<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 2, 1997
REGISTRATION NO. 333-16507
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NASTECH PHARMACEUTICAL
COMPANY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
11-2658569
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
45 DAVIDS DRIVE
HAUPPAUGE, NEW YORK 11788
TELEPHONE (516) 273-0101
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DR. VINCENT D. ROMEO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NASTECH PHARMACEUTICAL COMPANY INC.
45 DAVIDS DRIVE
HAUPPAUGE, NEW YORK 11788
TELEPHONE (516) 273-0101
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
BRUCE R. THAW, ESQ.
45 BANFI PLAZA
FARMINGDALE, NEW YORK 11735
TELEPHONE (516) 752-1760
DAVID M. CARTER, ESQ.
HUNTON & WILLIAMS
951 EAST BYRD STREET
RICHMOND, VIRGINIA 23219-4074
TELEPHONE (804) 788-8200
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 2, 1997
2,000,000 SHARES
[NASTECH LOGO]
COMMON STOCK
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All of the 2,000,000 shares of Common Stock offered hereby are being
offered by Nastech Pharmaceutical Company Inc. (the "Company"). The Common Stock
of the Company is quoted on the Nasdaq SmallCap Market under the symbol "NSTK."
On December 31, 1996, the closing bid price of the Common Stock, as reported on
the Nasdaq SmallCap Market, was $20.00 per share. See "Price Range of Common
Stock and Dividend Policy." The Company has applied for inclusion of its Common
Stock on the Nasdaq National Market upon official notice of issuance of the
shares of Common Stock offered hereby.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 5 THROUGH 9.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
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Total(3)................................. $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses, payable by the Company, estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If the
Underwriters exercise this option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them, and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject any orders in whole or in part. It is expected
that the certificates for the shares of Common Stock will be available for
delivery at the offices of Volpe, Welty & Company, One Maritime Plaza, San
Francisco, California on or about , 1997.
VOLPE, WELTY & COMPANY WHEAT FIRST BUTCHER SINGER
The date of this Prospectus is , 1997.
<PAGE> 3
NASTECH PHARMACEUTICAL COMPANY
CURRENT PRODUCTS AND PIPELINE
[GRAPH]
Stadol(R) NS(TM) is a trademark of the Bristol-Myers Squibb Company ("BMS").
Stadol NS is a narcotic analgesic sublicensed to BMS for marketing as a
prescription pain-reliever. Nascobal(TM) is a trademark of Nastech. Trade names
and trademarks of other companies appearing in this Prospectus are the property
of their respective holders. Metoclopramide and Propranolol development
activities are performed by RiboGene, Inc., ("RiboGene"). Doxylamine development
activities are performed by the Company under an agreement with the Consumer
Health Care Division of Pfizer Inc. ("Pfizer"). Nalbuphine development
activities are performed by The DuPont Merck Pharmaceutical Company ("DuPont
Merck"). Nicotine development activities are performed by the Company under an
agreement with Ciba-Self Medication, Inc., a division of Ciba-Geigy Corporation
("Ciba").
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET
IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Unless otherwise indicated, all financial information and
share data in this Prospectus assume no exercise of the Underwriters'
over-allotment option or of options or warrants outstanding as of the date of
this Prospectus. This Prospectus contains various "forward looking statements"
within the meaning of Section 27a of the Securities Act of 1933, as amended (the
"Securities Act"), which represent the Company's intentions, expectations or
beliefs concerning future events. These forward looking statements are qualified
by important factors that could cause actual results to differ materially from
those in the forward looking statements, including, without limitation, those
discussed in "Risk Factors." See "Risk Factors."
THE COMPANY
Nastech Pharmaceutical Company Inc. (the "Company") is engaged in the
research, development, manufacturing and commercialization of nasally
administered forms of prescription and over-the-counter pharmaceuticals that are
currently delivered in oral, injectable or other dosage forms. The nasal
delivery of certain pharmaceuticals enables more rapid systemic absorption,
lower required dosages, quicker onset of desired effect, and painless,
convenient patient self-administration, resulting in improved patient compliance
and pharmacoeconomics. The Company focuses its research activities primarily on
drugs with demonstrated safety and efficacy, which, through current delivery
forms, have certain bioavailability or patient compliance limitations that may
be improved with a novel delivery form. The Company's first commercially
available pharmaceutical is a prescription pain-reliever marketed as Stadol NS
by Bristol-Myers Squibb Company. In addition, on November 5, 1996, the Company
received marketing clearance from the FDA for Nascobal nasal gel used for the
treatment of chronic Vitamin B-12 deficiency anemia. The Company's pipeline
includes nine additional drugs, five of which are being developed under
collaborative agreements with other pharmaceutical companies, including Pfizer,
DuPont Merck and Ciba.
Although oral, injectable, patch and pulmonary delivery forms are accepted
for a variety of systemic pharmaceuticals, the Company believes that nasal
delivery may optimize the delivery of certain of these drugs. As an example,
certain drugs are delivered by injection due to significant liver or
gastrointestinal metabolism associated with oral administration, or due to the
inability of the stomach to absorb the drug properly and without irritation.
However, because of patient discomfort and the required assistance of a health
care professional, an injection is generally inconvenient and expensive for
frequent therapy, often resulting in patient non-compliance. The Company also
targets drugs, such as analgesics, sleep-aids and anti-nausea drugs, for which
quick onset of desired effect is important. For certain of these
pharmaceuticals, patients are seeking more rapid drug absorption than
experienced through currently available delivery forms such as oral or patch
administration. By addressing the limitations of current delivery forms for
certain pharmaceuticals, the Company believes that nasal delivery may expand
these markets through improved bioavailability, pharmacoeconomics and patient
acceptance, as demonstrated by the market growth of Stadol NS.
The Company's objective is to become a leading drug delivery specialist by
leveraging the pharmacoeconomic and therapeutic advantages of nasal delivery
across multiple pharmaceuticals. To accomplish this objective, the Company has
developed a strategy that includes the following elements: (i) focus efforts on
approved drugs; (ii) internally fund development through later stages; (iii)
leverage strategic alliances; (iv) protect and expand intellectual property; and
(v) augment technology through licensing and acquisition.
The Company's offices are located at 45 Davids Drive, Hauppauge, New York
11788, and its telephone number is (516) 273-0101.
3
<PAGE> 5
THE OFFERING
Common Stock offered by the Company... 2,000,000 shares
Common Stock to be outstanding after
the Offering.......................... 6,706,250 shares(1)
Use of proceeds....................... For research and development,
including clinical trials; initial
marketing and product launch expenses
with respect to Nascobal; capital
expenditures, principally for
manufacturing; license or acquisition
of products and technologies for
product development; and working
capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq symbol......................... "NSTK"
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(1) Does not include: (i) 459,299 shares of Common Stock reserved for issuance
under the Company's Stock Option Plan and (ii) 270,000 shares of Common
Stock issuable upon the exercise of outstanding warrants expiring on
December 6, 1998.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30,(1) SEPTEMBER 30,
STATEMENT OF OPERATIONS --------------------------------------------------------------------- -------------------------
DATA: 1992 1993 1994 1995 1996 1995 1996
--------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.............. $ 314,843 $ 862,651 $2,200,245 $2,937,783 $3,866,913 $ 881,510 $1,161,660
Income (loss) before
provision for income
taxes..................... (409,272) (178,405) 224,647 (79,445) 118,525 25,352 79,536
Net income (loss)........... (409,272) (178,405) 207,647 (79,445) 118,525 22,352 79,536
Net income (loss) per common
share..................... $ (0.35) $ (0.13) $ 0.08 $ (0.03) $ 0.03 $ 0.01 $ 0.02
Average shares
outstanding............... 1,184,388 1,395,390 2,524,432 3,119,718 4,297,536 3,849,776 4,628,238
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
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BALANCE SHEET DATA: ACTUAL AS ADJUSTED(2)
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(UNAUDITED)
<S> <C> <C>
Working capital.............................................................. $7,586,791 $ 48,666,620
Total assets................................................................. 8,733,491 49,813,320
Long-term debt............................................................... 20,881 20,881
Total stockholders' equity................................................... 7,862,479 48,942,308
</TABLE>
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(1) Fiscal year references in this Prospectus refer to the Company's fiscal year
ending June 30 in such year.
(2) Adjusted to give effect to (i) the sale of the shares of Common Stock at an
assumed offering price of $20.00 and the application of the estimated net
proceeds therefrom, and (ii) $4,379,829 received from the exercise of
838,245 warrants outstanding at September 30, 1996. See "Use of Proceeds."
4
<PAGE> 6
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing shares of Common Stock offered hereby.
History of Losses; Uncertainty of Profitability. Although the Company
achieved profitability on an annual basis in fiscal 1996, there can be no
assurance that revenue growth or profitability will continue on a quarterly or
annual basis in the future. From inception in March 1983 to September 30, 1996,
the Company has accumulated net losses of approximately $6.1 million. Because
the Company's proposed products will require significant additional clinical
testing and investment prior to commercialization, such losses may increase in
the near-term as the Company expands its research, development and clinical
trials in an effort to seek regulatory approval of such products. The Company
expects its research and development expenses to increase in the foreseeable
future, and as a result it does not expect to be profitable until at least
through fiscal 1998. Further, the Company does not expect to achieve sustained
profitability unless products now under development are commercialized
successfully, of which there can be no assurance. There can be no assurance that
any of the Company's products will meet applicable regulatory standards, obtain
required regulatory approvals, be capable of being produced in commercial
quantities at reasonable costs or be successfully marketed. Consequently, the
Company may incur substantial operating losses unless and until product sales or
royalty payments generate sufficient revenues to fund its continuing operations.
The Company also expects to have quarter-to-quarter fluctuations in revenues and
expenses which may result in fluctuations in operating results.
Dependence on Strategic Alliances. Most of the Company's current revenues
are derived from a collaborative agreement with BMS (the "BMS Agreement"). The
marketing responsibilities pursuant to this agreement have been undertaken by
BMS and are not within the control of the Company. The BMS Agreement does not
provide for minimum royalties and may be terminated by BMS at any time upon 60
days notice. As a result, there is no assurance that the Company will continue
to receive royalty payments in the future or on a consistent basis.
The Company's strategy for research, development and commercialization of
some of its products has been to rely upon various strategic alliances with
licensees, distributors and other third parties in performing preclinical and
clinical testing, obtaining regulatory approval, and performing manufacturing
and marketing functions. There can be no assurance that the Company will be able
to negotiate acceptable collaborative arrangements or that such arrangements
will be successful. Further, the Company cannot predict to what extent new
collaborative agreements, if any, will affect revenue and profitability in
future periods. See "Business -- Strategic Alliances."
Limited Marketing, Sales and Manufacturing Capabilities. The Company may
independently develop and market certain nasal drug products, such as certain
prescription products for which there are a relatively limited number of
clinicians specializing in the treatment of a condition that can be treated with
one of the Company's products. The Company has limited experience in marketing,
distributing or selling pharmaceutical products and will have to develop such
expertise or rely on licensees or on arrangements with others to provide for the
marketing, distribution and sales of its products. The Company currently intends
to pursue the marketing of its Nascobal product independently. There can be no
assurance that the Company will be able to establish marketing, distribution and
sales capabilities with respect to Nascobal or any other of its products or make
arrangements with licensees or others to perform such activities. If the Company
is unable to market Nascobal independently, or if it is unable to enter into an
arrangement with a third party to market Nascobal, such inability would have a
material adverse effect on the Company's business or prospects. See "Business --
Strategic Alliances."
Although the Company is producing and formulating small amounts of certain
drug formulations which are the subject of preclinical and clinical trials under
current good manufacturing practices ("GMP"), which are stringent manufacturing
standards prescribed by the FDA, the Company has not yet manufactured or
marketed any products in high-volume commercial quantities, and the current
facilities and equipment of the Company may not be adequate for high-volume
commercial scale production under GMP. The Company
5
<PAGE> 7
intends to manufacture its Nascobal product in commercial quantities in the near
future. To be successful, Nascobal and the Company's other proposed products
must be manufactured in commercial quantities under GMP and at acceptable costs.
Therefore, the Company will need to further develop its own GMP manufacturing
facility or depend on contract manufacturers, licensees or others for the
commercial manufacture of its products. The Company has no experience in such
high-volume commercial manufacturing and no assurance can be given that the
Company will be able to make the transition to commercial production
successfully or at an acceptable cost. In addition, no assurance can be given
that the Company will be able to make arrangements with third parties to
manufacture its products on acceptable terms. See "Business -- Manufacturing."
Management of Growth. The Company has recently experienced significant
growth as total revenues increased 31.6% in fiscal 1996 and 33.5% in fiscal 1995
as compared to prior periods. The Company's recent growth may result in
significant demands on the Company's management, operations and resources,
including working capital. To manage its growth effectively, the Company will be
required to continue to improve its operational, financial and management
information systems, procedures and controls, and to hire and train new
executives and other employees. There can be no assurance that the Company will
be able to manage its growth effectively, and the Company's failure to do so
could have a material adverse affect on the Company's business, research and
development efforts and financial performance.
Government Regulation. The United States Food and Drug Administration
("FDA") and comparable agencies in foreign countries impose requirements on the
introduction of therapeutic pharmaceutical products into the marketplace. Prior
to marketing, any therapeutic product developed by the Company must undergo
rigorous preclinical and clinical testing, as well as an extensive regulatory
approval process mandated by the FDA and foreign regulatory agencies. These
procedures require the expenditure of substantial resources, may take several
years or longer and may vary substantially based upon the type, complexity and
novelty of the pharmaceutical product. Government regulation also affects the
manufacturing, marketing and pricing of pharmaceutical products.
Government regulation may delay or prevent the marketing of the Company's
products or proposed products for a considerable period of time, impose costly
procedures upon the Company's activities and confer a competitive advantage to
larger companies or companies more experienced in regulatory affairs that
compete with the Company. There can be no assurance that FDA or other regulatory
approval for any products developed by the Company will be granted on a timely
basis, or at all. Delay in obtaining or failure to obtain such regulatory
approvals will materially adversely affect the Company's business, liquidity and
capital resources. See "Business -- Government Regulation."
Uncertainty Regarding Patents and Proprietary Information. The Company's
ability to compete effectively with other companies is materially dependent upon
the proprietary nature of its patents and technologies. The Company is the
exclusive licensee of six U.S. patents and presently owns four additional
patents in the United States and corresponding or related foreign patents. All
of such patents relate to the nasal delivery of specific therapeutic agents and
the compositions for such delivery.
The patent positions of pharmaceutical firms are generally uncertain and
involve complex legal and factual questions. The invalidation of key patents or
proprietary rights owned or licensed by the Company could have an adverse effect
on the Company and on its business prospects. Because of differences in patent
laws and laws concerning proprietary rights, the extent of protection provided
by United States patents or proprietary rights owned by or licensed to the
Company may differ from that provided by their foreign counterparts. No
assurance can be given that patents issued to or licensed by the Company will
not be challenged, invalidated or circumvented, or that any rights granted
thereunder will provide competitive advantages to the Company. Further, the
Company's existing patents may expire prior to regulatory approval and
commercial development of a proposed pharmaceutical product. The earliest
expiration date of a United States patent owned by or licensed to the Company is
1999.
The Company could incur substantial costs in defending any patent
infringement suits brought against the Company or in asserting the Company's
patent rights, including those granted by third parties, in a suit against
another party. In addition, proceedings may be instituted by third parties in
the United States Patent
6
<PAGE> 8
and Trademark Office against the Company in connection with one or more of the
Company's patents and such proceedings could result in an adverse decision as to
the validity or scope of the patents.
The Company also relies on trade secrets, know-how and continuing
technological advancement to maintain its competitive position. The Company has
utilized confidentiality agreements relating to such information with third
parties. No assurances can be given that such obligations of confidentiality
will be honored or that the Company can effectively protect its rights to any
unpatented trade secrets. See "Business -- Patents and Proprietary Rights."
Future Capital Needs. The Company's operations to date have consumed
substantial amounts of cash, primarily for research and development. The
Company's future capital requirements will depend upon numerous factors,
including: the progress of the Company's product development programs; the time
required to obtain regulatory approvals; the resources that the Company devotes
to the development of self-funded products; the ability of the Company to obtain
additional collaborative partners; and the demand for its products, if and when
approved. Based upon current expectations for operating losses and capital
expenditures, the Company believes that its existing cash, cash equivalents and
short-term investments, together with the proceeds of this offering and cash
flows generated from planned business operations, will be sufficient to meet its
operating expenses and capital expenditure requirements through at least
mid-1998. However, there can be no assurance that the Company will not require
additional financing depending upon future business strategies, results of
clinical trials, management decisions to accelerate certain research and
development programs and other factors. Adequate funds, whether through
financial markets or from other sources, may not be available when needed or on
terms acceptable to the Company. Insufficient funds may require the Company to
delay, scale back or curtail product development activities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Uncertainty of Health Care Reimbursement. The Company's ability to
commercialize therapeutic nasal pharmaceuticals successfully may depend in part
on the extent to which reimbursement for the cost of such products will be
available from government health administration authorities, private health
coverage insurers and other organizations. The Company believes that the U.S.
Congress may continue to consider health care reform proposals which, if
enacted, would significantly affect health care, pharmaceutical and drug
delivery companies, among others. Any such measures, if adopted, could adversely
affect the pricing of pharmaceutical products or the amount of reimbursement
from governmental agencies or third party payors, and consequently could be
adverse to the Company. Health care reform may adversely affect the Company's
business, particularly to the extent the Company develops products for
prescription drug applications. The Company is unable to predict, however, when
any proposed health care reforms will be implemented, if ever, or the effect of
any implemented reforms on the Company's business or prospects. Further,
significant uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate third-party
coverage will be available for the Company to maintain price levels sufficient
for realization of an appropriate return on its investment in product
development. See "Business -- Government Regulation" and "-- Health Care
Reimbursement."
Dependence Upon Key Personnel and Attraction of Qualified Personnel. The
Company is highly dependent on the services of its President and Chief Executive
Officer, Dr. Vincent D. Romeo. There is no assurance that, if the Company should
lose the services of Dr. Romeo, a qualified replacement could be engaged.
Although the Company has entered into an employment agreement with Dr. Romeo,
the loss of his services could have a material adverse effect on the Company's
business and prospects. Due to the specialized nature of the Company's business,
the Company is also highly dependent upon its ability to attract and retain
qualified scientific, technical and key management personnel. There is intense
competition for qualified personnel in the areas of the Company's activities and
there can be no assurance that the Company will be able to locate, attract and
retain qualified personnel necessary for the development of its existing
business and its expansion into areas and activities requiring additional
expertise, such as clinical testing, government approvals, production and
marketing. The loss of, or failure to recruit scientific, technical and
managerial personnel could have a material adverse effect on the Company. See
"Business -- Employees."
7
<PAGE> 9
Product Liability Exposure; Limited Insurance Coverage. The testing,
marketing and sale of human health care products entail an inherent risk of
allegations of product liability, and there can be no assurance that substantial
product liability claims will not be asserted against the Company. The Company
currently has only limited product liability insurance coverage in connection
with its clinical trials. The Company intends to obtain additional product
liability insurance if and when its products are commercialized and marketed by
the Company; however, there can be no assurance that adequate insurance will be
available at acceptable costs, if at all, that such insurance will be sufficient
to cover all possible liabilities, or that a product liability claim would not
have a material adverse effect on the business or financial condition of the
Company. Failure to maintain adequate product liability insurance could, in the
event a product liability claim were asserted against the Company, have a
material adverse impact upon the Company and its business.
Intense Competition. The Company is engaged in the pharmaceutical, drug
delivery systems industry which is characterized by extensive research efforts,
rapid technological progress and intense competition. Competitors of the Company
in the United States and abroad are numerous and include, among others, major
pharmaceutical companies, biotechnology firms, universities and other research
institutions. At the present time, the Company does not know of another
pharmaceutical company engaging exclusively in the development of drugs to be
administered nasally for systemic absorption. However, other pharmaceutical
companies which are larger than the Company are known to be engaged
non-exclusively in researching some nasally administered pharmaceuticals, and
may be expected to enter this field if the nasal route becomes a preferred
method of delivery for the administration of certain classes of drugs.
Further, there can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective than the
nasal technology being developed by the Company or that would render the
Company's technology and products obsolete or noncompetitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. Many of these
competitors also have greater experience than the Company in conducting
preclinical testing and clinical trials of pharmaceutical products and obtaining
FDA and other regulatory approvals. Accordingly, the Company's competitors may
succeed in obtaining FDA approval for products more rapidly than the Company. As
the Company commences commercial sales of its products, it will also be
competing with respect to manufacturing efficiency and marketing capabilities,
areas in which it has limited or no experience. See "Business -- Competition."
Management's Discretion Regarding Use of Proceeds. The net proceeds of
this offering to be received by the Company have not been allocated to any
specific purpose and will be available to management to use in its sole
discretion to support the Company's operations. Management may decide to use
those proceeds for unspecified investments and acquisitions, the terms of which
will solely be subject to management's discretion. See "Use of Proceeds."
Potential Volatility of Stock Price. The stock market recently has
experienced significant price and volume fluctuations that were often unrelated
to the operating performance of particular companies. The market price of the
Common Stock, as with that of securities of many similar companies, is likely to
be highly volatile. Factors such as the results of pre-clinical studies and
clinical trials by the Company or its competitors, regulatory progress or the
lack thereof with respect to products in the Company's pipeline or those of the
Company's competitors, evidence of the safety, efficacy or market acceptance of
the products of the Company or its competitors, announcements of technological
innovations or new products by the Company or its competitors, changes in
governmental regulation, developments in patent or other proprietary rights of
the Company or its competitors, including litigation, fluctuations in the
Company's operating results and changes in general market conditions for drug
delivery or other pharmaceutical companies could have a significant impact on
the market price of the Common Stock.
Authorization of Preferred Stock; Anti-takeover Provisions. The Company's
Certificate of Incorporation authorizes the issuance of up to 100,000 shares of
"blank check" preferred stock in amounts and with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other
8
<PAGE> 10
rights of the holders of the Company's Common Stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in control of the Company.
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes mergers, asset
sales and similar transactions between the corporation and the interested
stockholder, and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns 15% or more of the corporation's voting stock or
who is an affiliate or associate of the corporation and, together with his
affiliates and associates, has owned 15% or more of the corporation's voting
stock within three years. See "Description of Capital Stock."
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding 6,706,250 shares of Common Stock, assuming (i) no
exercise of 459,299 options outstanding as of the date of this Prospectus, and
(ii) no exercise of outstanding warrants to acquire 270,000 shares of Common
Stock expiring December 6, 1998. On the date of this Prospectus, 5,721,401
shares of Common Stock, including the 2,000,000 shares offered hereby, will be
immediately available for sale without restriction in the public market and
984,859 shares are "restricted securities" as that term is defined by Rule 144
under the Securities Act ("Rule 144"), and are now eligible to be sold in
compliance with Rule 144. Ordinarily, under Rule 144 a person holding restricted
stock for a period of two years may, every three months, sell in brokerage
transactions an amount equal to the greater of 1% of the Company's outstanding
Common Stock, or, if the Common Stock is quoted on Nasdaq, the average weekly
volume of trading in the Common Stock reported for the preceding four weeks.
After the expiration of three years, stock held by persons not affiliated with
the Company will not be subject to the above limitations.
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of shares of Common Stock may be sold in the public
market may adversely affect prevailing market prices for the shares of Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities. See "Shares Eligible for Future Sale."
The availability of shares for sale or actual sales under Rule 144 may have
an adverse effect on the market price of the Common Stock. Sales under Rule 144
also could impair the Company's ability to market additional equity securities.
The Company, each of the Company's directors and officers and certain holders of
the Company's outstanding securities, who hold in the aggregate approximately
20.6% of the outstanding shares of Common Stock prior to this offering, have
agreed not to offer, sell, contract to sell, or otherwise dispose of, any shares
of Common Stock or securities convertible into or exchangeable for, or any
rights to purchase or exchange, respectively, Common Stock for a period of 180
days from the date of this Prospectus without the prior written consent of
Volpe, Welty & Company, except for shares disposed of as bona fide gifts or the
grant or exercise of options pursuant to the Company's Stock Option Plan or the
exercise of outstanding warrants. See "Underwriting."
Forward-Looking Statements. Some of the statements made in this Prospectus
are forward-looking in nature, including but not limited to the Company's
business strategy, product development strategy, plans concerning the
commercialization of products, certain financial information and other
statements that are not historical facts, as well as statements regarding
management's expectations with respect to FDA approval of new products,
technology and product development milestones, the ability of the Company to
leverage its product development and negotiate favorable collaborative
agreements, the commencement of sales and the sufficiency of the Company's cash
flow for the Company's future liquidity and capital resource needs. The
occurrence of the events described, and the achievement of the intended results
are subject to the future occurrence of certain events and scientific results,
some or all of which are not predictable or within the Company's control;
therefore, actual results may differ materially from those anticipated in any
forward-looking statements.
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered by the Company hereby are estimated to be approximately $36.7
million (assuming an offering price of $20.00 per share). The Company
anticipates that the net proceeds of this offering will be used for (i) research
and development, including clinical trials, (ii) initial marketing and product
launch expenses with respect to Nascobal, (iii) capital expenditures,
principally for manufacturing, (iv) license or acquisition of products and
technologies for product development and (v) working capital and other general
corporate purposes. The amounts to be expended for each such purpose will depend
upon numerous factors, including the progress of the Company's research and
development programs, the results of pre-clinical and clinical studies, the
timing of regulatory approvals, the status of competitive products, the
availability of products for licensing and the terms of collaborative
agreements, if any, entered into by the Company. Based upon its currently
planned research and development activities and related costs, the Company
anticipates that the net proceeds of this offering will be sufficient to meet
its capital and operational requirements until at least mid-1998. Pending
utilization as described above, the net proceeds of this offering will be
invested in investment-grade, interest-bearing securities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is quoted on the Nasdaq SmallCap Market under
the symbol "NSTK." The Company has applied for inclusion of its Common Stock on
the Nasdaq National Market, upon official notice of issuance of the shares of
Common Stock offered hereby. The following table sets forth the range of high
and low bid prices for the Company's Common Stock as reported by the Nasdaq
Stock Market. These quotations represent inter-dealer prices, without adjustment
for retail mark-ups, mark-downs or commissions and do not necessarily represent
actual transactions:
<TABLE>
<CAPTION>
BID PRICE
-------------
FISCAL YEARS HIGH LOW
- ---------------------------------------------------------------------------- ---- ---
<S> <C> <C>
1995
First Quarter............................................................... $5 7/8 $3 1/8
Second Quarter.............................................................. 6 4 1/2
Third Quarter............................................................... 6 4 3/4
Fourth Quarter.............................................................. 8 4 7/8
1996
First Quarter............................................................... $7 7/8 $6 7/8
Second Quarter.............................................................. 10 7 3/8
Third Quarter............................................................... 9 7/8 8 1/4
Fourth Quarter.............................................................. 13 8 1/4
1997
First Quarter............................................................... $15 $9 1/2
Second Quarter.............................................................. 23 1/2 13
</TABLE>
On December 31, 1996, the closing bid and asked price quotations for the
Company's Common Stock were $20 and $20 5/8, respectively. The Company believes
that its Common Stock is held of record by approximately 17,000 persons,
including several brokerage firms holding shares in street name for beneficial
owners.
Since its inception, the Company has neither paid nor declared any cash or
other dividends on its shares of Common Stock. The Company has no current plans
to pay dividends on its Common Stock and intends to retain earnings, if any, for
working capital purposes. Any future determination as to the payment of
dividends on the Common Stock will depend upon the results of operations,
capital requirements, the financial condition of the Company and other factors
that the Board of Directors deems relevant.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 on an actual basis and as adjusted to reflect the sale of the
2,000,000 shares of Common Stock offered hereby at an assumed offering price of
$20.00 per share, after deducting estimated offering expenses and underwriting
discounts, and the application of the net proceeds therefrom. This table should
be read in conjunction with the Company's Financial Statements and Notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(2)
----------- --------------
(UNAUDITED)
<S> <C> <C>
Long-term debt, less current portion.............................. $ 20,881 $ 20,881
----------- --------------
Stockholders' equity:
Preferred stock, $0.01 par value; 100,000 shares authorized;
no shares issued and outstanding, actual and as adjusted.... -- --
Common stock, $0.006 par value; 6,000,000 shares authorized,
3,868,005 shares issued and outstanding, actual; 25,000,000
shares authorized, 6,706,250 shares issued and outstanding,
as adjusted(1).............................................. 23,208 40,238
Additional paid-in capital................................... 13,947,516 55,010,315
Accumulated deficit.......................................... (6,108,245) (6,108,245)
----------- --------------
Total stockholders' equity.............................. 7,862,479 48,942,308
----------- --------------
Total capitalization............................... $ 7,883,360 $ 48,963,189
========== ===========
</TABLE>
- ---------------
(1) Does not include: (i) 459,299 shares of Common Stock reserved for issuance
under the Company's Stock Option Plan and (ii) 270,000 shares of Common
Stock issuable upon exercise of outstanding warrants expiring on December
6, 1998.
(2) Includes $4,379,829 received from the exercise of 838,245 warrants
outstanding at September 30, 1996.
11
<PAGE> 13
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this
Prospectus. The statement of operations data for the years in the five-year
period ended June 30, 1996 and the balance sheet data as of June 30, 1992, 1993,
1994, 1995 and 1996 are derived from, and are qualified by reference to, the
audited financial statements of the Company. The selected financial data as of
and for the three months ended September 30, 1995 and 1996 have been derived
from unaudited financial statements of the Company which, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of such information as of and for such period.
The results of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results of operations to be expected for the
entire year or for any subsequent period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------------------------- -------------------------
STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995 1996 1995 1996
--------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fee, royalty and
research income........... $ 298,855 $ 855,590 $2,106,662 $2,683,925 $3,628,735 $ 818,459 $1,059,213
Interest income............. 15,988 7,061 93,583 253,858 238,178 63,051 102,447
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues......... 314,843 862,651 2,200,245 2,937,783 3,866,913 881,510 1,161,660
--------- ---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Research and development.... 407,489 444,095 504,140 882,356 1,164,172 283,259 340,613
Royalties................... 3,000 310,822 1,041,703 1,250,789 1,676,870 391,191 474,294
General and
administrative............ 196,705 203,700 388,898 836,549 864,784 168,602 258,673
Interest expense............ 116,921 82,439 40,857 47,534 42,562 13,106 8,544
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and
expenses............. 724,115 1,041,056 1,975,598 3,017,228 3,748,388 856,158 1,082,124
--------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before provision
for income taxes.............. (409,272) (178,405) 224,647 (79,445) 118,525 25,352 79,536
Provision for income taxes...... -- -- 17,000 -- -- 3,000 --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............... $(409,272) $ (178,405) $ 207,647 $ (79,445) $ 118,525 $ 22,352 $ 79,536
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common
share......................... $ (0.35) $ (0.13) $ 0.08 $ (0.03) $ 0.03 $ 0.01 $ 0.02
========== ========== ========== ========== ========== ========== ==========
Average shares outstanding...... 1,184,388 1,395,390 2,524,432 3,119,718 4,297,536 3,849,776 4,628,238
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
-------------------------------------------------------------------- -------------
BALANCE SHEET DATA: 1992 1993 1994 1995 1996 1996
--------- --------- ---------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit)....... $(199,098) $(222,006) $4,698,540 $4,444,108 $7,469,378 $ 7,586,791
Total assets.................... 494,052 746,319 6,001,963 6,034,912 9,366,796 8,733,491
Long-term debt.................. 600,000 565,556 452,296 348,965 135,907 20,881
Total stockholders' equity
(deficit)..................... (722,685) (734,786) 4,309,027 4,288,182 7,568,734 7,862,479
</TABLE>
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in the research, development, manufacturing and
commercialization of nasally administered forms of prescription and
over-the-counter pharmaceuticals that are currently delivered in oral,
injectable or other dosage forms. The nasal delivery of certain pharmaceuticals
can enable more rapid systemic absorption, lower required dosages, quicker onset
of desired effect, and painless, convenient patient self-administration.
In December 1991, BMS received marketing approval from the FDA for a nasal
formulation of Stadol NS, a narcotic analgesic, which was sublicensed to BMS by
the Company pursuant to the BMS Agreement. In 1992, the Company began to
generate revenues from the receipt of royalties in connection with the BMS
Agreement. On November 5, 1996, the Company received FDA marketing clearance for
Nascobal, its Vitamin B-12 nasal gel. The Company's pipeline includes nine
additional drugs, five of which are being developed under collaborative
agreements with other pharmaceutical companies. Through fiscal 1997, the Company
expects revenues to consist principally of revenues from BMS, milestone payments
and research fees. The Company does not expect revenues from its Nascobal
product until fiscal 1998.
In the past, the Company's product development strategy has generally been
to seek strategic alliances in order to minimize the risk, time and cost
typically associated with the early stages of commercializing a family of
pharmaceuticals. The Company believes it is now able to leverage its product
development experience and broad product pipeline to pursue internally funded
development projects. The Company believes that postponing the establishment of
strategic alliances until later stages of product development will allow the
Company to negotiate more favorable collaborative agreements and retain product
rights. Therefore, the Company intends to commit significant financial resources
to research and development with the goal of achieving greater economic benefit
from product sales. As a result of this increased investment in the development
of the Company's product pipeline, the Company does not expect to be profitable
until at least through fiscal 1998.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared To Three Months Ended September
30, 1995
Revenues. Revenues for the three months ended September 30, 1996 increased
by $280,000 to $1.2 million, or 31.8%, over such revenues for the three months
ended September 30, 1995. This increase was due to increases in license fee,
royalty and research income, which for the three months ended September 30, 1996
increased by $241,000 to $1.1 million, or 29.4%, over such income for the three
months ended September 30, 1995. The license fee, royalty and research income
increase primarily was due to royalty income received from BMS pursuant to the
BMS Agreement. The increased revenue associated with the BMS Agreement primarily
was due to increased sales of Stadol NS. Royalty income received from the BMS
Agreement for the current three-month period increased by $171,000 to $966,000,
or 21.5%, over such income for the similar period in fiscal 1996. Interest
income for the current three-month period increased by $39,000 to $102,000, or
62.5%, compared to such income for the similar period in fiscal 1996 due to an
increase in the amount of excess funds invested.
Research and development expense. In the three months ended September 30,
1996, the Company continued to conduct pharmaceutical and pharmacological
research and assemble the technical and reference data required to gain
marketing approval from the appropriate regulatory agencies for six new drug
products. Preclinical and clinical research and development expense for the
three months ended September 30, 1996 increased by $57,000 to $341,000, or
20.2%, over such expense for the three months ended September 30, 1995. Such
increase was due to the execution of the Company's strategy to accelerate
development of its nasal pharmaceutical formulations.
13
<PAGE> 15
Royalties expense. Royalties expense for the three months ended September
30, 1996 increased by $83,000 to $474,000, or 21.2%, over such expense for the
three months ended September 30, 1995. Such increase was due to the increase in
royalties paid by the Company to the University of Kentucky Research Foundation
("UKRF") in connection with the BMS Agreement. Pursuant to a separate license
agreement between the Company and UKRF, the Company pays UKRF royalties based on
royalty income received by the Company under the BMS Agreement. Accordingly,
royalties expense in connection with the BMS Agreement increases approximately
in proportion to royalty income.
General and administrative expense. General and administrative expense for
the three months ended September 30, 1996 increased by $90,000 to $259,000, or
53.4% over such expense for the three months ended September 30, 1995 due to
increased staffing expense. As a percentage of revenues, general and
administrative expense increased to 22.3% for current three-month period from
19.1% for the similar period in fiscal 1996.
Year Ended June 30, 1996 Compared To Year Ended June 30, 1995
Revenues. Revenues for fiscal 1996 increased by $929,000 to $3.9 million,
or 31.6%, over such revenues for fiscal 1995. This increase was due to increases
in license fee, royalty and research income, which for fiscal 1996 increased by
$945,000 to $3.6 million, or 35.2%, over such income for fiscal 1995. The
license fee, royalty and research income increase primarily was due to royalty
income received from BMS, pursuant to the BMS Agreement. The increased revenue
associated with the BMS Agreement primarily was due to increased sales of Stadol
NS. Royalty income received from the BMS Agreement for fiscal 1996 increased by
$883,000 to $3.4 million, or 34.9%, over such income for fiscal 1995. This
increase was offset in part by a decrease for fiscal 1996 of $97,000 to $19,000
for royalty income received from the marketing of the licensed non-prescription
Vitamin B-12 nasal gel by Nature's Bounty, Inc. ("NB"). The Company does not
expect any significant future royalty payments from NB. Interest income for
fiscal 1996 decreased by $16,000 to $238,000, or 6.2%, compared to such income
for fiscal 1995 due to changed interest rates and reduction in the amount of
excess funds invested.
Research and development expense. In fiscal 1996, the Company continued to
conduct pharmaceutical and pharmacological research and assemble the technical
and reference data required to gain marketing approval from the appropriate
regulatory agencies for six new drug products. Preclinical and clinical research
and development expense for fiscal 1996 increased by $282,000 to $1.2 million,
or 31.9%, over such expense for fiscal 1995. Such increase was due to the
execution of the Company's strategy to accelerate development of its nasal
pharmaceutical formulations.
Royalties expense. Royalties expense for fiscal 1996 increased by $426,000
to $1.7 million, or 34.1%, over such expense for fiscal 1995. Such increase was
due to the increase in royalties paid by the Company to the UKRF in connection
with the BMS Agreement.
General and administrative expense. General and administrative expense for
fiscal 1996 increased by $28,000 to $865,000, or 3.4%, over such expense for
fiscal 1995. As a percentage of revenues, however, general and administrative
expense decreased to 22.4% for fiscal 1996 from 28.5% for fiscal 1995. This
improvement was due to the leveraging of the Company's infrastructure as
revenues increased significantly while general and administrative expenses
increased slightly.
Year Ended June 30, 1995 Compared To Year Ended June 30, 1994
Revenues. Revenues for fiscal 1995 increased by $738,000 to $2.9 million,
or 33.5%, over such revenues for fiscal 1994. This increase was due to increases
in license fee, royalty and research income, which for fiscal 1995 increased by
$577,000 to $2.7 million, or 27.4%, over such income for fiscal 1994. The
license fee, royalty and research income, increase primarily was due to royalty
income received from BMS pursuant to the BMS Agreement. Royalty income received
from the BMS Agreement for fiscal 1995 increased by $630,000 to $2.5 million, or
33.1%, over such income for fiscal 1994. This increase was offset in part by a
decrease for fiscal 1995 of $28,000 to $116,000, or 19.7%, compared to fiscal
1994 for royalty income received from the marketing of the licensed
non-prescription Vitamin B-12 nasal gel by NB. Interest income for fiscal 1995
increased by $160,000 to $254,000, or 171.3%, over such income for fiscal 1994.
Such increase was due to the
14
<PAGE> 16
fact that funds from the Company's December 1993 public offering were invested
for a full fiscal year as of June 30, 1995, compared with a partial period in
the prior year.
Research and development expense. Preclinical and clinical research and
development expense for fiscal 1995 increased by $378,000 to $882,000, or 75.0%,
over such expense for fiscal 1994. Such increase was due to the execution of the
Company's strategy to accelerate development of its nasal pharmaceutical
formulations.
Royalties expense. Royalties expense for fiscal 1995 increased by $209,000
to $1.3 million, or 20.1%, over such expense for fiscal 1994. Such increase was
due to the increase in royalties paid by the Company to UKRF in connection with
the BMS Agreement.
General and administrative expense. General and administrative expense for
1995 increased by $448,000 to $837,000, or 115.1%, over such expense for 1994.
As a percentage of revenues, general and administrative expense increased to
28.5% for fiscal 1995 from 17.7% for fiscal 1994. This increase was due to
increased staffing costs, costs associated with the Company's move to larger and
more modern laboratory, manufacturing and office facilities, and consulting
expenses relating to strategic planning.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's liquidity included cash and cash
equivalents and short-term investments of $7.3 million compared to $8.0 million
at June 30, 1996. These consisted primarily of the funds received from the
recent exercise of warrants outstanding and the net proceeds of the Company's
December 1993 public offering. Royalty income receivable at September 30, 1996,
totaled approximately $1.0 million, which consisted principally of royalty
income received pursuant to the BMS Agreement.
As a result of the availability of funds provided by increased revenue as
well as the liquidity provided by the Company's December 1993 public offering
and the exercise of the related warrants, the Company has budgeted an increase
in its research and development efforts and related general and administrative
support.
At September 30, 1996, the Company had working capital of $7.6 million.
Management anticipates that its current cash position, including the exercise of
remaining warrants and the net proceeds of this offering, together with cash
generated from operations will provide adequate funds for the Company's
anticipated needs, including working capital, until at least mid-1998. Based
upon the anticipated future financing requirements of the Company, management
expects that the Company may, from time to time, engage in additional financings
of a character and in amounts to be determined.
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward looking statements" within
the meaning of Section 27A of the Securities Act which represent the Company's
intentions, expectations or beliefs concerning future events, including, but not
limited to, statements regarding management's expectations with respect to FDA
approval of new products, technology and product development milestones, the
ability of the Company to leverage its product development and negotiate
favorable collaborative agreements, the commencement of sales and the
sufficiency of the Company's cash flow for the Company's future liquidity and
capital resource needs. These forward looking statements are qualified by
important factors that could cause actual results to differ materially from
those in the forward looking statements, including, without limitation, the
factors discussed in "Risk Factors." See "Risk Factors."
15
<PAGE> 17
BUSINESS
OVERVIEW
The Company is engaged in the research, development, manufacturing and
commercialization of nasally administered forms of prescription and
over-the-counter pharmaceuticals that are currently delivered in oral,
injectable or other dosage forms. The nasal delivery of certain pharmaceuticals
enables more rapid systemic absorption, lower required dosages, quicker onset of
desired effect, and painless, convenient patient self-administration, resulting
in improved patient compliance and pharmacoeconomics. The Company focuses its
research primarily on drugs with demonstrated safety and efficacy, which,
through current delivery forms, have certain bioavailability or patient
compliance limitations that may be improved with a novel delivery form.
The Company's first commercially available pharmaceutical is a prescription
pain reliever marketed as Stadol NS by BMS. Stadol NS is the only transnasal
analgesic therapy marketed for the treatment of moderate to severe pain and the
acute pain of migraine. Stadol NS provides significant advantages over the only
alternative delivery method for this drug, injection, including patient
self-administration, increased patient compliance, cost containment and the
additional indication of usage, migraine headache pain. Similarly, Nascobal, the
Company's nasal Vitamin B-12 product, provides both therapeutic and patient
benefits over injectable therapy for chronic Vitamin B-12 deficiency anemia.
Nascobal, which was independently developed by the Company, was cleared for
marketing by the FDA on November 5, 1996. In addition to these approved drugs,
the Company's pipeline includes nine drugs, five of which are being developed
under collaborative agreements with other pharmaceutical companies.
INDUSTRY OVERVIEW
The Company participates in the drug delivery industry, a subset of the
pharmaceutical industry. Conventional methods of drug delivery include oral
administration and injections. Newer delivery methods or routes of delivery
include improved versions of traditional methods of drug delivery as well as
expanded technologies and systems with novel routes of administration, such as
the Company's nasal delivery, new oral sustained and controlled release delivery
systems, oral mucosal administration, transdermal systems and pulmonary
administration. Among the principal reasons for the development of new methods
of drug delivery is the facilitation of the introduction of a pharmaceutical
agent into a patient or consumer in a manner that provides greater safety and
efficacy, lower side effect profile, improved patient compliance and greater
economy than conventional methods.
The nasal delivery of certain drugs offers significant advantages over
other methods of delivery. These advantages include: (i) rapid systemic
absorption; (ii) lower required dosages, resulting in lower levels of
metabolites and less severe side effects; (iii) more rapid onset of desired
therapeutic effects and more desirable blood profiles; (iv) convenient
self-administration by patient; (v) improved patient compliance; and (vi)
improved pharmacoeconomics. The Company believes that due to these advantages of
nasal delivery, significant opportunities exist to address the limitations of
currently available delivery forms for certain drugs.
Although oral, injectable, patch and pulmonary dosage forms are accepted
for a variety of systemic pharmaceuticals, the Company believes that nasal
delivery may optimize the delivery of certain of these drugs. While the oral
route is the most popular and least expensive method of delivery, it exposes the
drug to liver and gastrointestinal metabolism which may diminish the activity of
a drug prior to its systemic distribution. Therefore, nasal delivery may allow
for administration of lower dosages to achieve the desired therapeutic effect.
In addition, some patients, particularly pediatric and geriatric patients, may
find this route inconvenient due to difficulty in swallowing tablets or
capsules. The oral route of delivery may also require the use of fluids or
measuring devices to allow the patient to self-administer messy liquids or
syrups.
Some pharmaceutical agents are delivered by injection to circumvent
significant liver or gastrointestinal metabolism following oral administration.
However, because of patient discomfort and the required assistance of a health
care professional, injection therapy is generally inconvenient and expensive,
often resulting in patient non-compliance.
16
<PAGE> 18
Like the injectable route, transdermal patches also bypass liver or
gastrointestinal metabolism but generally do not provide rapid systemic
absorption of a drug and may result in local irritation at the site following
prolonged application.
Pulmonary drug delivery is widely accepted for the administration of drugs
locally to the lung or to treat respiratory conditions such as bronchial asthma.
Although this route is being considered for the systemic delivery of
pharmaceuticals, including peptides and proteins, it requires the use of
delivery devices that may be expensive and require extensive patient education.
The Company believes that changes in the economics of healthcare in the
past several years have created a need for alternative drug delivery methods,
including nasal administration. Due to managed care policies and increased
competition from manufacturers of generic drugs, drug companies are faced with
difficulties in raising prices and overall margin pressure. The Company's nasal
drug delivery technology provides traditional large pharmaceutical companies
with a novel delivery method that may improve and differentiate existing
pharmaceutical products, make new indications possible and provide proprietary
protection, thereby reducing competition from manufacturers of generic drugs. As
a result of these industry trends, the Company believes that large
pharmaceutical companies will increasingly seek to establish collaborative
agreements with drug delivery specialists.
BUSINESS STRATEGY
The Company's business strategy is to become a leading drug delivery
specialist by expanding the applications of nasal drug delivery in the
prescription and over-the-counter markets. The Company's strategy incorporates
the following principal elements:
Focus Initial Efforts on Approved Drugs. The Company has focused primarily
on drugs that have proven efficacy and safety, are approved for marketing and
which the Company believes could benefit from a nasal form of delivery. In
addition, the Company's proprietary nasal formulations utilize compounds that
are generally recognized as safe ("GRAS") by the FDA. The Company believes that
by focusing its research and development activities on drugs with demonstrated
safety and efficacy, and with an unaddressed market need, it may reduce the
technical and marketing risk of its projects by decreasing the time period
required to bring a new product to market and expanding the market for certain
drugs.
Internally Fund Development Through Later Stages. The Company believes
that internally funding development until later stages will allow the Company to
retain product rights and enable it (i) to negotiate more favorable
collaborative agreements or (ii) to manufacture and market its products
independently. Although historically focused on establishing early stage
alliances, the Company believes it is now able to leverage its product
development experience and broad product pipeline to pursue internally funded
development and commercialization projects, as appropriate. Therefore, the
Company intends to commit significant financial resources to research and
development with the goal of achieving greater economic benefit from product
sales.
Leverage Strategic Alliances. Where appropriate, the Company seeks to
establish domestic and international relationships with major pharmaceutical
companies for the marketing and distribution of certain of the Company's
products or technology. This approach allows the Company to devote its resources
to the further development of its technology while leveraging the established
sales and marketing capabilities of such collaborative partners. The Company
currently has collaborative agreements with BMS, RiboGene, Pfizer, DuPont Merck
and Ciba and will continue to pursue additional partners where appropriate.
Protect and Expand Intellectual Property. The Company has and will
continue to seek patent protection for its formulations and other technology in
the United States and key international markets. The Company is the exclusive
licensee of six U.S. patents and owns four additional U.S. patents, all covering
approximately 65 drugs. The Company has filed other U.S. patent applications, as
well as corresponding patent applications
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outside the United States, relating to the Company's technology. As specific
formulations are developed and clinically tested, the Company intends to file
for additional patent protections.
Augment Technology Through Licensing and Acquisition. The pharmaceutical
drug delivery systems industry is characterized by a large number of relatively
small organizations which focus on various modalities of drug delivery and
administration but may lack the capital or regulatory experience necessary to
succeed. The Company believes that large pharmaceutical companies may seek to
establish relationships with drug delivery companies that are able to offer
alternative, multiple or combination delivery methods and are organizationally
and financially stable. Therefore, the Company intends to augment its internal
growth through licensing technology and the acquisition of companies that
provide complementary technology, management and markets. The Company was
recently granted an exclusive license from DynaGen, Inc. ("DynaGen") to develop
a nasal formulation of Lobeline for smoking cessation. No specific acquisition
is currently contemplated.
PRODUCTS
The Company is engaged in the research and commercialization of nasally
administered forms of prescription and over-the-counter pharmaceuticals that are
currently delivered in oral, injectable or other dosage forms. The Company
currently holds or licenses patents covering approximately 65 pharmaceuticals.
The Company leverages its intellectual property and reduces the technical risk
of its projects by focusing its research efforts on the development of drugs
with demonstrated safety and efficacy. In order to address market needs, the
Company targets drugs whose current delivery methods present certain
bioavailability, patient compliance or cost limitations. Based on its research,
the Company believes that advantages of nasal delivery include ease of use,
rapid systemic absorption, lower side-effect profile, improved
cost-effectiveness, lower required dosage and more rapid onset of desired
effect.
The Company's current agreement with BMS provides for the sales and
marketing of its first product, Butorphanol Tartrate, a pain reliever marketed
as Stadol NS. The Company also recently has received marketing clearance from
the FDA for Nascobal, the Company's nasal gel for the treatment of chronic
Vitamin B-12 deficiency anemia. The following chart summarizes the Company's
current products and product pipeline:
NASTECH CURRENT PRODUCTS AND PIPELINE
<TABLE>
<CAPTION>
THERAPEUTIC TRADITIONAL
DRUG CATEGORY DELIVERY METHOD STATUS(1) PARTNER
- ----------------- ------------------------- ---------------- --------------------------- -------------
<S> <C> <C> <C> <C>
Stadol NS Narcotic Analgesic Injection Marketing(2) BMS
Nascobal Vitamin/Anti-Anemia Injection Cleared for Marketing
Metoclopramide Anti-Nausea/Anti-Emetic Injection/Oral Phase III(2) RiboGene
Doxylamine Sleep-Aid Oral Phase I Pfizer
Undisclosed Anti-Motion Sickness Oral Phase I
Propranolol Beta-Blocker/Migraine Injection/Oral Phase I(2) RiboGene
Buprenorphine Narcotic Analgesic Injection Pre-Clinical
Clemastine Antihistamine Oral Pre-Clinical
Chlorpheniramine Antihistamine Oral Pre-Clinical
Nalbuphine Narcotic Analgesic Injection Formulation Development(2) DuPont Merck
Nicotine Smoking Cessation Patch/Gum Formulation Development Ciba
</TABLE>
- ---------------
(1) See "-- Government Regulation" for a description of the different stages of
development.
(2) Marketing or development activities performed by collaborative partners.
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Approved and Marketable Products
STADOL NS (BUTORPHANOL TARTRATE) -- Narcotic analgesic for acute
pain. Stadol NS is the only transnasal analgesic therapy marketed for the
treatment of moderate to severe pain and the acute pain of migraine. Prior to
Stadol NS, the only acceptable and effective means of delivery for Butorphanol
Tartrate was the injectable form. Transnasal Butorphanol Tartrate offers
significant advantages over injectable formulations of the drug, including
patient self-administration, increased patient compliance, cost containment, and
the additional indication of usage. Because of these advantages, transnasal
Butorphanol Tartrate has enjoyed significant growth in market size since 1993,
as compared to the injectable formulation. Stadol NS is currently marketed by
BMS under an agreement that generates quarterly royalties to the Company.
NASCOBAL (CYANOCOBALAMIN, USP/VITAMIN B-12) -- For Vitamin B-12 deficiency
anemia. Nascobal is intended to replace inconvenient, painful and often
expensive monthly injections by a health care professional for the maintenance
treatment of chronic Vitamin B-12 deficiency anemia. Nascobal is intended to be
a more convenient, painless, self-administered weekly therapy, which the Company
believes may result in improved patient compliance. On November 5, 1996, the
Company received marketing clearance from the FDA for this product. The Company
independently developed Nascobal through FDA marketing clearance, and presently
intends to manufacture and market this product. Accordingly, the Company intends
to retain product rights, thereby receiving greater economic benefit from
product sales.
Products Under Development
All of the pharmaceutical products currently being considered by the
Company for nasal delivery are commercially available and have received FDA
marketing approval in non-nasal dosage forms. Consequently, preliminary testing
by the Company is designed only to determine the suitability of the drug for
nasal delivery.
The Company's development efforts focus primarily on chemical compounds
protected by the Company's patents. In selecting compounds to target, the
Company considers drugs which may benefit significantly from the advantages of
transnasal delivery. The Company also targets pharmaceuticals which may benefit
in the form of increased market size as a result of the switch to a transnasal
formulation.
The Company has four active Notices of Claimed Investigational Exemption
for a New Drug ("INDs") for products in the Company's product pipeline of
nasally delivered pharmaceutical agents: Meclizine (anti-nausea/anti-emetic);
Metoclopramide (anti-nausea/anti-emetic); Propranolol (beta-blocker) and
Doxylamine (antihistamine/sleep-aid). The further development and marketing of
Metoclopramide and Propranolol are subject to collaborative agreements between
the Company and RiboGene.
Products currently under development are as follows:
METOCLOPRAMIDE HCL -- Anti-nausea/anti-emetic. Metoclopramide HCl is an
anti-nausea/anti-emetic agent indicated for the treatment of nausea and vomiting
due to emetogenic cancer chemotherapy. In its oral and injectable dosage forms,
it is commonly known as Reglan(R) which is marketed by Whitehall-Robbins
Company. The Company believes that a self-administered nasal dosage form will
provide a patient friendly alternative to injections, which are inconvenient and
painful, and to oral doses, which are often difficult to swallow when nauseous.
RiboGene has conducted Phase III clinical trials under an agreement that
provides for certain minimum royalties to the Company beginning in 1998, in
addition to royalties based on net sales if and when Metoclopramide HCl is
cleared for marketing.
DOXYLAMINE SUCCINATE -- Sleep-aid. Doxylamine Succinate is an ethanolamine
derivative antihistamine used as a nighttime sleep aid in the short-term
management of insomnia. In its traditional oral dosage form it is commonly known
as Unisom(R), which is marketed by Pfizer. The Company believes that a nasal
dosage form will provide rapid systemic absorption, may minimize side effects
including morning drowsiness and will be convenient for the consumer to
administer. In June 1995, the results of certain pre-clinical studies and
additional support documentation were compiled and submitted with the Company's
IND to the FDA. The Company has conducted initial Phase I human trials to screen
formulations for optimal clinical effect. This clinical study program is
continuing to date. The Company recently entered into an agreement with Pfizer
to continue research and development activities with respect to Doxylamine
Succinate.
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ANTI-MOTION SICKNESS COMPOUNDS -- Anti-motion sickness. Various nasal
antihistaminic and non-antihistaminic compounds are being evaluated by the
Company for the prevention of motion sickness. The Company is conducting
formulation and pre-clinical work necessary to file the required INDs allowing
for the screening of selected compounds in clinical trials. An IND has been
filed for one of the compounds, Meclizine HCl, for which Phase I clinical trials
have been conducted. The Company believes that the anti-motion sickness market
is underserved by existing pharmaceutical agents which often require patients to
pre-dose or intake oral medication after the condition manifests itself. The
most common route, oral dosage, does not provide rapid absorption and is often
difficult for a patient to administer due to nausea.
PROPRANOLOL HCL -- Beta-blocker/migraine. Propranolol HCl is a
non-selective beta-blocker indicated for the treatment of hypertension, angina
pectoris, cardiac arrhythmias, myocardial infarction and prophylaxis of migraine
headache. In its oral and injectable dosage forms, it is marketed as Inderal(R)
by Wyeth-Ayerst Laboratories. The Company believes that a nasal dosage form
would be rapid acting, effective and convenient to use and carry for
self-administration. RiboGene has conducted Phase I clinical trials under an
agreement that provides for royalties based on net sales if and when Propranolol
HCl is cleared for marketing, in addition to the payment of all patent
maintenance and other fees.
BUPRENORPHINE HCL -- Narcotic analgesic. Buprenorphine HCl is a narcotic
agonist-antagonist analgesic indicated for the relief of moderate to severe
pain. In its injectable dosage form, it is commonly known as Buprenex(R), which
is marketed by Reckitt & Colman Pharmaceutical, Inc. The only method currently
approved by the FDA for administering Buprenorphine HCl is by injection. The
Company believes that a nasal dosage form will allow for patient-friendly
self-administration and will provide a rapid systemic absorption of the drug for
quick pain relief. In 1996, the Company continued formulation work in
anticipation of a pre-clinical research program to generate the required data
for filing an IND for the nasal delivery of this pharmaceutical agent.
CLEMASTINE FUMARATE -- Antihistamine. Clemastine Fumarate is an
antihistamine indicated for the treatment of seasonal allergic rhinitis. In its
oral dosage form, it is commonly known as Tavist(R), which is marketed by Sandoz
Pharmaceuticals Corporation ("Sandoz"). The Company believes that a nasal dosage
form will provide rapid systemic absorption as well as local effect for the
relief of symptoms. In the past year, the Company commenced a research and
development program to begin generating the necessary information and
preclinical data for the filing of an IND for the nasal delivery of this drug
product. In March 1996, the Company began a feasibility study under an agreement
with Sandoz, which was terminated in November 1996. The Company intends to
continue to develop this product independently and to pursue discussions with
strategic marketing partners at a later stage.
CHLORPHENIRAMINE MALEATE -- Antihistamine. Chlorpheniramine Maleate is an
antihistamine indicated for the relief of symptoms associated with hay fever and
upper respiratory allergies (allergic rhinitis). In its oral dosage form it is
commonly known as ChlorTrimeton(R), which is marketed by Schering Plough Corp.
The Company believes that a nasal dosage form will provide rapid systemic
absorption as well as local effect for the relief of symptoms. The Company has
continued its research program to generate the necessary information and
preclinical data for the filing of an IND for the nasal delivery of
Chlorpheniramine Maleate. A pilot bioavailability study of nasal
Chlorpheniramine Maleate in animal models demonstrated higher systemic
absorption of the drug following nasal versus oral administration. The Company
intends to conduct a pre-clinical investigation to allow for the submission of
an IND with the FDA. There can be no assurance that these results will be
reproduced in Phase I clinical trials.
NALBUPHINE HCL -- Narcotic analgesic. Nalbuphine HCl is a narcotic
agonist-antagonist analgesic agent indicated for the treatment of moderate to
severe pain. Nalbuphine HCl can also be used as a supplement to balanced
anesthesia, for preoperative and postoperative analgesia, and for obstetrical
analgesia during labor and delivery. The only method currently approved by the
FDA for administering Nalbuphine HCl is by injection, and is currently marketed
as Nubain(R) by DuPont Merck. The Company believes that a nasal dosage form will
allow for patient-friendly self-administration and will provide a rapid systemic
absorption of the drug. Under a sublicense agreement with the Company, DuPont
Merck is currently conducting formulation development work in preparation for
preclinical and clinical testing.
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NICOTINE -- Smoking cessation. Nicotine is a naturally occurring autonomic
drug used as a temporary adjunct in the cessation of cigarette smoking in
conjunction with a behavior modification program. It is commercially available
as a transdermal patch and chewing gum marketed by a number of pharmaceutical
companies including Ciba. Under an agreement with Ciba to develop a nicotine
nasal spray for smoking cessation, the Company has commenced a research and
development program to begin generating the necessary information and
preclinical data for the filing of an IND for the nasal delivery of this drug
product.
STRATEGIC ALLIANCES
The Company's product development strategy had been to focus its attention
and resources in a manner that minimized the risk, time and cost typically
associated with the early stages of commercializing a family of pharmaceuticals.
As the Company has matured in its regulatory experience and as additional
financial resources have been obtained, it has conducted more of the research
and development process internally and independently. The Company intends to
continue this internal development, and accordingly retain product rights until
later stages of the development process. The Company believes that such a
strategy may increase the value of future collaborative agreements and provide
the Company with the option of conducting sales or marketing efforts where
appropriate.
The Company may independently develop and market certain nasal drug
products, such as certain prescription products for which there are a relatively
limited number of clinicians specializing in the treatment of a condition that
can be treated with one of the Company's products. Because the Company has
limited experience in marketing, distributing or selling pharmaceutical
products, it will have to develop adequate sales and marketing capabilities.
Other nasal pharmaceuticals, such as some of the Company's proposed over-the-
counter products, may lend themselves to development and marketing in
conjunction with established pharmaceutical companies that can provide the
financial means, marketing and distribution systems to successfully
commercialize such a new nasal pharmaceutical product. The Company also plans to
evaluate collaboration with commercial partners for distribution and marketing
of its products in international markets.
The Company's current collaborative arrangements generally provide for a
development project to be followed by commercialization pursuant to a licensing
arrangement. If a development project is successful, the collaborative partner
may elect to proceed to commercialize the Company's technology pursuant to a
definitive marketing and license agreement.
The Company's current strategic alliances are as follows:
BRISTOL-MYERS SQUIBB COMPANY -- On January 1, 1986, the Company sublicensed
to BMS its development and commercial exploitation rights with respect to its
licensed patent rights for the nasal delivery of Butorphanol Tartrate, in
exchange for which BMS agreed to pay the Company a royalty based on the net
sales of such product pursuant to the BMS Agreement. The Company must pay a
percentage of these royalties to UKRF under the Company's separate license
agreement with UKRF. The BMS Agreement, which may be terminated by BMS at any
time upon 60 days written notice to the Company, is coextensive with the
Company's licensed patent rights to nasal Butorphanol Tartrate. The nasal
Butorphanol Tartrate patent expires in the year 2001 in the United States,
subject to any right of extension or renewal. In December 1991, the FDA granted
marketing clearance to BMS for this product and quarterly royalty payments to
the Company by BMS are continuing.
CIBA SELF-MEDICATION, INC. -- In August 1996, the Company entered into an
agreement with Ciba to develop a nicotine nasal dosage form to assist with
smoking cessation. Ciba markets the Habitrol(TM) transdermal patch. Under the
terms of such agreement, the Company is to perform formulation and related
preclinical research and development up to and including the filing of an IND.
Upon the successful achievement of certain specified milestones, the Company and
Ciba have agreed to negotiate definitive development, manufacturing and
marketing agreements.
THE DUPONT MERCK PHARMACEUTICAL COMPANY -- On June 30, 1994, the Company
exclusively sublicensed to DuPont Merck its development and commercial
exploitation rights with respect to its licensed patent rights for the nasal
delivery of Nalbuphine HCl, in exchange for which DuPont Merck agreed to pay
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the Company a royalty based on the net sales of such product (the "DuPont Merck
Agreement"). The Company must pay a percentage of these royalties to UKRF under
the Company's separate licensing agreement with UKRF. Nalbuphine HCl is a
synthetic narcotic analgesic agent indicated for the relief of moderate to
severe pain. The DuPont Merck Agreement is limited to the countries of Canada
and Mexico and is coextensive with the Company's licensed patent rights to nasal
Nalbuphine HCl in those countries. The nasal Nalbuphine HCl patent expires in
the year 2001 in Canada, subject to any right of extension or renewal. The
Mexican patent for nasal Nalbuphine HCl is currently pending. The DuPont Merck
Agreement may be terminated by DuPont Merck at any time upon 60 days written
notice to the Company.
PFIZER INC. -- On December 30, 1996, the Company entered into an Evaluation
and Option Agreement with Pfizer to conduct a drug delivery feasibility study
with respect to Doxylamine Succinate, one of the Company's nasally delivered
sedating antihistamines (the "Doxylamine Agreement"). In its traditional oral
dosage form, Doxylamine Succinate is currently marketed by Pfizer as Unisom(R).
Pursuant to the Doxylamine Agreement, the Company is to design, undertake and
complete a clinical research program for the nasally delivered product. The
Company will receive certain development milestone payments and has granted
Pfizer an option for an exclusive license for the manufacture and marketing of
the product for a specified evaluation period. In the event an NDA is filed and
Pfizer exercises such option, the parties have agreed to the form of a
definitive licensing agreement.
RIBOGENE, INC. -- (as successor in interest to Rugby Laboratories Co.,
Inc., and Darby Pharmaceuticals, Inc.) -- On June 26, 1987, the Company entered
into a license agreement wherein RiboGene, as successor in interest, is the
Company's sole and exclusive worldwide licensee for the manufacture,
distribution and marketing of the nasal dosage form of Propranolol HCl for the
life of the Company's U.S. patent covering the nasal route of administration for
that drug (the "Propranolol Agreement"). If and when nasal Propranolol HCl is
approved for marketing and commercialized, the Company will receive royalties
based upon net sales of the product. The Company must pay a percentage of these
royalties to UKRF under the Company's separate license agreement with UKRF. In
addition, RiboGene is obligated to pay all patent maintenance fees with respect
to Propranolol HCl and pay certain other fees thereunder. RiboGene can terminate
the Propranolol Agreement at any time.
In March 1990, the Company entered into an agreement whereby RiboGene, as
successor in interest, purchased the Company's Metoclopramide HCl patent and
certain proprietary research information related thereto (the "Metoclopramide
Agreement"). The Metoclopramide Agreement provides for certain royalties and
other fees to the Company if and when nasal Metoclopramide HCl is approved for
marketing and commercialized. RiboGene has a sublicense for nasal Metoclopramide
HCl with Crinos Industria Farmacobiologica SpA in Italy and Prodes in Spain.
In December 1994, the Company and RiboGene amended the Propranolol
Agreement and the Metoclopramide Agreement whereby the Company waived its option
to repurchase the exclusive rights to nasal Propranolol HCl and Metoclopramide
HCl in consideration of a three-year right of first refusal to perform
dosage-form development work for both projects. The amended Metoclopramide
Agreement also provided for an increased royalty rate and certain minimum
royalties commencing in 1998.
PATENTS AND PROPRIETARY RIGHTS
The Company pursues a strong policy of obtaining patent protection in both
the United States and selected foreign jurisdictions. The Company has been
granted five U.S. patents and has two pending U.S. patent applications. One
patent has been assigned to RiboGene for Metoclopramide HCl and another covering
Propranolol HCl has been exclusively licensed to RiboGene. The primary
technology protected by the Company's patent and proprietary rights relates to
the nasal administration of various compositions and compounds. Both the
compositions and compounds and the method of nasal administration of such
compositions and compounds are protected. Approximately 65 compositions and
compounds are covered by U.S. patents and corresponding foreign patents and
applications held by or licensed to the Company. Thirteen additional
compositions are disclosed in pending U.S. patent applications.
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The establishment of a strong proprietary position is an important element
of the Company's strategy, as the pharmaceuticals to which the Company has
proprietary rights for nasal delivery have been commercially available in
traditional oral or injectable forms for many years and have been approved for
use by those delivery methods by the FDA.
On June 1, 1983, the Company entered into the UKRF Agreement with UKRF and
Dr. Anwar Hussain, pursuant to which the Company obtained an exclusive worldwide
(except for the Middle East region) license for the development and commercial
exploitation of certain patents, patent applications and related know-how
(collectively the "UKRF Information") pertaining to the nasal delivery of the
following drugs:
Narcotic Antagonists and Analgesics: naloxone, naltrexone,
diprenorphine, nalmexone, cyprenorphine, alazocine, oxilorphan,
cyclorphan, morphine, metopon, desomorphine, dihydromorphine,
hydromorphone, 3-hydroxy-N-methylmorphinan,
levophenacylmorphan, metazocine, norlevorphanol, phenomorphan,
levorphanol, oxymorphone, buprenorphine, butorphanol,
cyclazocine, phenazocine, pentazocine, nalorphine,
levallorphan, nalbuphine.
Beta Blockers: propranolol.
Natural Female Sex Hormones: 17 beta-estradiol and progesterone.
The UKRF Agreement will terminate upon the expiration date of the latest patent
included in the UKRF Information. UKRF's U.S. patents expire between 1999 and
2001.
The UKRF Agreement requires the Company to pay UKRF the greater of (i) the
minimum annual royalties set forth below, or (ii) royalties based on a
percentage of sales of any product utilizing the UKRF Information (collectively
"UKRF Products"). If the UKRF Product is covered by a patent, royalties are
based on a schedule ranging between 4% and 6% of aggregate net sales. Minimum
royalties are payable commencing one year after FDA approval of a New Drug
Application ("NDA") with respect to a UKRF Product and are $100,000 per year. If
the UKRF Product, or any portion thereof, is not covered by a patent, the
Company is required to pay UKRF 50% of the greater of the aforementioned minimum
annual royalty or percentage royalty, whichever shall be applicable.
The UKRF Agreement accords the Company the right to grant sublicenses for
UKRF Products. In such event, the royalties payable to UKRF for domestic and
foreign sales thereof will be limited to 50% and 20%, respectively, of revenues
received by the Company therefrom. The Company has granted three sublicenses to
date.
On December 30, 1996, the Company entered into a Development and License
Agreement with DynaGen whereby the Company acquired an exclusive worldwide
license for the development, manufacture, distribution or use of Lobeline via
the nasal membrane for the treatment of nicotine addiction (the "Lobeline
License"). The Lobeline License is subject to the satisfactory completion of
certain milestones set forth in a development program.
At present, in addition to the patented drugs licensed from the UKRF and
DynaGen, the Company owns four issued U.S. patents and corresponding or related
foreign patents and applications pending, related to the nasal administration of
various therapeutic agents. All of the Company's patent applications are
directed to compositions for delivering the therapeutic agents by the nasal
route or to the use of such compositions for nasal delivery.
The Company pursues a general policy of obtaining patent protection in both
the U.S. and selected foreign jurisdictions for patentable subject matter. In
1986 and 1988, U.S. patents were issued to the Company describing and claiming
nasal delivery of a variety of antihistamine, anti-nausea and anti-emetic
pharmaceutical agents including Meclizine and Metoclopramide; as well as nasal
compositions containing Vitamin B-12 and caffeine. Corresponding or related
patent applications for most of these pharmaceutical agents were filed in
several foreign countries.
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United States patents, which expire between 2003 and 2005 have been issued
to the Company for the nasal delivery of the following pharmaceutical agents:
Antihistamines and/or
Anti-nausea/Anti-emetics: metoclopramide, diphenhydramine,
clemastine, dimenhydrinate, doxylamine, carbinoxamine,
phenyltoloxamine, tripelennamine, pyrilamine, brompheniramine,
pheniramine, chlorpheniramine, dexchlorpheniramine,
triprolidine, promethazine, trimeprazine, propiomazine,
methdilazine, cyproheptadine, azatadine, methapyrilene,
diphenylpyraline, phenindamine, hydroxyzine, terfenadine,
cimetidine, ranitidine, cyclizine, chlorcyclizine, meclizine,
buclizine, trimethobenzamide, benzquinamide.
Vitamin: cyanocobalamin/vitamin B-12 (Nascobal).
Stimulant: caffeine.
The Company can make no assurances that any issued patent, whether domestic
or foreign, will provide commercially significant patent protection. Further,
patent positions of pharmaceutical companies are generally uncertain and involve
complex legal and factual issues. Therefore, although the Company believes its
patents are valid, it cannot predict with any precision the scope or
enforceability of the claims allowed thereunder. In addition, there can be no
assurance that the Company's patent applications will result in issued patents,
that issued patents will provide an adequate measure of protection against
competitive technology which could circumvent such patents or that issued
patents would withstand review and be held valid by a court of competent
jurisdiction. Furthermore, there can be no assurance that any issued patents
will not be infringed or otherwise circumvented by others or that the Company
will be able to fund the cost of litigation against such parties.
The Company depends upon the knowledge, experience and skills of its key
scientific and technical personnel. To protect its rights to its proprietary
information, the Company requires all employees, consultants, advisors and
others to enter into confidentiality agreements which prohibit the disclosure of
confidential information to third parties and require disclosure and assignment
to the Company of developments, inventions and discoveries. There can be no
assurance that these agreements will effectively prevent the unauthorized use or
disclosure of the Company's confidential information.
MANUFACTURING
The Company has established internal manufacturing capabilities for
clinical trials and small commercial quantities of its products. All of the
Company's products for clinical and commercial use must be produced under
controlled conditions and under current FDA GMP. In August 1995, the Company
completed moving its executive offices, laboratory and manufacturing facilities
to a larger, more efficient and modern facility. The Company's laboratory and
manufacturing facilities are registered to operate by both the FDA and the New
York State Board of Pharmacy thereby enabling the Company to manufacture and
test its own pharmaceutical products. In order to insure continued compliance
with GMP requirements, the Company is required to maintain sufficient technical
staff to oversee all production operations, including quality control, quality
assurance, technical support and manufacturing management. Manufacturing
facilities and laboratories are subject to biennial inspections by the FDA.
In connection with collaborative agreements and if contract manufacturing
arrangements are established with third parties, the Company will depend upon
third parties to produce and deliver products in accordance with GMP. There can
be no assurance that such parties will perform their obligations in a timely
fashion and any failures by such third parties could cause a delay in clinical
trials, commercialization of product, or ability to supply the market. The
Company intends to manufacture its Nascobal product at its current facilities.
See "Risk Factors -- Limited Manufacturing, Marketing and Sales Capability."
GOVERNMENT REGULATION
The Company's research and development activities are, and its future
business will be, subject to significant regulation by numerous governmental
authorities in the United States and other countries. Pharmaceutical products
intended for therapeutic use in humans are governed by FDA regulations in the
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United States and by comparable regulations in foreign countries. The process of
completing clinical testing and obtaining FDA approval for a new drug product
requires a number of years and the expenditure of substantial resources.
Following initial formulation, the steps required before any new
pharmaceutical product may be marketed in the United States include (i)
preclinical laboratory and animal tests, (ii) the submission to the FDA of an
IND application, (iii) adequate and well-controlled clinical trials to establish
the safety and efficacy of the drug, (iv) the submission of an NDA to the FDA,
and (v) FDA approval of the NDA prior to any commercial sale or shipment of the
drug.
Typically, preclinical studies are conducted in the laboratory and in
animal model systems to gain preliminary information on the drug's
bioavailability or efficacy and to identify any significant safety problems. The
results of these studies are submitted to the FDA as part of the IND
application. Testing in humans may commence 30 days after filing of the IND
unless the FDA issues a "clinical hold". A three phase clinical program is
usually required for FDA approval of a pharmaceutical product.
Phase I clinical trials are conducted to determine the safety and optimal
dosage of the product in normal volunteers who do not have the disease or
condition that the proposed drug is designed to treat. Phase I studies are
conducted at approved institutions at which the absorption and excretion
(pharmacokinetics) of the drug as well as any side effects are closely
monitored.
If the Phase I testing data is positive and there are no adverse reactions,
a Phase II clinical trial is conducted to gain preliminary evidence as to the
safety and efficacy of the product in a selected patient population. A Phase III
clinical trial is conducted on a more complex patient population including
patients with multiple disease states and taking one or more medications to
provide sufficient data for the statistical proof of safety and efficacy. Phase
II and III studies are usually multi-center trials in order to achieve greater
statistical validity. A clinical trial may combine the elements of more than one
phase.
Upon completion of clinical testing which demonstrates that the product is
safe and effective for a specific indication, an NDA may be filed with the FDA.
This application includes details of the testing processes, preclinical studies,
clinical trials, as well as chemical, analytical, manufacturing, packaging and
labeling information. FDA approval of the application is required before the
applicant may market the new drug product.
Recent user-fee legislation establishes specific time frames for completion
of FDA regulatory reviews. While this program provides some measure of assurance
that the FDA's review is conducted in a timely fashion, there is no guarantee
that the time periods will be met in all cases or that the review will provide
positive results. Even after initial FDA approval has been obtained, the NDA
must be supplemented with any new data subsequently obtained with respect to the
drug's safety and efficacy. Further studies may be required to provide
additional data on safety or to gain approval for the use of a product as a
treatment in clinical indications other than those for which the product was
initially tested. The FDA may also require post-marketing testing and
surveillance programs or Phase IV post-approval trials to monitor the drug's
effects. Side effects resulting from the use of pharmaceutical products may
prevent or limit the further marketing of products.
In addition to regulations enforced by the FDA, the Company is subject to
regulations under the Occupational Safety and Health Act, various state and
federal environmental protection laws, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act and other similar federal, state and
local regulations governing permissible laboratory activities, waste disposal
and other matters.
For marketing outside of the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs. The requirements relating to the conduct of clinical trials,
product licensing, pricing and reimbursement vary widely from country to
country.
25
<PAGE> 27
HEALTH CARE REIMBURSEMENT
The Company's ability to achieve a competitive position with respect to
prescription pharmaceutical product applications will depend in part upon the
extent to which reimbursement for the cost of such products and related
treatments will be available to health care consumers from government health
administration authorities, private health care insurers and other health care
payers, such as health maintenance organizations and self-insured employee
plans. There can be no assurance that such reimbursement will be available at
all or at levels sufficient to allow the Company and its collaborative partners
to maintain profitable price levels for products incorporating the Company's
technology. If adequate reimbursement levels are not provided by government and
third-party payers for products incorporating the Company's technology, sales of
these products would be adversely affected.
The health care industry is changing rapidly as the public, government,
medical professionals and the pharmaceutical industry examine ways to broaden
medical coverage while controlling the increase in health care costs. The
Company believes that Congress may continue to consider health care reform
proposals which, if enacted, would significantly affect health care,
pharmaceutical and drug delivery companies, among others. Potential changes
could put pressure on the prices of prescription pharmaceutical products. Health
care reform may adversely affect the Company's business, particularly to the
extent that the Company develops products for prescription drug applications.
The Company is unable to predict, however, when any proposed health care reforms
will be implemented, if ever, or the effect of any implemented reforms on the
Company's business or prospects. See "Risk Factors -- Uncertainty of Health Care
Reimbursement."
COMPETITION
The Company is engaged in the pharmaceutical, drug delivery systems
industry which is characterized by extensive research efforts, rapid
technological progress and intense competition. Competitors of the Company in
the United States and abroad are numerous and include, among others, major
pharmaceutical companies, biotechnology firms, universities and other research
institutions. At the present time, the Company does not know of another
pharmaceutical company engaging exclusively in the development of drugs intended
for nasal administration, but other pharmaceutical companies which are larger
than the Company are known to be engaged in researching non-exclusively some
nasally administered pharmaceuticals, and may be expected to enter this field if
the nasal route ever becomes the method of choice for the administration of
certain classes of drugs.
Further, there can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective than the
nasal technology being developed by the Company or which would render the
Company's technology and products obsolete or noncompetitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. Many of the Company's
competitors have greater experience than the Company in conducting preclinical
testing and clinical trials of pharmaceutical products and obtaining FDA and
other regulatory approvals. Accordingly, the Company's competitors may succeed
in obtaining FDA approval for products more rapidly than the Company. If the
Company commences commercial sales of its products, it will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas in
which it has limited or no experience.
The Company believes that direct competition with its patented nasal
delivery products may be difficult because of the Company's patent position.
However, the Company's products must also compete with other modalities of drug
delivery and administration including, but not limited to, such promising
technologies and methods as controlled release, target organ or site release,
pumps, polymers, microemulsion, monoclonal antibodies, inhalation, ocular,
liposomal, implants, transdermal passive and transdermal electrotransport. Other
products using these or other delivery alternatives may be developed that will
be as or more effective than the Company's products and proposed products. There
can be no assurance that the Company will be able to compete effectively with
other commercially available products or that development of other technologies
or methods of drug delivery will not detrimentally affect the Company's
commercial opportunities. See "Risk Factors -- Intense Competition."
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<PAGE> 28
EMPLOYEES
At December 1, 1996, the Company had 17 full-time employees, of whom 12
were engaged in research and development, including the Company's President and
Vice President of Research and Development, both of whom hold Ph.D. degrees in
pharmaceutical sciences, as well as the Company's Director of Clinical Research.
The balance of the Company's employees are engaged in administration and support
functions.
None of the Company's employees are covered by a collective bargaining
agreement or are represented by a labor union. The Company considers its
relationship with its employees to be satisfactory.
The development, manufacture and marketing of the Company's products
requires substantial scientific and technical capabilities in several disparate
disciplines, including but not limited to biochemistry, analytical chemistry,
pharmacology, therapeutics, toxicology, pharmacy and statistics. While the
Company believes that the capability and experience of its technical employees
compares favorably with the industry as a whole, there can be no assurance that
it can retain existing employees or attract and hire the highly capable
technical and scientific employees it may need in the future on terms deemed
favorable to the Company, if at all. See "Risk Factors -- Dependence Upon Key
Personnel and Attraction of Qualified Personnel."
PROPERTIES AND FACILITIES
The Company leases approximately 10,000 square feet at 45 Davids Drive,
Hauppauge, New York for its laboratory, manufacturing facility as well as its
corporate and administrative offices. The lease provides for minimum annual rent
of approximately $82,000 and expires in May 2000 with the Company having an
option to renew for an additional five-year term at increased annual rental
rates. The Company is also responsible for all utilities, maintenance, security
and property tax increases. The Company believes this facility is suitable for
its operations for the initial term of the lease, however, it will require
leasehold improvements in order to enable the Company to engage in full-scale
manufacturing of its Nascobal product.
LEGAL PROCEEDINGS
The Company knows of no litigation or proceeding, pending or threatened, to
which the Company is or may become a party.
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<PAGE> 29
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and senior employees of the Company are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Devin N. Wenig................................ 30 Chairman
Dr. Vincent D. Romeo.......................... 40 President and Chief Executive Officer
Dr. Charan R. Behl............................ 45 Vice President of Research and Development
Andrew P. Zinzi............................... 49 Chief Financial Officer
John Marinaro................................. 48 Director of Clinical Research
Dr. John Wei Xia.............................. 40 Senior Research Scientist
Joel Girsky................................... 57 Director, Secretary, Treasurer
Grant W. Denison, Jr.......................... 47 Director
Dr. Ian R. Ferrier............................ 53 Director
Alvin Katz.................................... 67 Director
John V. Pollock............................... 58 Director
</TABLE>
Devin N. Wenig. Mr. Wenig was appointed Chairman of the Company's Board of
Directors in June 1991. From 1991 to 1994, Mr. Wenig was a mergers and
acquisitions attorney with the New York law firm of Cravath, Swaine and Moore.
From 1994 to the present, Mr. Wenig has served as corporate counsel to Reuters
America Holdings Inc., and serves as a director of several subsidiaries of
Reuters. Mr. Wenig received a B.A. degree from Union College and a J.D. degree
from the Columbia University School of Law.
Dr. Vincent D. Romeo. Dr. Romeo has been employed by the Company since
1985 as Director of Research and was appointed President and Chief Executive
Officer of the Company in August 1991. Dr. Romeo is a registered pharmacist in
the State of New York and received a Ph.D. degree from St. John's University
College of Pharmacy and Allied Health Professions in Pharmaceutical Sciences in
1984, with a specialty in pharmacology. He continues at St. John's as an Adjunct
Professor of Pharmacology, Graduate Division, College of Pharmacy and Allied
Health Professions. He has authored and co-authored several published articles
in the field of drug delivery. Dr. Romeo has also presented his work at various
meetings and conferences sponsored by the American Association of Pharmaceutical
Scientists ("AAPS") and the American College of Clinical Pharmacology. Dr. Romeo
is an active member of the AAPS, the American College of Clinical Pharmacology,
the Rho Chi Pharmaceutical Society, and the New York Academy of Sciences. He is
currently co-chairing the Nasal Drug Delivery Focus Group of the AAPS. Dr. Romeo
has also been appointed as an Adjunct Assistant Professor of Pharmaceutics at
The University of Rhode Island, College of Pharmacy.
Dr. Charon R. Behl. Dr. Behl has been employed with the Company since
January 1995 as Vice President of Research and Development. Dr. Behl previously
held senior research positions in the Pharmaceutical Research and Development
Department of Hoffmann La-Roche, Inc, for approximately 14 years. During his
tenure at Roche and as a research faculty member at the University of Michigan,
he has done extensive research and product development on various drug delivery
systems. Dr. Behl has worked on the optimization of drug delivery via different
routes including nasal, enteral, transdermal (local and systemic), rectal,
vaginal and trans-nail. Dr. Behl has authored or coauthored over 100 articles
and major meeting abstracts including many book chapters. Working closely with
his colleagues at the FDA, academia, National Institute of Health and other
companies, Dr. Behl has been instrumental in organizing international workshops,
conferences and meetings to address crucial issues pertaining to drug delivery.
Currently he is co-chairing the Nasal Drug Delivery Focus Group at the AAPS. Dr.
Behl is an active member of the American Pharmaceutical Association, AAPS and
Controlled Release Society, and is a Fellow of the AAPS.
Andrew P. Zinzi. Mr. Zinzi has been employed by the Company since November
1996 as the Company's Chief Financial Officer. From February 1992 to November
1996, Mr. Zinzi was employed by IVAX Corporation ("IVAX"), a pharmaceutical
company, most recently as Vice President-Finance and
28
<PAGE> 30
Treasurer. From March 1985 to February 1992, Mr. Zinzi held various management
positions in finance and operations with Goldline Laboratories and Bioline
Laboratories, distributors of generic pharmaceutical products, which were
subsequently acquired by IVAX in December 1991. Mr. Zinzi is a CPA, member of
the AICPA and earned a Master of Business Administration degree from New York
University.
John Marinaro. Mr. Marinaro, who joined the Company as Director of
Clinical Research in June 1996, has extensive experience in the clinical
development of drugs for the treatment of cancer, AIDS, nausea/ vomiting,
anxiety and Alzheimer's disease. From 1995 until joining the Company, he was a
self-employed consultant. From 1993 to 1995, Mr. Marinaro, directed the ovarian
cancer clinical program of Anthra Pharmaceuticals. From 1973 to 1993, Mr.
Marinaro was employed in several capacities by BMS, including Project Leader for
Paraplatin(R) and Taxol(R), the two definitive drugs for the treatment of
ovarian cancer. In that position, he coordinated the international clinical
program that led to FDA approval of these drugs. Mr. Marinaro is a graduate of
Drew University and holds a Master of Science degree in biology from Seton Hall
University.
Dr. John Wei Xia. Dr. Xia has been employed by the Company since April
1996 as a Senior Research Scientist. Dr. Xia received his Ph.D. degree from The
University of Illinois at Chicago, College of Pharmacy in Pharmaceutical
Sciences in 1996. Dr. Xia also has a M.S. degree in Immunology and a Bachelor
Degree in Medicine which he received from The University of Chinese Medicine of
Shanghai in 1987 and 1984, respectively. Dr. Xia had worked as a Physician and
as a Research Associate in The Department of Immunology, Research Institute of
Chinese Medicine of Shanghai before his Ph.D. study. Dr. Xia is an active member
of the AAPS and Control Release Society.
Joel Girsky. Mr. Girsky has been a Director of the Company since October
1983, and the Company's Secretary and Treasurer since April 1986. From 1961 to
the present, Mr. Girsky has been President and Chairman of the Board of Jaco
Electronics, Inc., Hauppauge, New York, a publicly held company engaged in the
distribution of electronic components. Mr. Girsky received a degree in Marketing
from Brooklyn College in 1957.
Grant W. Denison, Jr. Mr. Denison, who was appointed to the Company's
Board of Directors in September 1996, was President, Worldwide Consumer Products
of G.D. Searle & Co. ("Searle") and served in such capacity from 1993 to 1995.
Mr. Denison has also served as Corporate Vice President, Strategic Planning for
Searle's parent company Monsanto Company from 1989 to 1993. In addition, Mr.
Denison also served as President of Searle's U.S. Pharmaceutical Operations from
1987 to 1989. Prior to joining Searle, Mr. Denison was Vice President of
International Operations for Squibb Medical Systems and also held a number of
senior management positions at Pfizer, Inc. Mr. Denison is a member of the board
of directors of Genetronics Inc., a subsidiary of Genetronics Biomedical Ltd. He
has served as national chairman of the President's Council for the American Lung
Association. Mr. Denison holds a Master of Business Administration degree from
Harvard Business School and received a Bachelor's Degree from Colgate
University.
Dr. Ian R. Ferrier. Dr. Ferrier, who was appointed to the Company's Board
of Directors in January 1995, is the founder, President and Chief Executive
Officer of Bogart Delafield Ferrier Inc., and has served in such capacity since
its inception in 1982. Trained in medicine and pharmacology, Dr. Ferrier has
managed and directed pharmaceutical programs and guided the growth of several
multinational companies. He has served on the Board of Directors of a number of
health care and biotechnical firms, as well as serving as consultant to many of
the world's major pharmaceutical companies. From 1982 to 1987, Dr. Ferrier
served as President of McCann Healthcare Inc. From 1982 to 1983, Dr. Ferrier
served as Chairman of The Covington Group of Companies, in 1982 as Executive
Vice President of TechAmerica Group and from 1979 to 1982, as Vice President of
Kalipharma Inc. From 1975 to 1979, Dr. Ferrier served as Chief Executive Officer
of the Monadnock Medical Center. Dr. Ferrier received a BSc in Pharmacology from
the University of Edinburgh, Edinburgh Scotland; served his residency training
in nephrology/clinical pharmacology at Southmead General Hospital, University of
Bristol Associated Hospitals, Bristol, England; and his post-graduate internship
at the Western General Hospital of the University of Edinburgh Associated
Hospitals, Edinburgh, Scotland.
Alvin Katz. Mr. Katz was appointed to the Board of Directors of the
Company in September 1993. Since 1981, he has served as an adjunct professor of
business management at Florida Atlantic University. In
29
<PAGE> 31
1991, Mr. Katz was appointed Chief Executive Officer of Odessa Engineering
Corp., a company engaged in the manufacturing of pollution monitoring equipment.
He held this position until that company was sold in September 1992. Mr. Katz
also serves on the Board of Directors of Amtech Systems Inc. which is engaged in
the manufacture of capital equipment in the computer chip manufacturing
business; BCT International, Inc., a franchisor of thermo graphic printing
plants; Micron Instruments Inc., a manufacturer of infrared temperature
measuring instruments; Ozo Diversified Inc., a manufacturer of depaneling
equipment for the computer chip manufacturing industry; and Blimpie
International, Inc., which is engaged in fast food franchising. Mr. Katz holds a
B.S. in Business Administration degree from New York University and has done
graduate work at C.U.N.Y. -- Baruch School.
John V. Pollock. Mr. Pollock was appointed to the Company's Board of
Directors in September 1993. From 1991 to the present, Mr. Pollock has served as
a director of Frank E. Basil, Inc., a worldwide provider of facilities
maintenance, engineering and operations management services. Mr. Pollock also
serves as a consultant to the partners of Basil Properties and has served as the
President of Nastech-Basil International, Inc. From 1975 to 1991, Mr. Pollock
was a senior banking executive in the Washington, D.C. area, serving as
President and Chief Executive Officer of Dominion Bank of Washington and the
John Hanson Savings Bank.
COMMITTEES OF THE BOARD
The Company's Board of Directors has established a Compensation Committee
which is comprised of Dr. Ian R. Ferrier, Joel Girsky and John V. Pollock. The
purpose of this Committee is to review and approve the compensation of the
Company's officers and to administer and interpret the Company's stock option
plan. The Audit Committee of the Company's Board of Directors is comprised of
Alvin Katz, Joel Girsky and John V. Pollock. The purpose of this Committee is to
review with the Company's independent auditors, Robbins, Greene, Horowitz,
Lester & Co., LLP, the financial controls and practices of the Company and the
plans for and results of the audit engagement.
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<PAGE> 32
PRINCIPAL STOCKHOLDERS
Set forth below is information concerning the Common Stock ownership on
December 1, 1996 by (i) each person who is known by the Company to own
beneficially 5% or more of its outstanding Common Stock, (ii) each director and
named executive officer, and (iii) all directors and named executive officer of
the Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(3)
AMOUNT AND NATURE OF -----------------------------------
NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) PRIOR TO OFFERING AFTER OFFERING
- ----------------------------------------------- ----------------------- ----------------- --------------
<S> <C> <C> <C>
Devin N. Wenig(4).............................. 383,066 8.1% 5.7%
Basil Properties(5)(8)......................... 283,537 6.0 4.2
Alvin Katz(6).................................. 127,000 2.7 1.9
Vincent D. Romeo(7)............................ 93,845 2.0 1.4
Ian Ferrier(9)................................. 50,000 1.1 *
Joel Girsky(6)................................. 28,749 * *
John V. Pollock(6)(8).......................... 28,333 * *
Grant W. Denison, Jr.(10)...................... 25,000 * *
All Directors and Named Executive Officer as a
Group (7 persons)(11)........................ 1,019,530 20.6% 14.6%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares of the Company's Common
Stock.
(1) The address of all persons other than Basil Properties, Messrs. Alvin Katz
and John V. Pollock is c/o the Company. The address of Basil Properties and
John V. Pollock is 1510 H Street, N.W., Washington D.C.; and the address of
Alvin Katz is 301 N. Birch Rd., Fort Lauderdale, FL.
(2) All shares are owned beneficially and of record unless indicated otherwise.
Includes 253,333 shares issuable pursuant to outstanding stock options with
the Company.
(3) Does not give effect to (i) 270,000 shares issuable upon exercise of
warrants that expire on December 6, 1998 and (ii) 336,668 shares of Common
Stock reserved for issuance under the Company's Stock Option Plan.
(4) Devin N. Wenig's shares, as indicated above, include 35,000 shares issuable
pursuant to outstanding stock options with the Company, which may be
exercised within 60 days of the date of this table, 166 shares held by Mr.
Wenig's wife and 6,666 shares held in a trust for which Carol Wenig, his
mother, serves as the trustee.
(5) Includes 40,000 shares held by Mrs. Sophie Basil, a general partner of
Basil Properties.
(6) Includes 20,000 shares issuable pursuant to outstanding stock options with
the Company, which may be exercised within 60 days of the date of this
table.
(7) Includes 83,333 shares issuable pursuant to outstanding stock options with
the Company, which may be exercised within 60 days of the date of this
table.
(8) John V. Pollock is a managing director of Basil Properties.
(9) Includes 50,000 shares issuable pursuant to outstanding stock options with
the Company, which may be exercised within 60 days of the date of this
table.
(10) Includes 25,000 shares issuable pursuant to outstanding stock options with
the Company, which may be exercised within 60 days of the date of this
table.
(11) Includes shares held by Basil Properties. See notes (5) and (8) above.
31
<PAGE> 33
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company presently consists of
25,000,000 shares of Common Stock, par value $0.006 and 100,000 shares of
Preferred Stock, par value $0.01. As of September 30, 1996 there were 3,868,005
shares of Common Stock outstanding, and no shares of preferred stock
outstanding. As of September 30, 1996, there were approximately 17,000 holders
of the Company's capital stock.
COMMON STOCK
All the issued and outstanding shares of Common Stock are validly issued,
fully paid and non-assessable.
Voting Rights
Each outstanding share of Common Stock has one vote on all matters
requiring a vote of the shareholders. There is no right to cumulative voting;
thus, the holders of fifty percent or more of the shares outstanding can, if
they choose to do so, elect all of the directors of the Company.
Liquidation Rights
In the event of a voluntary or involuntary liquidation of the Company, all
shareholders are entitled to a pro rata distribution after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock.
Preemptive Rights
The holders of the Common Stock have no preemptive rights with respect to
the Company's offerings of shares of its Common Stock.
Dividend Rights
Holders of Common Stock are entitled to dividends if, as and when declared
by the Board of Directors out of the funds legally available therefor. It is the
present intention of the Company to retain earnings, if any, for use in its
business. Dividends are, therefore, unlikely in the foreseeable future.
Transfer Agent
The Transfer Agent for the Common Stock of the Company is the American
Stock Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
Warrants
In connection with its 1993 public offering, the Company issued to the
representatives of the underwriters in such offering, warrants to purchase
135,000 shares of Common Stock at an exercise price of $4.13 per share and
warrants to purchase 135,000 shares of Common Stock at an exercise price of
$5.50 per share, exercisable at any time through December 6, 1998. All of these
warrants are currently outstanding.
PREFERRED STOCK
Pursuant to its Certificate of Incorporation, the Company's Board of
Directors is authorized to issue, without any action on the part of its
stockholders, an aggregate of 100,000 shares of preferred stock. The Board of
Directors has authority to divide the preferred stock into one or more series
and has broad authority to fix and determine the relative rights and
preferences, including the voting rights of the shares of each series.
Such preferred stock could also be used to delay, defer or prevent a change
in control of the Company or be used to resist takeover offers opposed by
management. Under certain circumstances, the Board of Directors
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<PAGE> 34
could create impediments to or frustrate persons seeking to effect a takeover or
otherwise gain control of the Company by causing shares of preferred stock with
voting or conversion rights to be issued to a holder or holders who might side
with the Board of Directors in opposing a takeover bid that the Board of
Directors determines to be not in the best interest of the Company and its
stockholders. In addition, the Company's ability to issue such shares of
preferred stock with voting or conversion rights could dilute the stock
ownership of such person or entity.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law") generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) the corporation has elected in its
original certificate of incorporation not to be governed by the Delaware
anti-takeover law (the Company has not made such an election) (ii) prior to such
date the Board of Directors of the corporation approved either the business
combination or the transaction in which the person became an interested
stockholder, (iii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the outstanding voting stock of the corporation excluding shares
owned by directors who are also officers of the corporation and by certain
employee stock plans, (iv) on or after such date the business combination is
approved by the Board of Directors of the corporation and by the affirmative
vote of at least 2/3% of the outstanding voting stock of the corporation that is
not owned by the interested stockholder, or (v) the majority of the
corporation's stockholders adopt an amendment to the corporation's certificate
of incorporation electing not to be governed by the Delaware anti-takeover law,
such amendment not being effective for 12 months following its adoption and not
applicable to any business combination between the corporation and a stockholder
who became an interested stockholder after its adoption. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of
the corporation's voting stock or who is an affiliate or associate of the
corporation and, together with his affiliates and associates, has owned 15% or
more of the corporation's voting stock within three years.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
6,706,250 shares of Common Stock, assuming (i) no exercise of 459,299 options
outstanding as of the date of this Prospectus and (ii) no exercise of
outstanding warrants to acquire 270,000 shares of Common Stock expiring December
6, 1998. On the date of this Prospectus, 5,721,401 shares of Common Stock,
including the 2,000,000 shares offered hereby, will be immediately available for
sale without restriction in the public market and 984,859 shares are "restricted
securities" as that term is defined by Rule 144 and are now eligible to be sold
in compliance with Rule 144. Ordinarily, under Rule 144 a person holding
restricted stock for a period of two years may, every three months, sell in
brokerage transactions an amount equal to the greater of 1% of the Company's
outstanding Common Stock, or, if the Common Stock is quoted on Nasdaq, the
average weekly volume of trading in the Common Stock reported for the preceding
four weeks. After the expiration of three years, stock held by persons not
affiliated with the Company will not be subject to the above limitations.
The availability of shares for sale or actual sales under Rule 144 may have
an adverse effect on the market price of the Common Stock. Sales under Rule 144
also could impair the Company's ability to market additional equity securities.
The Company, each of the Company's directors and officers and certain holders of
the Company's outstanding securities, who hold in the aggregate approximately
20.6% of the outstanding shares of Common Stock prior to this offering, have
agreed not to offer, sell, contract to sell, or otherwise dispose of, any shares
of Common Stock or securities convertible into or exchangeable for, or any
rights to purchase or exchange, respectively, Common Stock for a period of 180
days from the date of this Prospectus without the prior written consent of
Volpe, Welty & Company, except for shares disposed of as bona fide gifts or the
grant or exercise of options pursuant to the Company's Stock Option Plan or the
exercise of outstanding warrants.
33
<PAGE> 35
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Volpe, Welty & Company
and Wheat, First Securities, Inc. are acting as representatives (together, the
"Representatives"), has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------- ----------
<S> <C>
Volpe, Welty & Company...................................................
Wheat, First Securities, Inc. ...........................................
----------
Total............................................................... 2,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates and opinions from the Company and its counsel. The nature
of the Underwriters' obligation is such that they are committed to purchase all
shares of Common Stock offered hereby if any of such shares are purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession of not in excess of $ per share, of which $ may be
reallocated to other dealers. After the offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.
The Company has granted the Underwriters an option for 30 days after the
date of this Prospectus to purchase, at the offering price, less the
underwriting discounts and commissions as set forth on the cover page of this
Prospectus, up to 300,000 additional shares of Common Stock at the same price
per share as the Company receives for the 2,000,000 shares of Common Stock
offered hereby, solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the foregoing table, bears to the 2,000,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
the over-allotments in connection with the sale of the 2,000,000 shares of
Common Stock offered hereby.
The Company has agreed to issue to the Representatives warrants to purchase
in the aggregate up to 115,000 shares of Common Stock (the "Representatives'
Warrants") at an exercise price per share equal to 120% of the public offering
price per share for the shares of Common Stock offered hereby. The
Representatives' Warrants are exercisable for a period of four years commencing
one year from the date of this Prospectus. The holders of the Representatives'
Warrants will have no voting, dividend or other stockholder rights until the
Representatives' Warrants are exercised. The Company has granted the
Representatives certain registration rights related to the Representatives'
Warrants.
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<PAGE> 36
The offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The Underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
The Company, each of the Company's directors and officers, and certain
holders of the Company's outstanding securities, have agreed not to offer, sell,
contract to sell or otherwise dispose of Common Stock or securities convertible
into or exchangeable for, or any rights to purchase or acquire, shares of Common
Stock for a period of 180 days following the date of this Prospectus, without
the prior written consent of Volpe, Welty & Company, except for shares disposed
of as bona fide gifts or the grant or exercise of options pursuant to the
Company's Stock Option Plan or the exercise of outstanding warrants. Volpe,
Welty & Company, in its discretion, may waive the foregoing restrictions in
whole or in part, with or without a public announcement of such action.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Common Stock during the "cooling off" period immediately
preceding the commencement of sales in the offering. The Commission has,
however, adopted exemptions from these rules that permit passive market making
under certain conditions. These rules permit an underwriter to continue to make
a market subject to the conditions, among others, that its bid not exceed the
highest bid by a market maker not connected with the offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to these
exemptions, certain Underwriters, selling group members (if any) or their
respective affiliates may engage in passive market making in the Company's
Common Stock during the cooling off period.
The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with this offering, including
liabilities under the Securities Act, or to contribute payments that the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bruce R. Thaw, Esquire, Farmingdale, New York. Certain
legal matters will be passed upon for the Underwriters by Hunton & Williams,
Richmond, Virginia. Mr. Thaw was formerly a director of the Company and owns
78,041 shares and has options to acquire 50,000 shares of the Common Stock of
the Company.
EXPERTS
The financial statements of the Company as of June 30, 1995 and 1996 and
for each of the three years in the period ended June 30, 1996, included in this
Prospectus have been audited by Robbins, Greene, Horowitz, Lester & Co., LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the Registration Statement, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
On January 2, 1997, the appointment of Robbins, Greene, Horowitz, Lester &
Co., LLP as independent auditors for the Company was terminated by the Company
and KPMG Peat Marwick LLP was engaged as independent auditors. The decision to
change independent auditors was approved by the Audit Committee and Board of
Directors of the Company. During the two fiscal years ended June 30, 1996, and
the subsequent interim period through January 2, 1997, there were no
disagreements between the Company and Robbins, Greene, Horowitz, Lester & Co.,
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures which disagreements if not resolved
to the satisfaction of Robbins, Greene, Horowitz, Lester & Co., LLP would have
caused them to make reference to the subject matter of the disagreement in
connection with their report. The audit reports of Robbins, Greene, Horowitz,
Lester & Co., LLP on the Company's financial statements as of and for the years
ended June 30, 1996 and 1995, did not contain an adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit scope,
or accounting principles.
35
<PAGE> 37
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-2 under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules filed as part
thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and, in each such
instance, reference is hereby made to the copy of the contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by this reference thereto.
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the SEC. The Registration Statement and exhibits and schedules thereto, as well
as such reports, proxy statements and other information, may be inspected and
copied at the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at 75
Park Place, New York, New York 10007. Copies of all or any part of such
materials may be obtained from any such office upon payment of the fees
prescribed by the SEC. Copies of such material may be obtained at prescribed
rates by mail from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of each document may also be obtained
through the SEC's Internet address at http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the SEC by the Company and are
hereby incorporated by reference into this Prospectus: (i) the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1996 (File No. 0-13789) and
(ii) the Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 1996.
Any statement contained in a document incorporated or deemed incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document that is also deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of any document incorporated herein by reference (not including exhibits to
documents that have been incorporated herein by reference unless such exhibits
are specifically incorporated by reference in the document which this Prospectus
incorporates). Requests should be directed to Dr. Vincent D. Romeo, Nastech
Pharmaceutical Company Inc., 45 Davids Drive, Hauppauge, New York 11788,
telephone: (516) 273-0101.
36
<PAGE> 38
NASTECH PHARMACEUTICAL COMPANY INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheet at June 30, 1995 and 1996 and September 30, 1996 (unaudited)............ F-3
Statement of Operations for the years ended June 30, 1994, 1995 and 1996 and
for the three months ended September 30, 1995 and 1996 (unaudited).................. F-4
Statement of Stockholders' Equity for the years ended June 30, 1994, 1995 and 1996 and
for the three months ended September 30, 1996 (unaudited)........................... F-5
Statement of Cash Flows for the years ended June 30, 1994, 1995 and 1996 and
for the three months ended September 30, 1995 and 1996 (unaudited).................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors
Nastech Pharmaceutical Company Inc.
We have audited the accompanying balance sheet of Nastech Pharmaceutical
Company Inc. as of June 30, 1995 and 1996 and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Nastech Pharmaceutical Company
Inc. as of June 30, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
August 15, 1996
New York, New York
F-2
<PAGE> 40
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER
-------------------------- 30,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 819,985 $ 4,031,252 $ 1,327,143
Short-term investments........................... 4,198,869 3,954,945 5,958,156
Royalties receivable............................. 759,349 1,089,966 1,049,031
Prepaid expenses and sundry...................... 63,670 55,370 102,592
----------- ----------- -----------
Total current assets........................ 5,841,873 9,131,533 8,436,922
----------- ----------- -----------
Property and equipment................................ 219,283 321,154 397,683
Less: accumulated depreciation and
amortization................................... 45,857 100,391 115,614
----------- ----------- -----------
Property and equipment, net................. 173,426 220,763 282,069
----------- ----------- -----------
Other assets:
Security deposits................................ 19,613 14,500 14,500
----------- ----------- -----------
Total assets................................ $ 6,034,912 $ 9,366,796 $ 8,733,491
========== ========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable................................. $ 565,185 $ 499,815 $ 212,215
Royalties payable................................ 368,630 521,127 474,294
Note payable..................................... 40,942 32,000 20,109
Accrued interest payable......................... 42,966 33,216 --
Accrued expenses and sundry liabilities.......... 218,856 359,389 119,888
Current maturities of long-term debt............. 161,186 216,608 23,625
----------- ----------- -----------
Total current liabilities................... 1,397,765 1,662,155 850,131
----------- ----------- -----------
Long-term debt-net of current maturities.............. 348,965 135,907 20,881
----------- ----------- -----------
Stockholders' equity:
Common stock -- $0.006 par value; 6,000,000
shares authorized; 3,221,447 shares, 3,826,433
shares and 3,868,005 shares issued and
outstanding at June 30, 1995 and 1996 and
September 30, 1996, respectively............... 19,329 22,959 23,208
Additional paid-in capital....................... 10,575,159 13,733,556 13,947,516
Accumulated deficit.............................. (6,306,306) (6,187,781) (6,108,245)
----------- ----------- -----------
Total stockholders' equity.................. 4,288,182 7,568,734 7,862,479
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................... $ 6,034,912 $ 9,366,796 $ 8,733,491
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 41
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------- -----------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fee, royalty and research
income........................... $2,106,662 $2,683,925 $3,628,735 $ 818,459 $1,059,213
Interest income..................... 93,583 253,858 238,178 63,051 102,447
---------- ---------- ---------- --------- ----------
Total revenues................. 2,200,245 2,937,783 3,866,913 881,510 1,161,660
---------- ---------- ---------- --------- ----------
Costs and expenses:
Research and development............ 504,140 882,356 1,164,172 283,259 340,613
Royalties........................... 1,041,703 1,250,789 1,676,870 391,191 474,294
General and administrative.......... 388,898 836,549 864,784 168,602 258,673
Interest expense.................... 40,857 47,534 42,562 13,106 8,544
---------- ---------- ---------- --------- ----------
Total costs and expenses....... 1,975,598 3,017,228 3,748,388 856,158 1,082,124
---------- ---------- ---------- --------- ----------
Income (loss) before provision for
income taxes.......................... 224,647 (79,445) 118,525 25,352 79,536
Provision for income taxes.............. 17,000 -- -- 3,000 --
---------- ---------- ---------- --------- ----------
Net income (loss)....................... $ 207,647 $ (79,445) $ 118,525 $ 22,352 $ 79,536
========== ========== ========== ========= ==========
Net income (loss) per common share...... $ 0.08 $ (0.03) $ 0.03 $ 0.01 $ 0.02
========== ========== ========== ========= ==========
Average shares outstanding.............. 2,524,432 3,119,718 4,297,536 3,849,776 4,628,238
========== ========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 42
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY
--------- ------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993................ 1,428,723 $ 8,572 $ 5,691,150 $(6,434,508) $ (734,786)
Stock issued in connection with
private placement at $1.20 per
share............................... 200,000 1,200 203,814 -- 205,014
Additional shares issued in connection
with public offering at $3.75 per
share............................... 1,485,000 8,910 4,627,242 -- 4,636,152
Fractional shares redeemed in
connection with reverse stock
split............................... (2,038) (12) (4,988) -- (5,000)
Net income............................ -- -- -- 207,647 207,647
--------- ------- --------------- ----------- -------------
Balance, June 30, 1994................ 3,111,685 18,670 10,517,218 (6,226,861) 4,309,027
Stock issued in connection with
exercise of stock options........... 109,999 660 57,940 -- 58,600
Fractional shares redeemed in
connection with reverse stock
split............................... (237) (1) 1 -- --
Net loss.............................. -- -- -- (79,445) (79,445)
--------- ------- --------------- ----------- -------------
Balance, June 30, 1995................ 3,221,447 19,329 10,575,159 (6,306,306) 4,288,182
Stock issued in connection with
exercise of warrants................ 605,173 3,631 3,158,396 -- 3,162,027
Fractional shares redeemed in
connection with reverse stock
split............................... (187) (1) 1 -- --
Net income............................ -- -- -- 118,525 118,525
--------- ------- --------------- ----------- -------------
Balance, June 30, 1996................ 3,826,433 22,959 13,733,556 (6,187,781) 7,568,734
Stock issued in connection with
exercise of warrants (unaudited).... 41,572 249 213,960 -- 214,209
Net income three months ended
September 30, 1996 (unaudited) ..... -- -- -- 79,536 79,536
--------- ------- --------------- ----------- -------------
Balance September 30, 1996
(unaudited)......................... 3,868,005 $23,208 $13,947,516 $(6,108,245) $ 7,862,479
========== ======== ============== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 43
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
------------------------------------------- --------------------------
1994 1995 1996 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)................. $ 207,647 $ (79,445) $ 118,525 $ 22,352 $ 79,536
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization... 22,040 27,395 54,534 14,863 15,223
Amortization of deferred
charges....................... 10,000 -- -- -- --
Abandonment of property and
equipment..................... -- 3,376 -- -- --
Changes in assets and liabilities:
Royalties receivable.............. (371,986) (5,242) (330,617) (55,528) 40,935
Prepaid expenses and sundry....... (9,272) (49,460) 8,300 29,720 (47,222)
Accounts payable.................. 50,797 62,208 (65,370) 161,955 (287,600)
Royalties payable................. 178,090 20,540 152,497 22,355 (46,833)
Note payable...................... -- 40,942 (8,942) -- (11,891)
Accrued interest payable.......... 8,168 13,798 (9,750) (31,703) (33,216)
Accrued expenses and sundry
liabilities..................... 21,692 (28,817) 140,533 (39,570) (239,501)
----------- ------------ ------------ ----------- -----------
Net cash provided (used) by
operating activities.......... 117,176 5,295 59,710 124,444 (530,569)
----------- ------------ ------------ ----------- -----------
Investing activities:
Property, plant and equipment..... (42,047) (85,327) (90,796) (82,721) (76,529)
Short-term
investments -- acquisitions..... (8,804,029) (11,172,459) (10,290,174) (2,236,590) (5,958,156)
Short-term
investments -- redemptions...... 6,848,095 8,929,524 10,534,098 2,239,249 3,954,945
Other assets...................... -- (14,000) 5,113 -- --
----------- ------------ ------------ ----------- -----------
Net cash provided (used) by
investing activities.......... (1,997,981) (2,342,262) 158,241 (80,062) (2,079,740)
Financing activities:
Repayment of debt................. (46,916) (116,577) (168,711) (158,091) (308,009)
Exercise of stock options......... -- 58,600 -- -- --
Exercise of warrants.............. -- -- 3,162,027 -- 214,209
Redemption of fractional shares... (5,000) -- -- -- --
Proceeds from sale of common
stock........................... 4,841,166 -- -- -- --
----------- ------------ ------------ ----------- -----------
Net cash provided (used) by
financing activities.......... 4,789,250 (57,977) 2,993,316 (158,091) (93,800)
----------- ------------ ------------ ----------- -----------
Net increase (decrease)............. 2,908,445 (2,394,944) 3,211,267 (113,709) (2,704,109)
Cash and cash
equivalents -- beginning.......... 306,484 3,214,929 819,985 819,985 4,031,252
----------- ------------ ------------ ----------- -----------
Cash and cash
equivalents -- ending............. $ 3,214,929 $ 819,985 $ 4,031,252 $ 706,276 $ 1,327,143
============ ============= ============= ============ ============
Supplemental cash flow information:
Interest paid....................... $ 32,689 $ 33,736 $ 46,796 $ 42,946 $ 41,713
Capital expenditures and proceeds
from loans have been reduced by
additions financed of............. -- 61,700 11,075 -- --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 44
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF BUSINESS
Nastech Pharmaceutical Company Inc. (the "Company") was incorporated under
the laws of the State of New York on March 3, 1983 and reincorporated under the
laws of the State of Delaware on September 23, 1983. Through exclusive and
nonexclusive licensing agreements with the University of Kentucky Research
Foundation ("UKRF"), and special technical agreements with the University of
Kentucky College of Pharmacy, the Company is engaged in the business of
developing pharmacologically active agents that are effective in humans when
administered through the nasal route.
In addition to the Company's licensing arrangements with the University of
Kentucky Research Foundation, the Company has researched a number of drugs
independently, for which patents have been applied and granted.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
Use of Estimates
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 reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with an
original maturity of three months or less when purchased to be cash equivalents.
Short-Term Investments
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity. Short-term investments
are classified as held-to-maturity only if management has the positive intent
and ability to hold those securities to maturity. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization is included in interest income.
Short-term investments consist of highly liquid United States Treasury
Bills having original maturities of one year or less. There were no material
unrealized holding gains or losses.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
accelerated methods. Leasehold improvements are amortized over the life of the
lease. When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the period. The cost of maintenance and repairs is charged
to income as incurred and significant renewals and betterments are capitalized.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash, investments and royalty receivables. The
Company places its investments in highly rated U.S. Treasury obligations which
limits the amount of credit exposure. The Company has royalty agreements with
highly rated pharmaceutical companies. Historically, the Company has not
experienced significant losses related to investments or royalty receivables.
F-7
<PAGE> 45
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
Recognition of Income
The Company recognizes income from royalties based upon the sale of
licensed products as reported by licensees. Income from license fees and
research income are not significant and are recognized as earned.
Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated using the weighted average
number of common shares outstanding during the period and the net additional
number of shares which would be issuable upon the exercise of stock options and
warrants, assuming that the Company used the proceeds received to purchase
additional shares at market value. For the year ended June 30, 1995 the effect
of stock options and warrants is not included because it would be anti-dilutive.
The conversion of convertible debt to Basil Properties has not been considered
in the calculation of income per share because it would be anti-dilutive or
immaterial due to the conversion price being significantly in excess of the
market value.
Income Taxes
The Company accounts for income taxes under the provisions of Statement
109, Accounting for Income Taxes issued by the Financial Accounting Standards
Board. Under such statement, the tax benefits of tax operating loss
carryforwards are recorded to the extent available less a valuation allowance if
it is more likely than not that some portion of the deferred tax asset will not
be realized. At June 30, 1996 the approximately $1,500,000 of available tax
benefits of the loss carryforwards are offset by a corresponding amount of
valuation allowance.
Reverse Stock Split and Increase in Authorized Shares
On November 8, 1993, stockholders approved a one-for-three reverse split of
the common stock of the Company and an increase in the newly authorized shares
to 6,000,000. Numbers of shares and per share data disclosed herein have been
retroactively adjusted to reflect the stock split for all periods presented.
NOTE 3 -- ROYALTIES RECEIVABLE
Royalties receivable at June 30, 1995 and 1996 principally represent
amounts due from licensees of the Company's patents for the three months ended
June 30, 1995 and 1996.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- SEPTEMBER 30,
1995 1996 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures........................ $ 64,066 $ 71,424 $ 74,262
Machinery and equipment....................... 74,916 118,509 188,049
Computer equipment............................ 20,777 29,828 29,828
Leasehold improvements........................ 59,524 101,393 105,544
-------- -------- -------------
219,283 321,154 397,683
Less: accumulated depreciation and
amortization................................ 45,857 100,391 115,614
-------- -------- -------------
Net...................................... $173,426 $220,763 $ 282,069
======== ======== ===========
</TABLE>
F-8
<PAGE> 46
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT (CONTINUED)
Property and equipment having a net book value of $57,973 at June 30, 1996
has been pledged to secure related liabilities.
NOTE 5 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- SEPTEMBER 30,
1995 1996 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Loan payable -- Basil Properties................... $446,867 $299,978 $ --
Other: equipment loans............................. 63,284 52,537 44,506
-------- -------- -------------
510,151 352,515 44,506
Less: amount payable within one year............... 161,186 216,608 23,625
-------- -------- -------------
Total......................................... $348,965 $135,907 $20,881
======== ======== ===========
</TABLE>
Maturities of long-term debt are $216,608, $117,632, $11,000, $7,275 for
the years ending June 30, 1997, 1998, 1999 and 2000, respectively, prior to the
repayment on September 30, 1996 of the $299,978 debt to Basil. On May 3, 1989,
Basil Properties ("Basil") made a loan to the Company of $600,000. The loan was
secured by the Company's right to receive royalties, with respect to any
products related to the nasal administration of vitamin B-12 gel. Additionally,
Basil was given the option to convert any outstanding portion of the principal
balance of the $600,000 loan to the Company's common stock. Effective January 1,
1993, interest shall accrue on the unpaid principal balance at a rate of prime
plus 1% and is due and payable each September 30. For the years ended June 30,
1994, 1995 and 1996 the prime interest rate ranged from 6% to 7.25%, 7.25% to
9%, and 8.25% to 9%, respectively. The year-end prime rates at June 30, 1995 and
1996 were 7.25% and 8.25%, respectively. As of June 30, 1996, Basil is a 7.4%
shareholder of the Company, assuming the debt is not converted into common
stock, and has representation on the Board of Directors. Interest on this debt
for the years ended June 30, 1994, 1995 and 1996 amounted to $40,312, $42,946
and $33,216, respectively.
NOTE 6 -- STOCKHOLDERS' EQUITY
The Company completed a public offering of 742,500 units of common stock
and warrants in fiscal 1994. The units in the aggregate consisted of 1,485,000
shares of common stock and 1,485,000 common stock warrants.
Each warrant entitles the holder to purchase one share of common stock at a
price of $5.50 at any time through December 7, 1996. The warrants are subject to
redemption by the Company at $0.05 per warrant on 30 days' prior written notice
if the closing bid price for the common stock, as reported on Nasdaq is in
excess of $5.63 for 20 consecutive trading days ending within 10 days of the
notice of redemption of the warrants. At June 30, 1996 and September 30, 1996,
605,173 and 646,745 warrants, respectively, have been exercised with net
proceeds to the Company of $3,162,027 and $3,379,243, respectively.
The Company sold to the representative of the underwriter for the offering
at a price of $67.50, warrants to purchase one unit for every ten units sold in
the offering up to an aggregate of 67,500 units at an exercise price per warrant
of $8.25 per Unit (110% of the initial public offering price per unit),
exercisable for a period of four years commencing December 7, 1994.
F-9
<PAGE> 47
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- STOCKHOLDERS' EQUITY (CONTINUED)
The Company had a private placement of 200,000 shares of common stock on
September 14, 1993 resulting in net proceeds to the Company of $205,000. The
proceeds were used to provide funding for the costs incurred related to the
public offering.
The Company is authorized to issue up to 100,000 shares of preferred stock
the designations, powers, preferences and rights of which may be determined,
from time to time, by the Company's Board of Directors.
NOTE 7 -- STOCK OPTION PLAN
Under the Company's Stock Option Plan (the "Plan") options to purchase a
maximum of 483,333 shares of common stock (subject to adjustment in the event of
stock splits, stock dividends, recapitalization and other capital adjustments)
may be granted to employees, officers and directors of the Company and other
persons who provide services to the Company. The options to be granted under the
Plan are designated as incentive stock options or non-incentive stock options by
the Board of Directors which also has discretion as to the person to be granted
options, the number of shares subject to the options and the terms of the option
agreements. Only employees, including officers and part-time employees of the
Company may be granted incentive stock options. The options are intended to
receive incentive stock option tax treatment pursuant to Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code").
The Plan provides that options granted thereunder shall be exercisable
during a period of no more than ten years (five years in the case of 10%
shareholders) from the date of grant, depending upon the specific stock option
agreement, and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair market value of the
Common Stock at the time of grant (110% in the case of 10% shareholders).
Pursuant to the provisions of the Plan, the aggregate fair market value
(determined on the date of grant) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by an employee during
any calendar year shall not exceed $100,000. The Plan is in lieu of all prior
option and incentive plans and is administered by the Company's Board of
Directors. Options outstanding at June 30, 1996 are at prices ranging from $0.51
to $12.875 per share, the fair market value on the date of grant, and expire at
various dates to June 24, 2001. During the year ended June 30, 1995, options to
acquire 50,000 shares of stock at $0.56 and 59,999 shares at $0.51 were
exercised. No options were exercised during the years ended June 30, 1994 and
1996 and for the three months ended September 30, 1996.
Data relating to this plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------ THREE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1996
------- -------- ------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at beginning of period...... 124,998 174,998 214,749 244,249
Granted................................. 50,000 149,750 34,500 10,800
Exercised............................... -- (109,999) -- --
Terminated.............................. -- -- (5,000) --
------- -------- ------- ----------
Outstanding at end of period............ 174,998 214,749 244,249 255,049
======= ======== ======= ==========
</TABLE>
NOTE 8 -- INCOME TAXES
Internal Revenue Service regulations require that limitations be placed on
the Company's use of its net operating loss carryforward as a result of the
change in ownership created by the December 1993 public offering of the
Company's common stock. As a result, at June 30, 1996, the estimated maximum
amount of the net operating loss carryforward available to reduce future taxable
income is approximately $4,300,000,
F-10
<PAGE> 48
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES (CONTINUED)
expiring from 2000 through 2010. The net operating loss carryforward may be used
to reduce taxable income by approximately $300,000 per year.
The approximate amounts of net operating loss carryforward and the year of
expiration are as follows:
<TABLE>
<CAPTION>
AMOUNT YEAR OF EXPIRATION
------------------------------------------------------------ ------------------
<S> <C>
$ 490,000................................................... 2000
1,150,000.................................................. 2001
820,000.................................................. 2002
320,000.................................................. 2003
320,000.................................................. 2004
320,000.................................................. 2005
320,000.................................................. 2006
320,000.................................................. 2007
170,000.................................................. 2008
70,000.................................................. 2010
</TABLE>
Federal income taxes normally provided for the income have been offset by
the effects of the reduction of the valuation allowance at June 30, 1994, June
30, 1996, September 30, 1995 and September 30, 1996. The income tax provisions
for the year ended June 30, 1994 and for the three months ended September 30,
1995 represent the New York State minimum tax on income which formerly did not
allow a deduction for the net operating loss carryforward.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
A) Employment Agreement:
The Company and Dr. Vincent Romeo, its president, have an employment
agreement expiring August 1, 1997. Pursuant to this agreement, Dr. Romeo
receives compensation of $160,000 per year. Upon completion of Phase II
studies for two of the Company's proposed products such compensation will
be increased to $175,000 per year. Dr. Romeo is also entitled to a $20,000
bonus each time an NDA for one of the Company's proposed products is
accepted for filing by the FDA. In addition, Dr. Romeo received an
additional incentive stock option to acquire 25,000 shares of the Company's
Common Stock in accordance with the terms and conditions of the Company's
stock option plan.
B) Minimum Royalty Payments:
In connection with the license agreement with the UKRF, the Company
agreed to make royalty payments to UKRF with respect to sales of products
covered under the patents licensed to the Company by UKRF.
Minimum royalty payments begin twelve months after FDA marketing
approval for any product covered under the agreement is received by the
Company. The minimum royalty beginning twelve months after FDA approval
amounts to $100,000 per year.
In the event there are no unexpired patents licensed to the Company by
UKRF covering the manufacture, use or sale of products, then the Company is
to pay one half of such royalties and minimum royalties.
F-11
<PAGE> 49
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
C) Leases:
The Company leases office and laboratory space under a lease agreement
expiring on May 31, 2000, with a 5 year renewal option. The following is a
schedule of future minimum lease payments:
<TABLE>
<S> <C>
Year Ending June 30, 1997................................. $ 81,083
1998................................. 82,080
1999................................. 83,087
2000................................. 77,000
--------
Total............... $323,250
========
</TABLE>
Rental expense for real property aggregated approximately $43,000,
$78,000 and $83,000 for the years ended June 30, 1994, 1995 and 1996,
respectively.
D) Insurance:
The Company does not maintain product liability insurance for
commercial products as the Company manufactures no commercial products. The
product marketed by Bristol-Myers Squibb Company ("BMS") is owned by them.
The Company does maintain product liability insurance in connection
with its clinical trial activities.
At the present time the management of the Company has no knowledge of
any claims against the Company. Management of the Company cannot estimate
any range of possible loss with regard to product liability claims, and no
provision has been made in these financial statements for any possible
loss.
NOTE 10 -- CONTRACTUAL AGREEMENTS
On January 1, 1986, the Company sublicensed to BMS (the "BMS Agreement")
its development and commercial exploitation rights with respect to its licensed
patent rights for the nasal delivery of Butorphanol Tartrate, in exchange for
which BMS agreed to pay the Company a royalty based on the net sales of such
product pursuant to the BMS Agreement, which resulted in license fee income of
approximately $1,901,000, $2,530,000 and $3,410,000 for the years ended June 30,
1994, 1995 and 1996, respectively. The Company must pay a percentage of these
royalties to UKRF under the Company's separate license agreement with UKRF. The
BMS Agreement, which may be terminated by BMS at any time upon 60 days written
notice to the Company, is coextensive with the Company's licensed patent rights
to nasal Butorphanol Tartrate. The nasal Butorphanol Tartrate patent expires in
the year 2001 in the United States, subject to any right of extension or
renewal. In December 1991, the FDA granted marketing clearance to BMS for this
product, and quarterly royalty payments to the Company by BMS are continuing.
The Company has entered into an exclusive agreement with RiboGene, Inc.
("RiboGene") as successor in interest to Rugby Laboratories Co., Inc., and Darby
Pharmaceuticals, Inc.) -- On June 26, 1987, the Company entered into a license
agreement wherein RiboGene, as successor in interest, is the Company's sole and
exclusive worldwide licensee for the manufacture, distribution and marketing of
the nasal dosage form of Propranolol HCl for the life of the Company's U.S.
patent covering the nasal route of administration for that drug (the
"Propranolol Agreement"). The Company received $350,000 upon execution of the
Propranolol Agreement and, if and when nasal Propranolol HCl is approved for
marketing and commercialized, the Company will receive royalties based upon net
sales of the product. The Company must pay a percentage of these royalties to
UKRF under the Company's separate license agreement with UKRF. In addition,
RiboGene is obligated to pay all patent maintenance fees with respect to
Propranolol HCl and pay certain other fees
F-12
<PAGE> 50
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- CONTRACTUAL AGREEMENTS (CONTINUED)
thereunder. RiboGene can terminate the Propranolol Agreement at any time. The
Company receives an annual licensing fee with respect to Propranolol and pays
certain other fees thereunder. The Company receives an annual licensing fee of
$32,000 payable quarterly. During each of the years ended June 30, 1994, 1995
and 1996, the Company received $32,000, and during the three months ended
September 30, 1996, the Company received $8,000 license fee income on this
contract.
In March 1990, the Company entered into an agreement whereby RiboGene, as
successor in interest, purchased the Company's Metoclopramide HCl patent and
certain proprietary research information related thereto (the "Metoclopramide
Agreement"). The aggregate purchase price for the patent, proprietary
information and contract termination was approximately $700,000. The
Metoclopramide Agreement provides for certain royalties and other fees to the
Company if and when nasal Metoclopramide HCl is approved for marketing and
commercialized. RiboGene has a sublicense for nasal Metoclopramide HCl with
Crinos Industria Farmacobiologica SpA in Italy and Prodes in Spain.
In December 1994, the Company and RiboGene amended the Propranolol
Agreement and the Metoclopramide Agreement whereby the Company waived its option
to repurchase the exclusive rights to nasal Propranolol HCl and Metoclopramide
HCl in consideration of a three-year right of first refusal to perform
dosage-form development work for both projects. The amended Metoclopramide
Agreement also provided for an increased royalty rate and certain minimum
royalties commencing in 1998.
During November 1985, the Company entered into an exclusive agreement with
Nature's Bounty, Inc. ("NB"), which provided that NB manufacture, market and
sell a nonprescription, nasally administered vitamin B-12 dietary supplement.
The financial arrangements include the Company receiving a percentage of net
sales of the product. For the years ended June 30, 1994, 1995 and 1996, and the
three months ended September 30, 1996, the Company earned royalties of $144,000,
$116,000, $19,000 and $0, respectively, under the agreement. However, in March
1995, the FDA was successful in litigation brought against NB requiring that NB
obtain FDA approval in order to market this product. The Company does not expect
any future royalties from NB.
In March 1996, the Company executed a memorandum of understanding with
Sandoz Pharmaceuticals Corporation ("Sandoz") to conduct a nasal drug delivery
feasibility study with respect to a nasal formulation of a compound currently
marketed by Sandoz utilizing another delivery method. At the request of Sandoz,
the identity of the nasal drug product has not been disclosed. The agreement
provides for the Company to determine the feasibility of nasally delivering this
compound. The agreement provided that the Company conduct a preclinical research
program, including initial formulation development, up to the filing of an IND
and Sandoz shall fund such activities as well as provide other resources. In the
event an IND is filed the Company and Sandoz have agreed to negotiate a
definitive development, manufacturing and marketing agreement. During the year
ended June 30, 1996 the Company recorded $100,000 of income from this agreement.
In August 1996, the Company entered into an agreement with Ciba
Self-Medication, Inc., a division of Ciba-Geigy Corporation ("Ciba"), to develop
a nicotine nasal dosage form to assist with smoking cessation. Ciba markets the
Habitrol(TM) transdermal patch. Under the terms of such agreement, the Company
is to perform formulation and related preclinical research and development up to
and including the filing of an IND. Upon the successful achievement of certain
specified milestones, the Company and Ciba have agreed to negotiate definitive
development, manufacturing and marketing agreements. During the year ended June
30, 1996, the Company recorded $50,000 of income related to preliminary nicotine
nasal spray formulation activities prior to the formal enty into this agreement.
The Company also received $82,800 for the three months ended September 30, 1996
in connection with this agreement.
F-13
<PAGE> 51
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- CONTRACTUAL AGREEMENTS (CONTINUED)
On June 30, 1994, the Company exclusively sublicensed to The DuPont Merck
Pharmaceutical Company its development and commercial exploitation rights with
respect to its licensed patent rights for the nasal delivery of Nalbuphine HCl,
in exchange for which DuPont Merck agreed to pay the Company a royalty based on
the net sales of such product (the "DuPont Merck Agreement"). The Company must
pay a percentage of these royalties to UKRF under the Company's separate
licensing agreement with UKRF. Nalbuphine HCl is a synthetic narcotic analgesic
agent indicated for the relief of moderate to severe pain. The DuPont Merck
Agreement is limited to the countries of Canada and Mexico and is coextensive
with the Company's licensed patent rights to nasal Nalbuphine HCl in those
countries. The nasal Nalbuphine HCl patent expires in the year 2001 in Canada,
subject to any right of extension or renewal. The Mexican patent for nasal
Nalbuphine HCl is currently pending. The DuPont Merck Agreement may be
terminated by DuPont Merck at any time upon 60 days written notice to the
Company.
F-14
<PAGE> 52
The Company's nasal delivery technology has been utilized in the products
pictured. Stadol NS is nasally delivered Butorphanol Tartrate, a narcotic
analgesic sublicensed by the Company to Bristol-Myers Squibb Company; Nascobal
(Cyanocobalamin, USP/Vitamin B-12) nasal gel is used for the maintenance
treatment of chronic Vitamin B-12 deficiency anemia. The Company received
marketing clearance from the FDA for Nascobal on November 5, 1996.
<PAGE> 53
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY UNDERWRITER OR BY ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 3
Risk Factors....................... 5
Use of Proceeds.................... 10
Price Range of Common Stock and
Dividend Policy.................. 10
Capitalization..................... 11
Selected Financial Data............ 12
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 13
Business........................... 16
Management......................... 28
Principal Stockholders............. 31
Description of Capital Stock....... 32
Shares Eligible for Future Sale.... 33
Underwriting....................... 34
Legal Matters...................... 35
Experts............................ 35
Additional Information............. 36
Incorporation of Certain
Information By Reference......... 36
Index to Financial Statements...... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2,000,000 SHARES
[NASTECH LOGO]
COMMON STOCK
------------------------
PROSPECTUS
, 1997
------------------------
VOLPE, WELTY & COMPANY
WHEAT FIRST BUTCHER SINGER
------------------------------------------------------
------------------------------------------------------
<PAGE> 54
P A R T I I
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the Registrant
in connection with the issuance and distribution of the securities being
registered hereby other than underwriting discounts and commissions. All
expenses other than the SEC registration fee, the NASD filing fee and the Nasdaq
listing fee are estimated.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 13,853
NASD filing fee................................................... 5,072
Nasdaq National Market listing fee................................ 35,991
Transfer agent's fee and expenses................................. 20,000
Accounting fees and expenses...................................... 50,000
Legal fees and expenses........................................... 150,000
Costs of printing and engraving................................... 150,000
Miscellaneous..................................................... 75,084
--------
Total................................................... $500,000
========
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law, as amended, provides for the
indemnification of the Company's officers, directors and corporate employees and
agents under certain circumstances as follows:
DEL. CODE ANN. TITLE 8
SEC. 145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE
a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees), actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
II-1
<PAGE> 55
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
d) Any indemnification under subsection (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceedings, or (2)
if such a quorum is not obtainable, or, even, if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
e) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
II-2
<PAGE> 56
j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Certificate of Incorporation of the Company provides that the
indemnification provisions of Sections 102(b)(7) and 145 of the Delaware
Corporation Law shall be utilized to the fullest extent possible. Further, the
Certificate of Incorporation contains provisions to eliminate the liability of
the Company's directors to the Company or its stockholders to the fullest extent
permitted by Section 102(b)(7) of the Delaware General Corporation Law, as
amended from time to time.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, is permitted to directors, officers or controlling persons
of the Registrant, pursuant to the above mentioned statutes or otherwise, the
Registrant understands that the Securities and Exchange Commission is of the
opinion that such indemnification may contravene federal public policy, as
expressed in said Act, and therefore, may be unenforceable. Accordingly, in the
event that a claim for such indemnification is asserted by any director, officer
or a controlling person of the Company, and the Commission is still of the same
opinion, the Registrant (except insofar as such claim seeks reimbursement by the
Registrant of expenses paid or incurred by a director, officer of controlling
person in successful defense of any action, suit or proceeding) will, unless the
matter has theretofore been adjudicated by precedent deemed by counsel for the
Registrant to be controlling, submit to a court of appropriate jurisdiction the
question whether or not indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue. The Underwriting and Selected Dealers agreements provide for reciprocal
indemnification and such provisions are incorporated by reference herein.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Registrant, as amended and filed with the Secretary
of State of Delaware on November 8, 1993. (Filed as Exhibit 3A to the Company's
Registration Statement on Form SB-2, as amended (Commission File No. 33-70180),
filed on October 12, 1993, and incorporated herein by reference.)
3.2 Amended By-Laws of Registrant. (Filed as Exhibit 3B to the Company's Registration
Statement on Form SB-2, as amended (Commission File No. 33-70180), filed on
October 12, 1993, and incorporated herein by reference.)
3.3 Certificate of Amendment of Certificate of Incorporation of Registrant, as filed
with the Secretary of State of Delaware on December 30, 1996.
4.1 Form of Representatives' Warrant.
5.1 Opinion of Bruce R. Thaw, counsel to the Company, as to the legality of
securities being registered.
10.1 Licensing Agreement with UKRF. (Filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-18, as amended (Commission File No. 2-88605-NY),
filed on December 23, 1983, and incorporated herein by reference.)
10.2 Lease for facilities at 45 Davids Drive, Hauppauge, NY. (Filed as Exhibit 10B to
the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995
(Commission File No. 0-13789), and incorporated herein by reference.)
10.3 Sublicense Agreement with Bristol-Myers Squibb Co. (Filed as Exhibit 10E to the
Company's Registration Statement on Form S-1, as amended (Commission File No.
33-5717), filed on May 15, 1986, and incorporated herein by reference.)
10.4 Agreements between Registrant, and RiboGene, Inc. (as successor in interest to
Rugby Laboratories, Inc., and Darby Pharmaceuticals, Inc.) (Filed as Exhibit 10D
to the Company's Registration Statement on Form S-1, as amended (Commission File
No. 33-5717), filed on May 15, 1986, and incorporated herein by reference.)
</TABLE>
II-3
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
10.5 1995 Agreement between the Registrant and RiboGene, Inc. (Filed as Exhibit 10F to
the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995
(Commission File No. 0-13789), and incorporated herein by reference.)
10.6 Employment Agreement with Dr. Vincent D. Romeo. (Filed as Exhibit 10O to the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1991
(Commission File No. 0-13789), and incorporated herein by reference.)
10.7 Stock Option Agreements. (Filed as Exhibit 10M to the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1995 (Commission File No. 0-13789), and
incorporated herein by reference.)
10.8 License Agreement with The DuPont Merck Pharmaceutical Company. (Filed as Exhibit
10N to the Company's Registration Statement on Form SB-2, as amended (Commission
File No. 33-70180), filed on October 12, 1993, and incorporated herein by
reference.)
10.9 Nasal Drug Evaluation and Option Agreement. (Filed as Exhibit 10K to the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1996.
(Commission File No. 0-13789), and incorporated herein by reference.)
10.10 Agreement with Ciba Self-Medication, Inc. (Filed as Exhibit 10J to the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1996 (Commission File
No. 0-13789), and incorporated herein by reference.)
10.11 Employment Agreement with Andrew P. Zinzi.
10.12 Evaluation and Option Agreement with the Consumer Health Care Division of Pfizer
Inc.
10.13 Development and License Agreement with DynaGen, Inc.
23.1 Consent of Bruce R. Thaw, counsel to the Company (included in Exhibit 5.1)
23.2 Consent of Robbins, Greene, Horowitz, Lester & Co., LLP Certified Public
Accountants
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 58
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York, New York, on
January 2, 1997.
NASTECH PHARMACEUTICAL COMPANY INC.
By: /s/ DEVIN N. WENIG
---------------------------------------
DEVIN N. WENIG
CHAIRMAN
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on January 2, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ DEVIN N. WENIG Chairman of the Board
- ---------------------------------------------
DEVIN N. WENIG
/s/ DR. VINCENT D. ROMEO* President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
DR. VINCENT D. ROMEO
/s/ JOEL GIRSKY* Director, Secretary and Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
JOEL GIRSKY
/s/ DR. IAN FERRIER* Director
- ---------------------------------------------
DR. IAN FERRIER
/s/ ALVIN KATZ* Director
- ---------------------------------------------
ALVIN KATZ
/s/ JOHN V. POLLOCK* Director
- ---------------------------------------------
JOHN V. POLLOCK
/s/ GRANT W. DENISON, JR.* Director
- ---------------------------------------------
GRANT W. DENISON, JR.
*By: /s/ DEVIN N. WENIG
- ---------------------------------------------
DEVIN N. WENIG
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.3 Certificate of Amendment of Certificate of Incorporation of Registrant, as filed
with the Secretary of State of Delaware on December 30, 1996.
4.1 Form of Representatives' Warrant.
5.1 Opinion of Bruce R. Thaw, counsel to the Company, as to the legality of the
securities being registered.
10.12 Evaluation and Option Agreement with the Consumer Health Care Division of Pfizer
Inc.
10.13 Development and License Agreement with DynaGen, Inc.
23.2 Consent of Robbins, Greene, Horowitz, Lester & Co., LLP Certified Public
Accountants.
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1.1
DRAFT OF DECEMBER 31, 1996
2,000,000 Shares(1)
NASTECH PHARMACEUTICAL COMPANY INC.
Common Stock
UNDERWRITING AGREEMENT
, 1997
Volpe, Welty & Company
Wheat, First Securities, Inc.
As Representatives of the several Underwriters
c/o Volpe, Welty & Company
One Maritime Plaza, 11th Floor
San Francisco, California 94111
Dear Sirs and Madams:
Nastech Pharmaceutical Company Inc., a Delaware corporation (the
"Company"), proposes to issue and sell 2,000,000 shares of its authorized but
unissued Common Stock, $0.006 par value (the "Common Stock") (the "Firm
Shares"). The Company proposes to grant to the Underwriters (as defined below)
an option to purchase up to 300,000 additional shares of Common Stock (the
"Optional Shares" and, with the Firm Shares, collectively, the "Shares"). The
Common Stock is more fully described in the Registration Statement and the
Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the shares by the several underwriters, for whom you are acting,
named in Schedule I hereto (collectively, the "Underwriters," which term shall
also include any underwriter purchasing Stock pursuant to Section 2(b) hereof).
You represent and warrant that you have been authorized by each of the other
Underwriters to enter into this Agreement on its behalf and to act for it in the
manner herein provided.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the several Underwriters as of the date hereof and as
of each Closing Date (as defined below) that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-2 (No. 333-_____),
including the related
- ------------------------
(1) Plus an option to purchase from the Company up to 300,000 additional
shares to cover over-allotments.
<PAGE> 2
preliminary prospectus, for the registration under the Securities Act of 1933,
as amended (the "Securities Act") of the Shares. Copies of such registration
statement and of each amendment thereto, if any, including the related
preliminary prospectus (meeting the requirements of Rule 430A of the rules and
regulations of the Commission) heretofore filed by the Company with the
Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean
such registration statement, including all documents incorporated by reference
therein, all exhibits and financial statements, all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred to
below, in the form in which it became effective, and any registration statement
filed pursuant to Rule 462(b) of the rules and regulations of the Commission
with respect to the shares (a "Rule 462(b) registration statement"), and, in the
event of any amendment thereto after the effective date of such registration
statement (the "Effective Date"), shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended
(including any Rule 462(b) registration statement). The term Prospectus as used
in this Agreement shall mean the prospectus, including the documents
incorporated by reference therein, relating to the Shares first filed with the
Commission pursuant to Rule 424(b) and Rule 430A (or if no such filing is
required, as included in the Registration Statement) and, in the event of any
supplement or amendment to such prospectus after the Effective Date, shall also
mean (from and after the filing with the Commission of such supplement or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term Preliminary Prospectus as used in this Agreement shall mean each
preliminary prospectus, including the documents incorporated by reference
therein, included in such registration statement prior to the time it becomes
effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
(b) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement
and the Prospectus and as being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the business, business prospects,
properties, condition (financial or otherwise) or results of operations of the
Company).
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company is in possession of and
operating in compliance with all material authorizations, licenses, permits,
consents, certificates and orders material to the conduct of its business as
described in the Prospectus, all of which are valid and in full force and
effect.
2
<PAGE> 3
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change in the business, business prospects, properties, condition
(financial or otherwise) or results of operations of the Company, whether or not
arising from transactions in the ordinary course of business, other than as set
forth in the Registration Statement and the Prospectus, and since such dates,
except in the ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement and the
Prospectus.
(e) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Optional
Shares are to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the rules and regulations of
the Commission thereunder; on the Effective Date, the Registration Statement did
not contain any untrue statement of a material fact and did not omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and, on the Effective Date the Prospectus
did not and, on the Closing Date and any later date on which Optional Shares are
to be purchased, will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
in this subparagraph (e) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in conformity
with information herein or otherwise furnished in writing to the Company by or
on behalf of the Underwriters for use in the Registration Statement or the
Prospectus.
(f) The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus. The issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company and the related notes thereto included in
the Prospectus, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required by the Securities Act
and the Rules and Regulations to be shown with respect to such plans,
arrangements, options and rights.
(g) The Shares are duly authorized, are (or, in the case of Shares to
be sold by the Company, will be, when issued and sold to the Underwriters as
provided herein) validly issued, fully paid and nonassessable and conform to the
description thereof in the Prospectus. No further approval or authority of the
stockholders or the Board of Directors of the Company will
3
<PAGE> 4
be required for the issuance and sale of the Shares to be sold by the Company as
contemplated herein.
(h) Prior to the Closing Date, the Shares to be issued and sold by the
Company will be authorized for listing on the Nasdaq National Market upon
official notice of issuance.
(i) The Shares to be sold by the Company will be sold free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest,
and will conform to the description thereof contained in the Prospectus. No
preemptive right, co-sale right, registration right, right of first refusal or
other similar right to subscribe for or purchase securities of the Company
exists with respect to the issuance and sale of the Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right that has
not been waived, or complied with, to require the Company to register the sale
of any shares owned by such stockholder under the Securities Act in the public
offering contemplated by this Agreement.
(j) The Company has full corporate power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company enforceable in accordance with its
terms, except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium laws affecting creditors'
rights generally and except as to those provisions relating to indemnity or
contribution for liabilities arising under federal and state securities laws.
The making and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby (i) will not violate any provisions of
the Certificate of Incorporation, Bylaws or other organizational documents of
the Company, and (ii) will not conflict with, result in a material breach or
violation of, or constitute, either by itself or upon notice or the passage of
time or both, a material default under (A) any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to which
the Company is a party or by which the Company or any of its properties may be
bound or affected, or (B) any statute or any authorization, judgment, decree,
order, rule or regulation of any court or any regulatory body, administrative
agency or other governmental body applicable to the Company or any of its
properties. No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body that has not
already been obtained is required for the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Securities Act, the Blue Sky laws
applicable to the public offering of the Shares by the several Underwriters and
the clearance of such offering with the NASD.
(k) The financial statements and schedules of the Company and the
related notes thereto included in the Registration Statement and the Prospectus
present fairly the financial position of the Company as of the respective dates
of such financial statements and schedules, and the results of operations and
cash flows of the Company for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods
4
<PAGE> 5
specified, as certified by the independent accountants named in subsection 9(g).
No other financial statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the Prospectus
under the captions "Capitalization" and "Selected Consolidated Financial
Information" fairly present the information set forth therein on the basis
stated in the Registration Statement.
(l) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The representations and warranties given by the Company and its
officers to its independent public accountants for the purpose of supporting the
letters referred to in Section 9(f) are true and correct.
(m) The Company has filed in a timely manner all forms, reports,
statements and other documents required to be filed with the Commission (all
such forms, reports, statements and other documents being referred to herein,
collectively, the "Company Reports"). The Company Reports were prepared in
accordance with the requirements of applicable law, including the Securities Act
and the Exchange Act, and the rules and regulations of the Commission
thereunder, and did not at the time they were filed contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(n) The Company is not (i) in violation or default of any provision of
its Certificate of Incorporation, Bylaws or other organizational documents, or
(ii) in a material breach of or default with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound; and there does not exist any state
of facts which, with notice or lapse of time or both would constitute such a
breach or default on the part of the Company.
(o) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations that have not
been described or filed as required. Each of the contracts so described in the
Prospectus is in full force and effect on the date hereof, is enforceable in
accordance with its terms and is a valid, legal and binding obligation of the
Company, and to the knowledge of the Company, of the other parties thereto. The
Company has performed each material term, covenant and condition of each such
contract that is to be performed by it and is current in payment of all
liabilities incurred under such contracts. No event has occurred that would,
with the passage of time or compliance with any applicable notice
5
<PAGE> 6
requirements, constitute a default under any of such contracts. To the knowledge
of the Company, no party to any such contract intends to cancel, terminate or
exercise any option under such contracts. To the knowledge of the Company, there
is no matter that adversely affects, or would adversely affect, any contract
that, individually or in the aggregate, has had or would have a material adverse
effect on the Company.
(p) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or threatened to which the
Company is or is threatened to be made a party or of which property owned or
leased by the Company is or is threatened to be made the subject, which actions,
suits or proceedings could, individually or in the aggregate, prevent or
adversely affect the transactions contemplated by this Agreement or result in a
material adverse change in the business, business prospects, properties,
condition (financial or otherwise), or results of operations of the Company; and
no labor disturbance by the employees of the Company exists or is imminent that
could materially adversely affect the business, business prospects, properties,
condition (financial or otherwise), or results of operations of the Company. The
Company is not a party or subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body, administrative agency
or other governmental body. Except as disclosed in the Prospectus, there are no
material legal or governmental actions, suits or proceedings pending or, to the
Company's knowledge, threatened against any executive officers or directors of
the Company.
(q) The Company has good and marketable title to all the properties and
assets reflected as owned in the financial statements hereinabove described (or
elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such financial
statements (or elsewhere in the Prospectus), or (ii) those that are not material
in amount to the Company and do not adversely affect the use made and proposed
to be made of such property by the Company. The Company holds its leased
properties under valid and binding leases. Except as disclosed in the
Prospectus, the Company owns or leases all such properties as are necessary to
its operations as now conducted or as proposed to be conducted.
(r) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company has not (A)
incurred any liabilities or obligations, indirect, direct or contingent, or (B)
entered into any oral or written agreement or other transaction, which in the
case of (A) or (B) is not in the ordinary course of business; (ii) the Company
has not sustained any material loss or interference with its business or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and the
Company is not in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock of the Company (other than upon the sale of the Shares hereunder or upon
the exercise of any options or warrants disclosed in the Prospectus); (v) there
has not been any material increase in the short- or long-term debt of the
Company; and (vi) there has not been any material adverse change or any
development
6
<PAGE> 7
involving or which may reasonably be expected to involve a prospective material
adverse change, in the business, business prospects, condition (financial or
otherwise), properties, or results of operations of the Company.
(s) The Company is conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, except where the failure to be so in compliance would not
have a material adverse effect on the business, business prospects, properties,
condition (financial or otherwise) or results of operations of the Company.
(t) The Company has filed all necessary federal, state and foreign
income and franchise tax returns, and all such tax returns are complete and
correct in all material respects, and the Company has not failed to pay any
taxes that were payable pursuant to said returns or any assessments with respect
thereto. The Company has no knowledge of any tax deficiency that has been or is
likely to be threatened or asserted against the Company.
(u) The Company has not distributed, and will not distribute prior to
the later to occur of (i) completion of the distribution of the Shares, or (ii)
the expiration of any time period within which a dealer is required under the
Securities Act to deliver a prospectus relating to the Shares, any offering
material in connection with the offering and sale of the Shares other than the
Prospectus, the Registration Statement and any other materials permitted by the
Securities Act and consented to by the Underwriters.
(v) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
directors' and officers' insurance, insurance covering real and personal
property owned or leased by the Company against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect. The Company has not been refused any
insurance coverage sought or applied for, and the Company has no reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
adversely affect the business, business prospects, properties, condition
(financial or otherwise) or results of operations of the Company.
(w) Neither the Company nor, to the best of the Company's knowledge,
any of its employees or agents has at any time during the last five years (i)
made any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any foreign, federal or state governmental officer or official or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(x) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
7
<PAGE> 8
(y) The Company has caused (i) each of its executive officers and
directors as set forth in the Prospectus and (ii) each holder of the outstanding
Common Stock (including shares issuable upon the exercise or conversion of any
option, warrant or other security) previously identified by Volpe, Welty &
Company to furnish to the Underwriters an agreement in form and substance
satisfactory to Volpe, Welty & Company pursuant to which each such party has
agreed that during the period of one hundred eighty (180) days after the date
the Registration Statement becomes effective, without the prior written consent
of Volpe, Welty & Company, such party will not (i) offer, sell, contract to
sell, make any short sale (including without limitation short against the box),
pledge or otherwise dispose of, directly or indirectly, any shares of the
Company's Common Stock, options to acquire Common Stock or securities
convertible into or exchangeable for, or any other rights to purchase or
acquire, the Company's Common Stock (including, without limitation, Common Stock
of the Company which may be deemed to be beneficially owned in accordance with
the rules and regulations of the Commission) other than the grant or exercise of
options pursuant to the Company's stock option plan (the "Option Plan"), or the
exercise of outstanding warrants; or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction described in (i) or (ii)
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise; provided, however, that bona fide gift transactions and transfers
that will not result in any change in beneficial ownership may be permitted if
the transferee enters into a lock-up agreement in substantially the same form
covering the remainder of the lock-up period.
(z) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba.
(aa) Except as specifically disclosed in the Prospectus, the Company
has sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals and governmental authorizations to conduct its businesses as now
conducted; the expiration of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the business, business prospects, properties,
condition (financial or otherwise) or results of operations of the Company; the
Company has no knowledge of any infringement by the Company of trademark, trade
name rights, patent rights, copyrights, licenses, trade secret or other similar
rights of others; and no claims have been made or are threatened against the
Company regarding trademark, trade name, patent, copyright, license, trade
secret or other infringement which could have a material adverse effect on the
business, business prospects, properties, condition (financial or otherwise) or
results of operations or prospects of the Company.
(ab) Except as disclosed in the Prospectus, (i) the Company is in
compliance in all material respects with all rules, laws and regulation relating
to the use, treatment, storage and disposal of toxic substances and protection
of health or the environment ("Environmental Laws") which are applicable to its
business, (ii) the Company has not received any notice from any governmental
authority or third party of an asserted claim under Environmental Laws, (iii) no
facts currently exist that will require the Company to make future material
capital expenditures
8
<PAGE> 9
to comply with Environmental Laws, and (iv) to the knowledge of the Company, no
property that is or has been owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section
9601, et seq.), or otherwise designated as a contaminated site under applicable
state or local law.
(bb) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(cc) While there can be no assurance that United States Food and Drug
Administration ("FDA") approval for any of the Company's products will be
obtained on a timely basis, or at all, the Company has received no communication
from the FDA expressing adverse comments, questions or concerns with regard to
(i) any New Drug Application filed by the Company or (ii) any pending clinical
trials relating to any of the Company's products, other than comments, questions
or concerns to which the Company reasonably believes it has responded, or can
respond, to the satisfaction of the FDA without unreasonable delay or expense
and without materially impairing the commercial feasibility of introducing the
product in question. The Company has applied for and obtained from the FDA an
Investigational New Drug exemption for each product with respect to which it has
commenced human clinical trials, and all such human clinical trials are being
conducted, to the best of the Company's knowledge, in compliance in all material
respects with the protocols submitted by the Company to the FDA and any
conditions relating thereto imposed by the FDA. The Company has received no
notice from the FDA, and has no reason to believe, that its manufacturing
facilities or processes are not in compliance with current good manufacturing
practice requirements.
SECTION 2. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
all of the Firm Shares to the several Underwriters, and each of the Underwriters
agrees to purchase from the Company the respective aggregate number of Firm
Shares set forth opposite its name in Schedule I. The price at which such Firm
Shares shall be sold by the Company and purchased by the several Underwriters
shall be $___ per share. The obligation of each Underwriter to the Company shall
be to purchase from the Company that number of Firm Shares that represents the
same proportion of the total number of Firm Shares to be sold by the Company
pursuant to this Agreement as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto represents of the total number of
shares of the Firm Shares to be purchased by all Underwriters pursuant to this
Agreement, as adjusted by you in such manner as you deem advisable to avoid
fractional shares. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraphs (b) and (c) of this
Section 2, the agreement of each Underwriter is to purchase only the respective
number of shares of the Firm Shares specified in Schedule I.
9
<PAGE> 10
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of Shares which such defaulting Underwriter or
Underwriters agreed to purchase. If the non-defaulting Underwriters fail so to
make such arrangements with respect to all such shares and portion, the number
of Shares which each non-defaulting Underwriter is otherwise obligated to
purchase under this Agreement shall be automatically increased on a pro rata
basis to absorb the remaining shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase; provided, however, that the
non-defaulting Underwriters shall not be obligated to purchase the portion that
the defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such Shares exceeds 10% of the total number of Shares that all
Underwriters agreed to purchase hereunder. If the total number of Shares that
the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
referred to above, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such Shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 4 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to Section 4 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all of the Shares that the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to any non-defaulting
Underwriter and without any liability on the part of any non-defaulting
Underwriter to the Company. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase, severally and
not jointly, up to 300,000 Optional Shares from the Company at the same price
per share as the Underwriters shall pay for the Firm Shares. Said option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or before
the thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of Optional
Shares as to which the several Underwriters are exercising the option. Delivery
of certificates for the Optional Shares, and payment therefor, shall be made as
provided in Section 4 hereof. The number of Optional Shares to be purchased by
each Underwriter shall be the same percentage of the total number of Optional
Shares to be
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purchased by the several Underwriters as such Underwriter is purchasing of the
Firm Shares, as adjusted by you in such manner as you deem advisable to avoid
fractional shares.
SECTION 3. OFFERING BY UNDERWRITERS.
(a) The terms of the public offering by the Underwriters of the Shares
to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the public offering and increase or decrease the concessions and
discounts to dealers as they may determine.
(b) The information (insofar as such information relates to the
Underwriters) set forth in the last paragraph on the front cover page and under
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Shares constitutes the only information furnished by
the Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
SECTION 4. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the Optional
Shares (if the option granted by Section 2(c) hereof shall have been exercised
not later than 7:00 A.M., San Francisco time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of __________________________, _____________, at 7:00 a.m., San Francisco time,
on the [fourth](2) business day after the date of this Agreement, or at such
time on such other day, not later than seven full business days after such
[fourth] business day, as shall be agreed upon in writing by the Company and
you. The date and hour of such delivery and payment (which may be postponed as
provided in Section 2(b) hereof) are herein called the "Closing Date."
(b) If the option granted by Section 2(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Optional Shares, and
payment therefor, shall be made at the office of _____________, _____________,
at 7:00 a.m., San Francisco time, on the third business day after the exercise
of such option.
(c) Payment for the shares purchased from the Company shall be made to
the Company or its order by (i) one or more certified or official bank check or
checks in next day funds (and the Company agrees not to deposit any such check
in the bank on which drawn until the day following the date of its delivery to
the Company) or (ii) federal funds wire transfer.
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(2) This assumes that the transaction will be priced after the close of market
and that T + 4 will apply to the transaction. If the pricing takes place before
or during market hours (which will generally not be the case), the closing would
be three business days after pricing.
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<PAGE> 12
Such payment shall be made upon delivery of certificates for the shares to you
for the respective accounts of the several Underwriters (including without
limitation by "full-fast" electronic transfer by Depository Trust Company)
against receipt therefor signed by you. Certificates for the shares to be
delivered to you shall be registered in such name or names and shall be in such
denominations as you may request at least one business day before the Closing
Date, in the case of Firm Shares, and at least one business day prior to the
purchase thereof, in the case of the Optional Shares. Such certificates will be
made available to the Underwriters for inspection, checking and packaging at the
offices of agent of Volpe, Welty & Company's clearing agent, Bear Stearns
Securities Corp., on the business day prior to the Closing Date or, in the case
of the Optional Shares, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Optional Shares
are purchased for the account of such Underwriter. Any such payment by you shall
not relieve such Underwriter from any of its obligations hereunder.
SECTION 5. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
shares for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you,
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<PAGE> 13
for distribution to the Underwriters, a sufficient number of additional
conformed copies of each of the foregoing (but without exhibits) so that one
copy of each may be distributed to each Underwriter, (ii) as promptly as
possible deliver to you and send to the several Underwriters, at such office or
offices as you may designate, as many copies of the Prospectus as you may
reasonably request, and (iii) thereafter from time to time during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer, likewise send to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the Prospectus and of any
amended prospectus, filed by the Company with the Commission, as you may
reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of the shares,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such Prospectus
is delivered to such purchaser, not misleading. If, after the public offering of
the shares by the Underwriters and during such period, the Underwriters shall
propose to vary the terms of offering thereof by reason of changes in general
market conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company or
of counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended prospectus
setting forth such variation. The Company authorizes the Underwriters and all
dealers to whom any of the shares may be sold by the several Underwriters to use
the Prospectus, as from time to time amended or supplemented, in connection with
the sale of the shares in accordance with the applicable provisions of the
Securities Act and the applicable rules and regulations thereunder for such
period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the shares for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements,
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<PAGE> 14
reports, and other documents as are or may be required to continue such
qualifications in effect for so long a period as you may reasonably request for
distribution of the shares.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including all costs and
expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. ("NASD") of
the Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters and the persons designated by them of copies
of any Preliminary Prospectus and of the several documents required by paragraph
(c) of this Section 5 to be so furnished, (iii) the printing of this Agreement
and related documents delivered to the Underwriters, (iv) the preparation,
printing and filing of all supplements and amendments to the Prospectus referred
to in paragraph (d) of this Section 5, (v) the furnishing to you and the
Underwriters of the reports and information referred to in paragraph (g) of this
Section 5 and (vi) the printing and issuance of stock certificates, including
the transfer agent's fees. The Company also agrees to reimburse you, for the
account of the several Underwriters, that portion of the Underwriters' legal
expenses, up to $50,000, incurred for services provided by Underwriters' counsel
in assisting Company's counsel in preparing the Registration Statement for
printing in order to expedite and accelerate the registration process.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including counsel
fees and disbursements and cost of printing memoranda for the Underwriters) paid
by or for the account of the Underwriters or their counsel in qualifying the
shares under state securities or blue sky laws and in the review of the offering
by the NASD.
(k) The Company hereby agrees that, without the prior written consent
of Volpe, Welty & Company, the Company will not, for a period of 180 days
following the date the Registration Statement becomes effective, (i) offer,
sell, contract to sell, make any short sale (including without limitation short
against the box), pledge, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any options to acquire shares of Common Stock or
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock (including without limitation, Common
Stock of the Company which may be deemed to be beneficially owned in accordance
with the rules and regulations of the Commission) other than the exercise or
conversion of outstanding options, warrants or
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<PAGE> 15
convertible securities or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences or ownership of
Common Stock, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise; provided, however, that bona fide gift transactions and transfers
that will not result in any change in beneficial ownership may be permitted if
the transferee enters into a lock-up agreement in substantially the same form
covering the remainder of the lock-up period; further provided, that the Company
shall be permitted to issue shares of Common Stock in exchange for shares of
capital stock of a company being acquired by or merged into the Company. The
foregoing sentence shall not apply to (A) the shares to be sold to the
Underwriters pursuant to this Agreement, (B) shares of Common Stock issued by
the Company upon the exercise of options granted under the Option Plan or upon
the exercise of warrants outstanding as of the date hereof, all as described in
footnote (1) to the table under the caption "Capitalization" in the Preliminary
Prospectus, and (C) options to purchase Common Stock granted under the Option
Plan.
(l) The Company agrees to use its best efforts to cause all directors,
officers, and beneficial holders of the outstanding Common Stock previously
identified by Volpe, Welty & Company to agree that, without the prior written
consent of Volpe, Welty & Company, such person or entity will not, for a period
of 180 days following the date the Registration Statement becomes effective, (i)
offer, sell, contract to sell, make any short sale (including without limitation
short against the box), pledge, or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any options to acquire shares of Common Stock or
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock (including without limitation, Common
Stock of the Company that may be deemed to be beneficially owned in accordance
with the rules and regulations of the Commission) other than the exercise or
grant of options pursuant to the Option Plan or the exercise of outstanding
warrants or (ii) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences or ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise; provided, however, that bona fide gift transactions and transfers
that will not result in any change in beneficial ownership may be permitted if
the transferee enters into a lock-up agreement in substantially the same form
covering the remainder of the lock-up period.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the shares has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
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<PAGE> 16
(n) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(o) The Company agrees to maintain directors' and officers' insurance
in amounts customary for the size and nature of the Company's business for a
period of two years from the date of this Agreement.
SECTION 6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act, or the common law or otherwise, and the
Company agrees to reimburse each such Underwriter and controlling person for any
legal or other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of counsel) incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of any Underwriter for use in any Preliminary Prospectus
or the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the shares which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
(excluding the documents incorporated therein by
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<PAGE> 17
reference) and the untrue statement or omission of a material fact contained in
such Preliminary Prospectus was corrected in the Prospectus (or the Prospectus
as amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 5 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 1 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the shares.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, from and against any and all losses, claims, damages
or liabilities, joint or several, to which such indemnified parties or any of
them may become subject under the Securities Act, the Exchange Act, or the
common law or otherwise and to reimburse each of them for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of such indemnifying Underwriter for use in the Registration
Statement or the Prospectus or any such amendment thereof or supplement thereto.
The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the shares.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 6 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (the "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such
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<PAGE> 18
paragraphs shall be available to any party who shall fail so to give the Notice
if the party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 6, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 6 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable
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<PAGE> 19
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of each
indemnifying party in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, or actions in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the shares received by the Company and the total
underwriting discount received by the Underwriters, as set forth in the table on
the cover page of the Prospectus, bear to the aggregate public offering price of
the shares. Relative fault 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 each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the shares purchased by such
Underwriter. 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. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 6).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an
19
<PAGE> 20
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
SECTION 7. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 6 of this Agreement, the Company hereby agrees to
reimburse on a monthly basis the Underwriters for all reasonable legal and other
expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 6 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 7 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
SECTION 8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company in accordance
with Section 9, or if after the date of this Agreement trading in the Common
Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions in the financial markets of the United States or the
Company's industry sector would, in the Underwriters' reasonable judgment, make
the offering or delivery of the shares impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, or The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 5 hereof.
20
<PAGE> 21
SECTION 9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the shares shall be subject to the
performance by the Company of all its obligations to be performed hereunder at
or prior to the Closing Date or any later date on which Optional Shares are to
be purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the shares hereunder
and the validity and form of the certificates representing the shares, all
corporate proceedings and other legal matters incident to the foregoing, and the
form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Hunton & Williams, counsel for the Underwriters.
(c) You shall have received from Bruce R. Thaw, Esquire, counsel for
the Company, and from Hoffmann & Baron, patent counsel for the Company,
opinions, addressed to the Underwriters and dated the Closing Date, covering the
matters set forth in Annex A and Annex B hereto, respectively, and if Optional
Shares are purchased at any date after the Closing Date, additional opinions
from each such counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such opinions
remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct, and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading; (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment; (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since such dates, except
in the ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein;
(iv) the Commission has not issued any order preventing or suspending the use of
the Prospectus or any Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to the best knowledge of the
respective signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act; (v) the Company does not have
any material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus;
21
<PAGE> 22
(vi) there are not any pending or known threatened legal proceedings to which
the Company is a party or of which property of the Company is the subject that
are material and that are not disclosed in the Registration Statement and the
Prospectus; (vii) there are not any franchises, contracts, leases or other
documents that are required to be filed as exhibits to the Registration
Statement which have not been filed as required; (vii) the representations and
warranties of the Company herein are true and correct in all material respects
as of the Closing Date or any later date on which Optional Shares are to be
purchased, as the case may be; and (viii) there has not been any material change
in the market for securities in general or in political, financial or economic
conditions from those reasonably foreseeable as to render it impracticable in
your reasonable judgment to make a public offering of the Shares, or a material
adverse change in market levels for securities in general (or those of companies
in particular) or financial or economic conditions which render it inadvisable
to proceed.
(e) You shall have received on the Closing Date and on any later date
on which Optional Shares are purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chairman of the Company, stating that the respective signers of said certificate
have carefully examined the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein and any
supplements or amendments thereto, and that the statements included in clauses
(i) through (viii) of paragraph (d) of this Section 9 are true and correct.
(f) You shall have received from Robbins, Greene, Horowitz, Lester &
Co., LLP, a letter or letters, addressed to the Underwriters and dated the
Closing Date and any later date on which Optional Shares are purchased,
confirming that they are independent public accountants with respect to the
Company within the meaning of the Securities Act and the applicable published
rules and regulations thereunder and based upon the procedures described in
their letter delivered to you concurrently with the execution of this Agreement
(the "Original Letter"), but carried out to a date not more than three business
days prior to the Closing Date or such later date on which Optional Shares are
purchased (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing Date
or such later date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of the Original Letter or to reflect the
availability of more recent financial statements, data or information. The
letters shall not disclose any change, or any development involving a
prospective change, in or affecting the business or properties of the Company
which, in your sole judgment, makes it impractical or inadvisable to proceed
with the public offering of the shares or the purchase of the Optional Shares as
contemplated by the Prospectus.
(g) You shall have received from Robbins, Greene, Horowitz, Lester &
Co., LLP a letter stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's financial statements as at June 30,
1996, did not disclose any weakness in internal controls that they considered to
be material weaknesses.
22
<PAGE> 23
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 5 hereof.
(i) Prior to the Closing Date, the shares to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from all
directors, officers, and beneficial holders of the outstanding Common Stock
previously identified by Volpe, Welty & Company agreements, in form reasonably
satisfactory to Volpe, Welty & Company, stating that without the prior written
consent of Volpe, Welty & Company, such person or entity will not, for a period
of 180 days following the date the Registration Statement became effective (i)
offer, sell, contract to sell, make any short sale (including without limitation
short against the box), pledge, or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any options to acquire shares of Common Stock or
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock (including without limitation, Common
Stock of the Company which may be deemed to be beneficially owned in accordance
with the rules and regulations of the Commission) other than the grant or
exercise of options pursuant to the Option Plan or the exercise of outstanding
warrants or (ii) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences or ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise; provided, however, that bona fide gift transactions and transfers
that will not result in any change in beneficial ownership may be permitted if
the transferee enters into a lock-up agreement in substantially the same form
covering the remainder of the lock-up period.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Hunton & Williams, counsel for the Underwriters, shall
be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 5 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them
23
<PAGE> 24
in connection with the transactions contemplated hereby (other than such legal
expenses described in the last sentence of Section 5(i) hereof).
SECTION 10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation of the
Company to deliver the shares shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by the Company by giving notice
to you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 5 hereof.
SECTION 11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 6 hereof, the several parties (in addition to the
Company and the several Underwriters) indemnified under the provisions of such
Section 6, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the shares from any of the several Underwriters.
SECTION 12. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Volpe, Welty & Company, One Maritime
Plaza, 11th Floor, San Francisco, California 94111, Attention: Gil Mogavero; and
if to the Company, shall be mailed, telegraphed or delivered to it at its
office, Nastech Pharmaceutical Company Inc., 45 Davids Drive, Hauppauge, New
York 11788, Attention: Dr. Vincent D. Romeo. All notices given by telegraph
shall be promptly confirmed by letter.
SECTION 13. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the shares under this Agreement; provided, however, that if this
Agreement is terminated prior to the Closing Date, the provisions of paragraphs
(k), (l) and (m) of Section 5 hereof shall be of no further force or effect.
24
<PAGE> 25
SECTION 14. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
SECTION 15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the laws pertaining to conflicts of
laws) of the State of California.
SECTION 16. GENERAL. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and you.
25
<PAGE> 26
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company and the several Underwriters,
including you, all in accordance with its terms.
Very truly yours,
NASTECH PHARMACEUTICAL COMPANY INC.
By:
-------------------------------------
Title:
----------------------------------
The foregoing Underwriting
Agreement is hereby confirmed
and accepted by us in San
Francisco, California as of
the date first above written.
VOLPE, WELTY & COMPANY
WHEAT FIRST SECURITIES, INC.
Acting for ourselves and as
Representatives of the several
Underwriters named in the
attached Schedule I
By:
-------------------------------
Principal
26
<PAGE> 27
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- --------------------------------------------------------------------------------
<S> <C>
Volpe, Welty & Company .........................................
Wheat, First Securities, Inc. ..................................
Total ............................................. 2,000,000
=========
</TABLE>
I-1.
<PAGE> 28
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF BRUCE R. THAW, ESQUIRE
COUNSEL FOR THE COMPANY
(i) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation and in good standing
in each state of the United States of America in which the nature of its
business or its ownership or leasing of property requires such qualification,
and has full corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement;
(ii) the authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, $0.006 par value, of which there are outstanding
3,868,005 shares, and 100,000 shares of Preferred Stock, $0.01 par value, of
which there are no outstanding shares; all of the outstanding shares of such
capital stock (including the Firm Shares and the Optional Shares issued, if any)
have been duly authorized and validly issued and are fully paid and
nonassessable; any Optional Shares purchased after the Closing Date have been
duly authorized and, when issued and delivered to, and paid for by, the
Underwriters as provided in the Underwriting Agreement, will be validly issued
and fully paid and nonassessable; and no preemptive rights of, or rights of
refusal in favor of, stockholders exist with respect to the Shares, or the issue
and sale thereof, pursuant to the Certificate of Incorporation or Bylaws of the
Company or any other instrument and, to the knowledge of such counsel, there are
no contractual preemptive rights that have not been waived, rights of first
refusal or rights of co-sale which exist with respect to the issue and sale of
the Shares by the Company;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act, the Exchange Act
and with the rules and regulations of the Commission thereunder;
(v) such counsel has no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by reference therein,
as to which such counsel need not express any opinion or belief) at the
Effective Date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (except as to the
financial statements and schedules and other
A-1.
<PAGE> 29
financial and statistical data contained or incorporated by reference therein,
as to which such counsel need not express any opinion or belief) as of its date
or at the Closing Date (or any later date on which Optional Shares are
purchased), contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(vi) the information required to be set forth in the Registration
Statement in answer to Items 9 and 10 (insofar as it relates to such counsel) of
Form S-2 is to the best of such counsel's knowledge accurately and adequately
set forth therein in all material respects or no response is required with
respect to such Items; the statements under the captions "Business Government
Regulation," "Description of Capital Stock" and "Shares Eligible for Future
Sale," insofar as such statements constitute matters of law or legal
conclusions, have been reviewed by such counsel and are accurate and complete
statements of the information called for with respect to such matters; and, the
description of the Company's stock option plan and warrants and the options and
warrants granted and that may be granted thereunder and the options and warrants
granted otherwise than under such plan and warrants set forth or incorporated by
reference in the Prospectus accurately and fairly presents the information
required to be shown with respect to said plan and options to the extent
required by the Securities Act and the rules and regulations of the Commission
thereunder;
(vii) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(ix) the Company has full corporate power and authority to enter into
the Underwriting Agreement and to sell and deliver the Shares to be sold by it
to the several Underwriters; the Underwriting Agreement is a valid and binding
agreement of the Company enforceable against it in accordance with its terms,
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditor's rights generally and except as to those provisions relating to
indemnity or contribution for liabilities arising under federal and state
securities laws (as to which no opinion need be expressed);
(x) the issue and sale by the Company of the Shares sold by the Company
as contemplated by the Underwriting Agreement will not conflict with, or result
in a breach of, or constitute a default under the Certificate of Incorporation
or Bylaws of the Company or any agreement or instrument known to such counsel to
which the Company is a party or by which any of its properties may be bound or
any applicable law or regulation, or so far as is known to such counsel, any
order, writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
A-2.
<PAGE> 30
(xi) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Shares by
the Underwriters and the clearance of the offering with the NASD; and
(xiii) The shares issued and sold by the Company will have been duly
authorized for listing by the Nasdaq National Market upon official notice of
issuance.
------------------------------------
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States, the State of New York or the State
of Delaware upon opinions of local counsel satisfactory in form and scope to
counsel for the Underwriters. Copies of any opinions so relied upon shall be
delivered to the Representatives and to counsel for the Underwriters and the
foregoing opinion shall also state that counsel knows of no reason the
Underwriters are not entitled to rely upon the opinions of such local counsel.
A-3.
<PAGE> 31
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF HOFFMANN & BARON
PATENT COUNSEL FOR THE COMPANY
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly all portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) such counsel have no reason to believe that the Registration
Statement or the Prospectus (A) contains any untrue statement of a material fact
with respect to patents, trade secrets, trademarks, service marks or other
proprietary information or materials owned or used by the Company, or the manner
of its use thereof, or any allegation on the part of any person that the Company
is infringing any patent rights, trade secrets, trademarks, service marks or
other proprietary information or materials of any such person or (B) omits to
state any material fact relating to patents, trade secrets, trademarks, service
marks or other proprietary information or materials owned or used by the
Company, or the manner of its use thereof, or any allegation of which such
counsel have knowledge, that is required to be stated in the Registration
Statement or the Prospectus or is necessary to make the statements therein not
misleading;
(ii) to the best of such counsel's knowledge there are no legal or
governmental proceedings pending relating to patent rights, trade secrets,
trademarks, service marks or other proprietary information or materials, and to
the best of such counsel's knowledge no such proceedings are threatened or
contemplated by governmental authorities or others;
(iii) such counsel do not know of any contracts or other documents,
relating to governmental regulation affecting the Company or the Company's
patents, trade secrets, trademarks, service marks or other proprietary
information or materials of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the Registration
Statement or the Prospectus that are not filed or described as required;
(iv) to the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets, trademarks,
service marks or other proprietary information or materials, of others, and to
the best of such counsel's knowledge there are no infringements by others of any
of the Company's patents, trade secrets, trademarks, service marks or other
proprietary information or materials which in the judgment of such counsel could
affect materially the use thereof by the Company; and
(v) to the best of such counsel's knowledge, the Company owns or
possesses sufficient licenses or other rights to use all patents, trade secrets,
trademarks, service marks or
B-1.
<PAGE> 32
other proprietary information or materials necessary to conduct the business now
being or proposed to be conducted by the Company as described in the Prospectus.
B-2.
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NASTECH PHARMACEUTICAL COMPANY INC.
The undersigned corporation, in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the Corporation is NASTECH PHARMACEUTICAL COMPANY
INC..
SECOND: The Certificate of Incorporation, as now in full force and
effect, is hereby amended to accomplish the following:
(a) ARTICLE FOURTH is hereby amended to change the aggregate number of
shares of Common Stock which the Corporation shall have the authority to issue
from Six Million (6,000,000) shares, par value $.006 per share; to Twenty Five
Million (25,000,000) shares, par value $.006 per share.
In order to effect the foregoing amendment, ARTICLE FOURTH (a) of the
Certificate of Incorporation is hereby amended to read as follows:
"FOURTH: (a) The Corporation shall be authorized to issue the following
shares:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
Common 25,000,000 $.006
Preferred 100,000 $.01"
</TABLE>
THIRD: The amendments effected herein were adopted by the Corporation's
Board of Directors and authorized by a majority of the holders of the
outstanding shares entitled to vote thereon at an annual meeting of shareholders
pursuant to Sections 222 and 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this 30th day of
December, 1996.
NASTECH PHARMACEUTICAL COMPANY INC.
/s/ Vincent D. Romeo
-------------------------------------
Dr. Vincent D. Romeo, President and Chief
Executive Officer
ATTEST:
/s/ Devin N. Wenig
- ------------------------------
Devin N. Wenig, Chairman
<PAGE> 1
EXHIBIT 4.1
The securities represented by this Warrant have not been registered
under the Securities Act of 1933, as amended. The transfer or surrender
for exchange of the securities represented hereby is subject to the
restrictions set forth in Article III hereof, and no transfer or surrender
for exchange of the securities shall be valid or effective unless and
until there shall have been compliance with the terms and conditions of
Article III.
WARRANT
TO PURCHASE COMMON STOCK, $.006 PAR VALUE, OF
NASTECH PHARMACEUTICAL COMPANY INC.
EXERCISABLE UNTIL ______________
THIS IS TO CERTIFY THAT, for value received, Volpe, Welty & Company, or
registered assigns, is entitled to purchase from Nastech Pharmaceutical Company
Inc., a Delaware corporation (the "Company"), from 9:00 a.m., local time, on
__________, 1998 [date that is one year from effective date of the offering]
until 5:00 p.m., local time, on ___________, 2002 [date that is four years from
such date] (the "Exercise Period") at the place where the Warrant Office to
which reference is hereinafter made is located, up to 115,000 shares of Common
Stock, $.006 par value (the "Common Stock"), of the Company at a purchase price
of $__ per share [120% of the offering price per share], such purchase price
subject to adjustment as hereinafter provided (the "Current Warrant Price"), and
is entitled also to exercise the other appurtenant rights, powers and privileges
hereinafter set forth.
Certain terms used in this Warrant are defined in Article VI.
ARTICLE I
EXERCISE OF WARRANT
1.1 Method of Exercise.
(a) Cash Exercise. To exercise this Warrant in whole or in part, the
holder hereof shall during the Exercise Period deliver to the Company, at
the Warrant Office designated pursuant to Section 2.1: (a) a written
notice (in the form of Exhibit A) of such holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased; (b) a certified or bank cashier's check payable to
the order of the Company or cash in an amount equal to the aggregate
Current Warrant Price for the number of shares of Common Stock being
purchased; and (c) this Warrant.
(b) Net Issuance. In lieu of payment of the Current Warrant Price
described in Section 1.1(a), the holder may elect to receive, without the
payment by the holder of any additional consideration, shares equal to the
value of this Warrant or any
<PAGE> 2
portion hereof by the surrender of this Warrant or such portion to the
Company, with the net issue election notice (in the form of Exhibit B)
duly executed, at the office of the Company. Thereupon, the Company shall
issue to the holder such number of fully paid and nonassessable shares of
Common Stock as is computed using the following formula:
x = y (A-B)
-------
A
where:
x = the number of shares to be issued to the holder pursuant
to this Section 1.1(b).
y = the number of shares covered by this Warrant in respect
of which the net issuance election is made pursuant to
this Section 1.1(b).
A = the Current Market Price of one share of Common Stock,
as defined in Article VI.
B = the Current Warrant Price in effect under this Warrant
at the time the net issuance election is made pursuant
to this Section 1.1(b).
(c) Upon the holder's exercise of this Warrant in accordance with
Section 1.1(a) or 1.1(b), and subject to the satisfaction of Article III,
the Company shall, as promptly as practicable and in any event within 14
days thereafter, execute and deliver or cause to be executed and
delivered, in accordance with the holder's notice, a certificate or
certificates representing the aggregate number of shares of Common Stock
specified in such notice. The stock certificate or certificates so
delivered shall be in denominations of 100 shares each or such lesser or
greater denominations as may be specified in such notice and shall be
issued in the name of such holder or such other name as shall be
designated in such notice. If this Warrant shall have been exercised only
in part, the Company shall, at the time of delivery of the certificate or
certificates, deliver to the holder a new Warrant evidencing the rights to
purchase the remaining shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this
Warrant, or, at the request of the holder, appropriate notation may be
made on this Warrant which shall be returned to the holder. The Company
shall pay all expenses, taxes and other charges payable in connection with
the preparation, issuance and delivery of stock certificates and new
Warrants, except that, in case stock certificates or new Warrants shall be
registered in a name or names other than the name of the holder of this
Warrant, funds sufficient to pay all stock transfer taxes, which shall be
payable upon the issuance of stock
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<PAGE> 3
certificates or new Warrants, shall be paid by the holder hereof at the
time of delivering the notice of exercise mentioned above or promptly upon
receipt of a written request of the Company for payment.
1.2 Warrant Shares to be Fully Paid and Nonassessable. All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid and nonassessable.
1.3 No Fractional Shares to be Issued. The Company shall not be required
upon any exercise of this Warrant to issue a certificate representing any
fraction of a share of Common Stock, but, in lieu thereof, shall pay to the
holder of this Warrant cash in the amount equal to a corresponding fraction
(calculated to the nearest 1/100 of a share) of the Current Market Price of one
share of Common Stock as of the date of receipt by the Company of notice of
exercise of this Warrant.
1.4 Legend on Warrant and Warrant Shares. Any warrant issued at any time
in exchange or substitution of this Warrant, unless at the time of exchange or
substitution the Warrant or Warrant Shares are registered under the 1933 Act,
shall bear the legend upon the initial page of this Warrant.
Each certificate evidencing Warrant Shares issued upon exercise of this
Warrant, unless at the time of exercise or transfer the Warrant or such Warrant
Shares are registered under the 1933 Act, shall bear the following legend (and
any additional legend required by any national securities exchanges upon which
such Warrant Shares may, at the time of such exercise, be listed):
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended. The transfer or
surrender for exchange of the securities represented hereby is subject to
the restrictions set forth in Article III of the form of Warrant pursuant
to which such securities were issued, a copy of which Warrant is available
for inspection at the office of Nastech Pharmaceutical Company Inc., and
no transfer or surrender for exchange of the securities shall be valid or
effective unless and until there shall have been compliance with the terms
and conditions of Article III of the form of Warrant."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the 1933 Act
of the securities represented thereby) shall also bear the above legend unless,
in the opinion of counsel to the Company, the securities represented thereby
need no longer be subject to the restrictions contained in Article III.
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<PAGE> 4
ARTICLE II
WARRANT OFFICE; TRANSFER,
DIVISION OR COMBINATION OF WARRANTS
2.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's office at 45 Davids Drive, Hauppauge, New York 11788, and may
subsequently be such other office of the Company or of any transfer agent of the
Common Stock in the continental United States as to which written notice has
previously been given to all of the Warrantholders.
2.2 Ownership of Warrant. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Article II.
2.3 Transfer of Warrant. The Company agrees to maintain at the Warrant
Office books for the registration of permitted transfer of the Warrants, and,
subject to the provisions of Article III, this Warrant and all rights hereunder
are transferable, in whole or in part, on the books at that office, upon
surrender of this Warrant at that office, together with a written assignment of
this Warrant (in the form of Exhibit C) duly executed by the holder hereof or
his duly authorized agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of the transfer. Upon surrender and payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denominations specified in the instrument of
assignment, and this Warrant shall promptly be canceled.
2.4 Division or Combination of Warrants. This Warrant may be divided or
combined with other Warrants upon presentation hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the Warrant Office,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the holders hereof and thereof or their
respective duly authorized agents or attorneys. Subject to compliance with
Section 2.3 as to any transfer which may be involved in the division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with the notice.
2.5 Expenses of Delivery of Warrants. The Company shall pay all expenses,
taxes (other than transfer taxes), and other charges payable in connection with
the preparation, issuance and delivery of Warrants hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES;
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<PAGE> 5
RESTRICTIONS ON EXERCISE AND TRANSFER
3.1 Representations and Warranties of the Holder.
(a) The holder represents and warrants to the Company that it is
acquiring the Warrant and, in the event that it should acquire Warrant
Shares upon exercise of the Warrant and a current registration statement
under the 1933 Act is not in effect with respect to such Warrant Shares,
that the holder will be acquiring the Warrant Shares, for its own account,
for investment and not with a view to the distribution thereof within the
meaning of the 1933 Act.
(b) The holder understands that the Warrant has not been, and the
Warrant Shares issuable upon exercise of the Warrant may not be,
registered under the 1933 Act, by reason of their issuance by the Company
in a transaction exempt from the registration requirements of the 1933
Act; and that the Warrant and the Warrant Shares must be held by the
holder indefinitely unless a subsequent disposition thereof is registered
under the 1933 Act or is exempt from registration.
(c) The holder further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to
the holder) promulgated under the 1933 Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis
for sales only in limited amounts.
(d) The holder represents and warrants to the Company that it will
not transfer any of the Warrants or the Warrant Shares issuable upon
exercise of the Warrant except in compliance with Article III of this
Warrant.
(e) The holder further represents and warrants that it is an
"accredited investor" as defined in Rule 501(a) promulgated under the 1933
Act.
3.2 Restrictions on Transfer. Notwithstanding any provisions contained in
this Warrant to the contrary, this Warrant shall not be transferable and the
related Warrant Shares shall not be transferable except upon the conditions
specified in this Article III, which conditions are intended, among other
things, to insure compliance with the provisions of the 1933 Act in respect of
the transfer of the Warrant or the Warrant Shares. The holder of this Warrant
further agrees that it will not (a) transfer this Warrant prior to delivery to
the Company of an opinion of the holder's counsel (as provided for in Section
3.3), which opinion shall be acceptable to counsel for the Company, or (b)
transfer the Warrant Shares prior to delivery to the Company of the opinion of
the holder's counsel (as provided for in Section 3.3), which opinion shall be
acceptable to counsel for the Company, or until registration of the Warrant
Shares under the 1933 Act has become effective.
3.3 Opinion of Counsel. In connection with any transfer of this Warrant or
of the related Warrant Shares, the following provisions shall apply:
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<PAGE> 6
(a) If in the opinion of counsel, which counsel and opinion shall be
reasonably acceptable to the Company, the proposed transfer of this
Warrant or the Warrant Shares may be effected without registration of this
Warrant or the Warrant Shares under the 1933 Act, the holder of this
Warrant shall be entitled to transfer this Warrant or the Warrant Shares
in accordance with the proposed method of disposition.
(b) If in the opinion of counsel, which counsel and opinion shall be
reasonably acceptable to the Company, the proposed transfer of this
Warrant or the Warrant Shares may not be effected without registration of
this Warrant or such Warrant Shares under the 1933 Act, the holder of this
Warrant shall not be entitled to transfer this Warrant or the Warrant
Shares until registration is effective.
3.4 Subsequent Holders. Anything contained herein to the contrary
notwithstanding, the provisions of this Article III shall be binding upon all
subsequent holders of this Warrant and the Warrant Shares, and the Company shall
not be required to issue all or any portion of the Warrant or the Warrant Shares
to such holder unless such holder agrees in writing in advance of such issuance
to be so bound. The provisions of this Article III shall survive expiration of
the Exercise Period.
ARTICLE IV
ADJUSTMENT PROVISIONS
4.1 Adjustment of Number of Shares. Upon each adjustment of the Current
Warrant Price as provided in Section 4.2, the holder of this Warrant shall
thereafter be entitled to purchase, at the Current Warrant Price resulting from
such adjustment, the number of shares (calculated to the nearest 1/100 of a
share) obtained by multiplying the Current Warrant Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
Current Warrant Price resulting from such adjustment.
4.2 Adjustment of Current Warrant Price. The Current Warrant Price shall
be subject to adjustment from time to time as follows :
(a) If, at any time subsequent to the date of the issue of this
Warrant and prior to the expiration of the Exercise Period, the number of
shares of Common Stock outstanding is increased by (i) a stock dividend or
other distribution payable in shares of Common Stock or other securities
or rights convertible into Common Stock ("Common Stock Equivalents")
without payment of any consideration by holders of Common Stock for the
additional shares of Common Stock or Common Stock Equivalents, or (ii) by
a subdivision or split-up of shares of Common Stock, then immediately
after the record date fixed for the determination of holders of Common
Stock entitled to receive such stock dividend, subdivision or split-up,
the Current Warrant Price shall be appropriately decreased so that the
number of shares of
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<PAGE> 7
Common Stock issuable on exercise of the Warrant shall be increased in
proportion to such increase in outstanding shares.
(b) If, at any time subsequent to the date of the issue of this
Warrant and prior to the expiration of the Exercise Period, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then immediately after the record date
for such combination, the Current Warrant Price shall be appropriately
increased so that the number of shares of Common Stock issuable on
exercise of the Warrant shall be decreased in proportion to such decrease
in outstanding shares.
(c) In case the Company, at any time subsequent to the date of the
issue of this Warrant and prior to the expiration of the Exercise Period,
shall distribute to all holders of its Common Stock evidences of its
indebtedness or assets (excluding any regular cash dividend) or rights to
subscribe for or warrants to purchase (excluding those referred to in
paragraph (d) below) shares of Common Stock, then in each such case the
Current Warrant Price shall be adjusted so that the same shall equal the
price determined by multiplying the Current Warrant Price in effect
immediately prior to the date of such distribution by a fraction whose
numerator shall be the Current Market Price on the record date for the
distribution less the fair market value (as determined in good faith by
the Board of Directors) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights or warrants
applicable to one share of Common Stock, and whose denominator shall be
such Current Market Price. Such adjustment shall be made whenever any such
distribution is made and shall be retroactively effective as of
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(d) In case the Company, at any time subsequent to the date of the
issue of this Warrant and prior to the expiration of the Exercise Period,
shall issue any warrants, rights or options to subscribe for or purchase
shares of Common Stock or shall issue any Common Stock, other than
pursuant to warrants, rights or options outstanding on the date of the
issue of this Warrant, or securities convertible into Common Stock at a
price per share less than the Current Market Price (as defined in Article
VI), the Current Warrant Price shall be adjusted by multiplying the then
existing Current Warrant Price by a fraction, the numerator of which is
the sum of (i) the number of shares of Common Stock outstanding
immediately prior to such issue plus (ii) the number of shares which the
aggregate offering price of the total number of shares so offered pursuant
to the warrants, rights, options or convertible securities would purchase
at the Current Market Price and the denominator of which is the sum of (i)
the number of shares of Common Stock outstanding immediately prior to such
issue plus (ii) the maximum number of additional shares of Common Stock
offered for subscription or purchase or issuable upon conversion of
convertible securities offered for subscription or purchase. For the
purpose of the foregoing computation, the aggregate offering price of the
shares of Common Stock issuable upon exercise of
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<PAGE> 8
convertible securities shall be deemed to be the consideration paid to the
Company in respect of the purchase of such convertible securities plus the
additional consideration, if any, payable to the Company upon the exercise
of the right of conversion or exchange in such convertible securities. For
the purpose of any adjustment of the Current Warrant Price pursuant to
this paragraph in the case of an issue of any of the aforementioned
securities for a purchase price other than cash, the consideration
received by the Company therefor shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors.
Adjustments pursuant to this paragraph shall become effective immediately
after the issuance of such warrants, rights, options or Common Stock or
convertible securities; provided that if such warrants, rights, options or
the rights of conversion of such convertible securities shall expire
without being exercised, the Current Warrant Price shall be recomputed as
if the total number of shares of Common Stock so offered pursuant to the
warrants, rights, options or convertible securities were that number of
shares actually issued upon the exercise or conversion.
(e) In case, during the Exercise Period, of any capital
reorganization, or any reclassification of the stock of the Company (other
than a change in par value or from par value to no par value or from no
par value to par value or as a result of a stock dividend or subdivision,
split-up or combination of shares), or the consolidation or merger of the
Company with or into another person (other than a consolidation or merger
in which the Company is the continuing corporation and the Common Stock of
the Company remains outstanding and unchanged) or of the sale or other
disposition of all or substantially all the properties and assets of the
Company as an entirety to any other person, the Warrant shall after such
reorganization, reclassification, consolidation, merger, sale or other
disposition be exercisable for the kind and number of shares of stock or
other securities or property of the Company, or of the corporation
resulting from such consolidation or surviving such merger or to which
such properties and assets shall have been sold or otherwise disposed, to
which the holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such reorganization, reclassification,
consolidation, merger, sale or other disposition) upon exercise of the
Warrant would have been entitled upon such reorganization,
reclassification, consolidation, merger, sale or other disposition. The
provisions of this paragraph shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(f) All calculations under this Section 4.2 shall be made to the
nearest cent ($.01) or to the nearest 1/100 of a share, as the case may
be.
(g) In any case in which the provisions of this Section 4.2 shall
require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of
such event (i) issuing to the holder of the Warrant exercised after such
record date and before the occurrence of such event the additional shares
of capital stock issuable upon such exercise by reason of the
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<PAGE> 9
adjustment required by such event over and above the shares of capital
stock issuable upon such exercise before giving effect to such adjustment
and (ii) paying to such holder any amount in cash in lieu of a fractional
share of capital stock pursuant to Section 1.3 above; provided, however,
that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such
additional shares, and such cash, upon the occurrence of the event
requiring such adjustment.
4.3 Notice of Adjustment of Current Warrant Price.
(a) Whenever the Current Warrant Price shall be adjusted as provided
in Section 4.2 above, the Company shall file, at the office of the
transfer agent for the Company, or at such other place as may be
designated by the Company, a statement, signed by its independent
certified public accountants, showing in detail the facts requiring such
adjustment and the Current Warrant Price that shall be in effect after
such adjustment. The Company shall also cause a copy of such statement to
be sent by first-class, certified mail, return receipt requested, postage
prepaid, to the holder of the Warrant at such holder's address appearing
on the Company's records. Where appropriate, such copy may be given in
advance and may be included as part of a notice required to be mailed
under the provisions of Section 4.3(b) below.
(b) In the event the Company shall propose to take any action of the
types described in Section 4.2 (a), (b), (c), (d) or (e) the Company shall
give notice to the holder of the Warrant in the manner set forth in
Section 4.3(a) above, which notice shall specify the record date, if any,
with respect to any such action and the date on which such action is to
take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice)
on the Current Warrant Price and the number, kind or class of shares or
other securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon exercise of the
Warrant. In the case of any action which would require the fixing of a
record date, such notice shall be given at least seven days prior to the
date so fixed, and in case of all other action, such notice shall be given
at least 15 days prior to the taking of such proposed action. Failure to
give such notice, or any defect therein, shall not affect the legality or
validity of any such action.
(c) Anything herein to the contrary notwithstanding, no adjustment
in the Current Warrant Price shall be required unless such adjustment
would require a change of at least 1% in the Current Warrant Price;
provided, that any adjustments which by reason of this Section 4.3(c) are
not required to be made shall be carried forward and taken into account in
any subsequent adjustment.
ARTICLE V
REGISTRATION RIGHTS
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<PAGE> 10
5.1 Registration Rights.
(a) If at any time during the four-year period beginning on
_________, 1998 and ending on ___________, 2002, the Warrantholder
requests the Company in writing to register at least 50% of the Warrant
Shares under the 1933 Act (which request shall specify that it is being
made pursuant to this Article V and shall contain the undertaking of the
Warrantholder to provide all such information and to take all such action
as may be required in order to permit the Company to comply with all
applicable requirements of the 1933 Act and the Commission and to obtain
acceleration of the effective date of the registration statement), the
Company will cause the offering of Warrant Shares designated in such
request to be registered under the 1933 Act as soon as practicable. Upon
any such registration statement becoming effective, the Company shall keep
such registration statement current for a period not to exceed nine
months. The Company shall make such filings, and will use its best efforts
to cause such filings to become effective, so that the Warrant Shares
shall be registered or qualified for sale under the securities or Blue Sky
laws of such jurisdictions as shall be requested by the Warrantholder and
the managing underwriter, if any, for the distribution of the Warrant
Shares covered by such registration statement; provided, that the Company
shall not be required to qualify as a foreign corporation to do business
under the laws of any jurisdiction in which it is not then qualified or to
file any general consent to service of process.
(b) If at any time during the six-year period commencing on
___________, 1998 and ending on ___________, 2004, the Company shall
propose the registration under the 1933 Act of an offering of Common Stock
solely for cash on a form that would also permit registration of the
Warrant Shares, the Company shall give notice to the Warrantholder as
promptly as possible of such proposed registration and the Company will
cause the offering of such number of Warrant Shares as the Warrantholder
shall request within 10 business days after the receipt of such notice to
be included, upon the same terms (including the method of distribution),
in any such offering; provided, that: (i) the Company shall not be
required to give notice or to include Warrant Shares in any such
registration if the proposed registration is (A) a registration of a
dividend reinvestment, stock option, employee benefit or compensation plan
or of securities issued or issuable pursuant to any such plan or (B) a
registration of securities proposed to be issued in exchange for
securities or assets of, or in connection with a merger or consolidation
with, another entity; (ii) if the Company is advised in writing by its
underwriters that the inclusion of all or any portion of such Warrant
Shares would in their opinion jeopardize the success of the proposed
offering, the Company may exclude all or such portion of such Warrant
Shares from registration, provided that if other selling shareholders who
are employees or directors of the Company have requested registration of
securities in the proposed offering, the Company will reduce or eliminate
such other selling shareholders' securities pro rata with any reduction of
Warrant Shares; (iii) the offering of such Warrant Shares by the
Warrantholder shall be on the same terms as the offering
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<PAGE> 11
by the Company; and (iv) the Company may, without the consent of the
Warrantholder, withdraw such registration statement and abandon the
proposed offering in which the Warrantholder had requested to participate.
(c) The obligation of the Company under this Section 5.1 is subject
to the following limitations:
(i) In the event of a registration under this Section 5.1 the
Company shall be responsible for all costs of such registration,
including, without limitation, all printing expenses (including a
reasonable number of prospectuses for circulation by the
Warrantholder), all legal fees and disbursements of the Company's
counsel, Blue Sky expenses, accounting fees of the Company and
filing fees, but not including underwriters' discounts and
commissions attributable to the Warrant Shares;
(ii) The Company shall not be obligated to provide more than
one registration pursuant to paragraph (a) or more than one
registration pursuant to paragraph (b); provided, that in the event
any Warrant Shares are excluded in an initial registration pursuant
to paragraph (b) or in the event such registration is withdrawn or
abandoned by the Company, the Warrantholder shall have additional
registration rights pursuant to such subsection until such time as
the Warrant Shares originally proposed to be registered thereunder
have been registered pursuant to this Section ; and
(iii) The Company, the Warrantholder and any underwriter of an
offering pursuant to any registration statement provided for in
paragraph (b) shall have entered into an underwriting agreement
containing provisions with respect to the indemnification of the
aforementioned parties in connection with the preparation and use of
such registration statement in form and substance satisfactory to
the Company and such underwriters.
5.2 Indemnification. In the event any Warrant Shares are included in a
registration statement pursuant to Section 5.1 of this Warrant (a "Registration
Statement"):
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Warrantholder who holds such Warrant Shares, the
directors, if any, of such Warrantholder, the officers, if any, of such
Warrantholder, each person, if any, who controls any Warrantholder within
the meaning of the 1933 Act, any underwriter (as defined in the 1933 Act)
for the Warrantholder, the directors, if any, of such underwriter, and the
officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the 1933 Act (each, an
"Indemnified Person"), against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively, "Claims") to which any of
them may become subject under the 1933 Act or otherwise, insofar as such
Claims (or actions or proceedings,
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<PAGE> 12
whether commenced or threatened, in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement when it first became
effective, or any related final prospectus, amendment or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which the statements therein
were made, not misleading (a "Violation"). The Company shall reimburse the
Warrantholders and each such underwriter or controlling person, promptly
as such expenses are incurred and are due and payable, for any legal fees
or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 5.2(a) shall not apply in such case to the extent any Claim
arising out of or based upon a Violation that occurs in reliance upon or
in conformity with information furnished in writing to the Company by any
Indemnified Person or underwriter for such Indemnified Person expressly
for use in connection with the preparation of the Registration Statement
or any such amendment thereof or supplement thereto, and shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not
be unreasonably withheld.
(b) In connection with any Registration Statement in which a
Warrantholder is participating, each such Warrantholder agrees to
indemnify and hold harmless, to the same extent and in the same manner set
forth in Section 5.2(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter
and any other stockholder selling securities pursuant to the Registration
Statement or any of its directors or officers or any person who controls
such stockholder or underwriter within the meaning of the 1933 Act
(collectively and together with an Indemnified Person, an "Indemnified
Party"), against any Claim to which any of them may become subject, under
the 1933 Act or otherwise, insofar as such Claim arises out of or is based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company such Warrantholder expressly for use
in connection with such Registration Statement, and such Warrantholder
will reimburse any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 5.2(b)
shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such
Warrantholder, which consent shall not be unreasonably withheld.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any distribution to the same
extent as provided above,
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<PAGE> 13
with respect to information furnished in writing by such persons expressly
for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 5.2 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or
Indemnified Party shall, if a claim in respect thereof is made against any
indemnifying party under this Section 5.2, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying parties; provided, however, that
an Indemnified Person or Indemnified Party shall have the right to retain
its own counsel, with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by
such counsel in such proceeding. The indemnifying party shall pay for only
one separate legal counsel for the Indemnified Parties; such legal counsel
shall be selected by the Indemnified Parties holding a majority in
interest of the Warrant Shares. The failure to deliver notice to the
indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 5.2, except
to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 5.2 shall
be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability
is incurred and is due and payable.
(e) Notwithstanding any of the foregoing, if in connection with an
underwritten public offering of Warrant Shares, the Company, the
Warrantholders and the underwriter(s) enter into an underwriting or
purchase agreement relating to such offering that contains provisions
covering indemnification and contribution among the parties, the
indemnification provisions of this Section 5.2 shall be deemed inoperative
for purposes of such offering.
ARTICLE VI
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise requires,
the following terms shall have the following respective meanings:
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<PAGE> 14
"1933 Act": the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder, all as the same
shall be in effect at the time.
"Commission": the Securities and Exchange Commission, or any other
federal agency then administering the 1933 Act.
"Common Stock": the Company's authorized Common Stock, par value
$0.006 per share, as such class existed on the date of issuance of this
Warrant and any other securities as to which this Warrant becomes
exercisable pursuant to Article IV.
"Current Market Price" per share of Common Stock at any date: the
average of the daily closing prices for the 30 consecutive business days
ending no more than 15 days before the day in question (as adjusted for
any stock dividend, split-up, combination or reclassification that took
effect during such 30 business day period). The closing price for each day
shall be the last reported sales price regular way or, if no such reported
sales took place on such day, the average of the last reported bid and
asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading. If the Common Stock is not at that time listed or admitted for
trading on any such exchange, then the closing price for each day shall be
the last trade price or, if no such trade took place on such day, the
average of the last reported bid and asked prices, in either case as
reported by the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") on such day (but if on any such day the
security shall not be quoted on NASDAQ, then such price shall be equal to
the last reported bid and asked prices on such day as reported by the
National Quotation Bureau, Inc. or, if not reported by it, by any similar
reputable quotation and reporting service). If the Common Stock is not
traded in such a manner that any quotation referred to in this paragraph
is available for the period required hereunder, then the Current Market
Price shall be deemed to be the greater of (i) the Current Warrant Price
or (ii) such price, if any, at which the most recent issue and sale by the
Company of Common Stock in an arm's length transaction took place within
the 180- day period prior to the date on which the Current Market Price is
to be determined; provided, however, that in case the Company makes an
underwritten public offering of shares of Common Stock, for purposes of
the adjustment, if any, pursuant to Article IV, the Current Market Price
with respect to such shares shall be deemed to be the price to the public
shown in the final prospectus used in connection with such public
offering.
"Current Warrant Price": see the first paragraph on page 1.
"Outstanding": when used with reference to Common Stock at any date,
all issued shares of Common Stock (including, but without duplication,
shares deemed
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<PAGE> 15
issued pursuant to Article IV) at such date, except shares then held in
the treasury of the Company.
"Person": any individual, corporation, partnership, trust,
unincorporated organization and any government, and any political
subdivision, instrumentality or agency thereof.
"Sell": as to the Warrant or the Warrant Shares, shall mean to sell
or in any other way directly or indirectly transfer, assign, distribute,
encumber or otherwise dispose of, either voluntarily or involuntarily.
"Warrant Office": see Section 2.1.
"Warrant Shares": the shares of Common Stock purchasable or
purchased by the holder upon the exercise of this Warrant.
"Warrantholders": the registered holder of a Warrant or Warrants or
any related Warrant Shares.
"Warrants": this warrant and all warrants issued in substitution,
combination or subdivision thereof.
ARTICLE VII
CERTAIN COVENANTS OF THE COMPANY
7.1 The Company covenants and agrees that:
(a) it will reserve and set apart and have at all times, free from
preemptive rights, a number of shares of authorized but unissued Common
Stock or other securities or property deliverable upon the exercise of the
Warrants sufficient to enable it at any time to fulfill all its
obligations hereunder.
(b) this Warrant shall be binding, and it will take all action
necessary to make this Warrant binding, upon any corporation succeeding to
the Company by merger, share exchange, consolidation, acquisition of all
or substantially all of the Company's assets or any similar transaction.
ARTICLE VIII
MISCELLANEOUS
8.1 Entire Agreement. This Warrant contains the entire agreement between
the Warrantholder and the Company with respect to the purchase of the Warrant
Shares and supersedes all prior arrangements or understandings with respect
thereto.
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<PAGE> 16
8.2 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
8.3 Waiver and Amendment. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the Warrantholder and the Company, except that any waiver of any
term or condition, or any amendment or supplement, of this Warrant must be in
writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way affect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with any
term or condition of this Warrant.
8.4 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
8.5 Filing of Warrant. A copy of this Warrant shall be filed in the
records of the Company.
8.6 Notice. Any notice or other document required or permitted to be given
or delivered to the Warrantholders shall be delivered personally, or sent by
certified or registered mail, to each such holder at the last address shown on
the books of the Company maintained at the Warrant Office for the registration
of, and the registration of transfer of, the Warrants or at any more recent
address of which any Warrantholder shall have notified the Company in writing.
Any notice or other document required or permitted to be given or delivered to
the Company, other than such notice or documents required to be delivered to the
Warrant Office, shall be delivered at, or sent by certified or registered mail
to, the office of the Company at 45 Davids Drive, Hauppauge, New York 11788,
Attention: President, or such other address within the United States of America
as shall have been furnished by the Company to the Warrantholders and the
holders of record of Warrant Shares.
8.7 Limitation of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notice, other than as herein
expressly provided, in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the purchase price of any Warrant Shares or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
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<PAGE> 17
8.8 Loss, Destruction, Etc. of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Warrant, and in the case of any such loss, theft or destruction, upon delivery
of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon surrender
and cancellation of the Warrant, the Company will make and deliver a new
Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Warrant. Any Warrant issued under the provisions of this Section 8.8 in lieu of
any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated
Warrant, shall constitute an original contractual obligation on the part of the
Company.
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<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its Chairman.
Dated as of: ___________
NASTECH PHARMACEUTICAL COMPANY INC.
By:______________________________
______________________________
______________________________
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EXHIBIT A
SUBSCRIPTION NOTICE
Nastech Pharmaceutical Company Inc.
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented by said Warrant for, and to purchase
thereunder, _______________ shares of the Common Stock covered by said Warrant
and herewith makes payment in full therefor of $__________ by certified or
official bank check payable to the order of the Company, and requests (a) that
certificates for such shares (and any securities or other property issuable upon
such exercise) be issued in the name of and delivered to
________________________________________ whose address is
________________________________________ and (b) if such shares shall not
include all of the shares issuable as provided in said Warrant, that a new
Warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
__________________________________________
Signature Guaranteed:
Dated:
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EXHIBIT B
NET ISSUANCE ELECTION NOTICE
To: Nastech Pharmaceutical Company Date:______________
The undersigned hereby elects under Section 1.1(b) of the attached Warrant
to surrender the right to purchase _________________ shares of Common Stock
pursuant to the attached Warrant. The Certificate(s) for the shares usable upon
such net issuance election shall be issued in the name of the undersigned or as
otherwise indicated below.
______________________________
Signature
______________________________
Name for Registration
______________________________
______________________________
Mailing Address
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<PAGE> 21
EXHIBIT C
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________ the rights to __________ shares of
Common Stock represented by the foregoing Warrant of Nastech Pharmaceutical
Company Inc., and appoints __________ _________________ attorney to transfer
said rights on the books of said corporation, with full power of substitution.
______________________________
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<PAGE> 1
Exhibit 5.1
Law offices of
BRUCE R. THAW
45 Banfi Plaza
Farmingdale, NY 11735
December 30, 1996
Nastech Pharmaceutical Company, Inc.
45 Davids Drive
Hauppauge, NY 11788
Gentlemen:
We have acted as counsel for Nastech Pharmaceutical Company Inc., a
Delaware corporation (the "Company") in connection with the proposed issue and
sale by the Company of 2,000,000 Shares of Common Stock, $.006 par value (the
"Common Stock"). In the event the Underwriters' over-allotment option is
exercised in full, the issuance and sale by the Company shall be 2,300,000
shares.
As counsel to the Company, we have examined the minute books of the
Company, together with copies of its certificate of incorporation, as amended,
and by-laws. We have also examined the proposed Registration Statement on Form
S-2 (Securities and Exchange Commission File No. 333-16507), and the exhibits to
said Registration Statement. Based upon the foregoing, and our examination of
such other documents as we deemed pertinent, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing and
in good standing under and by virtue of the laws of the State of Delaware.
2. The authorized capital of the Company consists of (i) 100,000 shares
of Preferred Stock, par value $.01 per share, of which no shares of Preferred
Stock are presently issued and outstanding, and (ii) 25,000,000 shares of Common
Stock, par value $.006 per share, of which 3,868,005 shares are issued and
outstanding, fully paid and non-assessable shares of Common Stock of the Company
as of September 30, 1996.
3. The 2,000,000 shares of Common Stock being offered by the Company
(2,300,000 shares in the event the Underwriters' over-allotment option is
exercised in full) and which are the subject of the Registration Statement have
been duly authorized and the shares when issued and delivered against payment
therefor will be legally issued and outstanding, fully paid and non-assessable.
We hereby consent to be named in the Registration Statement, as
attorneys, who will pass upon legal matters for the Registrant in connection
with the sale of the shares of Common Stock of the Registrant.
Very truly yours,
/s/ Bruce R. Thaw
BRUCE R. THAW
<PAGE> 1
EXHIBIT 10.12
EVALUATION AND OPTION AGREEMENT
AGREEMENT made as of the 30th day of December, 1996, by and between
the Consumer Health Care Division of Pfizer Inc. (hereinafter referred to as
"Pfizer"), a corporation organized and existing under the laws of the State of
Delaware, having an office at 235 East 42nd Street, New York, New York 10017,
and Nastech Pharmaceutical Company Inc. (hereinafter referred to as "Nastech"),
a corporation organized and existing under the laws of the State of Delaware,
having an office at 45 Davids Drive, Hauppauge, New York 11788.
WHEREAS, Nastech is the owner of and has the right to grant licenses
with respect to certain Know-How and Patents (as hereinafter defined); and
WHEREAS, Nastech wishes to grant to Pfizer an exclusive license to the
Know-How and Patents pertaining to the Product (as hereinafter defined) for the
purposes of, inter alia, Pfizer's commencing evaluation of the Product and
Pfizer wishes to receive such a license to evaluate the Product, on the terms
and subject to the conditions set forth herein; and
WHEREAS, Nastech shall design, undertake and complete a program of
pre-clinical and clinical study of the Product (such program is summarized in
Exhibit "A" which is attached hereto and made part of this Agreement); and
<PAGE> 2
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WHEREAS, Nastech wishes to grant to Pfizer an option for an exclusive
license to the Know-How and Patents for the manufacture, use and sale of the
Product in the Territory (as hereinafter defined), and Pfizer wishes to receive
such an Option, on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
provided herein, the parties hereto hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following definitions shall be
applicable (it being understood that the terms defined shall include the
singular number in the plural, and the plural number in the singular):
1.1. "Affiliate" means, with respect to a party, any corporation or
other business entity directly or indirectly controlling, controlled by or
under common control with such party; as used herein, the term "control" means
possession of the power to direct, or cause the direction of the management and
policies of a corporation or other entity whether through the ownership of
voting securities, by contract or otherwise.
1.2. "Know-How" means all information, including but not limited to
the following: all chemical, pharmacological, safety, toxicological, clinical,
stability, assay, control, packaging, manufacturing, regulatory and marketing
research data and other knowledge related to the Product and its components now
or hereafter
<PAGE> 3
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owned by or in the possession or control of, Nastech during the term of this
Agreement, including any improvements thereto.
1.3. "Patents" means all patents and patent applications in the
Territory which relate to the Product and which are now owned or licensed, or
hereafter issued, acquired or licensed during the term of this Agreement, by
Nastech or its Affiliates. A list of such Patents are appended hereto as
Exhibit "C" as amended from time to time, as required which is attached hereto
and made a part of this Agreement.
1.4. "Product" means a method and/or dosage form for the nasal
administration of doxylamine succinate and diphenhydramine hydrochloride for
the purpose of inducing sleep.
1.5. "Territory" means worldwide.
2. GRANT OF RIGHT AND LICENSE TO EVALUATE
2.1. Nastech hereby grants to Pfizer an exclusive (even as to
Nastech and Nastech's Affiliates) right and license to the Know-How and Patents
pertaining to the Product to evaluate for the term of the Evaluation Period (as
hereinafter defined), inter alia, the clinical efficacy, safety and regulatory
status of the Product and for the purpose of conducting or having conducted
research, analysis and testing so that Pfizer may determine whether it is
interested in acquiring further rights in the Product. Such right and license
shall include an exclusive right to use the Know-How and Patents in connection
with Pfizer's evaluation of the Product
<PAGE> 4
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and for no other purpose. All such actual clinical studies and all research
described herein shall be conducted and performed by Nastech or their agents,
unless agreed to otherwise in writing.
2.2. Nastech understands and acknowledges that Pfizer's undertaking
to evaluate the Product hereunder in no way further obligates Pfizer to
exercise the Option granted to Pfizer in Paragraph 3. of this Agreement, or to
enter into any other agreement or arrangement with Nastech.
3. GRANT OF OPTION
3.1. Nastech hereby grants, exclusively to Pfizer during the term of
this Agreement and any extensions thereto, and Pfizer hereby accepts, an Option
to acquire an exclusive license to make, have made, use and sell the Product
under the Patents and Know-How according to the license agreement attached
hereto as Exhibit "B."
3.2. Pfizer may, at its sole option, at any time during the term of
this Agreement and any extension thereto, exercise the Option by sending
written notice to Nastech. Upon receipt of such notice the parties shall
execute the license agreement that is attached hereto as Exhibit "B."
3.3 If Pfizer elects, pursuant to Paragraph 3.2. herein, to
exercise the Option prior to the completion by Nastech of the Evaluation Period
(as hereinafter defined), such exercise shall not relieve Nastech of its
obligation to satisfactorily complete the Evaluation Period.
<PAGE> 5
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4. DEVELOPMENT, CLINICAL EVALUATION AND PAYMENTS
4.1. On or before execution of this Agreement, Nastech has provided
or shall provide to Pfizer: (4.1.1.) a complete copy of the Investigational New
Drug application entitled Doxylamine Succinate Nasal Spray (IND: 48228)
regarding the Product; (4.1.2.) copies of all Know-How, including relevant
clinical protocols; and (4.1.3.) copies of all relevant information concerning
the Patents and Product.
4.2. In consideration for the rights granted under this Agreement,
on the first day of the first full month following the execution of this
Agreement, an eight (8) month development and pre-clinical and clinical
evaluation period, as enumerated and described in items I-VII of Exhibit "A,"
shall commence (hereinafter referred to as the "Evaluation Period"). During
the Evaluation Period, Nastech shall be responsible for the design, undertaking
and completion of Product development, clinical study and research, the sole
purpose of which shall be to permit Pfizer to ultimately evaluate the clinical
and regulatory status of the Product. The total cost of such development,
clinical study and research conducted during the Evaluation Period shall not
exceed $650,000 dollars; such expenses shall be borne by both Pfizer and
Nastech as described below.
4.2.1. Pfizer shall pay to Nastech a total of $500,000 as
follows:
(a) At completion of items I-II as enumerated in
Exhibit "A," $100,000;
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(b) At completion of Item III-V in Exhibit "A,"
$100,000;
(c) At completion of item VI in Exhibit "A," $100,000;
(d) At completion of item VII in Exhibit "A,", $200,000.
Pfizer shall not, however, be required to pay any portion of the $500,000 for
any item enumerated herein until Nastech has provided a complete report on the
activities undertaken for each item. Such report(s) shall include, inter alia,
an integrated, statistical analysis, relevant data, and appropriate
information. In no event, shall Pfizer's total payments hereunder exceed
$500,000 dollars and Pfizer shall not make any payment for any expense greater
than the actual cost incurred by Nastech;
(e) From time to time, at Pfizer's request, Nastech shall
provide a detailed written report of all actual costs.
4.2.2. Nastech agrees pay a total of $150,000 toward the
completion of the clinical development program (items I-VI) as summarized in
Exhibit "A".
4.3. Pfizer may at any time terminate the Evaluation Period and this
Agreement according to the provisions of Paragraph 9.2. hereunder. The
obligations set forth in Paragraphs 8. and 10.2. shall survive any such
termination.
4.4. At any time before or within four (4) months following
expiration of the Evaluation Period, Pfizer may extend the Evaluation Period
and the term of this Agreement: if any of items I - VII in Exhibit "A" have not
been completed to Pfizer's satisfaction; or if additional work is required as
stated in Paragraph 4.4.1.
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If said Evaluation Period and term are not so extended, this Agreement will
terminate at the end of the four (4) month period following the Evaluation
Period. Upon such termination, Pfizer shall have no further obligation to
Nastech, except for the confidentiality and indemnification obligations set
forth in Paragraphs 8. and 10.2., and except for payments accrued for actual
completed work prior to termination and remaining unpaid by Pfizer.
4.4.1. Notwithstanding any provision contained in Paragraph
4.4., if Pfizer extends the Evaluation Period solely because it has determined
that additional work, not within the purview of items I - VII of Exhibit "A" is
required, the parties shall agree to the duration of any such extension and a
payment schedule for such additional work.
5. NEW INFORMATION AND TECHNICAL ASSISTANCE
5.1. Nastech shall promptly and regularly during the term of this
Agreement and any extensions thereto, inform Pfizer of any new Know-How and
Patent information concerning the Product, or such other information or facts
that could materially adversely affect the rights granted by Nastech to Pfizer
herein, including but not limited to, information it obtains or develops
regarding the safety (including toxicity), efficacy or government regulatory
status of the Product.
5.1.1. Each party agrees to report to the other, within [48]
hours from receipt of the information, any serious adverse event which is
reported to
<PAGE> 8
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occur as a result of use of the Product. Such events must be reported in as
much detail as possible, whether or not there is proof of a causal connection
between the events and use of the Product. A serious adverse event includes
any experience relating to the Product which is reasonably regarded to be
medically significant. Each party also agrees to provide to the other copies
of all reports that are made to governmental health authorities concerning
material safety, efficacy or quality matters with respect to the Products.
5.2. In connection with the furnishing of Know-How, Nastech shall
provide written bi-monthly status reports regarding all activities herein
undertaken.
5.2.1. Allow personnel of Pfizer, at Pfizer's expense, to
visit the research sites and to consult with Nastech personnel, at mutually
agreeable times, to discuss and review the Know-How solely for the purposes
provided hereunder.
5.2.2. At the request of Pfizer, Nastech shall send
personnel to Pfizer's facilities to assist and instruct in the evaluation of
the Know-How. The reasonable costs of any such visit shall be borne by Pfizer.
6. REGULATORY STATUS OF PRODUCTS
The Product is not presently marketed in the Territory pursuant to any
regulatory authority. An IND, as hereinbefore noted, has been filed. The
Parties agree that upon completion of the Evaluation Period a determination
shall be made by Pfizer as to whether an NDA filing will be commenced in
connection with Pfizer exercising the Option. The Parties also agree that
Pfizer shall make the sole
<PAGE> 9
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determination of the best regulatory strategy, including clinical development,
with the advice of Nastech.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1. Nastech represents, warrants and covenants that:
7.1.1. Nastech is a corporation duly organized, existing and
in good standing under the laws of the State of Delaware, with full right,
power and authority to enter into and perform this Agreement and to grant all
of the rights, powers and authorities herein granted.
7.1.2. Nastech is and shall be the sole and exclusive owner
of the Product and Patents all of which are and shall be unencumbered by any
liens, security interest or other rights or claims of any third party, and no
other person or entity has or shall have any claim of ownership with respect to
the Product whatsoever.
7.1.3. Making, having made, using or selling the Product in
the Territory does not infringe any patent, or any rights of any third party.
7.1.4. The execution, delivery and performance of this
Agreement do not conflict with, violate or breach any agreement to which
Nastech is a party, or Nastech's articles of incorporation or bylaws.
7.1.5. This Agreement has been duly executed and delivered by
Nastech and is a legal, valid and binding obligation enforceable against
Nastech in accordance with its terms.
<PAGE> 10
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7.1.6. Nastech knows of no fact which materially adversely
affects or could materially adversely affect the rights granted to Pfizer under
this Agreement.
7.1.7. As of the date hereof, Nastech has delivered to
Pfizer all the information specified in Paragraph 4.1. hereof.
7.2. Pfizer represents, warrants and covenants that:
7.2.1. Pfizer is a corporation duly organized, existing and
in good standing under the laws of the State of Delaware, with full right,
power and authority to enter into and perform this Agreement and to grant all of
the rights, powers and authorities herein granted.
7.2.2. The execution, delivery and performance of this
Agreement do not conflict with, violate or breach any agreement to which Pfizer
is a party, or Pfizer's certificate of incorporation or bylaws.
7.2.3. This Agreement has been duly executed and delivered
by Pfizer, and is a legal, valid and binding obligation enforceable against
Pfizer in accordance with its terms.
8. CONFIDENTIAL INFORMATION
8.1. During the term of this Agreement and for a period of five (5)
years after expiration or termination hereof, each party shall keep
confidential and not disclose to others or use for any purpose other than as
authorized herein, any confidential information supplied by the other party or
its employees or
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representatives and identified by the disclosing party as confidential in
writing ("Confidential Information"); provided, however, that these obligations
of confidentiality and non-use shall not apply to the extent that the receiving
party can establish that information is not the other party's Confidential
Information, including but not limited to establishing that the information:
(8.1.1.) entered the public domain without the receiving party's breach of
any obligation owed to the disclosing party; (8.1.2.) had become known to the
receiving party prior to the disclosure of such information and that such prior
knowledge may be demonstrated by written documentation; (8.1.3.) was permitted
to be disclosed by the prior written consent of the disclosing party; (8.1.4.)
had become known to the receiving party from a source other than the disclosing
party other than by breach of a confidentiality obligation owed to the
disclosing party and that such prior knowledge may be demonstrated by written
documentation; (8.1.5.) was disclosed by the disclosing party to a third party
without restrictions on its disclosure; or (8.1.6.) was independently developed
by the receiving party without breach of this Agreement and such prior
independent development can be demonstrated by written documentation. In
addition, each party shall have the right to disclose Confidential Information
supplied by the other party to third parties under a secrecy agreement with
essentially the same confidentiality provisions provided herein, solely in
connection with the exercise of its rights under this Agreement. Further,
disclosure may be made by either party to government agencies to the
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extent required to secure regulatory approvals, and to preclinical and clinical
investigators when necessary for their information in connection with the
filing of applications for such approvals.
8.2. Upon termination of this Agreement, and in the event Pfizer
does not exercise the Option granted hereunder, the parties shall each, upon
the written request of the other, return or destroy all materials, copies and
extracts obtained from the other party that contain any Confidential
Information, except for one archival copy to be retained by the receiving party
only for the purpose of determining its continuing obligations hereunder.
9. TERM AND TERMINATION
9.1. This Agreement shall be effective upon execution and shall
remain in effect, unless terminated earlier by Pfizer according to Paragraph
9.2. of this Agreement, until four (4) months following expiration of the
Evaluation Period, unless Pfizer has extended the term of this Agreement
pursuant to Paragraph 4.3.
9.2. Notwithstanding anything in this Agreement to the contrary,
Pfizer shall have the right, at any time, with or without cause at its sole
discretion and upon (30) days' prior written notice to Nastech, to terminate
this Agreement wherein the Option shall also terminate. Provided, however, if
Pfizer terminates without cause, Pfizer shall forfeit payments previously made
to Nastech for completed work up to the point of termination if Pfizer
terminates with cause,
<PAGE> 13
-13-
Pfizer shall not be obligated to pay for costs associated with activities
completed or commenced post the breach, or for any cost associated with the
breach.
10. INDEMNIFICATION
10.1. Nastech shall at all times during and after the term of this
Agreement be responsible for, and shall defend, indemnify and hold Pfizer
harmless from and against any and all losses, claims, suits, proceedings,
expenses, recoveries and damages, including reasonable legal expenses and
costs, including attorneys' fees, arising out of any claim by a third party
relating to the Product, or any aspect of the performance of this Agreement, to
the extent such liability results from a patent infringement claim, from a
product liability claim or from the negligence or willful misconduct of
Nastech, or any breach of a representation or warranty given herein by Nastech.
10.2. Pfizer shall at all times during and after the term of this
Agreement be responsible for, and shall defend, indemnify and hold Nastech
harmless from and against any and all losses, claims, suits, proceedings,
expenses, recoveries and damages, including reasonable legal expenses and
costs, including attorneys' fees, arising out of any claim by a third party
relating to the Product or any aspect of the performance of this Agreement, to
the extent such liability results from the negligence or willful misconduct of
Pfizer, or any breach of a representation or warranty given herein by Pfizer.
<PAGE> 14
-14-
11. MISCELLANEOUS
11.1. Entire Agreement - This Agreement sets forth the entire
agreement and understanding between the parties and supersedes all previous
agreements, promises, representations, understandings and negotiations, whether
written or oral, between the parties with respect to the subject matter hereof;
none of the terms of this Agreement shall be amended or modified except in
writing signed by the parties hereto.
11.2. Assignment - Neither party may assign any right or obligation
hereunder without the written consent of the other party, except if such
assignment arises under a transaction in which the assigning party is selling
its entire business or a line of business to which this Agreement relates or
that party is being acquired or merging with a third party. This Agreement
shall be binding upon and inure to the benefit of the parties' respective
successors and assigns. Any attempted assignment in violation of this
provision shall be void and of no effect.
11.3. Severability - If and solely to the extent that any provision
of this Agreement shall be invalid or unenforceable, or shall render this
entire Agreement to be unenforceable or invalid, such offending provision shall
be of no effect and shall not affect the validity of the remainder of this
Agreement or any of its provisions; provided, however, the parties shall use
their respective reasonable efforts to renegotiate the offending provisions to
best accomplish the original intentions of the parties.
<PAGE> 15
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11.4. Waivers - A waiver by either party of any term or condition of
this Agreement in any one instance shall not be deemed or construed to be a
waiver of such term or condition for any similar instance in the future or of
any subsequent breach hereof. All rights, remedies, undertakings, obligations
and agreements contained in this Agreement shall be cumulative and none of them
shall be a limitation of any other remedy, right, undertaking, obligation or
agreement.
11.5. Further Documents - Each party hereto agrees to execute such
further documents and take such further steps as the other party reasonably
determines may be necessary or desirable to effectuate the purposes of this
Agreement.
11.6. Compliance with Law - Each party hereto shall comply with all
applicable laws, rules, ordinances, guidelines, consent decrees and regulations
of any federal, state or other governmental authority.
11.7. Force Majeure - No party shall be liable for failure to perform
or delay in performing obligations set forth in this Agreement, and no party
shall be deemed in breach or default of its obligations, if, to the extent and
for so long as, such failure, delay, breach or default is due to natural
disasters or any similar causes reasonably beyond the control of such party.
Any party desiring to invoke the protection of Force Majeure shall promptly
notify the other party of such desire and shall use reasonable efforts to
resume performance of its obligations.
<PAGE> 16
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11.8. Governing Law - This Agreement is deemed to have been entered
into in the State of New York, and its interpretation, construction, and the
remedies for its enforcement or breach are to be applied pursuant to and in
accordance with the laws of the State of New York.
11.9. Notices - Any notice, consent or approval permitted or required
under this Agreement shall be in writing sent by registered or certified
airmail, postage pre-paid, or by overnight courier or by facsimile (confirmed
by mail) and addressed as follows:
If to PFIZER:
Pfizer Inc
Consumer Health Care Division
235 East 42nd Street
New York, NY 10017
ATTENTION: President
Consumer Health Care Group
with a copy to the General Counsel
Pfizer Inc
235 East 42nd Street
New York, NY 10017
If to Nastech:
Nastech Pharmaceutical Company Inc.
45 Davids Drive
Hauppauge, New York 11788
ATTENTION: Dr. Vincent D. Romeo,
President
<PAGE> 17
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with a copy to:
Bruce R. Thaw, Esq.
45 Banfi Plaza
Farmingdale, New York 11735
All notices shall be deemed to be effective on the date of mailing. In case
any party changes its address at which notices are to be received written
notice of such change shall be given s soon as practicable to the other party.
11.10. Headings - Headings in this Agreement are included for
ease of reference only and shall have no legal effect.
11.11. Relationship of the Parties - The relationship hereby
established between Pfizer and Nastech is solely that of independent
contractors; this Agreement shall not create an agency, partnership, joint
venture or employer/employee relationship, and nothing hereunder shall be
deemed to authorize either party to act for, represent or bind the other except
as expressly provided in this Agreement.
11.12. Publicity - Nastech may at any time release the press
release attached hereto as Exhibit "D", but shall not issue any other or
further press release or other publicity materials, or make any presentation
with respect to the existence of this Agreement or the terms and conditions
hereof without the prior written consent of Pfizer. Nastech, however, may make
disclosures required by the Securities Act of 1933, as amended, and the
Securities and Exchange Act of
<PAGE> 18
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1934, with prior written consent of Pfizer, which shall not be unreasonably
withheld.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above by their duly authorized
officers.
PFIZER INC NASTECH PHARMACEUTICAL
CONSUMER HEALTH CARE GROUP COMPANY INC.
By: /s/ [sig] By: /s/ [sig]
------------------------ -------------------------
Vice President Chairman
Pfizer Inc.
<PAGE> 19
EXHIBIT "A"
NASAL DOXYLAMINE SUCCINATE
SUMMARY OUTLINE OF CLINICAL DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
ACTIVITY DESCRIPTION
- -------- -----------
<S> <C>
1. IND FILING IND submitted to Pfizer
(IND Number 48,228)
II. PRODUCT DEFINITION Define the following:
type of dosage form (e.g. spray,
gel, etc.) dose strength, dosing
duration, device characteristics,
and packaging characteristics.
III. FORMULATION DEVELOPMENT Formulation work to assess the nasal
absorption profile of doxylamine
succinate. The Objective is to
develop a formulation that will
achieve A blood level profile of
doxylamine succinate that will result
in an earlier induction of sleep and
possibly reduce the incidence of
"hang over" effects.
IV. LIMITED NASAL TOXICITY Depending upon the matrix of the
STUDIES (OPTIONAL) new formulation(s) developed, a single
dose pre-clinical nasal toxicity trial
may be needed to allow the single dose
testing of the formulation(s) in humans
to assess nasal absorption.
V. HUMAN ABSORPTION SCREEN New Formulations will be screened in
(PILOT PHASE I humans for single dose nasal absorption
CLINICAL TRIAL) profiles under IND Number 48,228.
Four to six healthy volunteers will
be used per formulation group.
</TABLE>
-1-
<PAGE> 20
<TABLE>
<S> <C>
VI. FORMAL Nasal TOXICITY STUDIES Nasal toxicity studies similar to those
done for the IND filing will be
conducted on the formulation selected
for further clinical testing. The study
will be done over a 14 day dosing
period in rats and dogs.
VII. PHASE I CLINICAL TRIAL AND The formulation selected from the
PILOT PHASE II/III CLINICAL screen studies will be evaluated for
TRIAL tolerance, safety, efficacy, and
pharmacokinetic profile in healthy human
volunteers. Number of subjects per
group to be determined based on results
of pilot Phase I clinical. These will
be single dose studies and will include
active (oral) and/or nasal placebo
control groups.
VIII. PHASE II/III CLINICAL TRIALS Two pivotal clinical efficacy trials
against placebo and/or a positive control
will be conducted. Both trials may
include 100 patients. Plan of study and
number of subjects will be discussed
with the FDA at an appropriate time.
IX. NDA FILING Nastech will start compiling all relevant
information from the start of the project
subject to terms and conditions of the
Evaluation and Option Agreement.
</TABLE>
All such studies, clinical evaluations and research shall be conducted
and performed according to all applicable federal, state and local regulations
as well as the Good Laboratory Practices standards. Compliance with all such
regulations and standards shall be the sole responsibility of Nastech.
-2-
<PAGE> 21
EXHIBIT "B"
LICENSE AGREEMENT
AGREEMENT made as of the _____ day of ______, 1997, by
and between the Consumer Health Care Group of Pfizer Inc. (hereinafter referred
to as "Pfizer"), a corporation organized and existing under the laws of the
State of Delaware, having an office at 235 East 42nd Street, New York, New York
10017 U.S.A., and Nastech Pharmaceutical Company Inc. (hereinafter referred to
as "Nastech"), A corporation organized and existing under the laws of the State
of Delaware, having an office at 45 Davids Drive, Hauppauge, New York 11788.
W I T N E S S E T H:
WHEREAS, by an Evaluation and Option Agreement dated as of
_______________ between Nastech and Pfizer, Pfizer obtained an option to
acquire a license under certain Patents and Know-How (as hereinafter defined),
and Pfizer desires to exercise said option;
WHEREAS, Nastech is the owner of and has the right to grant licenses
with respect to certain Patents and Know-How (as hereinafter defined) regarding
certain Products (as hereinafter defined); and
WHEREAS, Nastech wishes to grant to Pfizer an exclusive license to
certain Patents and Know-How to make and have made Products in the Territory
for use and sale in the Territory (as hereinafter defined), and Pfizer wishes
to receive such a license, on the terms and subject to the conditions set forth
herein;
<PAGE> 22
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NOW, THEREFORE, in consideration of the mutual covenants and
agreements provided herein, Pfizer and Nastech hereby agree as follows:
I. DEFINITIONS
For purposes of this Agreement, the following definitions
shall be applicable (it being understood that the terms defined shall include
the singular number in the plural, and the plural number in the singular):
A. "Affiliate" means, with respect to a party, any corporation or
other business entity directly or indirectly controlling, controlled by or
under common control with such party; as used herein, the term "control" means
possession of the power to direct, or cause the direction of the management and
policies of a corporation or other entity whether through the ownership of
voting securities, by contract or otherwise.
B. "FDA" means the United States Food and Drug Administration or
any successor agency thereof.
C. "Patents" means all patents and patent applications in the
Territory which covers the Product and which are now owned or licensed, or
hereafter issued, acquired or licensed during the term of this Agreement, by
Nastech or its Affiliates. A list of such Patents are appended hereto as
Exhibit "A" which is attached hereto and made a part of this Agreement. From
time to time the list may be amended, as required.
<PAGE> 23
-3-
D. "National Commercial Launch" means the first shipment of a
Product by Pfizer or any of its Affiliates or sublicensees on a commercial
basis to a third party, unless the shipment is for the primary purpose of
evaluating consumer acceptance.
E. "Net Sales" shall mean the actual gross invoice price of
products sold by Pfizer, its Affiliates and sublicensees to third parties less,
to the extent included therein, the total of (i) ordinary and customary trade
discounts, (ii) sales and excise taxes, and other similar taxes, customs duty
and compulsory payments to governmental authorities actually paid or deducted
and related to the sale, and (iii) credits given to customers for rejects or
returns of the product.
F. "NDA" means a New Drug Application covering a Product filed
with the FDA pursuant to Paragraph 505 of the United States Federal Food, Drug,
and Cosmetic Act, or any regulations thereunder.
G. "Payment Computation Period" means a three (3) month calendar
quarter ending on the last day of March, June, September or December of a given
year.
H. "Product" means solely and only a method and/or dosage form for
the nasal administration of doxylamine succinate and diphenhydramine
hydrochloride for the purpose of inducing sleep.
I. "Know-How" means all information, including but not limited to
the following: all chemical, pharmacological, safety, toxicological, clinical,
stability, assay, control, packaging, manufacturing, regulatory and marketing
research data and other
<PAGE> 24
-4-
knowledge related to the Product and its components now or hereafter owned by
or in the possession or control of, Nastech during the term of this Agreement,
including any improvements thereto.
J. "Territory" means Worldwide.
K. "Competitive Product" - means all nasally administered dosage
forms of sleep-aids that contain doxylamine succinate or diphenhydramine
hydrochloride or any combination thereof, marketed in the Territory by a third
party.
II. GRANT OF LICENSE
A. Subject to the terms of this Agreement, Nastech hereby grants,
and Pfizer hereby accepts, an exclusive license, including the right to grant
sublicenses, under the Patents and Know-How to make, have made, use and sell
the Products in the Territory.
B. Pfizer acknowledges and agrees that: (i) the use of a
sublicensee shall not relieve Pfizer of any of its obligations, duties or
limitations under this Agreement; (ii) any action or omission of a sublicensee
shall have the same consequence or effect as if such action or omission was
Pfizer's own; and (iii) any sublicense agreement shall contain a
confidentiality obligation, binding on the sublicensee, which is comparable to
the confidentiality provision of this Agreement, at Paragraph VIII.
<PAGE> 25
-5-
III. LICENSE FEES AND ROYALTIES
A. In consideration of the license granted to Pfizer under this
Agreement, Pfizer shall pay to Nastech license fees as follows:
1. a one-time payment of three hundred thousand Dollars
($300,000) upon the execution of this Agreement; and
2. a one-time payment of one hundred-twenty-five thousand
Dollars ($125,000) upon the filing of an NDA for the Product, only if filed on
or before June 30, 1998. In addition, for each full month that the NDA is
filed earlier than June 30, 1998, Pfizer shall pay twenty-five thousand dollars
($25,000) up to a total amount not to exceed one hundred-twenty-five thousand
dollars ($125,000).
3. in addition, subject to the terms of Paragraph III.A.4.,
after the first National Commercial Launch by Pfizer of a Product in a country
in the Territory, Pfizer shall pay to Nastech for the life of the Patent in the
country in the Territory, royalties of nine percent (9%) of Net Sales of
Products if such Products are sold as prescription drugs; or five percent (5%)
of Net Sales of Products if such Products are sold as over-the-counter ("OTC")
drugs. For the Payment Computation Period in which Pfizer's royalty payment
obligation under this Paragraph terminates for any reason, royalty payments
shall be payable only for that portion of the Payment Computation Period during
which Pfizer's royalty obligation is in effect.
<PAGE> 26
-6-
4. notwithstanding anything to the contrary contained in
Paragraph III.A.3. herein, the royalty rate stated in Paragraph III.A.3. shall
be reduced to the following after the first National Commercial Launch by
Pfizer of a Product in a country in the Territory where: (i) there is no
Patent; and (ii) where Competitive Products are marketed: five percent (5%) of
Net Sales of Products if such Products are sold as prescription drugs; three
percent (3%) of Net Sales of Products if such Products are sold as OTC drugs
for the life of the Patent in the United States.
5. in any circumstances where Pfizer is paying royalties on
the Net Sales of Products in any country in the Territory where no patent for
the Products has issued, Pfizer's royalty obligations pursuant to Paragraph
III.A. shall remain in effect only for the life of the Patent in the United
States.
6. the following minimum payments, which are fully creditable
against royalties, shall be paid by Pfizer as follows: twelve (12) months after
first National Commercial Launch in the United States, or twenty-four months
(24) after NDA approval, whichever is later; two-hundred-fifty-thousand Dollars
($250,000); in each full year following the initial payment, there shall be a
payment of two-hundred-fifty-thousand Dollars ($250,000). These minimum
payments shall remain in effect as long as Pfizer's royalty obligations are in
effect.
7. if Pfizer enters into a sub-license that as part of its
terms includes payments (sub-licensing fees) to Pfizer that are fully
creditable against royalties, Pfizer shall pay one-half (1/2)
<PAGE> 27
-7-
of those payments (sub-licensing fees) to Nastech. Such payments shall be
payable by Pfizer to Nastech within ninety (90) days from the date Pfizer
receives payment from its sub-licensee, and such payments shall be fully
creditable against Pfizer's royalty obligations hereunder.
B. Following Pfizer's final royalty payment due in a country under
Paragraph III.A. Pfizer shall be deemed to have an exclusive fully paid-up
irrevocable license, including the right to grant sublicenses, under the
Patents and Know-How to make, have made, use and sell the Products in the
Territory in that country.
C. The parties shall design, undertake and complete any further or
additional clinical studies or research including but not limited to: two
pivotal clinical efficacy trials against placebo and/or a positive control.
Both trials may include 100 patients. The plan of study and number of subjects
will be discussed with the FDA at an appropriate time, and Nastech will compile
all relevant information from the start of the project. Such additional
clinical studies or research shall be completed by Nastech at a total cost to
Pfizer of not to exceed 1.6 million Dollars. To the extent more than two
pivotal clinical efficacy trials are required or the number of participants
substantially exceeds 100 persons per trial, the parties shall negotiate
additional payments in excess of 1.6 million Dollars.
D. Notwithstanding anything to the contrary contained in this
Agreement, Pfizer shall make the sole determination of the
<PAGE> 28
-8-
best regulatory strategy, including clinical development with the advice of
Nastech.
IV. PRODUCT DEVELOPMENT, CLINICAL TESTING AND REGULATORY AFFAIRS
A. The parties shall use reasonable efforts to carry out all
product development, including, without limitation, regulatory and clinical
work, testing or studies relating to Products reasonably required for obtaining
all regulatory approvals needed to import, market, sell or use the Products
within the Territory (collectively "Approval").
B. Pfizer shall use its reasonable efforts to prepare, file,
prosecute and maintain, during the term of this Agreement, all necessary and
appropriate applications, submissions and filings, to the appropriate
governmental authorities, to obtain Approval in each country within the
Territory in which Pfizer decides to commercialize the Product.
C. Nastech shall consult with and assist Pfizer as reasonably
requested concerning the development of Products. Nastech will assist in
making any necessary submissions or filings for Approval within the Territory,
including, without limitation, the provision of such documents and information
as will enable Pfizer to make the submissions or filings, to the extent such
documents or information are in the possession of, or can be reasonably
obtained by, Nastech without incurring material costs. The parties shall meet
at mutually agreed upon intervals to review
<PAGE> 29
-9-
and discuss the progress and/or results of the development work hereunder.
D. If Nastech has, at the request of Pfizer, sought any government
or regulatory approvals for the Products and has received such approvals,
Nastech shall immediately assign such approvals to Pfizer.
E. Pfizer shall use its reasonable efforts to commercialize
Products in the United States within twelve (12) months of receiving final NDA
Approval from the FDA.
V. ADVERSE EVENT REPORTING
Each party agrees to report to the other, within 48 hours from receipt
of the information, any serious adverse event which is reported to occur as a
result of use of the Products. Such events must be reported in as much detail
as possible, whether or not there is proof of a causal connection between the
events and use of the Products. A serious adverse event includes any
experience relating to the Products which is reasonably regarded to be
medically significant. Each party also agrees to provide to the other copies
of all reports that are made to governmental health authorities concerning
material safety, efficacy or quality matters with respect to the Products.
VI. PAYMENT PROCEDURES, RECORDS, AUDITING
<PAGE> 30
-10-
A. Pfizer shall pay to Nastech all fees and royalties as set forth
in Paragraph III. within sixty (60) days after the end of each Payment
Computation Period, and will provide a report identifying the Products, Net
Sales, and the computation of the royalties payable to Nastech.
B. Payments shall be in United States Dollars, remitted to Nastech
at its address specified herein. Any conversion from other currency shall be
made at the exchange rate prevailing at the close of the last business day of
that Payment Computation Period, as published the next day in The Wall Street
Journal.
C. Pfizer shall keep full and accurate books and records setting
forth gross sales, Net Sales and any other information sufficient in detail to
allow the calculation of royalties to be paid by Pfizer. Pfizer shall permit
Nastech, at Nastech's expense (except as otherwise provided in Paragraph
VI.D.), by independent certified public accountants employed by Nastech and
reasonably acceptable to Pfizer, to examine relevant books and records at any
reasonable time, within five (5) years of the rendering of the books and
records. Such accountants shall not disclose to Nastech any of Pfizer's cost
data relating to marketing, distribution or sales.
D. If it is determined that there was an underpayment of royalties
due Nastech, without prejudice to any other rights Nastech may have, Pfizer
shall promptly pay to Nastech the balance of the royalties due. Pfizer shall
also reimburse Nastech for the cost of such verification examination.
<PAGE> 31
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VII. DISCLOSURE OF NEW INFORMATION, DEVELOPMENTS AND IMPROVEMENTS
A. Nastech shall keep Pfizer fully informed of all relevant
information concerning the Products. Toward such end, Nastech shall freely
provide Pfizer with all technical information or other Know-How, trade secrets,
inventions, data, technology and information acquired or developed by Nastech
or its Affiliates during the term of this Agreement, relating to the Products.
B. In connection with the furnishing by Nastech of Know-How,
Nastech agrees, at the request and expense of Pfizer, to (1) allow Pfizer
personnel to visit Nastech's manufacturing and research facilities and to
consult with Nastech personnel at mutually agreeable times, to discuss and
review the Know-How for the purposes contemplated by this Agreement; and (2)
send Nastech personnel to visit Pfizer's manufacturing and research facilities
at mutually agreeable times, to similarly discuss and review such Know-How.
VIII. CONFIDENTIAL INFORMATION
A. During the term of this Agreement and for a period of five (5)
years after expiration or termination hereof, each party shall keep
confidential and not disclose to others or use for any purpose other than as
authorized herein, any confidential information supplied by the other party or
its employees or representatives and identified by the disclosing party as
confidential in writing ("Confidential Information"); provided,
<PAGE> 32
-12-
however, that these obligations of confidentiality and non-use shall not apply
to the extent that the receiving party can establish that information is not
the other party's Confidential Information, including but not limited to
establishing that the information: (i) entered the public domain without the
receiving party's breach of any obligation owed to the disclosing party; (ii)
had become known to the receiving party prior to the disclosure of such
information and that such prior knowledge may be demonstrated by written
documentation; (iii) was permitted to be disclosed by the prior written consent
of the disclosing party; (iv) had become known to the receiving party from a
source other than the disclosing party other than by breach of a
confidentiality obligation owed to the disclosing party and that such prior
knowledge may be demonstrated by written documentation; (v) was disclosed by
the disclosing party to a third party without restrictions on its disclosure;
or (vi) was independently developed by the receiving party without breach of
this Agreement and such prior independent development can be demonstrated by
written documentation. In addition, each party shall have the right to
disclose Confidential Information supplied by the other party to third parties
under a secrecy agreement with essentially the same confidentiality provisions
provided herein, solely in connection with the exercise of its rights under
this Agreement. Further, disclosure may be made by either party to government
agencies to the extent required to secure regulatory approvals, and to
preclinical and clinical investigators when necessary for their
<PAGE> 33
-13-
information in connection with the filing of applications for such approvals.
B. Upon termination of this Agreement the parties shall each, upon
the written request of the other, return or destroy all materials, copies and
extracts obtained from the other party that contain any Confidential
Information, except for one archival copy to be retained by the receiving party
only for the purpose of determining its continuing obligations hereunder.
IX. REDUCTION OF ROYALTIES
Royalties payable by Pfizer to Nastech under Paragraph III. hereof
shall be reduced as follows:
A. In the event of any patent infringement, royalties shall be
reduced as provided in Paragraph X.
B. If Pfizer is required in a country within the Territory, by a
final court order from which no appeal can be taken, to make changes in
Products or to obtain and pay a royalty under a license to a third party under
any patent in order to make, have made, use or sell the Products in that
country, Pfizer's obligations in the country to pay royalties to Nastech shall
be reduced by the amount of the cost to Pfizer for the changes and additional
royalty; provided, however, that no more than one-half (1/2) of any royalties
thereafter due to Nastech in any Payment Computation Period may be offset. Any
credit remaining shall be applied by Pfizer against royalties due in the next
succeeding Payment Computation Periods.
<PAGE> 34
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C. If a third party obtains, by order, decree or grant from a
competent governmental authority in any country in the Territory, a compulsory
license under the Patents authorizing such third party to make, have made, use
or sell any Product in such country, Nastech shall give prompt notice to
Pfizer. During the effective period of such compulsory license, Pfizer's
obligations to pay royalties with respect to Net Sales in such country under
this Agreement shall be no more than the rate payable to Nastech by said third
party.
D. As stated in Paragraph III.A.4.
X. PATENTS
A. Maintenance of Patents
Nastech shall take all reasonable, necessary steps and pay all
necessary expenses to obtain patent protection in the Territory for patentable
inventions conceived or made before or during the term of this Agreement, and
to maintain for the full life thereof all Patents, relating to the Products and
improvements thereto. Pfizer shall have the right, upon consultation with
Nastech, to file on behalf of and as agent for Nastech all applications and
filings, and to take all actions necessary to obtain the benefits under the
Drug Price Competition and Patent Term Restoration Act of 1984 and any
amendments thereto Supplementary Protection Certificates in Europe and Patent
Extensions in Japan. Nastech agrees to sign any authorizations and instruments
and to take any further actions reasonably requested by Pfizer to implement the
foregoing.
<PAGE> 35
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Pfizer hereby agrees to mark the Products with the proper legend
concerning patent coverage, in accordance with the laws of each respective
country within the Territory.
B. Defense of Patent Litigation
If any patent infringement action is brought in a country in the
Territory against Pfizer or its Affiliate or sublicensee because of actual or
anticipated manufacture, use or sale of the Products, Pfizer shall promptly
notify Nastech and send Nastech copies of all papers that have been served.
Nastech shall promptly defend against such infringement action, once notified
by Pfizer. Pfizer shall cooperate with Nastech, and continue to pay to Nastech
any applicable royalties during the pendency of the action and any appeals.
If as a result of such action, Pfizer or its Affiliate or sublicensee
is required to make changes in the Products or make payments to any third
parties, Pfizer can offset such payments against royalty payments otherwise due
to Nastech, as provided in Paragraph IX. of this Agreement.
If Nastech fails to defend such infringement action after being
notified by Pfizer, Pfizer shall have the right but not the obligation to
defend the action itself. If Pfizer does undertake such defense, Nastech shall
cooperate with Pfizer and Pfizer shall be entitled to select counsel. Any
reasonable costs and expenses incurred by Pfizer, including settlement costs,
damages assessed against Pfizer and reasonable outside attorney fees, shall be
<PAGE> 36
-16-
offset against royalty payments otherwise due hereunder, as provided in
Paragraph IX.
C. Response To Infringement Of Patents
By Third Parties
If, during the term of this Agreement, either party becomes aware of
any third party infringement or threatened infringement of any Patent in the
Territory, the following provisions shall apply:
1. The party having such knowledge shall promptly give notice to
the other party, with all available details.
2. Nastech shall have the right, but not the obligation, to bring
suit in its name, or in the name of Pfizer if necessary, at its
own expense to restrain such infringement and to recover profits and
damages. Pfizer agrees to being joined as a party plaintiff and to
cooperate in the prosecution thereof as is reasonably necessary, at
Nastech's expense. If Nastech decides to undertake such suit, then
Nastech shall have the sole right to control prosecution, and the
right to settle and compromise such action with Pfizer's prior written
consent, which shall not be unreasonably withheld.
3. If Nastech fails to take action within [(sixty (60)] days after
becoming aware of such infringement, in the first instance or by
notice from Pfizer, then Pfizer, at any time prior to Nastech
thereafter filing an action, shall have the right but not the
obligation to take such action in its own name or in the name of
Nastech as it deems necessary or appropriate. Nastech shall cooperate
with Pfizer as is
<PAGE> 37
-17-
reasonably necessary in any such action brought by Pfizer. If Pfizer
brings legal action, Pfizer shall have the sole right to control
prosecution, and the right to settle and compromise such action with
Nastech's prior written consent, which shall not be unreasonably
withheld.
4. In the event any monetary recovery in connection with such
infringement action is obtained, such recovery shall be applied in the
following priority: first, to reimburse Nastech and Pfizer by the
proportion and up to the extent of their out-of-pocket expenses
(including reasonable attorneys' fees) in prosecuting such
infringement; second, to be shared by the proportion and up to the
extent of any damages established, including but not limited to
Pfizer's lost profits and Nastech's lost royalties; third, the
balance, if any, to be shared one-half by Nastech and one-half by
Pfizer.
XI. REPRESENTATIONS, WARRANTIES AND COVENANTS
A. Nastech represents, warrants and covenants that:
1. Nastech is a corporation duly organized, existing and in
good standing under the laws of the State of Delaware, with full right, power
and authority to enter into and perform this Agreement and to grant all of the
rights, powers and authorities herein granted.
2. Nastech is and shall be the sole and exclusive owner of
the Product and Patents all of which are and shall be unencumbered by any
liens, security interest or other rights or
<PAGE> 38
-18-
claims of any third party, and no other person or entity has or shall have any
claim of ownership with respect to the Product whatsoever.
3. Making, having made, using or selling the Product in the
Territory does not infringe any patent, or any rights of any third party.
4. The execution, delivery and performance of this Agreement
do not conflict with, violate or breach any agreement to which Nastech is a
party, or Nastech's articles of incorporation or bylaws.
5. This Agreement has been duly executed and delivered by
Nastech and is a legal, valid and binding obligation enforceable against
Nastech in accordance with its terms.
6. Nastech knows of no fact which materially adversely
affects or could materially adversely affect the rights granted to Pfizer under
this Agreement.
7. Nastech represents and warrants the Patents are valid and
believes that the Patents are enforceable.
B. Pfizer represents, warrants and covenants that:
1. Pfizer is a corporation duly organized, existing and in
good standing under the laws of the State of Delaware, with full
right, power and authority to enter into and perform this Agreement
and to grant all of the rights, powers and authorities herein granted.
2. The execution, delivery and performance of this Agreement
do not conflict with, violate or breach any
<PAGE> 39
-19-
agreement to which Pfizer is a party, or Pfizer's certificate of
incorporation or bylaws.
3. This Agreement has been duly executed and delivered by
Pfizer, and is a legal, valid and binding obligation enforceable
against Pfizer in accordance with its terms.
XII. TERM AND TERMINATION
A. This Agreement shall be effective as of the date first set
forth above and shall remain in effect as long as Pfizer is obligated to make
royalty payments to Nastech, unless earlier terminated as provided herein. The
provisions of Paragraphs III.C., IV.A., V., VI., VIII., X.C., XI. and XIII.
hereof shall survive the expiration or termination of this Agreement, except as
otherwise provided herein.
B. At any time after the execution of this Agreement, Pfizer shall
have the right, with or without cause, at Pfizer's sole discretion, to
terminate this Agreement upon ninety (90) days' written notice to Nastech.
C. If either Pfizer or Nastech breaches or defaults in the
performance or observance of any of the material provisions of this Agreement,
and such breach or default is not cured within ninety (90) days after the
giving of notice by the other party specifying such breach or default, the
non-defaulting party shall have the right to terminate this Agreement,
effective without further notice to the defaulting party. The non-defaulting
party shall thereafter be free to seek any and all appropriate remedies.
<PAGE> 40
-20-
D. Except as otherwise provided in this Agreement, upon
termination of this Agreement (unless by Pfizer under Paragraph XII.C.):
1. All rights, privileges and licenses shall terminate and
revert to Nastech, and Pfizer shall not thereafter make any use
whatsoever of any Know-How or Patents.
2. Subject to subparagraph 6. below, Pfizer shall promptly
return or provide to Nastech all Know-How and other similar
information regarding the Products, including any information relating
to the regulatory and clinical work and filings, in connection with
any Approval, not previously supplied to Nastech.
3. Subject to subparagraphs 5. and 6. below, Pfizer shall
promptly transfer or destroy, at Nastech's election, all marketing,
labeling or advertising materials relating to the Products.
4. Pfizer shall promptly execute whatever documents are
necessary and take whatever steps are necessary to transfer to Nastech
or its designee, free of charge except for out-of-pocket expense, all
of Pfizer's, its Affiliates' and sublicensees' right, title and
interest in and to any NDAs and Approvals, including product licenses,
drug identification numbers, or other health registration approvals in
effect in the Territory.
5. Nastech, at its election, shall:
<PAGE> 41
-21-
a. Grant Pfizer sufficient time, but not less than eighteen
(18) months, to sell off its existing stocks of the Products, provided
that Nastech shall continue to receive any royalty payable thereon as
provided in this Agreement; or
b. Purchase from Pfizer, at Pfizer's cost, any stock of
Products held by Pfizer or returned to Pfizer within the following
three (3) months in the normal course of trade.
6. Notwithstanding anything herein to the contrary, Pfizer's
Legal Division shall be entitled to retain one archival copy of all
materials covered by Paragraph VIII., for the sole purpose of
determining Pfizer's ongoing confidentiality obligations.
E. Termination of this Agreement for any reason shall be without
prejudice to and shall not affect the right of either party to recover any and
all damages to which it may be entitled, or exercise any other remedies which
it may otherwise have.
XIII. INDEMNIFICATION
A. Nastech shall at all times during and after the term of this
Agreement be responsible for, and shall defend, indemnify and hold Pfizer
harmless from and against any and all losses, claims, suits, proceedings,
expenses, recoveries and damages, including reasonable legal expenses and
costs, including attorneys' fees, arising out of any claim by a third party
relating to the Product, or any aspect of the performance of this Agreement, to
the extent such liability results from a patent infringement claim or from the
<PAGE> 42
-22-
negligence or willful misconduct Of Nastech, or any breach of a representation
or warranty given herein by Nastech.
B. Pfizer shall at all times during and after the term of this
Agreement be responsible for, and shall defend, indemnify and hold Nastech
harmless from and against any and all losses, claims, suits, proceedings,
expenses, recoveries and damages, including reasonable legal expenses and
costs, including attorneys' fees, arising out of any claim by a third party
relating to the Product or any aspect of the performance of this Agreement, to
the extent such liability results from the negligence or willful misconduct of
Pfizer, or any breach of a representation or warranty given herein by Pfizer.
XIV. BANKRUPTCY
All rights and licenses granted under or pursuant to this Agreement by
Nastech to Pfizer are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the Bankruptcy Code, licenses of rights to "Intellectual
Property" as defined under Section 101(56) of the Bankruptcy Code. The parties
agree that Pfizer, as a licensee of such rights and licenses, shall retain and
may fully exercise all of its rights and elections under the Bankruptcy Code.
The parties further agree that, in the event that any proceeding shall be
instituted by or against Nastech seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to
<PAGE> 43
-23-
bankruptcy, insolvency or reorganization or relief of debtors, or seeking an
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for it or any substantial part of its property or it shall
take any action to authorize any of the foregoing actions (each a
"Proceeding"), Pfizer shall have the right to retain and enforce its rights
under this Agreement, including but not limited to the following rights:
A. the right to a complete duplicate of (or complete access to, as
appropriate) all Patents, Know-How and documentation and other supporting
materials related to the Products, Patents, and Know-How, and all embodiments,
versions and derivatives thereof; the same, if not already in Pfizer's
possession, shall be promptly delivered to Pfizer (i) upon any such
commencement of a Proceeding upon written request therefor by Pfizer, unless
Nastech elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, upon the rejection of this
Agreement by or on behalf of Nastech, upon written request therefor by Pfizer;
and
B. the right to continue to use the Patents, and Know-How and all
versions and derivatives thereof, and all documentation and other supporting
material related thereto, in accordance with the terms and conditions of this
Agreement.
<PAGE> 44
-24-
XV. MISCELLANEOUS
A. Entire Agreement - This Agreement, and Paragraph 3.3 of the
Evaluation and Option Agreement dated ______________, to the extent applicable,
sets forth the entire agreement and understanding between the parties and
supersedes all previous agreements, promises, representations, understandings
and negotiations, whether written or oral, between the parties with respect to
the subject matter hereof; none of the terms of this Agreement shall be amended
or modified except in writing signed by the parties hereto.
B. Assignment - Neither party may assign any right or obligation
hereunder without the written consent of the other party, except if such
assignment arises under a transaction in which the assigning party is selling
its entire business or a line of business to which this Agreement relates or
that party is being acquired or merging with a third party, or if such
assignment is to a Pfizer Affiliate. This Agreement shall be binding upon and
inure to the benefit of the parties' respective successors and assigns. Any
attempted assignment in violation of this provision shall be void and of no
effect.
C. Severability - If and solely to the extent that any provision
of this Agreement shall be invalid or unenforceable, or shall render this
entire Agreement to be unenforceable or invalid, such offending provision shall
be of no effect and shall not affect the validity of the remainder of this
Agreement or any of its provisions; provided, however, the parties shall use
their respective reasonable efforts to renegotiate the offending
<PAGE> 45
-25-
provisions to best accomplish the original intentions of the parties.
D. Waivers - A waiver by either party of any term or condition of
this Agreement in any one instance shall not be deemed or construed to be a
waiver of such term or condition for any similar instance in the future or of
any subsequent breach hereof. All rights, remedies, undertakings, obligations
and agreements contained in this Agreement shall be cumulative and none of them
shall be a limitation of any other remedy, right, undertaking, obligation or
agreement.
E. Further Documents - Each party hereto agrees to execute such
further documents and take such further steps as the other party reasonably
determines may be necessary or desirable to effectuate the purposes of this
Agreement.
F. Compliance With Law - Each party hereto shall comply with all
applicable laws, rules, ordinances, guidelines, consent decrees and regulations
of any federal, state or other governmental authority.
G. Force Majeure - No party shall be liable for failure to perform
or delay in performing obligations set forth in this Agreement, and no party
shall be deemed in breach or default of its obligations, if, to the extent and
for so long as, such failure, delay, breach or default is due to natural
disasters or any similar causes reasonably beyond the control of such party.
Any party desiring to invoke the protection of Force Majeure shall promptly
<PAGE> 46
-26-
notify the other party of such desire and shall use reasonable efforts to
resume performance of its obligations.
H. Governing Law - This Agreement is deemed to have been entered
into in the State of New York, and its interpretation, construction, and the
remedies for its enforcement or breach are to be applied pursuant to and in
accordance with the laws of the State of New York.
I. Notices - Any notice, consent or approval permitted or required
under this Agreement shall be in writing sent by registered or certified
airmail, postage pre-paid, or by overnight courier or by facsimile (confirmed
by mail) and addressed as follows:
If to PFIZER: Pfizer Inc
Consumer Health Care Group
235 East 42nd Street
New York, NY 10017
ATTENTION: President
Consumer Health Care Group
with copy to: General Counsel
Pfizer Inc
235 East 42nd Street
New York, NY 10017
If to Nastech: Nastech Pharmaceutical Company Inc.
45 Davids Drive
Hauppauge, New York 11788
ATTENTION: Dr. Vincent D. Romeo,
President
with a copy to: Bruce R. Thaw, Esq.
45 Banfi Plaza
Farmingdale, New York 11735
All notices shall be deemed to be effective on the date of mailing. In case any
party changes its address at which notices are to be
<PAGE> 47
-27-
received, written notice of such change shall be given as soon as practicable
to the other party.
J. Headings - Headings in this Agreement are included for ease of
reference only and shall have no legal effect.
K. Relationship of the Parties - The relationship hereby
established between Pfizer and Nastech is solely that of independent
contractors; this Agreement shall not create an agency, partnership, joint
venture or employer/employee relationship, and nothing hereunder shall be
deemed to authorize either party to act for, represent or bind the other except
as expressly provided in this Agreement.
L. Publicity - Nastech shall not issue any press release or other
publicity materials, or make any presentations with respect to the existence of
this Agreement or the terms and conditions hereof without the prior written
consent of Pfizer. Nastech, however, may make disclosures required by the
Securities Act of 1933, as amended, and the Securities and Exchange Act of
1934, with prior written consent of Pfizer, which shall not be unnecessarily
withheld.
M. Additional Opportunities - Nastech shall negotiate exclusively
with Pfizer, in good faith, for a period of four months, the terms of a license
agreement for a method and/or dosage form for the nasal administration of an
OTC substance, drug or product for the purpose of alleviating motion sickness.
An equity investment in Nastech will be considered by Pfizer, a significant
<PAGE> 48
-28-
portion of which would be dedicated to the project, if such an investment were
made.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above by their duly authorized
officers.
PFIZER INC NASTECH PHARMACEUTICAL
CONSUMER HEALTH CARE GROUP COMPANY INC.
By: By:
---------------------------- ----------------------------
<PAGE> 49
EXHIBIT "A"
NASTECH PATENTS
U.S. PATENTS
United States Patent No. 4,749,700
FOREIGN PATENTS
*Austrian Patent No. 75400
*Australian Patent No. 8550638
*Australian Patent No. 8815061
*Australian Patent No. 596741
*Brazilian Patent No. 8507008
*Canadian Patent No. 1265056
*Canadian Patent No. 1309023
*German Patent No. 358952
*European Patent No. 201537
*Japanese Patent No. 95010771
*Japanese Patent No. 62500589
*Subject to verification of claim coverage.
<PAGE> 50
EXHIBIT "C"
NASTECH PATENTS
U.S. PATENTS
United States Patent No. 4,749,700
FOREIGN PATENTS
*Austrian Patent No. 75400
*Australian Patent No. 8550638
*Australian Patent No. 8815061
*Australian Patent No. 596741
*Brazilian Patent No. 8507008
*Canadian Patent No. 1265056
*Canadian Patent No. 1309023
*German Patent No. 358952
*European Patent No. 201537
*Japanese Patent No. 95010771
*Japanese Patent No. 62500589
*Subject to verification of claim coverage.
-3-
<PAGE> 51
EXHIBIT "D"
PRESS RELEASE
NASTECH ENTERS INTO DRUG DEVELOPMENT PACT
Hauppauge, NY (-date-) Nastech Pharmaceutical Company Inc. (NASDAQ NSTK) today
announced that it has entered into a drug development agreement with a
multi-national healthcare company.
Nastech is developing a new formulation for a convenient nasal delivery route
of administration and has filed an Investigational New Drug (IND) application
with the U.S. Food and Drug Administration.
The initial phase of this agreement, signed yesterday, covers pre-clinical
studies and the initial Phase I clinical testing. Additional payments may be
made to Nastech following successful Phase I trials and with a continued
commitment to move forward in clinical testing. If milestones are met and a
New Drug Application is filed with FDA, the parties will enter into a licensing
agreement. Today's agreement also includes a provision to negotiate possible
further alliances for other compounds in a separate product category.
"We are extremely pleased to be working with a leading healthcare company in
the development of a nasally delivered dosage forms," commented Dr. Vincent D.
Romeo, President and Chief Executive Officer of Nastech. "Our work to date
-4-
<PAGE> 52
points to a faster rate of absorption of nasally administered drugs than an
oral formulation."
Nastech's agreement follows last month's announcement by the company that it
has entered into an agreement with Ciba-Geigy Corporation to begin work on a
nasal formulation of nicotine for smoking cessation.
Nastech Pharmaceutical Company specializes in developing new formulations of
widely-used compounds that are safe and effective when delivered transnasally.
For many patients and products, the nasal route of delivery offers significant
advantages over oral or injected medications; absorption is rapid, resulting in
swift onset of therapeutic activity, nasally administered drugs tend to avoid
liver firstpass and gastrointestinal metabolism, allowing for potentially lower
dosages which can lead to reduced adverse side effects; additionally, patients
are able to treat themselves at home, thereby saving the time and expense of
receiving injections by a health care professional.
In addition to this agreement, Nastech has agreements with Bristol-Myers Squibb
Company for the nasal delivery of butorphanol tartrate, currently marketed as
Stadol(R) NS(TM), a potent pain relief medication; DuPont Merck Pharmaceutical
Company for nasal delivery of nalbuphine, a narcotic analgesic; Ciba-Geigy
-5-
<PAGE> 53
Corporation for nasally delivered nicotine; and with Ribogene, Inc., for
intranasal delivery of metoelpramide, for nausea and emesis following
chemotherapy treatment, and propranolol, for the treatment of migraine headache
pain.
Nastech Pharmaceutical Company Inc., based in Hauppauge, New York, is a
research and development company focused exclusively on developing nasal
formulations of widely-used pharmaceuticals. The company has been issued and
has pending patents in the U.S. and internationally on nasal delivery
formulations of a portfolio of pharmaceuticals. These include narcotic
analgesics, antinauseant/antiemetics, beta blockers and anti-anemia
pharmaceutical products.
# # #
-6-
<PAGE> 1
EXHIBIT 10.13
Execution Copy
DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
DYNAGEN, INC.
AND
NASTECH PHARMACEUTICAL COMPANY INC.
DECEMBER 30, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I - DEFINITIONS...........................................................................................4
1.1 AFFILIATE..................................................................................................4
1.2 DEVELOPMENT PROGRAM........................................................................................4
1.3 FIELD OF USE...............................................................................................5
1.4 GROSS PAYMENTS.............................................................................................5
1.5 KNOW-HOW...................................................................................................5
1.6 LICENSED PRODUCTS..........................................................................................5
1.7 NET SALES..................................................................................................5
1.8 PATENT RIGHTS..............................................................................................5
1.9 NICERASE TECHNOLOGY........................................................................................6
1.10 NASTEC TECHNOLOGY.........................................................................................6
ARTICLE II - GRANT OF LICENSES....................................................................................6
2.1 EXCLUSIVE LICENSE TO LICENSED PRODUCTS.....................................................................6
2.2 NO RIGHTS BY IMPLICATION OR ESTOPPEL.......................................................................6
2.3 GRANT OF SUBLICENSES.......................................................................................6
ARTICLE III - ROYALTIES; REPORTS AND RECORDS......................................................................6
3.1 ROYALTY PAYMENTS...........................................................................................6
3.2 PAYMENT OF ROYALTIES.......................................................................................7
3.3 RECORDS AND AUDIT..........................................................................................7
3.4 QUARTERLY REPORTS OF ROYALTIES.............................................................................7
3.5 OVERDUE PAYMENTS...........................................................................................7
3.5 Reimbursement of Development Expenses......................................................................8
ARTICLE IV - DEVELOPMENT PROGRAM; TECHNOLOGY TRANSFER;
OWNERSHIP.........................................................................................................8
4.1 DEVELOPMENT PROGRAM........................................................................................8
4.2 DEVELOPMENT COSTS..........................................................................................8
4.3 DEVELOPMENT REPORTS........................................................................................8
4.4 TRANSFER OF TECHNOLOGY; TECHNICAL ASSISTANCE; DEVELOPMENT REPORTS..........................................8
4.5 EXCHANGE OF INFORMATION....................................................................................9
4.6 OWNERSHIP OF LICENSEE'S INVENTIONS.........................................................................9
4.7 OWNERSHIP OF DYNAGEN' INVENTIONS...........................................................................9
4.8 JOINT INVENTIONS...........................................................................................9
ARTICLE V - PATENT PROSECUTION....................................................................................9
5.1 DYNAGEN'S RESPONSIBILITY FOR PATENT PROSECUTION...........................................................10
5.2 PAYMENT OF FEES...........................................................................................10
5.3 RIGHT OF LICENSEE TO PROSECUTE PATENT APPLICATIONS........................................................10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VI - INFRINGEMENT........................................................................................10
6.1 NOTICE OF ALLEGED INFRINGEMENT............................................................................10
6.2 INFRINGEMENT OF NICERASE TECHNOLOGY.......................................................................11
ARTICLE VII - INDEMNIFICATION AND REPRESENTATIONS................................................................11
7.1 INDEMNIFICATION...........................................................................................11
7.2 LIABILITY INSURANCE.......................................................................................12
7.3 REPRESENTATIONS RE ORGANIZATION; CORPORATE ACTION; NO CONFLICTS...........................................12
7.4 DYNAGEN'S REPRESENTATIONS AND WARRANTIES..................................................................12
7.5 LIMITATION OF LIABILITY...................................................................................12
ARTICLE VIII - CONFIDENTIALITY AND NON-DISCLOSURE................................................................13
8.1 CONFIDENTIAL TREATMENT OF INFORMATION.....................................................................13
8.2 DISCLOSURE REQUIRED BY LAW OR REGULATION..................................................................14
8.3 DISCLOSURE OF KNOW-HOW, ETC...............................................................................14
8.4 SURVIVAL OF CONFIDENTIALITY OBLIGATIONS...................................................................14
ARTICLE IX - ASSIGNMENT..........................................................................................14
9.1 ASSIGNMENT................................................................................................15
ARTICLE X - TERM AND TERMINATION.................................................................................15
10.1 TERM.....................................................................................................15
10.2 MUTUAL TERMINATION.......................................................................................15
10.3 TERMINATION FOR OVERDUE PAYMENTS.........................................................................15
10.4 TERMINATION FOR MATERIAL BREACH OR DEFAULT...............................................................15
10.5 TERMINATION FOR FAILURE TO MEET DEVELOPMENT PROGRAM.....................................................15
10.5 TERMINATION FOR CONVENIENCE..............................................................................16
10.7 RIGHTS UPON TERMINATION..................................................................................16
10.8 SURVIVAL OF SPECIFIED OBLIGATIONS........................................................................16
ARTICLE XI - PAYMENTS, NOTICES...................................................................................16
11.1 NOTICES..................................................................................................16
ARTICLE XII - MISCELLANEOUS PROVISIONS...........................................................................17
12.1 GOVERNING LAW............................................................................................17
12.2 ENTIRE AGREEMENT; MODIFICATION...........................................................................17
12.3 NO WAIVER................................................................................................17
12.4 COUNTERPARTS.............................................................................................17
12.5 INDEPENDENT CONTRACTORS..................................................................................17
12.6 PATENT MARKINGS..........................................................................................17
12.7 ARBITRATION..............................................................................................18
12.8 SEVERABILITY.............................................................................................18
</TABLE>
<PAGE> 4
EXHIBITS
- --------
Exhibit A Patents
Exhibit B Press Release
Exhibit C Development Program
<PAGE> 5
- 4 -
DEVELOPMENT AND LICENSE AGREEMENT
This Agreement is made and entered into this 30th day of December, 1996
(the "Effective Date"), by and between DYNAGEN, INC., a corporation duly
organized and existing under the laws of the State of Delaware and having its
principal office at 99 Erie Street, Cambridge, Massachusetts 02130 U.S.A.
(hereinafter referred to as "DynaGen"), and NASTECH PHARMACEUTICAL COMPANY INC.,
a corporation duly organized and existing under the laws of Delaware and having
its principal office at 45 Davids Drive, Hauppauge, New York, 11788 U.S.A.
("Licensee").
WITNESSETH
WHEREAS, DynaGen owns all right, title and interest in and to certain
United States and foreign patents and patent applications relating to lobeline
and its application as a smoking cessation agent as set forth on Exhibit A,
attached hereto (the "Patents");
WHEREAS, DynaGen has the right to grant licenses under the Patents and
rights relating thereto and desires to grant to Licensee rights to use the
Patents and certain rights relating thereto as hereinafter set forth; and
WHEREAS, Licensee desires to obtain such licenses and commence the
Development Program (as hereinafter defined) upon the terms and conditions
hereinafter set forth in order to commercially introduce products for smoking
cessation which will be nasally administered;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meanings:
1.1 AFFILIATE means any corporation, company, partnership, joint
venture or firm which controls, is controlled by or is under common control with
Licensee or DynaGen, as the case may be. For purposes of this definition,
"control" shall mean (a) in the case of corporate entities, direct or indirect
ownership of at least fifty percent (50%) of the stock or shares entitled to
vote for the election of directors; and (b) in the case of non-corporate
entities, direct or indirect ownership of at least fifty percent (50%) of the
equity interest with the power to direct the management and policies of such
non-corporate entities.
1.2 DEVELOPMENT PROGRAM shall mean the development program, as set
forth on Exhibit C, to be undertaken by the Licensee with respect to the
NicErase Technology, as amended from time to time by mutual agreement of DynaGen
and the Licensee.
<PAGE> 6
- 5 -
1.3 FIELD OF USE shall mean the treatment of nicotine addiction
including reduction in tobacco withdrawal symptoms by delivery of Lobeline
and/or its salts via the nasal membrane.
1.4 GROSS PAYMENTS shall mean the gross amount received by Licensee or
its Affiliates with respect to the grant of development, distribution, marketing
rights, sublicense or other rights with respect to the NicErase Technology to
any third party, including without limitation any royalty payments, upfront
royalty payments and milestone payments. Gross payments shall not include any
amounts received by Licensee as reimbursement of research and development
expenses incurred by Licensee.
1.5 KNOW-HOW shall mean any and all proprietary know-how or other
confidential scientific or technical information of DynaGen, or licensed to
DynaGen, not in the public domain, relating to DynaGen's proposed NicErase
product whether or not patentable, and including but not limited to any and all
data, techniques, inventions, tests, reports, procedures, processes, methods,
models, manuals, formulae, specifications, results, experiments, samples,
statistics, records, tables, operating conditions and test analyses relating
thereto.
1.6 LICENSED PRODUCTS shall mean any product manufactured or otherwise
produced under or using any of the NicErase Technology for sale in the Field of
Use.
1.7 NET SALES shall mean the gross amount invoiced by Licensee, its
Affiliates or sublicensees on sales of the Licensed Products less the sum of the
following:
(a) customary trade, quantity or cash discounts and
non-affiliated brokers' or agents' commissions actually allowed and taken;
(b) amounts repaid or credited by reason of rejection or
return; and
(c) to the extent separately stated on purchase orders,
invoices or other documents of sale, charges made for transportation or delivery
and taxes levied on and/or other governmental charges made as to production,
sale, transportation, delivery or use if such taxes are paid by or on behalf of
Licensee.
Net Sales shall not include any transfer between Licensee or any of its
Affiliates or sublicensees but shall include the resale from an Affiliate or
sublicensee to an independent third party.
No deductions or offsets shall be made against Net Sales for
commissions paid to employees of Licensee, its Affiliates or sublicensees, cost
of collections or bad debts.
1.8 PATENT RIGHTS shall mean the following:
(a) the patent applications and any patents which issue from
the patent applications set forth on Exhibit A, and any patents or patent
applications which embody any of the Know-How and any continuations, divisions
or continuations-in-part of the foregoing patents or patent applications, and
any and all foreign counterparts of any of the foregoing; and
(b) any reissues, reexaminations or extensions of the patents
or patent applications described in clause (a) above.
<PAGE> 7
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1.9 NICERASE TECHNOLOGY shall mean the Patent Rights and the Know-How.
1.10 NASTECH TECHNOLOGY shall mean the development expertise and
know-how for the systemic delivery of lobeline and/or its salts via absorption
through the nasal membrane.
ARTICLE II - GRANT OF LICENSES
2.1 EXCLUSIVE LICENSE TO LICENSED PRODUCTS. DynaGen hereby grants to
Licensee and its Affiliates (i) an exclusive, worldwide license, with the right
to sublicense as set forth in Section 2.3 (subject to Article IX hereof), to
make, have made, develop, use, promote, market, distribute and sell the Licensed
Products solely within the Field of Use under and using or incorporating any of
the NicErase Technology; and (ii) an exclusive right to use, practice and
enhance the NicErase Technology solely for internal purposes.
2.2 NO RIGHTS BY IMPLICATION OR ESTOPPEL. Nothing contained in this
Agreement shall be construed to confer upon Licensee or its Affiliates or
sublicensees any license rights not expressly granted to Licensee and its
Affiliates under this Agreement.
2.3 GRANT OF SUBLICENSES. Licensee may, upon thirty (30) days prior
written notice to DynaGen, grant sublicenses to third parties with respect to
the development, manufacture, distribution or sale of the Licensed Products,
provided that: (i) the licenses granted to such sublicensee are not inconsistent
with the licenses granted to Licensee under this Article II; (ii) each
sublicensee executes a sublicense agreement which contains confidentiality
provisions on substantially the same terms as set forth herein; and (iii)
Licensee forwards to DynaGen a copy of each sublicense agreement and a
certification by an officer of Licensee that they have complied with clauses (i)
and (ii) above and such sublicense does not violate Section 2.1 hereof.
ARTICLE III - ROYALTIES; REPORTS AND RECORDS
3.1 ROYALTY PAYMENTS. For the rights, privileges and licenses granted
pursuant to Article II hereof, Licensee shall pay royalties to DynaGen (i) in
the event of a sublicense to a third party, equal to fifty (50%) percent of the
Gross Payments received by Licensee or its Affiliates, and (ii) if Licensee or
its Affiliates markets and sell Licensed Products for its their own account, a
royalty equal to ten percent (10%) of Net Sales of Licensed Products.
3.2 PAYMENT OF ROYALTIES. Royalty payments under Section 3.1 shall be
paid within forty-five (45) days of the last business day of each calendar
quarter, in arrears, by bank or cashier's check or other immediately available
funds in United States dollars in Cambridge, Massachusetts, or at such other
place as DynaGen may reasonably designate to Licensee in writing consistent with
the laws and regulations controlling in any foreign country. If any currency
conversion shall be required in connection with the payment of royalties under
Section 3.2, such conversion shall be made by using the average of the official
exchange rate announced by The First National Bank of Boston on the last
business day of each calendar month of the quarterly period to which such
royalty payments relate.
3.3 RECORDS AND AUDIT. Licensee and its Affiliates shall keep full,
true and accurate books of account containing all particulars that may be
necessary for the purpose of
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showing the amounts payable to DynaGen hereunder. Such books of account shall be
kept at Licensee's principal place of business or the principal place of
business of the appropriate Affiliate of Licensee to which this Agreement
relates. Such books and the supporting data shall be open, at all reasonable
times and upon reasonable notice during the term of this Agreement and for two
(2) years after its termination, to the inspection of a firm of certified public
accountants selected by DynaGen and acceptable to Licensee, which consent shall
not be unreasonably withheld (the cost of which is to be paid by DynaGen), for
the purpose of verifying Licensee's royalty statements; provided, however, that
such examination shall not take place more often than once each calendar year
and shall not cover more than the preceding three (3) years, with no right to
audit any period previously audited. In the event that any such inspection
reveals a deficiency in excess of 5% of the reported royalty for the period
covered by the inspection, Licensee shall promptly pay DynaGen the deficiency,
plus interest, and shall reimburse DynaGen for the fees and expenses paid to
such accountants in connection with their inspection. The parties agree that
neither party shall be required to retain books and records with respect to the
above other than books and records relating to the current calendar year and the
immediately preceding three (3) calendar years.
3.4 QUARTERLY REPORTS OF ROYALTIES. Licensee shall within forty-five
(45) days after the end of each calendar quarter, deliver to DynaGen true and
accurate reports, certified by an authorized official of Licensee, giving such
particulars of the business conducted by Licensee during the preceding
three-month period under this Agreement as shall be pertinent to a royalty
accounting hereunder. Such reports shall include the following: Gross Payments
or Net Sales, as applicable; total royalties due; and if any currency conversion
is required, a copy of the official exchange rate under Section 3.2, as
applicable. If no royalties shall be due, Licensee shall so report.
3.5 OVERDUE PAYMENTS. The royalty payments set forth in this Agreement
shall, if overdue, bear interest until payment at a per annum rate equal to one
and a half percent (1-1/2%) above the prime rate in effect at The First National
Bank of Boston on the due date, not to exceed the maximum permitted by law. The
payment of such interest shall not preclude DynaGen from exercising any other
rights it may have as a consequence of the lateness of any royalty payment.
3.6 REIMBURSEMENT OF DEVELOPMENT EXPENSES. In the event that DynaGen
licenses the NicErase Technology to a third party outside of the Field of Use,
then DynaGen agrees to reimburse the Licensee for its documented expenses
incurred in connection with the Development Program in an amount not to exceed
$500,000. DynaGen shall only be required to make such payments to the Licensee
to the extent that DynaGen actually receives royalty payments (not including any
milestone or similar payments) from such third party and then so only at a rate
of twenty five (25%) percent of the royalties received.
ARTICLE IV - DEVELOPMENT PROGRAM; TECHNOLOGY TRANSFER;
OWNERSHIP
4.1 DEVELOPMENT PROGRAM. Licensee shall promptly commence the
Development Program with respect to the NicErase Technology and Licensee and
DynaGen agree to use their respective best efforts individually and jointly to
effect introduction of Licensed Products (through third parties) into the
commercial market as soon as practicable consistent with the requirements of the
Development Program and sound and reasonable business practices and
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judgment. The parties agree to cooperate with each other in all respects in
connection with the license or transfer of rights to the Licensed Products to
any third party for commercial introduction.
4.2 DEVELOPMENT COSTS. Licensee will bear the cost of and be
responsible for the Development Program, including without limitation completing
any formulations, preclinical animal studies and limited human studies (solely
for safety and absorption studies). DynaGen will provide Licensee with any and
all preclinical and clinical data generated by DynaGen as part of DynaGen's
development of the NicErase Technology. Licensee shall be free to use such data
and information solely for the purpose of developing and marketing the Licensed
Products in the Field of Use.
4.3 DEVELOPMENT REPORTS. Licensee shall prepare and submit to DynaGen,
on a quarterly basis, reports which set forth in reasonable detail the progress
of the Development Program and the results of work performed thereunder during
the preceding quarter.
4.4 TRANSFER OF TECHNOLOGY; TECHNICAL ASSISTANCE; DEVELOPMENT REPORTS.
(a) DynaGen will disclose to Licensee in written form, and Licensee agrees to
acknowledge receipt thereof, all information necessary to practice the NicErase
Technology in connection with the development and manufacture of the Licensed
Products and will disclose any additional information in its possession which is
reasonably necessary or helpful to the practice of the NicErase Technology.
(b) DynaGen agrees to provide reasonable technical assistance to
Licensee to assist Licensee in the development of the Licensed Products.
Licensee shall reimburse DynaGen for labor and material costs incurred by
DynaGen at Licensee's written request. DynaGen's employees time shall be billed
at $80 per hour for scientists and $160 per hour for management personnel (that
is only Messrs. Muni, Schneider, Mione and Olssen) and shall be due within
thirty (30) days of receipt of invoice by Licensee.
4.5 EXCHANGE OF INFORMATION. DynaGen and Licensee will freely share
technical information in the Field of Use which is not subject to restrictions
imposed by a third party on disclosure to or use by the other party. Licensee
will enable DynaGen to review the ongoing development being conducted under the
Development Program and to discuss that information with its officers, all at
such reasonable times and as often as may be reasonably requested. DynaGen and
Licensee will seek to form a committee or such other body, when appropriate, to
coordinate development activities between Licensee, DynaGen and any
sublicensees.
4.6 OWNERSHIP OF LICENSEE'S INVENTIONS. Licensee shall be the sole and
exclusive owner of all intellectual property rights with respect to all
technology, ideas, inventions, information and technical data that is developed,
created, conceived, fixed in any tangible medium of expression or first reduced
to practice by Licensee and its personnel during the performance of the
Agreement.
4.7 OWNERSHIP OF DYNAGEN' INVENTIONS. DynaGen shall be the sole and
exclusive owner of all intellectual property rights with respect to all
technology, ideas, inventions, information and technical data that is developed,
invented, created, conceived, fixed in any tangible medium of expression or
first reduced to practice by DynaGen and its personnel during the performance of
the Agreement.
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4.8 JOINT INVENTIONS.
(a) OWNERSHIP. All discoveries, improvements, inventions and trade
secrets, created or made in the performance of this Agreement jointly by
employees of Licensee and by employees of DynaGen relating to the subject matter
of this Agreement shall be the joint property of DynaGen and Licensee, each
party having an equal and undivided one-half (1/2) interest therein.
(b) PROSECUTION AND MAINTENANCE. In the case of each discovery,
improvement, invention, or trade secret jointly developed by DynaGen and
Licensee in accordance with the immediately preceding paragraph, the parties
shall determine in each case which party shall file patent and other
intellectual property right applications. The parties shall cooperate to decide
which party shall be responsible to prepare and file any patent application for
the Joint Technology and the non-filing party shall have the opportunity to
review and make suggestions with respect to any filing. Each party, at its own
expense, shall cooperate fully with the filing party as may be necessary for the
proper preparation, filing and prosecution of each such application and the
maintenance, renewal and defense of each patent or other intellectual property
right covering such jointly-developed discovery, improvement, invention or trade
secret. The expense for preparing, filing and prosecuting each joint
application, and for issuance of the relevant patent or other intellectual
property right, shall be shared equally between the parties.
ARTICLE V - PATENT PROSECUTION
5.1 DYNAGEN'S RESPONSIBILITY FOR PATENT PROSECUTION. As between DynaGen
and Licensee, DynaGen shall be responsible for and retain sole discretion over
the prosecution, filing and maintenance of all patents and applications arising
from the Patent Rights and DynaGen shall provide a copy of all relevant
correspondence relating thereto to Licensee. Nothing contained herein shall be
construed to require DynaGen to prosecute, file or maintain in any jurisdiction
any patent or application arising under the Patent Rights.
5.2 PAYMENT OF FEES. Except as set forth in Section 5.3 below, payment
of all fees and costs relating to the filing, prosecution, and maintenance of
the Patent Rights shall be the responsibility of DynaGen.
5.3 RIGHT OF LICENSEE TO PROSECUTE PATENT APPLICATIONS. If DynaGen
elects not to seek or continue to seek, use or maintain patent protection on any
of the Patent Rights, Licensee shall have the right, at its sole expense, to
file, procure or maintain in such countries patents included within the Patent
Rights and Licensee shall provide a copy of all relevant correspondence relating
thereto to DynaGen. DynaGen agrees to advise Licensee in a timely manner of its
decision not to pursue patent protection on any of the Patent Rights in order to
allow Licensee to protect its rights under this Section 5.3. If DynaGen elects
not to file a patent application or application for certificate of invention,
not to maintain a patent or certificate of invention, or to abandon a pending
patent application or application for a certificate of invention, Licensee shall
have the right, at the sole expense of Licensee (provided that Licensee may off
set any such costs against any payments due DynaGen in accordance with Section
3.1 hereof), of filing such application, maintaining such patent or certificate
of invention or continuing to attempt to obtain protection on the subject matter
disclosed in such pending application;
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provided, however, that in connection with the foregoing Licensee: (i) shall
notify DynaGen as required by Section 8.1(e); and (ii) shall not include in such
patent application any more of the Know-How than is required to be disclosed by
any patent examining authority or than DynaGen has previously included in a
patent application (where such patent application was or is required to be
published by any patent examining authority). In the event Licensee determines
to disclose any additional Know-How in such patent application, Licensee and
DynaGen shall mutually agree to the extent of Know-How to be disclosed in such
patent application and if the parties cannot agree, such dispute shall be
submitted to arbitration pursuant to Section 12.7 hereof. Each party shall sign
or use its best efforts to have signed all legal documents necessary to file and
prosecute patent applications or applications for certificates of invention or
to obtain or maintain patents or certificates of invention at no charge to the
other party.
ARTICLE VI - INFRINGEMENT
6.1 NOTICE OF ALLEGED INFRINGEMENT. Each Party shall inform the other
party promptly in writing of (i) any alleged or suspected infringement of the
Patent Rights by a third party, or (ii) any unauthorized use or misappropriation
of the Know-How by a third party of which it becomes aware, and shall provide
the other party with any available evidence thereof.
6.2 INFRINGEMENT OF NICERASE TECHNOLOGY.
(a) During the term of this Agreement, as between DynaGen and Licensee,
DynaGen shall have the first right, but shall not be obligated, to defend or
prosecute at its own expense all infringements of the Patent Rights or any
misappropriation of the Know-How relating to the Licensed Products. DynaGen
shall have the sole and exclusive right to select counsel and shall pay all
expenses including without limitation, attorney's fees and court costs and
DynaGen shall keep any recovery or damages for past infringement or
misappropriation derived therefrom. At DynaGen's request, Licensee shall offer
reasonable assistance to DynaGen subject to reimbursement of Licensee by DynaGen
of reasonable out-of-pocket expenses incurred in rendering such assistance.
(b) In the event that DynaGen elects not to defend or initiate an
infringement or other appropriate suit pursuant to this Section 6.2 with respect
to the NicErase Technology, DynaGen shall promptly advise Licensee of its intent
not to defend or initiate such suit, and Licensee shall have the right, at the
sole expense of Licensee, of defending or initiating an infringement or other
appropriate suit or proceeding against any third party who at any time has
infringed, or is suspected of infringing, any of the Patents Rights or of using
without proper authorization all or any portion of the Know-How relating to the
Licensed Products. In exercising its rights pursuant to this Section 6.2,
Licensee shall have the sole and exclusive right to select counsel and shall pay
all expenses of the suit including without limitation attorneys' fees and court
costs, and the parties agree that Licensee shall be entitled to receive and
retain fifty (50%) percent, and DynaGen fifty (50%) percent of any damages,
license fees, royalties, settlement fees or other consideration received in such
proceeding after reimbursement of reasonable out-of-pocket costs to Licensee and
DynaGen. If necessary, DynaGen shall join as a party to the suit but shall be
under no obligation to participate except to the extent that such participation
is required as a result of being a named party of the suit. At Licensee's
request, DynaGen shall offer reasonable assistance to Licensee subject to
reimbursement of reasonable out-of-pocket expenses incurred in rendering such
assistance. DynaGen shall have the right to participate and be represented in
any such suit by its own counsel at its own expense. Neither
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DynaGen or Licensee shall settle any proceeding in which either party is a
defendant without the written consent of the other party hereto or which
settlement contains the unconditional release and discharge of such other party.
ARTICLE VII - INDEMNIFICATION AND REPRESENTATIONS
7.1 INDEMNIFICATION. (a) Licensee shall defend, indemnify and hold
harmless DynaGen from and against all losses, liabilities and expenses
(including reasonable attorneys' fees) for (i) personal injury or property
damage to a third party arising out of the use of the Licensed Products
manufactured or marketed by Licensee, its Affiliates or sublicensees provided
the claim for such loss, liability and expense is based upon product liability
or negligence of Licensee, its Affiliates or sublicensees in the manufacture or
marketing of such Licensed Product or (ii) any suit or proceeding brought
against DynaGen insofar as such suit or proceeding is based on a claim that the
Nastech Technology incorporated into or made a part of the Licensed Products
constitutes an infringement of any United States patent, copyright, trade secret
or other intellectual property right of any person other than DynaGen or
Licensee. DynaGen shall give Licensee prompt written notice of any such claim.
Licensee shall be entitled to assume complete control of the defense of such
claim. DynaGen shall render such assistance to Licensee as may be reasonably
requested by Licensee and Licensee shall reimburse DynaGen for its reasonable
out-of-pocket expenses incurred in rendering such assistance.
(b) DynaGen shall defend, indemnify and hold harmless Licensee from and
against all losses, liabilities and expenses (including reasonable attorneys'
fees) for any suit or proceeding brought against Licensee insofar as such suit
or proceeding is based on a claim that the NicErase Technology constitutes an
infringement of any United States patent, copyright, trade secret or other
intellectual property right of any person other than DynaGen or Licensee.
Licensee shall give DynaGen prompt written notice of any such claim. DynaGen
shall be entitled to assume complete control of the defense of such claim.
Licensee shall render such assistance to DynaGen as may be reasonably requested
by DynaGen and DynaGen shall reimburse Licensee for its reasonable out-of-pocket
expenses incurred in rendering such assistance.
7.2 LIABILITY INSURANCE. In the event that the Licensee manufactures or
markets Licensed Products, then prior to the manufacture or introduction of such
License Products, Licensee shall obtain and carry in full force and effect
product liability insurance in the amount of $1,000,000 per occurrence,
$2,000,000 in the aggregate.
7.3 REPRESENTATIONS RE ORGANIZATION; CORPORATE ACTION; NO CONFLICTS.
Each of DynaGen and Licensee severally represents and warrants that it is a duly
organized and validly existing corporation under the laws of its jurisdiction of
incorporation, and has taken all required corporate action to authorize the
execution, delivery and performance of this Agreement; it has the full right,
power and authority to enter into this Agreement and perform all of its
obligations hereunder; the execution and delivery of this Agreement and the
consummation of the transactions contemplated herein do not violate, conflict
with, or constitute a default under its charter or similar organizational
document, its by-laws or the terms or provisions of any material agreement or
other instrument to which it is a party or by which it is bound, or any order,
award, judgment or decree to which it is a party or by which it is bound; and
upon execution and delivery, this Agreement will constitute the legal, valid and
binding obligation of it.
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7.4 DYNAGEN'S REPRESENTATIONS AND WARRANTIES. DynaGen hereby represents
and warrants that as of the Effective date (i) to its knowledge the use or
practice of the NicErase Technology does not infringe any patent right or other
intellectual property right owned by any third party, (ii) DynaGen is the sole
record and beneficial owner of the Patent Rights and (iii) that DynaGen has not
granted any other licenses or rights of any kind in the NicErase Technology to
any third party. The parties expressly acknowledge, however, that DynaGen does
not warrant the actual enforceability of any patent or patent application which
may be a part of the Patent Rights or Know-How nor does DynaGen warrant or
covenant as to the commercial viability or success of the Licensed Products.
7.5 LIMITATION OF LIABILITY. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN
THIS AGREEMENT, DYNAGEN MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF
ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS
OR PATENT CLAIMS, ISSUED OR PENDING OR AS TO THE COMMERCIAL VIABILITY OF THE
LICENSED PRODUCTS. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT AND
EXCEPT FOR A BREACH OR DEFAULT OF THIS AGREEMENT BY EITHER PARTY, INCLUDING BUT
NOT LIMITED TO THE REPRESENTATIONS AND WARRANTIES AND CONFIDENTIALITY AND
NON-DISCLOSURE SET FORTH HEREIN, NEITHER LICENSEE NOR DYNAGEN, AS BETWEEN EACH
OTHER, SHALL HAVE ANY LIABILITY FOR DAMAGES OF ANY KIND, INCLUDING SPECIAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, LOST PROFITS, LOSS OF GOODWILL, OR
OTHER ECONOMIC LOSS (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN CONNECTION WITH
THIS AGREEMENT OR WITH RESPECT TO THE PATENT RIGHTS OR KNOW-HOW OR AS TO THE
COMMERCIAL VIABILITY OF THE LICENSED PRODUCTS.
ARTICLE VIII - CONFIDENTIALITY AND NON-DISCLOSURE
8.1 CONFIDENTIAL TREATMENT OF INFORMATION. Except as otherwise provided
in this Article VIII, each of DynaGen and Licensee (including their Affiliates)
agrees to retain in strict confidence any proprietary confidential information
and trade secrets of the other party, whether disclosed prior to or after the
date hereof, and not to use or disclose to third parties, and to use its best
efforts to cause its employees, agents or consultants not to use or disclose to
third parties, such proprietary confidential information and trade secrets to or
for any third party without the prior approval in writing of a duly authorized
officer of the other party, unless one or more of the following conditions
exist:
(a) Such information has been previously published and is a
matter of public record or otherwise in (or becomes available in) the public
domain through no fault of such party.
(b) Such information has been previously known to the
recipient of the information and such recipient can prove this fact by documents
dated prior to the date of disclosure of such information to the recipient by
the other party;
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(c) Such information shall hereafter become known to the
recipient by its own independent development or from a source other than the
other party (through no violation of any confidentiality agreement or obligation
between such other party and any other person);
(d) Such information is required by law to be disclosed,
whether pursuant to the statutes, rules and regulations of the Food and Drug
Administration, the Securities and Exchange Commission or any other foreign,
federal or state governmental agency or administrative body; or
(e) Such information shall hereafter be published by a patent
examining authority as required by law in connection with any pending patent
application within the Patent Rights; provided, however, that Licensee shall
notify DynaGen in writing at least sixty (60) days in advance of filing any
patent application in any country in which the provisions of this Section 8.1(e)
may be invoked.
8.2 DISCLOSURE REQUIRED BY LAW OR REGULATION. Except as may be required
by law or regulation, or in response to a valid subpoena, or as required by
generally accepted accounting principles or required by DynaGen or Licensee in
connection with its filings with any governmental authorities, including the
Securities and Exchange Commission or any similar governmental body of any
foreign jurisdiction, none of the parties hereto shall disclose the terms of
this Agreement without the prior written consent of the other party hereto,
except that (a) upon execution of this Agreement, the parties may issue the
press releases attached as Exhibit B hereto; (b) the parties may state that
Licensee is licensed by DynaGen under the Patent Rights. Without limiting the
foregoing sentence, it is understood that (i) either party may make reasonable
disclosure of this Agreement, at its own discretion, and the financial and other
terms hereof in its Form 10-K, Form 10-Q and the footnotes to its financial
statements, (ii) either party may, at its discretion, file this Agreement as an
exhibit to its Form 10-K or Form 10-Q; (iii) either party may, describe
royalties received by it under this Agreement in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of its
filings with the Securities and Exchange Commission; (iv) either party may, at
its discretion, distribute its Form 10-K (excluding exhibits thereto) in the
ordinary course of its business (e.g., to financial analysts and shareholders);
and (v) each party may disclose the terms of this Agreement to its attorneys,
accountants and agents, provided that the disclosing party uses its best efforts
to ensure that such attorneys, accountants and agents maintain this Agreement as
confidential in accordance with the terms hereof.
8.3 DISCLOSURE OF KNOW-HOW, ETC. Each party shall not disclose any
confidential information or trade secrets relating to the NicErase Technology to
any third party unless (i) prior to such disclosure the third party enters into
a confidentiality agreement with such party with confidentiality provisions on
substantially the same terms as contained herein; or (ii) one or more of the
exceptions set forth in Section 8.1 apply.
8.4 SURVIVAL OF CONFIDENTIALITY OBLIGATIONS . The confidentiality
obligations of parties shall remain binding on both parties for a period of
sixty calendar months after the termination or expiration of this Agreement,
regardless of the cause of termination. The parties acknowledge that any breach
of this Article VIII will constitute irreparable harm, and that either party
shall be entitled to specific performance or injunctive relief to enforce this
Article VIII in addition to whatever remedies such party may otherwise be
entitled to at law or in equity.
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ARTICLE IX - ASSIGNMENT
9.1 ASSIGNMENT . Neither party shall assign any of its rights hereunder
without the prior written consent of the other party; provided, however, that
either party shall have the right, without the prior written consent of the
other, to assign its rights hereunder to another entity (an "Acquiror") in
connection with the transfer or sale of all or substantially all of its assets
to such Acquiror, the sale of all or substantially all of its shares to such
Acquiror, or the merger or consolidation of it into or with such Acquiror, or
any similar transaction (an "Acquisition"); provided, that the Acquiror shall
agree in writing to be bound by the terms and conditions of this Agreement and
to assume all of its obligations hereunder. Licensee agrees that it shall not
sublicense the Licensed Products to any third party where the effect of such
sublicense is an assignment of all of its rights and a delegation of all its
obligations under this Agreement.
ARTICLE X - TERM AND TERMINATION
10.1 TERM. Unless sooner terminated, this Agreement shall terminate on
the later of (i) the date when none of the Licensed Products are subject to a
valid claim of an issued and unexpired patent included within the Patent Rights
in any country which has not been held unenforceable, unpatentable or invalid by
a decision of a court or other governmental agency of competent jurisdiction
which decision is unappealable or unappealed within the time allowed for appeal
and which has not been admitted to be invalid or unenforceable through re-issue
or disclaimer or otherwise, or (ii) a period of twenty (20) years from the
Effective Date of this Agreement.
10.2 MUTUAL TERMINATION. This Agreement may be terminated at any time
by a written agreement signed by both parties.
10.3 TERMINATION FOR OVERDUE PAYMENTS. If Licensee fails to pay DynaGen
any amounts due and payable to DynaGen hereunder, DynaGen shall give Licensee
prompt written notice of such overdue payment. If such overdue payments are not
made by Licensee within thirty (30) days after delivery of such notice, DynaGen
shall have the right to (i) terminate this Agreement immediately and institute
an action to collect such amounts or (ii) institute an action to collect such
amounts without terminating this Agreement.
10.4 TERMINATION FOR MATERIAL BREACH OR DEFAULT. Upon any material
breach or default under this Agreement by Licensee, other than those occurrences
described in Sections 10.3, and 10.4 above, or upon any material breach or
default under this Agreement by DynaGen, the party not in default or breach (the
"Non-Breaching Party") may (i) terminate this Agreement upon sixty (60) days
written notice to the party in default or breach (the "Breaching Party"), with
such termination to become effective upon expiration of said sixty (60) day
period, unless within said sixty (60) day period the Breaching Party shall have
cured such breach or default, or (ii) seek specific performance of this
Agreement. Seeking specific performance or damages shall not constitute or
provide grounds for termination of this Agreement.
10.5 TERMINATION FOR FAILURE TO MEET DEVELOPMENT PROGRAM. Upon any
failure of Licensee to meet, when due, any of the milestones described in the
Development Program, DynaGen may (i) terminate this Agreement upon sixty (60)
days written notice to the Licensee,
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with such termination to become effective upon expiration of said sixty (60) day
period, unless within said sixty (60) day period Licensee shall have cured such
breach or default.
10.6 TERMINATION FOR CONVENIENCE. Licensee may terminate this Agreement
upon sixty (60) days written notice to DynaGen.
10.7 RIGHTS UPON TERMINATION.
(a) Upon termination of this Agreement by DynaGen due to a breach of
this Agreement by Licensee or upon termination by Licensee pursuant to Section
10.6 hereof, all right and interest of Licensee in and to the NicErase
Technology shall revert to DynaGen; provided, however, Licensee may sell all
Licensed Products held in inventory or in the process of production at the time
of such termination, provided that Licensee shall pay to DynaGen any payments or
amounts which would have been required to be paid under this Agreement through
the date of final sale of all Licensed Products.
(b) Upon expiration of the term of this Agreement, Licensee shall have
a fully paid-up, royalty free, worldwide license to use the NicErase Technology.
(c) Upon mutual termination of this Agreement by the parties, the
rights upon such termination shall be mutually agreed to by the parties.
10.8 SURVIVAL OF SPECIFIED OBLIGATIONS. Notwithstanding anything to the
contrary stated in this Agreement, no termination of this Agreement shall
terminate (i) any obligation of either party pursuant to Articles VII, VIII and
Section 10.8 of this Agreement or (ii) any obligation of Licensee under Article
III with respect to sales of Licensed Products made prior to termination of this
Agreement. Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured or
accrued prior to the effective date of such termination.
ARTICLE XI - PAYMENTS, NOTICES
AND OTHER COMMUNICATIONS
11.1 NOTICES. Any and all payments, notices or other communications
pursuant to this Agreement shall be in writing and shall be delivered (i) by
express overnight courier service (it being understood that payments to DynaGen
may be wire transferred to DynaGen's bank account specified by DynaGen with a
copy of a notice of wire transfer sent as set forth in this Article XI) or (ii)
by facsimile transmission (with confirming copy to follow by express overnight
courier service):
(a) if to DynaGen, at 99 Erie Street, Cambridge, MA 02139, Attention:
President, or at such other address or addresses as may have been furnished in
writing by DynaGen to Licensee; or
(b) if to Licensee at 45 Davids Drive, Hauppauge, NY 11788, Attention:
President, with a copy to General Counsel, or at such other address or addresses
as may have been furnished in writing by Licensee to DynaGen.
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Notices provided in accordance with this Article XI shall be deemed
delivered upon receipt of the notice by the party being sent the notice.
ARTICLE XII - MISCELLANEOUS PROVISIONS
12.1 GOVERNING LAW. This Agreement shall be construed, governed,
interpreted and applied in accordance with the internal laws of the Commonwealth
of Massachusetts, U.S.A., except that questions affecting the construction and
effect of any patent shall be determined by the law of the country in which the
patent was granted. Any legal action or proceeding arising out of or relating to
this Agreement may be instituted in Boston, Massachusetts in either the courts
of the Commonwealth of Massachusetts or the United States District Court for the
District of Massachusetts, and both parties hereby irrevocably submit to the
jurisdiction of any such court in any such action or proceeding, each party
expressly consenting to personal jurisdiction and venue in any such action.
12.2 ENTIRE AGREEMENT; MODIFICATION. The parties hereto acknowledge
that this Agreement and all Exhibits hereto set forth the entire agreement and
understanding of the parties hereto as to the subject matter hereof, and shall
not be subject to any change or modification except by the execution of a
written instrument subscribed to by the parties hereto.
12.3 NO WAIVER. The failure of either party to assert a right hereunder
or to insist upon compliance with any term or condition of this Agreement shall
not constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
12.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
12.5 INDEPENDENT CONTRACTORS. The parties hereto are independent
contractors and nothing contained in this Agreement shall be deemed to create
the relationship of partners, joint venturers, or of principal and agent,
franchisor and franchisee, or of any association or relationship between the
parties other than as expressly provided in this Agreement. Licensee
acknowledges that it does not have, and Licensee shall not make representations
to any third party, either directly or indirectly, indicating that Licensee has
any authority to act for or on behalf of DynaGen or to obligate DynaGen in any
way whatsoever. DynaGen acknowledges that it does not have, and it shall not
make any representations to any third party, either directly or indirectly,
indicating that it has any authority to act for or on behalf of Licensee or to
obligate Licensee in any way whatsoever.
12.6 PATENT MARKINGS. Licensee shall mark the directional inserts
included with each Licensed Product with patent markings relevant to such
Licensed Product as described herein. Specifically, during the pendency of
relevant patent applications in the United States and in other countries, the
directional inserts shall include the designation "U.S. and Foreign Equivalent
Patents Pending." Upon issuance of a relevant U.S. patent DynaGen shall so
notify Licensee, and Licensee shall include in the directional inserts, in the
next batch of directional inserts produced, the number(s) of the relevant U.S.
patent(s) which have issued. Upon issuance of any foreign patent and Licensee's
receipt of notice from DynaGen of such issuance, the directional inserts,
beginning with the next batch of the directional inserts produced, shall
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include the designation "... and Foreign Equivalents Issued and Pending." Upon
issuance of all relevant patents, both U.S. and foreign, Licensee shall change
the designation of the directional inserts, beginning with the next batch of
directional inserts produced, to read "U.S. Patent Nos. _____, ____, ____ etc.
and Foreign Equivalents Issued."
12.7 ARBITRATION. Any dispute, controversy or claim arising out of or
in connection with this Agreement shall be determined and settled by arbitration
in Boston, Massachusetts, pursuant to the Rules of Arbitration then in effect of
the American Arbitration Association. Any award rendered shall be final and
conclusive upon the parties and a judgment thereon may be entered in a court
having competent jurisdiction. Any arbitration hereunder shall be (i) submitted
to an arbitration tribunal comprised of three (3) independent members
knowledgeable in the biotechnology area, one of whom shall be selected by
Licensee, one of whom shall be selected by DynaGen, and one of whom shall be
selected by the other two arbitrators; (ii) allow for the parties to request
discovery pursuant to the rules then in effect under the Federal Rules of Civil
Procedure for a period not to exceed ninety (90) days; and (iii) require the
award to be accompanied by findings of fact and a statement of reasons for the
decision. Each party shall bear its own costs and expenses, including attorney's
fees incurred in any dispute which is determined and/or settled by arbitration
pursuant to this Section. Except where clearly prevented by the area in dispute,
both parties agree to continue performing their respective obligations under
this Agreement while the dispute is being resolved. Arbitration shall not
prevent any party from seeking injunctive relief where such remedy is an
appropriate form of remedy under the circumstances.
12.8 SEVERABILITY. If at any time any provision of this Agreement shall
be deemed to be invalid or unenforceable, then such provision shall be
considered divisible and shall, if possible, consistent with the clear intent of
the parties expressed by this written Agreement, become and be immediately
amended to the extent necessary to make it valid and enforceable by the court or
other body having jurisdiction over this Agreement, but only to the extent that
such divisibility and amendment does not cause this Agreement to fail of its
essential purpose; and the parties expressly agree that such provision, as so
amended, shall be valid and binding as though any invalid or unenforceable
provision had not been included herein. Except as set forth above, the
invalidity or lack of enforceability of any provision of this Agreement shall
not affect the validity and continuing effectiveness of any other provision of
this Agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Development and License Agreement under seal as of the day and year set forth
above.
DYNAGEN, INC.
By:__________________________
Title:_______________________
NASTECH PHARMACEUTICALS
COMPANY INC.
By:__________________________
Title:_______________________
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Nastech Pharmaceutical Company, Inc.
We consent to the use of our report included herein and to the reference to
our Firm under the heading "Experts" in the Prospectus.
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
January 2, 1997
New York, New York
