
F. Hoffmann-La Roche & Co. Limited No. 1-15070 (filed 6/29/89)
Company, dated October 21, 1988
10.5 Agreement between the Company and Exhibit 10.19, Registration
Hoffmann-La Roche, Inc., dated as Statement No. 33-34551 (filed
of December 21, 1989 4/25/90)
10.6 Letter Agreement, dated March 4, Exhibit 10.29 to the Company's
1991, between the Company and F. Annual Report on Form 10-K, File
Hoffmann-La Roche & Co. Limited No. 1-15070 (filed 3/25/92)
Co.
10.7 Agreement between the Company and Exhibit 10.30 to the Company's
Hoffmann-La Roche, Inc., dated as Annual Report on Form 10-K, File
of August 6, 1991 No. 1-15070 (filed 3/25/92)
10.8* 1986 Incentive Stock Option Plan, Exhibit 10.23 to the Company's
as amended through May 15, 1992 Annual Report on Form 10-K, File
No. 1-15070 (filed 3/26/93)
10.9* 1987 Non-Qualified Stock Option Exhibit 10.24 to the Company's
Plan, as amended through May 15, Annual Report on Form 10-K, File
1992 No. 1-15070 (filed 3/26/93)
10.10* Amended and Restated Directors Exhibit 10.25 to the Company's
Stock Option Plan, dated as of May Annual Report on Form 10-K, File
15, 1992 No. 1-15070 (filed 3/26/93)
10.11 Lease Agreement, dated as of April Exhibit 10.27 to the Company's
9, 1992, between the Company and Annual Report on Form 10-K, File
Democracy Associates Limited No. 1-15070 (filed 3/26/93)
Partnership (Bethesda, Maryland
lease)
10.12 Lease Agreement, dated February Exhibit 10.28 to the Company's
10, 1993, between the Company and Annual Report on Form 10-K, File
John Arrillaga, Trustee, and No. 1-15070 (filed 3/26/93)
Richard T. Perry, Trustee
(Sunnyvale, California lease)
10.13 Thymosin alpha 1 License Exhibit 10.29 to the Company's
Agreement, dated as of February Annual Report on Form 10-K, File
12, 1993, between the Company and No. 1-15070 (filed 3/26/93)
Sclavo, S.p.A. (with certain
confidential information deleted)
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C> <C>
10.14 Lease Agreement Amendment Number Exhibit 10.24 to the Company's
1, dated September 1, 1993, and Annual Report on Form 10-K, File
Amendment Number 2, dated December No. 1-15070 (filed 3/28/94)
27, 1993
(Sunnyvale, California lease)
10.15 Thymosin Alpha 1 License Exhibit 1 to a Current Report on
Agreement, dated as of August 19, Form 8-K, File No. 1-15070 (filed
1994, between SciClone 8/24/94)
Pharmaceuticals, Inc. and the
Company (with certain confidential
information omitted)
10.16 Consulting Agreement, effective Exhibit 10.26 to the Company's
October 15, 1994, between SciClone Annual Report on Form 10-K, File
Pharmaceuticals, Inc. and the No. 1-15070 (filed 3/31/95)
Company
10.17 Lease Agreement Amendment Number Exhibit 10.28 to the Company's
3, dated April 19, 1994 Annual Report on Form 10-K, File
(Sunnyvale, California Lease) No. 1-15070 (filed 3/31/95)
10.18* Employment Agreement, dated Exhibit 10.31 to the Company's
January 18, 1995, between the Annual Report on Form 10-K, File
Company and Michael L. Berman No. 1-15070 (filed 3/31/95)
10.19 Assignment of Lease, dated March Exhibit 10.24 to the Company's
22, 1995 from the Company to Scios Annual Report on Form 10-K, File
Nova, Inc. (Sunnyvale, California No. 1-15070 (filed 3/31/95)
Lease)
10.20 Consulting Agreement, effective Exhibit 10.25 to the Company's
October 15, 1995, between SciClone Annual Report on Form 10-K, File
Pharmaceuticals, Inc. and the No. 1-15070 (filed 3/31/95)
Company
10.21 Agreement of Merger, dated Exhibit (c)(1) to a Current Report
November 13, 1995 between Alpha 1 on Form 8-K File No. 0-15070
Acquisition Corporation and the (filed 11/13/95)
Company
10.22* Supplement to Employment Exhibit 10.28 to the Company's
Agreement, dated February 27, Annual Report on Form 10-K, File
1996, between the Company and No. 1-15070 (filed 3/31/95)
Allan L. Goldstein
10.23 Sublease Agreement between Alpha 1 Exhibit (a)1 to the Company's
Biomedicals, Inc. and Snyder Quarterly Report on Form 10-Q
Communications, L.P. (filed 5/14/96)
10.24 Sublease Agreement between Alpha 1 Exhibit (a)2 to the Company's
Biomedical, Inc. and Niceco Ind. Quarterly Report on Form 10-Q
(filed 5/14/96)
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C> <C>
10.25 Unit Purchase Agreement dated Filed herewith
March 12, 1997
10.26 Registration Rights Agreement, Filed herewith
dated March 12, 1997
23 Consent of Price Waterhouse LLP Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
* Management contract or compensatory plan or arrangement
** The exhibits referred to in this column have heretofore been filed with
the Securities and Exchange Commission as exhibits to the documents indicated
and are hereby incorporated by reference thereto. The Registration Statements
referred to are Registration Statements of the Company.
(b) Reports on Form 8-K
No current Reports on Form 8-K were filed by the Company during the
fiscal year ended December 31, 1996.
(c) Exhibits
Attached hereto
See Index to Exhibits Page 45
43
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ALPHA 1 BIOMEDICALS, INC.
(Registrant)
By: /s/ Michael L. Berman
------------------------------------
Michael L. Berman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Allan L. Goldstein
- --------------------------------- Director and March 31, 1997
Allan L. Goldstein Chairman of the Board
/s/ Michael L. Berman
- --------------------------------- President and Chief
Michael L. Berman Executive Officer
(Principal Executive Officer) March 31, 1997
/s/ Robert J. Lanham
- --------------------------------- Vice President and Chief
Robert J. Lanham Financial Officer (Principal
Financial Officer and Principal
Accounting Officer) March 31, 1997
/s/ Joseph C. McNay
- --------------------------------- Director March 31, 1997
Joseph C. McNay
/s/ Albert Rosenfeld
- --------------------------------- Director March 31, 1997
Albert Rosenfeld
</TABLE>
44
<PAGE> 45
Index to Exhibits
Exhibit Pages
4.3 Warrant Agreement, 46-58
dated March 12, 1997
10.25 Unit Purchase Agreement, 59-74
dated March 12, 1997
10.26 Registration Rights Agreement, 75-86
dated March 12, 1997
23 Consent of Price Waterhouse LLP 87
27 Financial Data Schedule 88
45
<PAGE> 1
EXHIBIT 4.3
Warrant Agreement
This Agreement (the "Agreement"), dated as of March 12, 1997, is entered
into among Alpha 1 Biomedicals, Inc., a Delaware corporation (the "Company"),
and the purchasers (the "Investors") of Units (as defined below) in a private
offering (the "Offering") by the Company in accordance with a Unit Purchase
Agreement, dated as of the date hereof (the "Unit Purchase Agreement").
WITNESSETH:
WHEREAS, the Company has issued in the Offering a total of 4.0 Units (the
"Units"), each Unit consisting of 500,000 shares of the common stock, par value
$.001 per share, of the Company (the "Common Stock") and 165,000 Class D
Warrants (the "Warrants"), each Warrant being exercisable to purchase one share
of Common Stock (the "Warrant Shares"); and
WHEREAS, the Company desires to set forth herein the terms of the
Warrants and to provide for the issuance of certificates representing the
Warrants. NOW, THEREFORE, in consideration of the above and foregoing
premises and the mutual promises and agreements hereinafter set forth, it is
agreed that:
1. WARRANT CERTIFICATES.
(a) Each Warrant shall entitle the holder in whose name the
certificate shall be registered on the transfer books of the Company (a "Warrant
Holder") to purchase one share of Common Stock at the exercise price set forth
in Section 3(a), subject to modification and adjustment as provided in Section 8
hereof. The Warrant certificates shall be detached from certificates
representing shares of Common Stock comprising the Units and shall be
distributed to the purchasers thereof at the closing of the Offering (the
"Closing Date").
(b) Warrants shall be issuable only in whole number denominations
both upon initial issuance and in connection with any exercise, transfer or
exchange.
2. FORM AND EXECUTION OF CERTIFICATES.
(a) The Warrants shall be issued in registered form only. The form
of Warrant certificate shall be substantially as attached hereto as Exhibits A
and shall include any such other terms and legends as may be required to comply
with any applicable law or the rules and regulations of any stock exchange or
market.
(b) Each Warrant certificate shall be sequentially numbered and
shall have set forth thereon the designation "WD." The Warrant certificates
shall be dated the date of their issuance.
46
<PAGE> 2
(c) The Company shall act as its own warrant agent in connection
with the issuance, registration, transfer, exchange and exercise of Warrants, or
in its sole discretion, upon notice to the Warrant Holders, may appoint an
entity that is registered as "transfer agent" under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), to perform any one or more of such
functions (the "Warrant Agent").
(d) The Warrant certificates shall be manually signed on behalf of the
Company by proper officers thereof (or, in the case of the appointment of a
Warrant Agent other than the Company, by the facsimile signatures of the proper
officers of the Company and countersigned by the Warrant Agent) and shall not be
valid for any purpose unless so signed. In the event any officer of the Company
who executed certificates (whether manually or by facsimile) shall cease to be
an officer of the Company, such certificates shall have the same force and
effect as though the person who signed such certificate had not ceased to be an
officer of the Company.
3. EXERCISE; EXPIRATION.
(a) Subject to the provisions of this Agreement, each Warrant may be
exercised at a price (the "Exercise Price") of $.10 per Warrant Share, subject
to adjustment as provided herein, at any time during the period (the "Warrant
Exercise Period") commencing on the Closing Date and terminating on a date (the
"Warrant Expiration Date") that is the tenth anniversary of the Closing Date or
if the Warrant Expiration Date is a Saturday, Sunday, or a day on which banks in
New York are not open for business (a "Business Day"), then the Warrant
Expiration Date shall be the next Business Day. If an initial Warrant Holder is
the holder of a Warrant on the 90th day preceding the Warrant Expiration Date,
the Company will notify him no later than the 60th day prior to the Warrant
Expiration Date of the date on which the Warrant will expire.
(b) A Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date (an "Exercise Date") that the Warrant
Holder has delivered to the Company at its corporate offices located at 6707
Democracy Boulevard, Suite 111, Bethesda, MD 20817 (the "Corporate Office"), or
at any such other office or agency as the Company may designate, (i) the Warrant
certificate with the Election to Purchase certification duly executed, which
shall include, if at the time of exercise the Warrant Shares deliverable upon
exercise of a Warrant have not been registered for sale by the Company under the
Securities Act of 1933, as amended (the "Act"), a written representation of the
Warrant Holder to the effect that (A) the Holder is an "accredited investor" as
defined by Rule 501 under the Act (or such other reasonable representations as
shall be necessary for the Company to conclude that the sale of the Warrant
Shares to the Warrant Holder is an exempt transaction under the Securities Act),
(B) the Warrant Shares being acquired upon exercise are being purchased for
investment and not for distribution in violation of the Act, (C) acknowledging
that such Warrant Shares have not been registered under the Act and (D) agreeing
that such Warrant Shares may not be sold or transferred unless there is an
effective registration statement relating thereto under the Act or such sale or
transfer is not in violation of the Act (the "Exercise Form"), and (ii) payment
in full of the aggregate Exercise Price. An Exercise Form shall be executed by
the Warrant Holder thereof or his attorney duly authorized in writing. Payment
of
47
<PAGE> 3
the Exercise Price of each Warrant shall be in cash or by official bank or
certified check, money order or wire transfer of an amount equal to the Exercise
Price then in effect, in lawful money of the United States of America. The
person entitled to receive the Warrant Shares deliverable on exercise shall be
treated for all purposes as the holder of such Warrant Shares as of the close of
business on the Exercise Date.
(c) The Company shall not be obligated to issue any fractional
shares of Common Stock in connection with the exercise of any Warrant. In lieu
of issuing any fractional Warrant Shares, the Company shall pay to any Warrant
Holder who otherwise would have been entitled to a fractional Warrant Share cash
(without interest) in an amount determined by multiplying the fractional
interest to which such Warrant Holder would otherwise be entitled by the closing
sale price of the Common Stock as reported on the NASDAQ National Market (or, if
the Common Stock is not then listed for trading thereon, on such other principal
market or exchange on which the Common Stock is then traded or, if no closing
sale price is reported by the principal market or exchange on which the Common
Stock is then traded, then the average of the closing bid and asked prices as
reported) on the day immediately prior to (but not including) the Exercise Date
(or if no bid and asked prices are reported, then the fair market value of the
Common Stock as determined in good faith by the Board of Directors of the
Company (as so determined, the "Market Price").
(d) Within two Business Days after the Exercise Date, the Company,
at its own expense, shall cause to be issued and sent for next Business Day
delivery to the person or persons entitled to receive the same, a certificate or
certificates in the name of the Warrant Holder for the number of Warrant Shares
deliverable on such exercise. All Warrant Shares delivered upon the exercise of
the Warrants shall be validly issued, fully paid and nonassessable.
(e) The Company may deem and treat the Warrant Holder as the
absolute owner thereof for all purposes, and the Company shall not be affected
by any notice to the contrary. No Warrant shall entitle the holder thereof to
any of the rights of shareholders or to any dividend declared on the Common
Stock unless such holder shall have exercised the Warrant on or prior to the
record date fixed by the Board of Directors for the determination of holders of
Common Stock entitled to such rights or dividends.
4. REGISTRATION RIGHTS.
The holders of Warrant Shares shall have the registration rights
provided for in the Registration Rights Agreement executed by the Company and
the Investors on the date hereof (the "Registration Rights Agreement").
5. RESERVATION OF SHARES AND PAYMENT OF TAXES.
(a) The Company covenants that it shall at all times reserve and
have available from its authorized Common Stock such number of shares of Common
Stock as shall then be issuable on the exercise of all outstanding Warrants. The
Company covenants that all Warrant Shares shall be free from all taxes, liens
and charges with respect to the issuance thereof.
48
<PAGE> 4
(b) The Company shall pay all documentary, stamp or similar taxes
and other government charges that may be imposed with respect to the issuance of
the Warrants, and the issuance or delivery of any Warrant Shares upon the
exercise of the Warrants, except that in the event that the Warrant Shares are
to be delivered in a name other than the name of the Warrant Holder reflected on
the certificate for the Warrant, no such delivery shall be made unless the
person requesting the same has paid to the Company the amount of any such taxes,
charges or transfer fees incident thereto.
6. REGISTRATION OF TRANSFER.
(a) The Warrant certificates may, subject to provisions of the
Federal securities and state securities laws and the provisions of this
Agreement, be transferred in whole or in part. Certificates to be transferred
shall be surrendered to the Company at its Corporate Office or such other office
or agency as the Company may designate.
(b) The Company shall keep transfer books which shall register
Warrant certificates and the transfer thereof. On due presentment for
registration of transfer of any Warrant certificate, the Company shall execute,
issue and deliver to the transferee or transferees a new certificate or
certificates representing an equal aggregate number of Warrants. All such
Warrant certificates shall be duly endorsed or be accompanied by a written
instrument or instruments of transfer in form reasonably satisfactory to the
Company, together with an opinion of counsel, reasonably satisfactory in form
and substance to counsel for the Company, that an exemption from registration
under the Act for the transfer exists and a written representation from the
transferee that (i) the Warrants are being acquired for investment and not for
distribution otherwise than in compliance with the Act, (ii) acknowledging that
the Warrants have not been registered under the Act and (iii) agreeing that the
Warrants, if not registered under the Act, may not be transferred unless there
is an effective registration statement with respect thereto or in the opinion of
counsel, which shall be reasonably satisfactory in form and substance to counsel
for the Company, that such transfer is an exempt transaction under the Act.
(c) Prior to due presentment for registration of transfer thereof,
the Company may treat the Warrant Holder as the absolute owner thereof
(notwithstanding any notations of ownership or writing thereon made by anyone),
and the Company shall not be affected by any notice to the contrary.
7. LOSS OR MUTILATION.
On receipt by the Company of satisfactory evidence of the loss,
theft, destruction or mutilation of any Warrant certificate, the Company shall
execute and deliver to a Warrant Holder in lieu thereof a new Warrant
certificate representing an equal number of Warrants. In the case of loss, theft
or destruction of any certificate, the Warrant Holder shall be required to
indemnify the Company and to post an indemnity bond as a condition to the
issuance of a replacement certificate. In the event a certificate is mutilated,
such certificates shall be surrendered and canceled by the Company prior to
delivery of a new certificate. The Warrant Holder shall also comply with such
other regulations and pay such other reasonable charges as the Company may
prescribe.
49
<PAGE> 5
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE.
(a) (i) Except as otherwise provided in Section 8(b) and subject
to the exceptions set forth in Section 8(c), in the event the Company shall, at
any time or from time to time after the date hereof, (A) sell or issue for cash
any shares of Common Stock for a consideration per share that is less than
either (x) the Market Price of the Common Stock (as defined in Section 3(c)) on
the last trading day preceding the date of such sale or issuance or (y) at any
time prior to the first anniversary of the date of this Agreement, for a price
per share that is less than the then-applicable Exercise Price on the last
trading day preceding the date of such sale or issuance, (B) issue any shares of
Common Stock as a stock dividend to the holders of shares of Common Stock, or
(C) subdivide or combine the outstanding shares of Common Stock into a greater
or lesser number of shares of Common Stock, then in each such case the Exercise
Price in effect immediately prior to such event shall be changed to the Exercise
Price (calculated to the nearest cent) determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, (1) the numerator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Common Stock that the aggregate consideration received (determined as
provided in Section 8(b)) for the issuance of such additional shares would
purchase at the Market Price and (2) the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately after the
issuance of such additional shares; provided, however, if a sale or issuance
satisfies conditions of both A(x) and A(y), only the adjustment that produces
the greater change in the Exercise Price shall be made. Such adjustment shall be
made successively whenever such an issuance is made.
(ii) Upon the adjustment of the Exercise Price pursuant to
this Section 8, the total number of shares of Common Stock purchasable upon
exercise of each Warrant shall be such number of shares (calculated to the
nearest one-tenth of a share) purchasable at the Exercise Price in effect
immediately prior to such adjustment multiplied by a fraction, (1) the numerator
of which shall be the Exercise Price in effect immediately prior to such
adjustment and (2) the denominator of which shall be the Exercise Price in
effect immediately after such adjustment.
(b) For purposes of Section 8(a), the following provisions shall
be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall not include shares of Common Stock owned or held by or for the
account of the Company, and the sale of such shares shall be a sale for purposes
of Section 9(a).
(ii) No adjustment of the Exercise Price shall be made unless
such adjustment would require an increase or decrease of at least $.01 in the
Exercise Price; provided that any adjustments that by reason of this clause (ii)
are not required to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment that, together with all
adjustments so carried forward, require an increase or decrease of at least $.01
in the Exercise Price.
50
<PAGE> 6
(iii) In the event of (A) the sale by the Company (or as a component
of a unit being sold) for cash of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, either Common Stock or any
securities that are convertible into or exchangeable for Common Stock (such
securities convertible or exchangeable into Common Stock being herein referred
to as "Convertible Securities") or (B) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities (in either case whether or not such rights, warrants
or options, or the right to convert or exchange such Convertible Securities, are
immediately exercisable), and the price per share for which Common Stock is
issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(1) the minimum aggregate consideration payable to the Company upon the exercise
of such rights, warrants or options, plus the consideration, if any, received by
the Company for the issuance or sale of such rights, warrants or options, plus,
in the case of such Convertible Securities, the minimum aggregate amount of
additional consideration, if any (other than the surrender of such Convertible
Securities), payable upon the conversion or exchange thereof, by (2) the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of the
Convertible Securities issuable upon the exercise of such rights, warrants or
options) is less than either (x) the Market Price of the Common Stock on the
last trading day preceding the date of the issuance or sale of such rights,
warrants or options or (y) at any time prior to the first anniversary of the
date of this Agreement, for a price per share that is less than the
then-applicable Exercise Price on the last trading day preceding the date of
such sale or issuance, then for purposes of Section 8(a) the total maximum
number of shares of Common Stock issuable upon the exercise of such rights,
warrants, or options and upon the conversion or exchange of such Convertible
Securities shall be deemed to be outstanding shares of Common Stock as of the
date of the issuance or sale of such rights, warrants or options and shall be
deemed to have been sold for cash in an amount equal to such price per share.
(iv) In the event of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (1) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any (other than the surrender of such
Convertible Securities), payable upon the conversion or exchange thereof, by (2)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities) is less than either (x) the Market
Price of the Common Stock on the last trading day preceding the date of the sale
of such Convertible Securities or (y) at any time prior to the first anniversary
of the date of this Agreement, for a price per share that is less than the
then-applicable Exercise Price on the last trading day preceding the date of
such sale or issuance, then for purposes of Section 8(a) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of
such Convertible Securities shall be deemed to be outstanding shares of Common
Stock as of the date of the sale
51
<PAGE> 7
of such Convertible Securities and shall be deemed to have been sold for cash in
an amount equal to such price per share.
(v) On the expiration of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, or the termination of any right to convert or exchange Convertible
Securities, in respect of which any adjustments previously shall have been made
in accordance with clause (iii) or (iv) of this Section 8(b), the Exercise Price
in effect immediately prior to the time of such expiration or termination shall
be adjusted to such Exercise Price as would be applicable had such adjustments
not been made with respect to (A) the issuance of or the adjustment of the
Exercise Price of such rights, warrants or options which have expired or (B) the
issuance of or the adjustment of the conversion or exercise price of such
Convertible Securities the rights under which to convert or exchange have
terminated.
(vi) In case of the sale or issuance of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(c) No adjustment to the Exercise Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made:
(i) upon the issuance or sale of any securities (including
stock options) of the Company that are issued pursuant to any stock option or
stock bonus plan or arrangement of the Company for the benefit of directors,
officers or employees of the Company; or
(ii) upon the sale or exercise of the Warrants or any
adjustment to the Exercise Price thereof; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities as the result of the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on
the date of this Agreement or were thereafter issued or sold; or
(iv) upon the issuance or sale of Common Stock as the result
of the conversion or exchange of any Convertible Securities, whether or not such
Convertible Securities were outstanding on the date of this Agreement or were
thereafter issued or sold.
(d) As used in this Section 8, the term "Common Stock" shall mean
the Common Stock as designated in the Company's Certificate of Incorporation on
the date hereof and shall also include any capital stock of any class of the
Company hereafter authorized that shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to
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<PAGE> 8
participate in dividends and in the distribution of assets upon the voluntary
liquidation, dissolution or winding up of the Company; provided, however, that
the shares issuable upon exercise of the Warrants shall be the shares so
designated as Common Stock on the date hereof or (i) in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 8(e), the stock, securities or property
provided for in such section, or (ii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants consisting of a change in par value, or from par value to no par value,
or from no par value to par value, such shares of Common Stock as so
reclassified or changed.
(e) In case of any reclassification, capital reorganization or
other change in the Common Stock, or in case of any consolidation or merger of
the Company with or into another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change in the
Common Stock), or in case of any sale or conveyance to another corporation of
the property of the Company as, or substantially as, an entirety, the Company
shall cause effective provision to be made so that each registered holder of a
Warrant then outstanding shall have the right thereafter, by exercising such
Warrant, to purchase the kind and number of shares of stock or other securities
or property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that could have been purchased
upon the exercise of such Warrant immediately prior to such reclassification,
capital reorganization or other change, consolidation, merger, sale or
conveyance, and in any such case appropriate adjustments shall be made in the
application of the provisions of this Section 8 with respect to rights and
interests thereafter of the holder to the end that the provisions of this
Section 8 shall thereafter be applicable, as near as reasonably practicable, in
relation to any shares or other property thereafter purchasable upon the
exercise of a Warrant. The Company shall not effect any such consolidation,
merger or sale unless prior to, or simultaneously with, the consummation thereof
the successor (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing the property of the Company shall assume,
by written instrument executed and delivered to the Company, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or
property as, in accordance with the foregoing provisions, such holder shall be
entitled to purchase (and the other obligations of the Company under this
Agreement). The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes in the Common Stock
and to successive consolidations, mergers, sales or conveyances.
(f) After each adjustment of the Exercise Price pursuant to this
Section 8, the Company promptly will prepare a statement, certified by its
Chairman or President and by its Treasurer or Assistant Treasurer, setting
forth: (i) in reasonable detail the computation of the Exercise Price, as so
adjusted, and the computation of the number of shares of Common Stock
purchasable upon exercise of each Warrant, as so adjusted, and (ii) a brief
description of the circumstances giving rise to the adjustment. The Company
shall deliver a copy of such statement to each Warrant Holder. The Company
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<PAGE> 9
will allow any Warrant Holder or its representative to inspect the books and
records of the Company to the extent necessary to verify any such computation.
(g) Irrespective of any adjustments in the Exercise Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant certificates theretofore and thereafter issued shall, unless the Company
in its sole discretion shall determine to issue new Warrant certificates,
continue to express the Exercise Price per share and the number of shares
purchasable thereunder as were expressed in the Warrant certificates when the
same were originally issued.
(h) The Company will not, by amendment of its Certificate of
Incorporation or through any consolidation, merger, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrants, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as reasonably may be necessary
or appropriate (including, if necessary or appropriate, making equitable
adjustments to the kind and amount of securities issuable upon the exercise of
the Warrants and the Exercise Price) in order to protect the rights of the
holders of the Warrants against dilution or other impairment.
(i) In case the Company shall take a record of the holders of its
Common Stock for the purpose of (i) entitling them to receive a dividend or any
other distribution in respect of the Common Stock payable in cash or other
property, (ii) entitling them to subscribe for or purchase any shares of stock
of any class or to receive any other rights, (iii) any classification,
reclassification or other reorganization of the capital stock of the Company,
any consolidation or merger of the Company with or into another corporation, or
any conveyance of all or substantially all of the assets of the Company, or (iv)
the voluntary or involuntary dissolution, liquidation or winding up of the
Company, then, and in any such case, the Company shall mail to each Warrant
Holder in the manner provided for in Section 10, at least 20 days prior to such
record date, a notice stating the date or expected date on which a record is to
be taken for the purpose of such dividend, distribution of rights, or the date
on which such classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up, as the case may be,
is to take place. Such notice shall also specify the date or expected date, if
any is to be fixed, on which said dividend, distribution of rights, or an
exchange of shares of Common Stock for securities or other property deliverable
upon such classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up, as the case may be,
is expected to occur, provided, however, that the failure to give such notice
shall not affect the validity of any such proceeding or transaction.
9. OBTAINING OF GOVERNMENTAL APPROVALS AND STOCK EXCHANGE LISTINGS.
The Company will use its best efforts (a), except that the
Company is not obligated to register the Warrant Shares for sale by the Company
under the Securities Act or any state securities laws, to obtain and keep
effective any and all permits, consents and approvals of governmental agencies
and authorities and make any necessary filings under federal or state securities
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<PAGE> 10
laws, which may be or become requisite in connection with the issuance, sale and
delivery of the Warrant certificates, the exercise of the Warrants and the
issuance, sale, transfer and delivery of the Warrant Shares and (b) to cause the
Warrant Shares, prior to their sale pursuant to any registration statement filed
in accordance with the Registration Rights Agreement or other transfer which is
not restricted under the federal securities laws, to be listed on the NASDAQ
National Market or the principal securities exchange or market within the United
States of America on which the Common Stock is then listed.
10. NOTICES.
All notices, demands, elections, opinions or requests (however
characterized or described) required or authorized hereunder shall be in writing
and shall be delivered by hand or sent by registered or certified mail, return
receipt requested and postage prepaid, or by facsimile transmission to, in the
case of the Company:
Alpha 1 Biomedicals, Inc.
6707 Democracy Boulevard
Suite 111
Bethesda, MD 20817-1129
Telecopier number: (301) 564-4424
Attention: Michael Berman
and if to the Warrant Holder at the address of such holder as set forth on the
transfer books maintained by or on behalf of the Company.
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid; upon receipt, if sent by
facsimile, except that in the case of Roger H. Samet, no notice or communication
shall be deemed given unless (x) actually received by Roger H. Samet or (y)
given in the manner provided above to the person to whom copies are to be
delivered as identified in the Unit Purchase Agreement.
11. THIRD PARTY BENEFICIARIES.
Each registered holder of a Warrant, whether or not such holder is a
party to this Agreement, is an intended beneficiary of this Agreement, and this
Agreement may be enforced by such registered holder. Nothing in this Agreement
shall be construed to give any person or entity, other than the Company and the
registered holders of the Warrants, any legal or equitable right, remedy or
claim under this Agreement.
12. FURTHER INSTRUMENTS.
The parties shall execute and deliver any and all such other
instruments and take any and all other actions as may be reasonably necessary to
carry out the intention of this Agreement.
13. NO INCONSISTENT AGREEMENTS.
The Company has not, as of the date hereof, and the Company shall
not, after the date of this Agreement, enter into any agreement with respect
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<PAGE> 11
to any of its securities that is inconsistent with the rights granted to the
Warrant Holders in this Agreement or otherwise conflicts with the provisions
hereof. The Company will not enter into any agreement which will grant any such
rights that are in conflict with the rights afforded by this Agreement.
14. AMENDMENTS AND WAIVERS.
The Company may, without the consent or concurrence of the holders
of the Warrants, make any changes or corrections in this Agreement that are
necessary or desirable to cure any ambiguity or to correct any defective
provision, mistake or manifest error herein contained; provided that such
changes do not adversely affect the rights or interests of the holders of the
Warrants. Otherwise, the provisions of this Agreement may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, (i) as related to the rights or obligations
of Roger H. Samet, except with the prior written consent of the Company and
Roger H. Samet, and (ii) as related to the rights or obligations of the holders
of Warrants other than Roger H. Samet, otherwise than with the prior written
consent of the Company and the registered holders of not less than a majority of
the then-outstanding Warrants; provided, however, that no change in the number
of the Warrant Shares purchasable upon the exercise of any Warrant, no increase
in the Exercise Price and no acceleration of the Warrant Expiration Date shall
be made without the consent in writing of each Warrant Holder.
15. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties hereto.
16. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
17. HEADINGS.
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
18. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF MARYLAND, AS APPLIED TO CONTRACTS MADE AND PERFORMED
WHOLLY WITHIN THE STATE OF MARYLAND, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW. EACH OF THE PARTIES HERETO AGREES, AND EACH BENEFICIARY HEREOF SHALL BE
BOUND, TO SUBMIT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN
THE STATE OF MARYLAND IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
19. SEVERABILITY.
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<PAGE> 12
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such invalid, illegal, void or unenforceable term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any term, provision,
covenant or restriction that may be hereafter declared invalid, illegal, void or
unenforceable.
20. ENTIRE AGREEMENT.
This Agreement, together with the Registration Rights Agreement and
the Unit Purchase Agreement, is intended by the parties hereto as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein, and supersede all prior agreements between
the parties with respect to such subject matter. There are no representations,
promises, warranties or undertakings between the parties hereto with respect to
the subject matter hereof, other than those set forth or referred to herein and
therein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first set forth above.
ALPHA 1 BIOMEDICALS, INC.
By: /s/ Michael L. Berman
--------------------------
Michael Berman
President
[additional signature pages follow]
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WARRANT AGREEMENT
SIGNATURE PAGE
FOR INDIVIDUAL PURCHASERS
By /s/ Michael L. Berman
----------------------------
Michael Berman
President and Chief
Executive Officer
/s/ Roger H. Samet
-----------------------------------
ROGER H. SAMET
/s/ Joseph C. McNay
-----------------------------------
JOSEPH C. MCNAY
/s/ Stephen C. Lampl
-----------------------------------
STEPHEN C. LAMPL
ANNE B. SHUMADINE TTEE V/A
STEPHEN C. LAMPL TRUST DTD 4/16/87
/s/ C.L. Kaufman, Jr.
-----------------------------------
C. L. KAUFMAN, JR.
/s/ Michael L. Berman
-----------------------------------
MICHAEL L. BERMAN
/s/ R.J. Lanham
-----------------------------------
R.J. LANHAM
58
<PAGE> 1
EXHIBIT 10.25
Unit Purchase Agreement
THIS AGREEMENT is made as of March 12, 1997, by and between Alpha 1
Biomedicals, Inc., a Delaware corporation (the "Company"), and each of the
investors listed in Schedule 1 attached hereto (hereinafter collectively
referred to as the "Investors" and individually as an "Investor"). Capitalized
terms used herein are defined in Section 8 hereof.
The parties hereto hereby agree as follows:
Section 1. Purchase and Sale of Units.
1.01 Purchase and Sale. At the Closing, the Company shall sell to
the Investor and each Investor shall purchase from the Company the number of
Units, each Unit consisting of (i) 500,000 shares (the "Unit Shares") of common
stock, par value $.001 per share, of the Company ("Common Stock") and (ii)
warrants to purchase 165,000 shares of Common Stock (the "Class D Warrants"),
set forth opposite the name of such Investor on Schedule 1 attached hereto at a
purchase price of $50,000 per Unit. The number of Units purchased by all
Investors in the aggregate shall not exceed seven Units.
1.03 The Closing. The closing of the purchase and sale of the
Units (the "Closing") shall take place at the offices of Covington & Burling,
1201 Pennsylvania Avenue, N.W., Washington, D.C. 20004, at 10:00 a.m. on
such date as the parties hereto shall mutually determine.
Section 2. Deliveries at Closing. At the Closing, the following
deliveries shall be made and agreements entered into:
2.01 Common Stock and Class D Warrants. The Company shall
deliver to each Investor:
(a) a copy of the resolutions of the Company's Board of
Directors authorizing the sale and issuance of the Units, certified by the
Secretary of the Company;
(b) a stock certificate registered in the name of the Investor
evidencing the number of Unit Shares purchased by the Investor; and
(c) a Class D Warrant certificate registered in the name of the
Investor evidencing the number of Class D Warrants purchased by the Investor.
2.02 Cash Payment. Each Investor shall pay to the Company, by wire
transfer of immediately available funds to an account designated by the Company
or by certified or official bank check, the amount set forth opposite the name
of such Investor on Schedule 1 attached.
2.03 Registration Rights Agreement. The Company and the Investors
shall enter into a Registration Rights Agreement with respect to the
registration for resale of (i) the Unit Shares and (ii) the shares of Common
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Stock issuable upon the exercise of the Class D Warrants in form attached hereto
as Exhibit A (the "Registration Rights Agreement") .
2.04 Warrant Agreement. The Company and the Investors shall enter
into a Warrant Agreement setting forth the terms of the Class D Warrants in the
form attached hereto as Exhibit B, (the "Warrant Agreement").
Section 3. Representations and Warranties of the Company.
The Company hereby represents and warrants to each of the Investors
as follows:
3.01. Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power and authority to
carry on its business as it currently is conducted and to own or lease and
operate its assets, properties and business.
3.02 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock
of the Company consists of (i) 20,000,000 shares of Common Stock, 9,477,429
shares of which are issued and outstanding, and (ii) 1,000,000 shares of
Preferred Stock, of which no shares are issued or outstanding.
(b) All of the issued and outstanding shares of Common Stock are
duly authorized, validly issued, fully paid and nonassessable.
(c) Except as set forth on Schedule 2, there are no outstanding
subscriptions, options, warrants, rights (including conversion or preemptive
rights), commitments, agreements, understandings or arrangements to which the
Company is a party, whether oral or written, pursuant to which the Company is
obligated to issue any shares of its capital stock.
3.03 Subsidiaries. The Company has no subsidiaries.
3.04 Financial Statements. The Company has delivered to the
Investors audited balance sheets of the Company at December 31, 1994 and 1995,
and the related statements of operations, stockholders' equity and cash flows
for each year then ended, including the notes thereto (the "Company Financial
Statements"), accompanied by the opinion thereon of Price Waterhouse L.L.P. The
Company has also delivered to the Investors the unaudited balance sheet of the
Company at September 30, 1996, and the related unaudited statements of
operations, stockholders' equity and cash flow for the nine months then ended,
including the notes thereto (the "Company Interim Financial Statements"). The
Company Financial Statements present fairly in all material respects the
financial position of the Company as of December 31, 1994 and 1995, and the
results of operations and changes in financial position of the Company for the
respective one-year periods then ended, and the Company Interim Financial
Statements present fairly in all material respects the financial position of the
Company as of September 30, 1996, and the results of operations and changes in
financial position for the nine-month period then ended, in each case in
conformity with generally accepted accounting principles applied on a basis
consistent with that of prior periods, except that the Company Interim
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<PAGE> 3
Financial Statements may be subject to normal year-end adjustments that are not
in the aggregate material.
3.05 SEC Reports. Since January 1, 1994, all reports and proxy
statements required to be filed by the Company with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Exchange Act of 1934 (the
"1934 Act") complied in all material respects with the applicable requirements
of the 1934 Act and the applicable rules and regulations thereunder, and did not
include at the time of filing any untrue statement of a material fact or omit to
state a material fact concerning the Company necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
3.06 No Violation of Law. Except as will not have a Material
Adverse Effect, the Company's operations have been conducted in accordance with
all applicable laws, regulations and other requirements of all governmental
bodies having jurisdiction over the Company and the Company has all licenses,
permits, orders or approvals from governmental bodies required for the conduct
of its business. Except as will not have a Material Adverse Effect, none of the
real or personal property owned, leased, occupied or operated by the Company, or
the ownership, leasing, occupancy or operation thereof, is in violation of any
applicable law, code, rule, regulation, ordinance, license or permit (including,
but not limited to, those related to building, zoning, environmental matters or
employee health and safety). No notice from any governmental body or other
Person has been served upon the Company or upon any property owned, leased,
occupied or operated by the Company claiming any violation of any such law,
code, rule, regulation, ordinance, license or permit, or requiring, or calling
attention to the need for, any work, repairs, construction, alterations or
installation on or in connection with such property, except such notices with
which the Company has complied or except as will not have a Material Adverse
Effect.
3.07 Undisclosed Liabilities. Except as will not have a Material
Adverse Effect, the Company does not have any debts, liabilities or obligations
of any nature, secured or unsecured, whether accrued, absolute, contingent or
otherwise, whether due or to become due, including, but not limited to,
liabilities or obligations on account of taxes, other governmental charges,
duties, penalties, interest, pension plan obligations or indebtedness for
borrowed money, except:
(a) to the extent set forth or reserved against the Company
Financial Statements or the Company Interim Financial Statements; and
(b) normal and usual current liabilities incurred, and normal and
usual obligations under agreements entered into, in the ordinary course of
business after September 30, 1996.
3.08 Absence of Certain Changes or Events. Except as disclosed in
the SEC Filings, since December 31, 1995, the business of the Company has been
operated only in the usual and ordinary course of business and there has not
been:
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(a) any damage, destruction or loss (whether or not covered by
insurance) of properties, assets or the business of the Company that has had a
Material Adverse Effect;
(b) any change in the accounting methods or practices followed by
the Company or any change in the accrual of liabilities or in depreciation,
amortization or inventory valuation policies, rates or methods theretofore used
or adopted;
(c) any sale, lease, abandonment or other disposition by the
Company of any interest in real property or, other than in the ordinary course
of business and other than those that will not have a Material Adverse Effect,
of any machinery, equipment or other operating property;
(d) any sale, assignment, transfer, license or other disposition
by the Company of any patent, trademark, servicemark, trade name, brand name,
copyright (or pending application for any patent, trademark, servicemark, trade
name or copyright), invention, process, know-how, formula, trade secret or
interest thereunder or other intangible asset, the transfer of which has had or
will have a Material Adverse Effect; or
(e) any declaration, setting aside or payment of any dividend or
other distribution on or in respect of shares of capital stock, or any direct or
indirect redemption, retirement, purchase or other acquisition by the Company of
any such shares of capital stock.
3.09 Tax Matters.
(a) The Company has duly, properly, accurately and timely filed
all tax returns required to be filed by it, and has paid, or will pay on a
timely basis, all taxes shown to be due and payable on such returns, all
deficiencies and assessments notices that have been received by it, and all
other taxes due and payable by it, except for taxes, deficiencies and
assessments that are being contested in good faith and for which appropriate
reserves have been established or the nonpayment of which would not have a
Material Adverse Effect.
(b) There are no liens for unpaid federal, state and local
taxes on any of the assets of the Company.
3.10 Absence of Defaults. Except as will not have a Material
Adverse Effect, (i) the Company is not, nor is it alleged to be, in default
under, or in breach of any term or provision of, any contract, agreement, lease,
license, commitment, instrument, or fiduciary or other obligation and (ii) to
the knowledge of the Company, all material contracts, agreements, commitments
and obligations to which the Company is a party are valid and binding agreements
of the parties thereto and are in full force and effect. To the knowledge of the
Company, no other party to any contract, agreement, lease, license, commitment,
instrument, or fiduciary or other obligation to which the Company is party is in
default thereunder, or in breach of any term or provision thereof, except as
will not have a Material Adverse Effect.
3.11 Litigation. Except as set forth in the SEC Filings, there is
no material (i) suit, action or claim, (ii) investigation or inquiry by any
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<PAGE> 5
administrative agency or governmental body, or (iii) legal, administrative or
arbitration proceeding pending or, to the knowledge of the Company, threatened
against the Company or any of the properties, assets or business of the Company.
There is no material outstanding order, writ, injunction or decree against or
relating to the Company or any of the capital stock, properties, assets or
business of the Company.
3.12 Validity and Authorization. The Company has full corporate
power to enter into this Agreement, the Registration Rights Agreement and the
Warrant Agreement and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Registration Rights Agreement and
the Warrant Agreement, and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by all necessary
corporate action. This Agreement constitutes and, upon the execution and
delivery thereof by the parties thereto, each of the Registration Rights
Agreement and the Warrant Agreement will constitute a legal, valid and binding
agreement of the Company that is enforceable against the Company in accordance
with its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights generally.
3.13 No Conflicts. The execution and delivery by the Company of
this Agreement, the Registration Rights Agreement and the Warrant Agreement, and
compliance with the respective terms hereof and thereof, by the Company do not
and will not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon the Company's capital
stock or properties pursuant to, (iv) give any third party the right to
accelerate any obligation under, (v) result in a violation of, or (vi) except
for the registrations, qualifications and notices contemplated by the
Registration Rights Agreement, require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative or
governmental body pursuant to the Certificate of Incorporation or Bylaws of the
Company, any law, statute, rule or regulation to which the Company is subject,
or any agreement, instrument, order, judgment or decree to which the Company is
subject or by which it is bound.
3.14 Authorization of Shares. The Unit Shares have been duly
authorized and, upon issuance in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable. 660,000 shares of Common
Stock issuable upon the exercise of the Class D Warrants have been duly
authorized and reserved for issuance and, upon issuance in accordance with the
terms of the Class D Warrants, will be validly issued, fully paid and
nonassessable. No stockholder of the Company is entitled to exercise any
preemptive rights in connection with the issuance of such shares of Common
Stock.
3.15 Rights Agreement. Assuming the accuracy of the representation
and warranty of each of the Investors in Section 4.10 of this Agreement, the
execution, delivery and performance of this Agreement by the parties hereto will
not result in any Investor becoming an Acquiring Person (as such term is defined
in the Rights Agreement, dated as of April 29, 1994,
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between the Company and American Stock Transfer & Trust Company, as Rights
Agent).
3.16 Exemption from Registration. Assuming the accuracy of the
representations and warranties of each Investor set forth in Sections 4.04
through 4.08 of this Agreement, the offer and sale of the Units to each Investor
will be exempt from registration under the Securities Act of 1933, as amended
(the "1933 Act").
3.17 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any agreement or arrangement binding
upon the Company.
Section 4. Representations and Warranties of the Investors. Each of
the Investors hereby, severally and not jointly, represents and warrants to the
Company as follows:
4.01. Organization. If the Investor is a corporation, it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and if the Investor is a partnership or other
organization, it is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization.
4.02. Authorization; No Breach. (i) If the Investor is a
corporation, the execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Warrant Agreement have been duly
authorized by all necessary corporate action, (ii) if the Investor is a
partnership or other organization, the Investor is permitted under its
partnership agreement or other governing documents to enter into this Agreement,
the Registration Rights Agreement and the Warrant Agreement and to consummate
the transactions contemplated hereby and thereby, and all necessary consents and
approvals required by the partnership agreement or other governing documents
have been obtained, and (iii) this Agreement constitutes, and upon the execution
and delivery thereof by the parties thereto, each of the Registration Rights
Agreement and the Warrant Agreement will constitute, a legal, valid and binding
agreement of the Investor that is enforceable against the Investor in accordance
with its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights generally.
4.03. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrant Agreement do and
will not (i) violate any provision of the Investor's Certificate of
Incorporation or Bylaws (or comparable organizational documents), if the
Investor is a corporation, or the Investor's partnership agreement or other
governing documents, if the Investor is a partnership or other organization,
(ii) violate or breach any material contract or agreement to which the Investor
is a party, or (iii) violate, or require the authorization, consent or approval
of any court or any administrative or governmental body under, any law, statute,
rule or regulation to which the Investor is subject or any order, judgment or
decree by which the Investor is bound.
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4.04. Accredited Investor. The Investor is an "accredited investor"
as defined in Rule 501 of Regulation D under the 1933 Act. The Investor has
knowledge and experience in financial and business matters such that the
Investor is capable of evaluating the merits and risks of an investment in the
Unit Shares and Class D Warrants.
4.05. Receipt of Information. The Investor (i) has received a copy
of the Private Placement Memorandum and has reviewed each of the documents
included as part thereof, (ii) has been given the opportunity to obtain from the
Company and to review each of the contracts and other documents that have been
filed with the SEC as exhibits to the filings included as part of the Private
Placement Memorandum, (iii) has been furnished with all such additional
information as the Investor has deemed necessary to make an informed investment
decision with respect to the Unit Shares and Class D Warrants and (iv) has been
afforded an opportunity to ask questions and receive answers from authorized
officers of the Company concerning the Company and the terms and conditions of
the offering of the Unit Shares and Class D Warrants.
4.06. Awareness of Risks. The Investor is aware that an investment
in the Unit Shares and Class D Warrants is highly speculative and subject to
substantial risks. The Investor is capable of bearing the economic risks of an
investment in the Unit Shares and Class D Warrants including, but not limited
to, the possibility of a complete loss of the Investor's investment, as well as
limitations on the transferability of the Unit Shares and Class D Warrants,
which may make the liquidation of an investment in the securities difficult or
impossible for the indefinite future.
4.07. Purchases for Investment. The Unit Shares and Class D Warrants
are being acquired solely for investment, and are not being purchased with a
view to a distribution or resale thereof otherwise than in compliance with the
1933 Act.
4.08. Restrictions on Transfer. The Investor understands that none
of the Unit Shares, the Class D Warrants or the shares of Common Stock issuable
upon the exercise of the Class D Warrants have been registered under the 1933
Act, or any state securities laws, in reliance upon exemptions from registration
for non-public offerings. The Investor agrees that none of the Unit Shares, the
Class D Warrants or the shares of Common Stock issuable upon the exercise of the
Class D Warrants will be resold or otherwise transferred by the Investor unless
such securities have been registered under the 1933 Act and under appropriate
state securities laws or unless the Company receives an opinion of counsel
reasonably satisfactory to it that an exemption from registration is applicable.
4.09 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any agreement or arrangement binding
upon the Investor.
4.10 Beneficial Ownership. After giving effect to the purchase of
the Units, neither the Investor, nor any group (with the meaning of Section
13(d)(3) of the 1934 Act) of which the Investor is a member, will be the
beneficial owner of more than 25% of the then-outstanding shares of Common
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<PAGE> 8
Stock (calculated in the manner provided for in Rule 13d-3 under the 1934 Act).
Section 5. Termination.
5.01 Termination of Agreement. The parties hereto may terminate
this Agreement as provided below:
(a) Any individual Investor and the Company may terminate this
Agreement as between that Investor and the Company by mutual written consent at
any time prior to the Closing.
(b) Any individual Investor may terminate this Agreement as
between that Investor and the Company, by giving written notice to the Company
at any time prior to the Closing, in the event the Company is in breach of any
representation, warranty or covenant contained in this Agreement in any material
respect.
(c) The Company may terminate this Agreement as between itself and
an individual Investor, by giving written notice to the Investor at any time
prior to the Closing, in the event the Investor is in breach of any
representation, warranty or covenant contained in this Agreement in any material
respect.
(d) Any individual Investor may terminate this Agreement as
between that Investor and the Company, by giving written notice to the Company
at any time prior to the Closing, if the Closing shall not have occurred on or
before the 30th day following the date of this Agreement.
(e) The Company may terminate this Agreement as between itself and
an individual Investor, by giving written notice to the Investor at any time
prior to the Closing if the Closing, shall not have occurred on or before the
30th day following the date of this Agreement.
5.02 Effect of Termination. If any party hereto terminates this
Agreement pursuant to Section 5.01, all obligations hereunder of the terminating
party, and of the other party to the terminating party, shall terminate and such
parties shall be released from all of their respective obligations hereunder.
Section 6 Right of First Refusal.
The Company hereby covenants as follows:
(a) The Company shall not issue any debt or equity securities for
cash in private capital raising transactions (a "Future Offering") within the
three-year period after the date of the Closing ("Closing Date") without
delivering to the Investors prior written notice of its intent to conduct a
Future Offering (a "Future Offering Notice") setting forth the material terms of
the proposed Future Offering, including copies of all relevant documents and
agreements. For a period of twenty days, commencing on the date of receipt of
such Future Offering Notice (the "Offer Period"), each Investor shall have the
right irrevocably to commit, by written notice to the Company, to purchase the
Investor's Portion (as that term is defined below) of the
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<PAGE> 9
securities being offered in the Future Offering on the terms contained in the
Future Offering Notice. If, during the Offer Period, the Investor fails
irrevocably to commit to purchase the Investor's Portion of the securities that
are the subject of the Future Offering Notice, the Company shall be permitted to
offer and sell any such securities, on terms generally no less favorable to the
Company than are set forth in the Future Offering Notice, to any third party
during a period of 90 days following the termination of the Offer Period, after
which 90-day period the terms of this Section 6 shall again apply.
(b) The provision of paragraph (a) shall not apply to (i) any
transaction involving the Company's commercial banking arrangements, (ii) the
issuance of securities in connection with a merger, consolidation or sale of
assets, or in connection with a joint venture or an acquisition or disposition
of a business, a product or a license by the Company, or (iii) to the issuance
of securities to any employee, officer, director or consultant.
(c) The amount of securities that an Investor is entitled to
purchase in a Future Offering (the "Investor's Portion") shall be the number
obtained by multiplying the aggregate amount of securities being offered in the
Future Offering by a fraction, the numerator of which is the number of Units
purchased by the Investor pursuant to this Agreement (whether or not the
Investor continues to own the Unit Shares or the Warrants) and the denominator
of which is the number of Units purchased by all Investors pursuant to this
Agreement.
(d) The rights of each Investor under this Section 6 shall not be
transferable or assignable by the Investor without the prior written consent of
the Company.
Section 7 Transfer Restrictions on Common Stock.
7.01 The Company shall be under no obligation to effect the
transfer of the Unit Shares unless the holder thereof shall deliver written
notice to the Company describing in reasonable detail the proposed transfer and,
in the case of a transfer that is effected other than pursuant to an effective
registration statement under the 1933 Act or pursuant to Rule 144, an agreement
in writing of the transferee to be bound by the restrictions on transfer set
forth in this Section 7. For so long as the Unit Shares are Restricted
Securities, the holder also shall deliver to the Company an opinion of counsel,
in form and substance reasonably satisfactory to the Company, to the effect that
such transfer may be effected without registration under the 1933 Act.
7.02 For so long as any shares of Common Stock issuable upon the
exercise of the Class D Warrants are Restricted Securities, the Company shall
not be obligated to effect any transfer thereof unless the holder shall deliver
to the Company an opinion of counsel, in form and substance reasonably
satisfactory to the Company, to the effect that such transfer can be effected
without registration under the 1933 Act.
7.03 If at any time a holder of Unit Shares or shares of Common
Stock issued upon the exercise of the Class D Warrants delivers to the Company
an opinion of counsel, in form and substance reasonably satisfactory to the
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<PAGE> 10
Company, that such shares of Common Stock are eligible for resale by the holder
thereof pursuant to Rule 144(k) under the 1933 Act, the Company shall, upon
surrender of the legended certificates, deliver to the holder new certificates
for such shares of Common Stock that do not bear the legend set forth in Section
9.02.
Section 8. Definitions. For the purpose of this Agreement, the
following terms have the meanings set forth below:
"1933 Act" has the meaning set forth in section 3.17.
"1934 Act" has the meaning set forth in Section 3.05.
"Class D Warrants" has the meaning set forth in Section 1.01.
"Closing" has the meaning set forth in Section 1.03.
"Common Stock" has the meaning set forth in Section 1.01.
"Company" has the meaning set forth in the Preamble.
"Company Financial Statements" has the meaning set forth in
Section 3.04.
"Company Interim Financial Statements" has the meaning set forth
in Section 3.04.
"Investor" has the meaning set forth in the Preamble.
"Material Adverse Effect" means, with respect to the Company, a
material adverse effect on the business, properties, assets, condition
(financial or other), results of operations or prospects of the Company.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Registration Rights Agreement" has the meaning set forth in
Section 2.03.
"Restricted Securities" means (i) the Unit Shares hereunder; (ii)
the shares of Common Stock issued upon the exercise of the Class D Warrants; and
(iii) any securities issued with respect to the securities referred to in clause
(i) or (ii) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (A) been sold pursuant to
an effective registration statement under the 1933 Act or (B) become eligible
for sale pursuant to Rule 144 (or any similar provision then in force) under the
1933 Act.
"SEC" has the meaning set forth in Section 3.05.
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<PAGE> 11
"SEC Filings" means (i) the Annual Report of the Company on Form
10-K for the year ended December 31, 1995, (ii) the Quarterly Reports of the
Company on Form 10-Q for the quarters ended March 31, June 30, and September 30,
1996, and (iii) any Form 8-K filed by the Company since December 31, 1995.
"Unit Shares" has the meaning set forth in Section 1.01.
"Warrant Agreement" has the meaning set forth in Section 2.04.
Section 9. Miscellaneous.
9.01 Certain Expenses. The Company agrees to pay, and hold the
Investors harmless against liability for the payment of, stamp and other similar
taxes which may be payable in respect of (i) the execution and delivery of this
Agreement, the Registration Rights Agreement and the Warrant Agreement, (ii) the
issuance, sale and delivery of the shares of Common Stock and Class D Warrants
comprising the Units, and (iii) the issuance, sale and delivery to a holder of
Class D Warrants of the shares of Common Stock issued upon the exercise of the
Class D Warrants. The Company agrees to pay or reimburse Roger H. Samet for up
to $7,000 in legal fees and disbursements incurred in connection with the
purchase of the Units and in connection with any legal opinions with respect to
the application of the 1933 Act that are required to effect a transfer of the
shares of Common Stock and Class D Warrants comprising the Units or the shares
of Common Stock issued upon the exercise of the Class D Warrants.
9.02 Securities Legend.
Each certificate for Unit Shares and each certificate for shares of
Common Stock issued upon the exercise of the Class D Warrants shall be imprinted
with a legend in substantially the following form for so long as such shares
continue to be Restricted Securities:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED, OTHER THAN IN
ACCORDANCE WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT
OR PURSUANT TO AN EXEMPTION FROM REGISTRATION."
9.03 Amendments. The provisions of this Agreement may be amended
only with the written consent of the Company and each Investor. No other course
of dealing between the Company and any Investor or any delay in exercising any
rights hereunder shall operate as a waiver of any rights of an Investor or the
Company.
9.04 Survival of Representation and Warranties. All representations
and warranties contained herein shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby for a
period of three years after the Closing.
9.05 Successors and Assigns. This Agreement and the rights and
obligations hereunder may not be assigned by either party hereto (by operation
of law or otherwise) without the prior written consent of the other.
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<PAGE> 12
9.06 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, and to the extent permitted by law
shall not invalidate the remainder of this Agreement.
9.07 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
9.08 Descriptive Headings; Interpretation. The descriptive headings
of this Agreement are inserted for convenience only and shall not affect the
meaning of this Agreement. The use of the word "including" in this Agreement
shall be by way of example rather than by limitation.
9.09 Governing law. This Agreement shall be governed by and
construed in accordance with the laws of the state of Maryland without giving
effect to any choice of law or conflict of law provision.
9.10 Notices.
(a) All notices, requests, demands, claims and other
communications hereunder will be in writing and shall be made by hand-delivery,
certified mail, return receipt requested, overnight or two-day courier, or
facsimile transmission, addressed to the intended recipient as set forth below:
If to the Company:
Alpha 1 Biomedicals, Inc.
6707 Democracy Boulevard
Suite 111
Bethesda, MD 20817-1129
Facsimile Number: (301) 564-4424
Copy (which shall not constitute notice) to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Attn: Michael Lefever
Facsimile Number: (202) 778-5276
If to the Investors:
To the address set forth on Schedule 1
Each party hereto may change the address for such communication by notice to the
other party (to the Company in the case of each Investor and to the Investor in
the case of the Company) in the manner contemplated hereby.
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<PAGE> 13
(b) All such notices, requests, demands, claims and other
communications shall be deemed to have been duly given (i) when delivered by
hand, if personally delivered, (ii) five days after being deposited in the mail,
if mailed, (iii) upon receipt, if sent by overnight or two day courier and (iv)
upon receipt, if sent by facsimile transmission, except in the case of Roger H.
Samet, no notice, request, demand, claim or other communication shall be deemed
given unless (x) actually received by Roger H. Samet or (y) given in the manner
provided above to the person to whom copies are to be delivered.
9.11 Entire Agreement. This Agreement, together with the
Registration Rights Agreement and the Warrant Agreement, constitutes the entire
agreement of the parties hereto with respect to the subject matter thereof and
supersedes all prior agreements of the parties with respect to such subject
matter.
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first written above.
ALPHA 1 BIOMEDICALS,
INC.
By /s/ Michael L. Berman
-----------------------------
Michael Berman
President and Chief
Executive Officer
/s/ Roger H. Samet
------------------------------------
ROGER H. SAMET
/s/ Joseph C. McNay
------------------------------------
JOSEPH C. MCNAY
/s/ Stephen C. Lampl
------------------------------------
STEPHEN C. LAMPL
ANNE B. SHUMADINE TTEE V/A
STEPHEN C. LAMPL TRUST DTD 4/16/87
/s/ C.L. Kaufman, Jr.
------------------------------------
C. L. KAUFMAN, JR.
/s/ Michael L. Berman
------------------------------------
MICHAEL L. BERMAN
/s/ R.J. Lanham
------------------------------------
R.J. LANHAM
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<PAGE> 15
SCHEDULE 1
<TABLE>
<CAPTION>
Name of Investor Number of Total Purchase Number of Number of
- ---------------- Units Price Shares Warrants
----------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Roger H. Samet 1.77 $ 88,500 885,000 292,050
254 E. 68th Street
Apt. 29B
New York, NY 10021
with copies of notices to Samet to:
Stephen B. Silverman, Esq.
Corbin, Silverman
& Sanseverino LLP
805 3rd Avenue
New York, NY 10022
Joseph C. McNay 1.00 $ 50,000 500,000 165,000
Essex Investment
Management Co.
125 High Street 25th Floor
Boston, MA 02110-2702
Stephen C. Lampl Trust 0.50 $ 25,000 250,000 82,500
Anne B. Shumadine TTEE
370 Edgemore Way North
Naples, FL 34105
Charles Kaufman, Jr. 0.50 $ 25,000 250,000 82,500
P.O. Box 13495
Chesapeake, VA 23325
Michael L. Berman 0.13 $ 6,500 65,000 21,450
8824 Watts Mine Terrace
Potomac, MD 20854
Robert J. Lanham 0.10 $ 5,000 50,000 16,500
2014 Gunnell Farms Drive
Vienna, VA 22181 --------- ---------- --------- -------
Total 4.00 $ 200,000 2,000,000 660,000
</TABLE>
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<PAGE> 16
SCHEDULE 2
OUTSTANDING OPTIONS/WARRANTS
Shares of Alpha 1 Common Stock Reserved and Issuable(1)
Shares Reserved
for Outstanding
Options and Warrants
---------------------------------------
Incentive Stock Option Plan 1,053,433
Non-qualified Option Plan 685,360
Directors Option Plan 40,000
Hammond Warrants (2) 20,000
Total Reserved ---------
1,798,793
(1) as of March 1, 1997
(2) Warrants expire on February 2, 1998
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<PAGE> 1
EXHIBIT 10.26
Registration Rights Agreement
This Registration Rights Agreement (the "Agreement") is entered into as of
March 12, 1997, by and among Alpha 1 Biomedicals, Inc., a Delaware corporation
(the "Company"), and each of the undersigned purchasers (the "Investors") of
Units issued by the Company under a Unit Purchase Agreement, dated as of the
date hereof, among the Company and the Investors (the "Unit Purchase
Agreement"). Each Unit is comprised of (i) 500,000 shares (the "Unit Shares") of
common stock, par value $.001 per share, of the Company ("Common Stock"), and
(ii) 165,000 Class D Warrants ("Warrants"), each such Warrant being exercisable
to purchase one share of Common Stock in accordance with the terms of a Warrant
Agreement, dated the date hereof, among the Company and each of the Investors
(the "Warrant Agreement").
In order to induce the Investors to enter into the Unit Purchase
Agreement, the Company has agreed to provide to the Investors the registration
rights set forth in this Agreement.
The parties hereby agree as follows:
1. DEFINITIONS.
(a) "Registrable Securities" means (i) the Unit Shares, (ii) the
shares of Common Stock issuable by the Company upon the exercise of the
Warrants, and (iii) in the case of Roger H. Samet, any other shares of Common
Stock of which he is the registered holder that are not eligible for sale
pursuant to Rule 144(k).
(b) "Restricted Registrable Securities" means the Registrable
Securities until such time as (i) they have been resold pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) they are eligible for resale to the public pursuant
to Rule 144(k) under the Securities Act (or any similar provision then in force)
and any legend restricting the transfer of the shares has been removed.
2. DEMAND REGISTRATION.
(a) Filing of Shelf Registration Statement. After August 1, 1997,
upon the request in writing of any holder of Restricted Registrable Securities,
the Company shall use its best efforts to file with the Securities and Exchange
Commission (the "Commission"), within 45 days after the receipt of such request,
a registration statement for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act, covering the resale of the
Restricted Registrable Securities that are the subject of the request and any
other Restricted Registrable Securities that any other holder thereof or the
Company wishes to include therein (a "Shelf Registration Statement"). Each
Investor shall be entitled to three such registrations under this Section 2(a).
The Shelf Registration Statement shall be on Form S-3 or another appropriate
form permitting registration of such Restricted Registrable Securities for
resale by the holders thereof in any lawful manner
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<PAGE> 2
designated by them (including, without limitation, an underwritten offering).
Except for securities that the Company may be obligated to include in the Shelf
Registration Statement pursuant to any agreement entered into by the Company
prior to the date hereof, the Company shall not, without the consent of the
person requesting registration of Restricted Registrable Securities, permit any
securities other than the Restricted Registrable Securities to be included in
the Shelf Registration Statement.
(b) Effectiveness of Shelf Registration Statement. The Company
shall use its best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act as promptly as practicable after the
filing thereof and, unless directed otherwise by the holders of a majority of
the Restricted Registrable Securities included therein, shall use its best
efforts to keep the Shelf Registration Statement continuously effective under
the Securities Act until all of the Registrable Securities shall have ceased to
be Restricted Registrable Securities (the "Effectiveness Period").
(c) Expenses. The Company shall bear all Registration Expenses (as
defined in Section 5) incurred in connection with filing and maintaining the
effectiveness of a registration statement under this Section 2. Each holder of
Restricted Registrable Securities shall pay all underwriting discounts and sales
commissions attributable to the shares sold by such holder.
3. PIGGY-BACK REGISTRATION RIGHTS.
(a) Notice of Filing and Inclusion of Shares. If at any time or
from time to time following the date hereof, the Company shall file with the
Commission a registration statement under the Securities Act relating (i) in
whole or in part to the primary offer and sale of shares of its Common Stock
(other than a registration statement that relates exclusively to (A) the sale of
securities in connection with an employee or director stock option, bonus,
retirement or other compensation plan or arrangement, (B) a corporate
reorganization or (C) the issuance of securities in connection with a business
acquisition or combination) or (ii) the resale of shares of Common Stock issued
by the Company to other stockholders ("Other Eligible Shareholders") and the
registration rights afforded such Other Eligible Shareholders do not preclude
the inclusion of the Restricted Registrable Securities in a registration
effected on behalf of such Other Eligible Shareholders, the Company shall notify
the holders of Restricted Registrable Securities in writing of its intention to
file such registration statement at least 30 days prior to the filing thereof.
If, within 15 days of receipt of the Company's notice, a holder notifies the
Company in writing that such holder wishes to have some or all of such holder's
Restricted Registrable Securities included in such registration statement, such
Restricted Registrable Securities shall be so included, subject to the
provisions of this Section 3. Notwithstanding the foregoing, if the registration
statement is to include shares to be registered for sale by the Company, the
decision to proceed with the filing of the registration statement, and the
timing and content of all filings in connection therewith, shall be within the
sole discretion of the Company.
(b) Underwritten Offerings. If the registration statement filed
under this Section 3 involves an underwritten offering and, the underwriter
determines that the number of shares proposed to be sold by the Company, the
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<PAGE> 3
holders of Restricted Registrable Securities and any Other Eligible Shareholders
is greater than the number of shares that the underwriter believes is feasible
to sell at that time, at the price and upon the terms approved by the Company,
then the number of shares that the underwriter believes may be sold shall be
allocated in the following order: (i) primary shares being offered by the
Company and (ii) pro rata among all selling shareholders based upon the number
of shares as to which each such selling shareholder has registration rights.
(c) Expenses. The Company shall bear all Registration Expenses
incurred in connection with filing and maintaining the effectiveness of a
registration statement under this Section 3. Each holder of Restricted
Registrable Securities shall pay all underwriting discounts and sales
commissions attributable to the shares sold by such holder.
4. REGISTRATION PROCEDURES.
(a) Obligations of the Company. In connection with the
registration provided for in Section 2 or Section 3, the Company will:
(i) Furnish to each holder of Restricted Registrable
Securities included in the registration statement a copy of the registration
statement (including all exhibits thereto) and each amendment thereto, each
related prospectus and all amendments or supplements thereto (including any
preliminary prospectus), and such other documents as such holder may reasonably
request in order to facilitate the disposition of the Restricted Registrable
Securities owned by such holder.
(ii) Use reasonable efforts to register or qualify (unless an
exemption is applicable) such Restricted Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any holder of Restricted Registrable Securities or the managing
underwriter, in the case of an underwritten offering, reasonably shall request
in writing, use reasonable efforts to keep any such registration or
qualification effective (unless an exemption is available) during the
Effectiveness Period, and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Restricted Registrable Securities covered by the registration statement;
provided, however, that the Company shall not be required (A) to qualify
generally to do business in any jurisdiction where it is not then so qualified,
(B) to take any action that would subject it to general service of process in
any such jurisdiction where it is not then so subject, (C) to subject itself to
taxation in excess of a nominal dollar amount in any such jurisdiction where it
is not then so subject, or (D) to modify in any way its Certificate of
Incorporation or Bylaws or agree to any restriction on the offer or sale of any
securities by the Company or any of its affiliates.
(iii) Notify the holders of Restricted Registrable Securities
promptly (but in any event within three business days), (A) of the issuance by
the Commission of any stop order suspending the effectiveness of the
registration statement or of any order preventing or suspending the use of any
prospectus, or of the initiation of any proceedings for such purpose, (B) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or an exemption from qualification of the
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<PAGE> 4
Restricted Registrable Securities, or any registration statement with respect
thereto, for offer or sale in any jurisdiction, or the initiation of any
proceeding for such purpose, or (C) if any information becomes known to the
Company that makes any statement made in the registration statement or related
prospectus, or any document incorporated or deemed to be incorporated therein by
reference, untrue in any material respect or that requires that the registration
statement be amended or that any related prospectus be amended or supplemented
so that it 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.
(iv) Use its best efforts to prevent the issuance of any stop
order suspending the effectiveness of the registration statement, of any order
preventing or suspending the use of prospectus or suspending the qualification
(or exemption from qualification) of any of the Restricted Registrable
Securities for sale in any jurisdiction and, if any such order is issued, to use
its best efforts to obtain the withdrawal of such order as soon as practicable.
(v) Upon the occurrence of any event referred to in Section
4(a)(iii)(C), if requested by the holders of a majority of the Restricted
Registrable Securities included in the registration statement, as promptly as
practicable prepare and file with the Commission, as applicable, a
post-effective amendment to the registration statement, an amendment or
supplement to the related prospectus, or a document (or an amendment thereto)
deemed to be incorporated therein by reference, so that, as thereafter delivered
to the holders of such Restricted Registrable Securities, the prospectus for the
resale of the Restricted Registrable Securities related to the registration
statement will not contain an 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.
(vi) In connection with any underwritten offering of
Restricted Registrable Securities pursuant to the registration statement, enter
into an underwriting agreement as is customary in underwritten offerings of
equity securities similar to the Common Stock and take all such other actions as
are reasonably requested by the managing underwriter in order to facilitate the
registration and the disposition of such Restricted Registrable Securities and,
in such connection, (A) make such representations and warranties to, and
covenants with, the underwriters with respect to the Company and its business
and with respect to the registration statement, prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in each
case, as are customarily made by issuers to underwriters in underwritten
offerings of equity securities similar to the Common Stock, (B) obtain the
written opinion of counsel to the Company in form, scope and substance
reasonably satisfactory to the managing underwriter, addressed to the
underwriters covering the matters customarily covered in opinions requested in
underwritten offerings of equity securities similar to the Common Stock, and (C)
obtain "cold comfort" letters and updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter from the independent public
accountants of the Company (and, if necessary, any other independent public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or are required
to be, included or incorporated by
78
<PAGE> 5
reference in the registration statement), addressed to each of the underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings of equity securities similar to the Common Stock and such other
matters as reasonably is requested by the managing underwriter.
(b) Obligations of a Holder of Restricted Registrable Securities.
The Company may require each holder of Restricted Registrable Securities covered
by the registration statement to furnish in writing to the Company such
information regarding such holder and the distribution of such Restricted
Registrable Securities as the Company may, from time to time, reasonably
request. The Company may exclude from the registration statement the Restricted
Registrable Securities of any holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request. Each such
holder agrees to supplement promptly any information previously furnished to the
Company with all such additional information as is required in order to make the
information previously furnished to the Company by such seller not misleading.
(c) Suspension of Sales Under the Shelf Registration Statement.
Each holder of Restricted Registrable Securities included in the registration
statement agrees that, upon receipt of any notice from the Company as described
in Section 4(a)(iii), such holder forthwith will discontinue disposition of such
Restricted Registrable Securities pursuant to the registration statement until
such holder receives copies of the amended or supplemented prospectus
contemplated by Section 4(a)(v), or until such holder is advised in writing by
the Company that the use of the prospectus may be resumed.
5. REGISTRATION EXPENSES.
Registration Expenses shall be borne as set forth in Section 2 or Section
3, as applicable. Registration Expenses ("Registration Expenses") shall consist
of all expenses incidental to the Company's performance of and compliance with
this Agreement, including without limitation (i) all registration and filing
fees (including all fees and expenses of compliance with state securities or
Blue Sky laws), (ii) printing expenses, including expenses of printing of the
registration statement or any prospectus, if the printing thereof is requested
any holder of the Restricted Registrable Securities, (iii) messenger and
delivery expenses, (iv) fees and disbursements of counsel for the Company, (v)
fees and disbursements of all independent public accountants referred to in
Section 4(a)(vi) hereof (including, without limitation, the expenses of any
special audit) and (vi) the fees and expenses incurred in connection with the
listing of the securities to be registered on NASDAQ or any securities exchange
on which the Common Stock is then listed.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each holder
of Restricted Registrable Securities included in a registration statement, each
person, if any, who controls such holders within the meaning of either Section
15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and their respective officers, directors,
employees and agents, if any (each, a "Participant"),
79
<PAGE> 6
from and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement (or any amendment thereto) or a related prospectus (or any amendment
or supplement thereto), or caused by, arising out of or based upon any 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 under which they were made, not misleading; provided, however,
that the Company will not be required to indemnify a holder (or any related
Participant) if (i) such losses, claims, damages or liabilities are caused by
any untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Participant
furnished to the Company in writing by or on behalf of such Participant
expressly for use therein or (ii) if a holder sold to the person asserting the
claim the Restricted Registrable Securities that are the subject of such claim
and such untrue statement or omission, or alleged untrue statement or omission,
was made in or involved any prospectus and was corrected in a subsequent
prospectus (or any supplement thereto) provided to such holder of the Restricted
Registrable Securities and such holder failed to deliver or provide a copy of
the subsequent prospectus (or such supplement thereto) to such person with or
prior to the confirmation of the sale of such Restricted Registrable Securities.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, and their respective directors, officers, employees and
agents, to the same extent as the foregoing indemnity from the Company to each
Participant, but only (i) with respect to information relating to such
Participant furnished to the Company in writing by or on behalf of such
Participant expressly for use in a registration statement (or any amendment
thereto) or a related prospectus (or any amendment or supplement thereto), or
(ii) with respect to any untrue statement or representation made by such
Participant in writing to the Company in connection with the transactions
contemplated by the registration statement.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to paragraph (a)
or (b) of this Section 5, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person shall be entitled to assume the
defense thereof with counsel retained by the Indemnifying Person, reasonably
satisfactory to the Indemnified Person, who also may be counsel to any other
Indemnifying Person with respect to the same matter, and shall pay the
reasonable fees of, and the expenses actually incurred by, such counsel related
to such matter; provided, however, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and only to the extent that such failure
directly results in the loss or compromise of any material rights or defenses by
the Indemnifying Person and the Indemnifying Person was not otherwise aware of
such action or claim). In
80
<PAGE> 7
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless (i) the Indemnifying Person and the
Indemnified Person shall have mutually agreed in writing to the contrary, (ii)
the Indemnifying Person shall have failed within a reasonable period of time to
retain counsel reasonably satisfactory to the Indemnified Person, or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that, unless there
exists a conflict among Indemnified Persons, the Indemnifying Person shall not,
in connection with any one such proceeding or separate but substantially similar
related proceedings in the same jurisdiction arising out of the same general
allegations, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons. Any such
separate firm for the Participants shall be designated in writing by
Participants who sold a majority in interest of Restricted Registrable
Securities sold by all such Participants and any such separate firm for the
Company, any control person of the Company and their respective directors,
officers, employers and agents shall be designated in writing by the Company.
The Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its prior written consent (which consent shall not be
unreasonably withheld), but if settled with such consent or if a final
nonappealable judgment is entered for which an Indemnified Person is entitled to
indemnification pursuant to this Agreement, the Indemnifying Person agrees to
indemnify and hold harmless such Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. No Indemnifying Person
shall, without the prior written consent of the Indemnified Person, effect any
settlement or compromise of any pending or threatened proceeding in respect of
which any Indemnified Person is or could have been a party and indemnity could
have been sought hereunder by such Indemnified Person, unless such settlement
(A) includes an unconditional written release of such Indemnified Person, in
form and substance reasonably satisfactory to such Indemnified Person, from all
liability on claims that are the subject matter of such settlement and (B) does
not include any statement as to an admission of fault, culpability or failure to
act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in paragraph (a) or (b) of
this Section 5 is for any reason unavailable to, or is insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraph, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person on the one hand
and the Indemnified Person on the other from the offering of the Common Stock
pursuant to the Shelf Registration Statement or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the Indemnifying Person on the
one hand and the Indemnified Person on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect
81
<PAGE> 8
thereof). The relative fault of the parties shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or a Participant on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. However, no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
(e) The indemnity and contribution agreements contained in this
Section 5 are in addition to any liability which an Indemnifying Person may
otherwise have to an Indemnified Person.
7. PARTICIPATION IN AN UNDERWRITTEN OFFERING.
No holder of Restricted Registrable Securities may participate in any
underwritten offering of Common Stock of the Company pursuant to a registration
statement filed under either Section 2 or Section 3 unless such holder completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and such other documents reasonably required under the terms of
customary underwriting arrangements.
8. RULE 144.
The Company covenants that it will use its best efforts to file timely the
reports required to be filed by it under the Exchange Act and the rules and
regulations thereunder, and it will take such further action as any owner of
Restricted Registrable Securities may reasonably request, all to the extent
required from time to time to enable such owner to sell Restricted Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144 under the Securities Act, as such rule
may be amended from time to time (or any similar rule or regulation hereafter
adopted by the Commission). Upon the request of any holder of Restricted
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements and shall provide
to the Company's transfer agent such advice as shall be necessary to effect the
transfer of any Restricted Registrable Securities sold pursuant to Rule 144.
9. TERMINATION.
This Agreement shall terminate at such time as the Investors no longer own
any Registrable Securities. The provisions of Section 6 hereof shall survive
such termination.
10. MISCELLANEOUS.
(a) No Inconsistent Agreements. The Company has not, as of the
date hereof, and the Company shall not, after the date of this Agreement, enter
into any agreement with respect to any of its securities that is inconsistent
with the rights granted to the holders of Restricted Registrable
82
<PAGE> 9
Securities in Bthis Agreement or otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, (i) as related to the rights and
obligations of Roger H. Samet, otherwise than with the prior written consent of
the Company and Roger H. Samet, and (ii) as related to rights and obligations of
the holder of Restricted Registrable Securities other than Roger H. Samet,
otherwise than with the prior written consent of the Company and the holders of
not less than a majority of the Restricted Registrable Securities other than
Roger H. Samet (for which purpose each holder of Warrants will be deemed the
holder of the number of Restricted Registrable Securities then obtainable upon
the exercise such Warrants). Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of holders of Restricted Registrable Securities whose
securities are being sold pursuant to a registration statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
holders of Restricted Registrable Securities may be given (i) by the holders not
less than a majority of the Restricted Registrable Securities being sold by such
holders pursuant to such registration statement and (ii) each Investor whose
Restricted Registrable Securities are included in such registration statement.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and be delivered by hand or sent by
registered or certified mail, return receipt requested and postage prepaid, or
by facsimile transmission (followed by a confirmation copy sent by either
overnight or two-day courier):
(i) if to a holder of Restricted Registrable Securities, in
the case of the Investors in accordance with the terms of the Unit Purchase
Agreement, and in the case of all other holders of Restricted Registrable
Securities at the most current address given by such holder to the Company in
writing; and
(ii) if to the Company, at its address set forth in the
Unit Purchase Agreement.
All such notices and communications shall be deemed to have been duly given (i)
when delivered by hand, if personally delivered, (ii) five business days after
being deposited in the mail, postage prepaid, if mailed or (iii) upon receipt,
if sent by facsimile, except that in the case of Roger H. Samet, no notice or
communication shall be deemed given unless (x) actually received by Roger H.
Samet or (y) given in the manner provided above to the person to whom copies are
to be delivered.
(d) Third Party Beneficiaries. Each registered holder of Restricted
Registrable Securities, whether or not such holder is a party to this Agreement,
is an intended beneficiary of this Agreement, and this Agreement may be enforced
by such person. Nothing in this Agreement shall be construed to give any person
or entity, other than the Company, the registered holders of the Warrants and
the registered holders of Restricted Registrable
83
<PAGE> 10
Securities, any legal or equitable right, remedy or claim under this Agreement.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties hereto and the registered holders of the Restricted Registrable
Securities; provided, however, that this Agreement shall not inure to the
benefit of or be binding upon a successor or assign unless and to the extent
such successor or assign holds Restricted Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF MARYLAND, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES, AND EACH
BENEFICIARY SHALL BE BOUND, TO SUBMIT TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED IN THE STATE OF MARYLAND IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall to the extent permitted by law
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such invalid, illegal, void or unenforceable term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any term, provision,
covenant or restriction that may be hereafter declared invalid, illegal, void or
unenforceable.
(j) Entire Agreement. This Agreement, the Unit Purchase Agreement
and the Warrant Agreement are intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no representations, promises, warranties or
undertakings between the parties hereto with respect to the subject matter
hereof, other than those set forth or referred to herein or therein. This
Agreement, the Unit Purchase Agreement and the Warrant Agreement supersede all
prior agreements and understandings between the parties with respect to such
subject matter.
(j) No Impairment. The Company agrees that it will not enter into
any agreement conferring registration rights on any other person that
84
<PAGE> 11
impairs in any material respect the registration rights of the holders of
Restricted Registrable Securities under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ALPHA 1 BIOMEDICALS, INC.
By: /s/ Michael L. Berman
--------------------------
Michael Berman
President and Chief
Executive Officer
[additional signature pages follow]
85
<PAGE> 12
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
FOR INDIVIDUAL INVESTORS
By /s/ Michael L. Berman
-----------------------------
Michael Berman
President and Chief
Executive Officer
/s/ Roger H. Samet
------------------------------------
ROGER H. SAMET
/s/ Joseph C. McNay
------------------------------------
JOSEPH C. MCNAY
/s/ Stephen C. Lampl
------------------------------------
STEPHEN C. LAMPL
ANNE B. SHUMADINE TTEE V/A
STEPHEN C. LAMPL TRUST DTD 4/16/87
/s/ C.L. Kaufman, Jr.
------------------------------------
C. L. KAUFMAN, JR.
/s/ Michael L. Berman
------------------------------------
MICHAEL L. BERMAN
/s/ R.J. Lanham
------------------------------------
R.J. LANHAM
86
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-57016) and
in the Registration Statement on Form S-8 (No. 33-50332) of Alpha 1 Biomedicals,
Inc. of our report dated March 24, 1997 appearing on page 15 of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Washington, DC
March 31, 1997
87
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 153,725
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 218,450
<PP&E> 40,332
<DEPRECIATION> (33,988)
<TOTAL-ASSETS> 313,268
<CURRENT-LIABILITIES> 1,951,499
<BONDS> 0
0
0
<COMMON> 35,622,266
<OTHER-SE> (37,260,497)
<TOTAL-LIABILITY-AND-EQUITY> 313,268
<SALES> 542,243
<TOTAL-REVENUES> 542,243
<CGS> 0
<TOTAL-COSTS> 2,020,920
<OTHER-EXPENSES> (25,284)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,066
<INCOME-PRETAX> (1,636,027)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,636,027)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0<F1>
<FN>
<F1>LOSS PER SHARE ON A FULLY DILUTED BASIS NOY CALCULATED SINCE THE EFFECT IS
ANTIDILUTIVE
</FN>
</TABLE>
