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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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(Mark
One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File No. 1-14778
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ENDOREX CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 41-1505029
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
28101 BALLARD DRIVE, SUITE F, 60045
LAKE FOREST, IL (Zip Code)
(Address of principal executive
offices)
Issuer's telephone number, including area code: (847) 573-8990
Securities registered under Section 12(b) of the Exchange Act:
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Name of each Exchange
Title of each class on Which registered
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<S> <C>
None American Stock Exchange
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Securities registered under Section 12(g) of the Securities Exchange Act:
Common Stock, par value $.001 per share
(Title of class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [_]
Revenues for its most recent fiscal year were: $-0-
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the closing price of such stock, as of March 1, 2000,
was $64,800,000. Non-affiliates have been determined on the basis of holdings
set forth under Item 11 of this Annual Report on Form 10-KSB.
At March 1, 2000, 10,786,337 shares of the registrant's common stock (par
value, $.001 per share) were outstanding.
Documents Incorporated by Reference
The definitive proxy statement of Endorex Corporation in connection with
the annual meeting to be held on or about May 17, 2000 is incorporated by
reference into Part III of this Form 10-KSB.
Transitional Small Business Issuer: Yes [_] No [X]
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PART I
Item 1. Business.
The Company
Endorex Corporation is a development stage drug delivery company,
incorporated in Delaware. Our core drug delivery technology, the Orasome(TM)
system, focuses on the oral and mucosal delivery of protein and peptide-based
drugs and vaccines previously delivered only by injection. The Orasome system
is licensed from the Massachusetts Institute of Technology ("MIT").
In 1998 Endorex formed two drug delivery joint ventures with Elan
Corporation, plc ("Elan"), one of the world's leading drug delivery companies.
The purpose of the first joint venture, InnoVaccines Corporation
("InnoVaccines"), is to research, develop and commercialize novel delivery
systems for the human and veterinary vaccine markets.
The second joint venture, Endorex Newco, Ltd. ("Newco"), focuses on the
utilization of the MEDIPAD(R) microinfusion pump, developed by Elan, to
deliver iron chelators for the treatment of a series of genetic blood
disorders known as iron overload disorders.
Our headquarters is located north of Chicago, close to the headquarters of
several major pharmaceutical companies such as Abbott Laboratories, Baxter
International, Searle (the pharmaceutical division of Monsanto), and the U.S.
subsidiaries of two major Japanese pharmaceutical companies, Fujisawa and
Takeda Chemicals.
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended, and is subject to the safe-
harbors created by those sections. These forward-looking statements are
subject to significant risks and uncertainties, including those identified in
the "Risk Factors" section of this Form 10-KSB, which may cause actual results
to differ materially from those discussed in any forward-looking statements.
The forward-looking statements within this Form 10-KSB are identified by words
such as "believes," "anticipates," "expects," "intends," "may," "will" and
other similar expressions. However, these words are not the exclusive means of
identifying such statements. In addition, any statements that refer to
expectations, projections, or other characterizations of future events or
circumstances are forward-looking statements. We undertake no obligation to
publicly release the results of any revisions to forward-looking statements
that may be made to reflect events or circumstances occurring subsequent to
the filing of this form 10-KSB with the SEC. You should carefully review and
consider the various disclosures we make in this report and our other reports
filed with the SEC that attempt to advise interested parties of the risks and
factors that may affect our business.
Orasome Oral and Mucosal Drug Delivery System
Endorex's fundamental platform technology resides in its potential ability
to convert injectable-only therapy into the patient-preferred format of oral
therapy. This conversion process includes encapsulating "fragile" protein
and/or peptide based drugs for oral delivery using proprietary patented
technology from MIT. Many vaccines and macromolecular drugs are exceptionally
fragile and thus cannot survive the digestive action of the gastrointestinal
("GI") tract. By employing the Orasome system, a specially engineered,
polymerized liposome-based technology for entrapment of protein or peptide-
based vaccines and drugs, many of these agents might be made orally available
at therapeutic levels. Endorex is developing core technology for a new
generation of vaccines that may be taken by mouth, thereby replacing painful
injections, and thereby increasing patient compliance. Other applications of
this technology under development at Endorex could enable preparation of oral
formulations of peptide hormones, such as insulin and human growth hormone,
other sensitive peptide drugs and proteins, and nucleic acids ("DNA").
Virtually all of these compounds are currently given to patients solely via
injection.
The Orasome system represents a series of improvements in encapsulation
technology resulting in properties that we believe enable efficient uptake by
crucial cells in the gastrointestinal tract. Because of the unique
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ability of these polymerized liposomes to withstand the activity of bile
salts, digestive enzymes, and gastric acids, this proprietary liposomal
technology may be utilized practically and commercially for the oral delivery
of many therapeutics.
Orasomes encapsulate sensitive drugs and hold them within a membrane
envelope that is resistant to the environmental stress of the GI tract.
Orasomes can also be engineered to release contents in a controlled fashion
and to contain surface ligands (or biological "magnets") capable of targeting
specific receptors in the intestine and other tissues. By comparison,
conventional liposomes appear to be chemically and physically unstable and
tend to be unsuitable for oral delivery, because they degrade rapidly upon
introduction into the GI tract. If the encapsulated drug or vaccine is
released into this environment, the active material is destroyed and the
therapeutic effect negated. In vitro studies with orasomes have demonstrated
high stability under harsh conditions similar to conditions found in the human
intestinal tract, such as exposure to acidic pH, simulated bile salts, and
detergents.
Liposomal formulations have been scaled up and manufactured commercially.
Examples of such formulations include the cancer drugs liposomal doxorubicin
and liposomal daunorubicin as well as the anti-fungal agent liposomal
amphotericin B, which have been approved by the Food and Drug Administration
("FDA") and are currently being marketed. Endorex is currently scaling up its
Orasome system for human clinical trials through its joint venture partner,
Elan.
Endorex believes that the Orasome system as a platform technology satisfies
a number of criteria necessary for a successful drug delivery system,
including:
--Flexibility for incorporation of numerous types of drugs and vaccines;
--Stability of the drug or vaccine through the GI tract;
--Enhanced mucosal uptake of the drug or vaccine;
--Compatibility of the delivery system with current manufacturing
methodology; and
--No apparent toxicity of the orasomes in animal studies to-date.
Drug Delivery Development Status
Endorex has demonstrated the bioavailability and bioactivity of using
orasomes for oral delivery of selected drugs in animal models as well as the
immunogenicity of oral vaccines in similar models. Orasomes have been used
successfully in animal models for oral delivery of human growth hormone
("hGH"). Endorex believes an oral version of hGH should provide product
differentiation along with the convenience and improved compliance that
accompanies oral delivery. Daily oral delivery should offer an attractive
alternative to daily injections or slow release formulations, particularly for
chronic therapies. Animal studies have shown that delivery of unencapsulated
hGH, or hGH in non-polymerized liposomes, does not result in a rise in serum
hGH, while hGH is detected in serum after oral delivery in orasomes.
Endorex recently signed a research and option agreement with Novo Nordisk
A/S (a major European pharmaceutical company with a significant share of the
estimated $1.7 billion global market for hGH), to evaluate the commercial
attractiveness of Novo's brand of hGH delivered orally, Norditropin(R). They
plan to evaluate the Orasome system in several animal models. Novo Nordisk has
taken an exclusive option to license the Orasome technology for
Norditropin(R).
During 2000, Endorex will also evaluate the Orasome system for oral
delivery of a DNA based product (vaccine).
Oral Delivery of Human and Veterinary Vaccines
According to a Frost & Sullivan market research report on human vaccines,
the worldwide vaccine market is projected to reach $6 billion in 2000. There
is also a large and growing veterinary vaccine market.
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In order to participate in this attractive and large market with a new
delivery alternative, Endorex partnered with Elan in 1998 and established a
joint venture, InnoVaccines, for the research, development and
commercialization of oral and mucosal vaccines. In forming this joint venture,
Elan purchased equity securities of Endorex (common and preferred stock, as
well as warrants) for aggregate investments of $10 million. InnoVaccines
combines novel existing and future delivery systems from both companies for
the development of human vaccines.
The joint venture has evaluated the Orasome system in animal models for its
potential to deliver a variety of vaccines, including tetanus, orally and by
nasal administration. Additionally, the company has demonstrated successful
encapsulation of a vaccine adjuvant in combination with the vaccine antigen.
No toxicological side effects have been seen in animal studies with orasomes.
During 2000, InnoVaccines plans to scale up the Orasome technology in
preparation for a clinical trial of its lead clinical candidate, an oral
tetanus vaccine. Additionally, the joint venture plans to evaluate the
feasibility and efficacy of an oral hepatitis B vaccine and an oral flu
vaccine in animal models.
The Orasome technology for delivery of drugs and vaccines is the subject of
two MIT U.S. patents which have issued and four pending patents: one from MIT
and three filed by Endorex. In addition, the joint venture further extended
its fundamental oral vaccine intellectual property by acquiring an exclusive
worldwide license to the Southern Research Institute and University of
Alabama-Birmingham's portfolio of patents on oral microsphere delivery for
vaccines in 1999. This patent portfolio consists of six issued U.S. patents
and more than 40 related issued patents in Europe and in many countries
throughout the world.
Endorex/Elan MEDIPAD Drug Delivery System Joint Venture for Iron Chelators
In October 1998, Endorex announced that it had established a second joint
venture with Elan whose purpose was the exclusive research, development and
commercialization of the MEDIPAD drug delivery system to deliver iron
chelators for the treatment of iron overload disorders. The most common cause
of this health problem is a type of genetic blood disorder. These diseases
include Cooley's anemia (beta-thalassemia) and sickle cell anemia.
MEDIPAD is Elan's unique microinfusion pump designed for the subcutaneous
delivery of selected drugs that require continuous infusion via pump. Each
MEDIPAD is a low cost, disposable drug delivery device with an adhesive
backing. Its light weight enables it to be worn in a manner similar to a
transdermal patch. MEDIPAD is expected to replace conventional infusion pumps
that are expensive and cumbersome for the patient. Conventional pumps appear
to impede patient compliance. We believe MEDIPAD will improve patient
compliance.
In February 2000, Endorex announced that the MEDIPAD iron chelator joint
venture has entered into an exclusive worldwide license, development, and
supply agreement with Schein Pharmaceutical, Inc. to develop and commercialize
iron chelating products using the MEDIPAD drug delivery system. Schein
Pharmaceutical will market this product in the United States.
Oncology Program
On March 1, 2000, we announced that in spite of several active phase I and
II trials with our two oncology drugs, POH and ImmTher(R), Endorex has decided
to divest the oncology business in favor of focusing on the rapid expansion
and promise of our drug delivery business. Further development of the oncology
business would require a substantial step-up in investment in product
development and human resources at a time when we are facing a similar
requirement in our drug delivery business that has already attracted initial
partners. Oncology has been our focus for many years. However, to be a serious
participant in this highly competitive arena would require a significant
restructuring of our business and significantly higher financial resources. We
have already begun to pursue several alternatives for terminating our role in
this business early in 2000.
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Endorex's oncology program consists of two areas of cancer therapy:
immunotherapy and natural chemotherapy.
Immunotherapy Program
Endorex's immunomodulator, ImmTher(R), works by activating macrophages,
cells that specifically recognize and destroy cancer cells. ImmTher(R) is
currently being evaluated in a randomized phase II (efficacy) trial as an
adjunct therapy, following surgery and chemotherapy, for the treatment of bone
cancer in children and young adults. The initial therapy for this type of
cancer is often surgery (including limb amputation). However, residual cancer
cells remaining after surgery metastasize to the liver or lungs and patients
rarely survive more than a few years. ImmTher(R) is being tested for its
usefulness in treating micrometastases with a goal of increasing the life of
these children and young adults. The trial is being conducted at the two
leading cancer centers in the U.S., Memorial Sloan Kettering in New York and
M.D. Anderson Cancer Center in Houston. Endorex has received Orphan Drug
designation for ImmTher(R) by the FDA for two types of bone cancer, Ewings
sarcoma and osteogenic sarcoma.
Natural Chemotherapy
POH is a synthetic compound that is a member of a new class of anti-cancer
agents, monoterpenes, which have shown anti-tumor and preventative activity
against a wide range of tumor types in preclinical studies at non-toxic dose
levels. POH was developed by Dr. Michael Gould and his collaborators at the
University of Wisconsin-Madison, with the support of the National Cancer
Institute.
Monoterpenes are natural compounds produced by plants and are found in
commonly consumed fruits and vegetables, and have multiple cellular effects
including the modulation of the cellular levels of growth factors and their
receptors. Monoterpenes selectively inhibit cell growth in a wide variety of
rodent tumors and human cancer cell lines and also act to induce programmed
cell death (apoptosis).
Wisconsin Genetics, Inc. ("WGI"), a majority-owned Endorex subsidiary, was
founded to develop new therapies for the prevention and treatment of cancer.
Patents covering the use of POH in the treatment of cancer have been licensed
for development by WGI from Wisconsin Alumni Research Foundation ("WARF").
WARF, a non-profit organization, is the office designated to receive and
license new discoveries made by the University of Wisconsin-Madison
researchers.
In June 1999, WGI completed development of a new oral formulation of POH
and filed an Investigational New Drug ("IND") application. The new formulation
significantly reduces the number of pills a patient needs to take daily and
should enhance overall patient compliance during the treatment. In September
1999, we commenced the first Endorex-sponsored POH trial of the new
formulation, a phase I (safety) human clinical trial commenced at the
University of Wisconsin-Madison Comprehensive Cancer Center. The National
Cancer Institute ("NCI") continues to sponsor phase II clinical trials in
breast, prostate and pancreatic cancer. During 1999, two phase II NCI-
sponsored trials for ovarian and colorectal cancer were closed due to lack of
objective response. All of the NCI-sponsored phase II trials use the initial
formulation of POH developed by the NCI. Additional phase II clinical trials
with POH in other types of cancer, such as brain cancer and different types of
leukemia, are being considered.
Government Regulation
Prior to marketing, each of our products must undergo an extensive
regulatory approval process conducted by the FDA and applicable agencies in
other countries. Testing, manufacturing, commercialization, advertising,
promotion, export and marketing, among other things, of our proposed products
are subject to extensive regulation by government authorities in the United
States and other countries. All products must go through a series of tests,
including advanced human clinical trials, which the FDA is allowed to suspend
as it deems necessary.
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Patents and Other Proprietary Rights
We rely on patent rights, trade secrets and nondisclosure agreements to
establish and protect our proprietary rights to our technologies. Despite
these precautions, it may be possible for unauthorized third parties to
utilize our technology or to obtain and use information that we regard as
proprietary. The laws of some foreign countries do not protect our proprietary
rights in processes and products to the same extent as the laws of the United
States.
Endorex currently has the following patent portfolio in the United States:
(1) Endorex has three issued patents, (2) Orasomal has two patents issued, (3)
InnoVaccines has licensed a series of patents from Southern Research
Institute, 6 of which have issued in the U.S., and (4) WGI has licensed the
rights to three patents issued to WARF. In addition, we have more than 50
foreign issued patents, as well as several foreign patent applications
pending.
Research and Development Expense
Research and development expenditures were approximately $2.0 million for
the year ended December 31, 1999 and the year ended December 31, 1998.
Employees
As of March 1, 2000 we had fifteen full-time employees, including 5 Ph.D.s,
and 4 masters-level employees.
Endorex has recruited seasoned managers with considerable experience in the
pharmaceutical industry and utilizes a Scientific Advisory Board, certain
members of which are prominent researchers and academics in their fields.
Michael Rosen, the company's President/CEO, joined Endorex in 1996. Prior to
joining Endorex, Mr. Rosen held senior executive positions at Monsanto, Pfizer
and Bristol-Myers Squibb. Robert Brey, Ph.D., Vice President of Research and
Development, has prior experience with American Home Products' vaccine
division. David Franckowiak, Chief Financial Officer, spent eleven years with
PricewaterhouseCoopers LLP prior to joining Endorex in 1997. Frank C. Reid
joined Endorex in February 2000 as Vice President of Finance and Corporate
Development. He has extensive experience in banking and management consulting,
including nineteen years with Bank of America/Continental Bank in senior
executive positions.
Endorex's board of directors includes CEO's and senior management of other
publicly traded biotechnology companies with extensive pharmaceutical company
expertise, and a member of Elan's senior management team.
Endorex has assembled an expert Scientific Advisory Board for its Orasome
technology. Drug Delivery Advisory Board Co-Chairman, Dr. Robert Langer,
recognized as a leading expert on drug delivery technology, is a member of
three National Academies (Sciences, Medicine and Engineering), holds 265
patents and has authored over 500 articles. Dr. Langer is a Professor of
Biomedical and Chemical Engineering and is co-inventor of the Orasome
technology. Advisory Board Co-Chairman, Dr. Henry Brem, is a Professor of
Neurology, Ophthalmology and Oncology at Johns Hopkins University. Drs. Langer
and Brem have significant continued involvement with Endorex as advisors,
consultants and shareholders.
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RISK FACTORS
If we cannot obtain additional funding, our product development and
commercialization efforts may be reduced or discontinued.
We will require additional funding to sustain our research and development
efforts, provide for future clinical trials, and continue our operations until
we are able to generate sufficient revenue from the sale and/or licensing of
our products. We cannot be certain whether we will be able to obtain required
additional funding on terms satisfactory to us, if at all. In addition, we
have expended, and will continue to expend, substantial funds on the
development of our product candidates and for clinical trials. We currently
have commitments to expend additional funds for the development of the Orasome
oral delivery system, the MEDIPAD infusion pump, license contracts, severance
arrangements, employment agreements, and consulting agreements. If we are
unable to raise additional funds when necessary, we may have to reduce or
discontinue development, commercialization or clinical testing of some or all
of our product candidates or enter into financing arrangements on terms that
we would not otherwise accept.
We have had significant losses and anticipate future losses.
We are a development stage company, have experienced significant losses
since inception and have a significant accumulated deficit. We expect to incur
significant additional operating losses in the future and expect cumulative
losses to substantially increase due to expanded research and development
efforts, preclinical studies and clinical trials. All of our products are
currently in development, preclinical studies or clinical trials, and we have
not generated significant revenues from product sales. We do not expect to
generate significant product revenues in the next year. There can be no
guarantee that we will ever generate product revenues sufficient to become
profitable or to sustain profitability.
We are dependent on our joint ventures with Elan Corporation and any future
joint ventures.
Our strategy for research, development and commercialization of certain of
our products is to rely on arrangements with corporate partners. As a result,
our products are dependent upon the success of third parties in performing
preclinical studies and clinical trials, obtaining regulatory approvals,
manufacturing and marketing. In connection with our two joint ventures with
Elan, we are obligated to fund research and development activities in
proportion to our ownership interest in each joint venture, currently 80.1% of
each joint venture, based on the research and development plan and budget that
we mutually agree upon with Elan. If we do not have sufficient resources to
meet our funding obligations under the two Elan joint ventures, we may have to
terminate the venture prior to commercialization or renegotiate the terms of
the joint venture with Elan, or our interest in the venture may be diluted. We
intend to pursue additional collaborations in the future, however, the terms
available may not be acceptable to us and the collaborations may not be
successful. In addition, the amount and timing of resources that our
collaborators devote to these activities are not within our control.
Problems in product development may cause our cash depletion rate to increase.
We have limited experience with clinical trials and if we encounter
unexpected difficulties with our operations or clinical trials, we may have to
expend additional funds, which would increase our cash depletion rate. Our
ability to manage expenses and our cash depletion rate are keys to the
continued development of product candidates and the completion of ongoing
clinical trials. Our cash depletion rate will vary substantially from quarter
to quarter as we fund non-recurring items associated with clinical trials,
product development, patent legal fees and consulting fees.
Our product development and commercialization efforts may not be successful.
Our product candidates, which have not received regulatory approval, are
generally in the early stages of development. If the initial results from any
of the clinical trials are poor, those results will adversely effect our
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ability to raise additional capital, which will affect our ability to continue
full-scale research and development for our oral delivery technology. In
addition, product candidates resulting from our research and development
efforts, if any, are not expected to be available commercially for several
years, if at all. Our products, if approved, may not be immediately used by
doctors unfamiliar with our product's application in the treatment of cancer.
As with any new drug, doctors may be inclined to continue to treat patients
with conventional therapies, in most cases chemotherapy, rather than new
alternative therapies. We or our marketing partner may be required to
implement an aggressive education and promotion plan with doctors in order to
gain market recognition, understanding and acceptance of our products. Any
such effort may be time consuming and might not be successful. Accordingly, we
cannot guarantee that our product development efforts, including clinical
trials, or commercialization efforts will be successful or that any of our
products, if approved, can be successfully marketed.
Our technology and products may prove ineffective or harmful, or be too
expensive to market successfully.
Our future success is significantly dependent on our ability to develop and
test workable products for which we will seek approval from the FDA to market
to certain defined patient groups. The products we are currently developing
will require significant additional laboratory and clinical testing and
investment for the foreseeable future. Although we are optimistic that we will
be able to complete development of one or more products, our proposed products
may not prove to be effective in clinical trials or they may cause harmful
side effects during clinical trials. In addition, our product candidates, if
approved, may prove impracticable to manufacture in commercial quantities at a
reasonable cost and/or with acceptable quality. Any of these factors could
negatively affect our financial position and results of operations.
Our dependence on a limited number of suppliers may negatively impact our
ability to complete clinical trials and market our products.
Prior to commercial distribution of any of our products, if approved, we
will be required to identify and contract with a commercial supplier. We
cannot guarantee that these suppliers will be able to qualify their facilities
under regulations imposed by the FDA or that they will be able to label and
supply us with drugs in a timely manner, if at all. Accordingly, any change in
our existing or future contractual relationships with, or an interruption in
supply from, any third-party service provider or supplier could negatively
impact our ability to complete clinical trials and to market our products, if
approved.
We do not have a sales force to market our products.
If and when we receive approval from the FDA for our initial product
candidates, the marketing of these products will be contingent upon our
ability to either license these products or enter into marketing agreements
with partner companies or our ability to recruit, develop, train and deploy
our own sales force. We currently intend to sell our products in the United
States and internationally in collaboration with one or more marketing
partners. However, we presently have no agreements for the licensing or
marketing of our product candidates, and we cannot assure you that we will be
able to enter into any such agreements in a timely manner or on commercially
favorable terms, if at all. Additionally, we do not presently have a sales
force, or possess the resources or experience necessary to market any of our
product candidates, if and when they are approved. Development of an effective
sales force requires significant financial resources, time and expertise. We
cannot assure you that we will be able to obtain the financing necessary to
establish such a sales force in a timely or cost effective manner, if at all,
or that such a sales force will be capable of generating demand for our
product candidates, if and when they are approved.
We maintain only limited product liability insurance and may be exposed to
claims if our insurance coverage is insufficient.
The manufacture and sale of our products involves an inherent risk of
product liability claims. We currently have product liability insurance with
limits of liability of $10 million. Because product liability insurance is
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expensive and difficult to obtain, we cannot assure you that we will be able
to maintain existing insurance or obtain additional product liability
insurance on acceptable terms or with adequate coverage against potential
liabilities. Our inability to obtain sufficient insurance coverage on
acceptable terms or to otherwise protect against potential product liability
claims in excess of our insurance coverage, if any, could negatively impact
our financial position and results of operations.
We may not be able to compete with our competitors in the biotechnology
industry.
The biotechnology industry is intensely competitive, subject to rapid
change and sensitive to new product introductions or enhancements. Virtually
all of our existing competitors have greater financial resources, larger
technical staffs, and larger research budgets than we have, as well as greater
experience in developing products and conducting clinical trials. Our
competitors in the vaccine delivery field include Aviron, which is developing
a nasal flu vaccine that is in phase III, BioVector, which is in phase II
trials with an intranasal flu vaccine and another major vaccine, specialized
biotechnology firms, universities, and governmental agencies. Our competitors
in the liposomal formulation field include The Liposome Company, NexStar and
Sequus. Our competitors in the field of the oral delivery of drugs include
Emisphere, which has recently started Phase III trials for oral heparin and
phase I trials with oral calcitonin, and is in preclinical development with
oral hormones; Unigene, which has an oral calcitonin product in phase I; and
Protein Delivery which has an oral insulin in early clinical trials in Europe
and the U.S. In addition, there may be other companies which are currently
developing competitive technologies and products or which may in the future
develop technologies and products which are comparable or superior to our
technologies and products. Accordingly, we cannot assure you that we will be
able to compete successfully with our existing and future competitors or that
competition will not negatively affect our financial position or results of
operations in the future.
We may not be successful if we are unable to obtain and maintain patents and
licenses to patents.
Our success depends, in large part, on our ability to obtain and maintain a
proprietary position in our products through patents, trade secrets and orphan
drug designations. We have been granted several United States patents and have
submitted several United States patent applications and numerous corresponding
foreign patent applications, and have also obtained licenses to patents or
patent applications owned by other entities. However, we cannot assure you
that any of these patent applications will be granted or that our patent
licensors will not terminate any of our patent licenses. We also cannot
guarantee that any issued patents will provide competitive advantages for our
products or that any issued patents will not be successfully challenged or
circumvented by our competitors. Further, the laws of certain countries may
not protect our proprietary rights to the same extent as U.S. law. We are
dependent upon our license of oral delivery technology from MIT, and licenses
from Elan in connection with our two joint ventures with Elan. We cannot
assure you that the technology underlying such licenses will be profitable, or
that we will be able to retain licenses for such technologies or that we will
obtain patent protection outside the United States. To the extent that we rely
on trade secret protection and confidentiality agreements to protect our
technology, others may develop similar technology, or otherwise obtain access
to our findings or research materials embodying those findings. The
application of patent law to the field of biotechnology is relatively new and
has resulted in considerable litigation. There is a substantial risk in the
rapidly developing biotechnology industry that patents and other intellectual
property rights held by us could be infringed by others or that products
developed by us or their method of manufacture could be covered by patents
owned by other companies. Although we believe that our patents and our
licensors' patents do not infringe on any third party's patents, we cannot be
certain that we can avoid litigation involving such patents or other
proprietary rights. Patent and proprietary rights litigation entails
substantial legal and other costs, and we may not have the necessary financial
resources to defend or prosecute our rights in connection with any litigation.
Responding to, defending or bringing claims related to patents and other
intellectual property rights may require our management to redirect our human
and monetary resources to address these claims and may take years to resolve.
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Our product development and commercialization efforts may be reduced or
discontinued due to difficulties or delays in clinical trials.
We may encounter unanticipated problems, including development,
manufacturing, distribution, financing and marketing difficulties, during the
product development, approval and commercialization process. Our product
candidates may take longer than anticipated to progress through clinical
trials. In addition, patient enrollment in the clinical trials may be delayed
or prolonged significantly, thus delaying the clinical trials and causing
increased costs. If we experience any such difficulties or delays, we may have
to reduce or discontinue development, commercialization or clinical testing of
some or all of our product candidates.
Our product development and commercialization efforts may be reduced or
discontinued due to delays or failure in obtaining regulatory approvals.
We will need to do substantial additional development and clinical testing
prior to seeking any regulatory approval for commercialization of our product
candidates. Testing, manufacturing, commercialization, advertising, promotion,
export and marketing, among other things, of our proposed products are subject
to extensive regulation by governmental authorities in the United States and
other countries. The testing and approval process requires substantial time,
effort and financial resources and we cannot guarantee that any approval will
be granted on a timely basis, if at all. At least initially, we intend, to the
extent possible, to rely on licensees to obtain regulatory approval for
marketing our products. The failure by us or our licensees to adequately
demonstrate the safety and efficacy of any of our product candidates under
development could delay, limit or prevent regulatory approval of the product,
which may require us to reduce or discontinue development, commercialization
or clinical testing of some or all of our product candidates. Companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks
in conducting advanced human clinical trials, even after obtaining promising
results in earlier trials. Furthermore, the United States Food & Drug
Administration may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk. Also, even if regulatory approval of a product is
granted, such approval may entail limitations on the indicated uses for which
it may be marketed. Accordingly, we may experience difficulties and delays in
obtaining necessary governmental clearances and approvals to market our
products, and we may not be able to obtain all necessary governmental
clearances and approvals to market our products.
Our products, if approved, may not be commercially viable due to health care
changes and third-party reimbursement limitations.
Recent initiatives to reduce the federal deficit and to change health care
delivery are increasing cost-containment efforts. We anticipate that Congress,
state legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, price controls on pharmaceuticals, and other fundamental changes to
the health care delivery system. Any such changes could negatively impact the
commercial viability of our products, if approved. Our ability to successfully
commercialize our product candidates, if and when they are approved, will
depend in part on the extent to which appropriate reimbursement codes and
authorized cost reimbursement levels of such products and related treatment
are obtained from governmental authorities, private health insurers and other
organizations, such as health maintenance organizations. In the absence of
national Medicare coverage determination, local contractors that administer
the Medicare program, within certain guidelines, can make their own coverage
decisions. Accordingly, there can be no assurance that any of our product
candidates, if approved and when commercially available, will be included
within the then current Medicare coverage determination or the coverage
determination of state Medicaid programs, private insurance companies and
other health care providers. In addition, third-party payers are increasingly
challenging the prices charged for medical products and services. Also, the
trend toward managed health care and the growth of health maintenance
organizations in the United States may all result in lower prices for our
products, if approved and when commercially available, than we currently
expect. The cost containment measures that health care payers and providers
are instituting and the effect of any health care changes could
9
<PAGE>
negatively affect our financial performance, if and when one or more of our
products are approved and available for commercial use.
Our operations and financial performance could be negatively affected if we
cannot attract and retain key personnel.
Our success is dependent, in part, upon a limited number of key executive
officers and technical personnel, including Michael S. Rosen, our President
and Chief Executive Officer, David G. Franckowiak, our Chief Financial
Officer, Dr. Robert N. Brey, our Vice President of Research and Development,
and Frank C. Reid, our Vice President of Finance and Corporate Development. We
also believe that our future success will depend largely upon our ability to
attract and retain highly skilled research and development and technical
personnel. We face intense competition in our recruiting activities, including
competition from larger companies with greater resources. We cannot assure you
that we will be successful in attracting or retaining skilled personnel. The
loss of certain key employees or our inability to attract and retain other
qualified employees could negatively affect our operations and financial
performance.
Our stock price is highly volatile and our common stock is thinly traded.
The market price of our common stock, like that of many other development-
stage public pharmaceutical and biotechnology companies, has been highly
volatile and may continue to be so in the future. Factors such as disclosure
of results of preclinical and clinical testing, adverse reactions to products,
governmental regulation and approvals, and general market conditions may have
a significant effect on the market price of the common stock and our other
equity securities. Since it commenced trading on the American Stock Exchange
on August 6, 1998, our common stock has been thinly traded. We cannot
guarantee that a more active trading market will develop in the future.
Investors may suffer substantial dilution.
Endorex has a number of agreements or obligations that may result in
dilution to investors. These include:
. warrants to purchase 2,162,162 shares of common stock at $2.54375 per
share, subject to adjustment, issued in connection with the October 1997
Private Placement;
. warrants for the purchase of 230,770 shares of common stock at $10.00
per share held by Elan;
. warrants to purchase 66,668 shares of common stock at $2.54375 per
share, subject to adjustment, held by the Aries Master Fund and the
Aries Domestic Fund, L.P.;
. conversion rights and dividend rights of preferred stock held by Elan,
consisting of 92,973 shares of Series B Convertible Preferred Stock
($8.0 million original liquidation value) bearing an 8% cumulative
payment-in-kind dividend and convertible at liquidation value into
common stock at $7.50 per share, subject to adjustment, and 91,218
shares of Series C Exchangeable Convertible Preferred Stock ($8.4
million original liquidation value) bearing a 7% cumulative payment-in-
kind dividend and which is exchangeable for part of Endorex's interest
in the second joint venture or convertible at liquidation value into
common stock at $9.00 per share;
. options to purchase approximately 1.6 million shares of common stock
outstanding to participants in our stock option plan with a weighted
average exercise price of approximately $3.00;
. anti-dilution rights under the above warrants and preferred, which can
permit purchase of additional shares and/or at lower prices under
certain circumstances. To the extent that anti-dilution rights are
triggered, or warrants or conversion rights are exercised, our
stockholders will experience substantial dilution and the Company's
stock price may decrease.
10
<PAGE>
Future sales of common stock by our existing stockholders could adversely
affect our stock price.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market, or the
perception that these sales could occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate.
We have not paid cash dividends.
We have never paid cash dividends on our common stock and we do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain earnings, if any, for the development of our business.
We have certain interlocking relationships that may present potential
conflicts of interest.
Lindsay A. Rosenwald, M.D., is the Chairman and sole stockholder of
Paramount Capital Asset Management, Inc. ("PCAM"), Paramount Capital, Inc.
("Paramount"), and Paramount Capital Investment LLC ("PCI"), a merchant
banking and venture capital firm specializing in biotechnology companies. PCAM
is the investment manager of The Aries Master Fund, a Cayman Island exempted
company, and the general partner of each of the Aries Domestic Fund, L.P. and
the Aries Domestic Fund II, L.P., each of which is a significant stockholder
of Endorex. In addition, certain officers, employees and/or associates of
Paramount and/or its affiliates own securities in subsidiaries of Endorex. In
the regular course of its business, PCI identifies, evaluates and pursues
investment opportunities in biomedical and pharmaceutical products,
technologies and companies. Generally, Delaware corporate law requires that
any transactions between Endorex and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to us as those then
reasonably obtainable from a person who is not an affiliate in an arms-length
transaction. Nevertheless, neither such affiliates nor PCI is obligated
pursuant to any agreement or understanding with us to make any additional
products or technologies available to us. We do not expect and you should not
expect, that any biomedical or pharmaceutical product or technology identified
by such affiliates or PCI in the future will be made available to us. In
addition, certain of the current officers and directors of Endorex or any
officers or directors of the company hereafter appointed may from time to time
serve as officers, directors or consultants of other biopharmaceutical or
biotechnology companies. There can be no assurance that such other companies
will not have interests in conflict with us.
Certain directors and stockholders have significant influence.
Our directors, executive officers and principal stockholders and certain of
their affiliates have the ability to influence the election of directors and
most other stockholder actions. In particular, pursuant to a placement agency
agreement, so long as 50% of the shares sold in our October 1997 private
placement remain outstanding and subject to contractual rights described in
the subscription agreement, we may not do any of the following without the
placement agent's prior approval:
. issue or increase the authorized amount or alter the terms of any
securities of the Company senior to, or on parity with, the private
placement shares with respect to voting, liquidation or dividends,
. alter the Company's charter documents in any manner that would adversely
affect the relative rights, preferences, qualifications, limitations or
restrictions of the private placement shares or of certain contractual
rights described in the subscription agreements,
. incur indebtedness in excess of $1.0 million,
. incorporate or acquire any subsidiaries, and
. enter any transactions with affiliates of the Company.
In addition, our Board of Directors cannot exceed seven persons without the
prior written consent of the placement agent. These arrangements may
discourage or prevent any proposed takeover of Endorex, including
11
<PAGE>
transactions in which stockholders might otherwise receive a premium for their
shares over the then current market prices. Such stockholders may influence
corporate actions, including influencing elections of directors and
significant corporate events.
Item 2. Facilities.
Endorex's executive offices and research and development center are located
in a leased facility of approximately 7,500 square feet in Lake Forest,
Illinois, near Chicago. The lease expires on December 31, 2003. We believe
that our current leased facilities are sufficient to meet our needs for the
foreseeable future and that suitable additional space will be available if and
as needed.
Item 3. Legal Proceedings.
The Company is not a party to any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders in the fourth
quarter of 1999.
12
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
As of August 6, 1998, our common stock started trading on the American
Stock Exchange under the symbol "DOR." Prior to that, quotations for Endorex's
common stock appeared on the "pink sheets" published by the National
Quotations Bureau, Inc. and on the "Bulletin Board" of the National
Association of Securities Dealers, Inc. The following table sets forth the
high and low bid quotations, as provided by the National Quotation Bureau,
Inc., for our common stock during the period January 1, 1998 through August 5,
1998. The table sets forth the high and low closing prices, as provided by the
American Stock Exchange, for the period from August 6, 1998 through March 1,
2000. The amounts represent inter-dealer quotations without adjustment for
retail markups, markdowns or commissions and do not represent the prices of
actual transactions.
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
1998
1st Quarter................................................. $9.00 $5.38
2nd Quarter................................................. $6.25 $2.88
3rd Quarter................................................. $4.88 $2.13
4th Quarter................................................. $2.63 $1.88
1999
1st Quarter................................................. $2.69 $1.50
2nd Quarter................................................. $2.23 $1.50
3rd Quarter................................................. $2.25 $1.50
4th Quarter................................................. $2.94 $1.38
2000
1st Quarter................................................. $9.00 $2.69
</TABLE>
As of December 31, 1999, we had approximately 1,100 stockholders of record.
We currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends in the foreseeable future.
In connection with a senior line of credit agreement entered into by
Endorex with two of our major stockholders, Aries Domestic Fund, L.P. and The
Aries Fund, on May 19, 1997, we granted warrants to purchase an aggregate of
66,668 shares of common stock at an initial exercise price equal to the
offering price of Endorex's Private Placement (as defined below), subject to
adjustment under certain circumstances. The warrants are exercisable until May
19, 2002.
Pursuant to a private placement (the "Private Placement") of common stock,
we issued and sold an aggregate of 8,648,718 shares of common stock to
accredited investors on July 16, October 10 and October 16, 1997, in
consideration of an aggregate amount of $20,000,000. Our net proceeds, after
deducting commissions and expenses of Paramount Capital, Inc., which acted as
the placement agent for the Private Placement (the "Placement Agent"), were
$17,400,000.
In connection with the Private Placement, we issued and sold to the
Placement Agent and/or its designees, warrants (the "Placement Warrants") to
purchase up to an aggregate of 864,865 shares of common stock. In connection
with the execution of a financial advisory agreement, dated October 16, 1997,
between Endorex and the Placement Agent, we issued and sold to the Placement
Agent warrants (the "Advisory Warrants") to purchase up to an aggregate of
1,297,297 shares of common stock. The Placement Warrants and the Advisory
Warrants are exercisable until April 16, 2003, at an exercise price of
$2.54375 per share, subject to adjustment under certain circumstances.
On January 21, 1998, Endorex formed a joint venture, InnoVaccines
Corporation, with Elan. In connection with the agreement, we issued and sold
to Elan International Services, Ltd. ("EIS"), 307,692 shares of Endorex common
stock and warrants to purchase an aggregate of 230,770 shares of common stock
in consideration of an aggregate amount of $2.0 million. The warrants are
exercisable until January 20, 2007, at an exercise price of $10.00 per share.
In addition, we issued and sold to EIS 80,100 shares of Endorex Series B
Convertible Preferred
13
<PAGE>
Stock at a price of $100 per share. The Series B Preferred Stock is voting and
pays an 8% annual cumulative in-kind dividend. The shares can be converted to
common stock based upon their liquidation value, currently at $7.50 per share,
subject to adjustment.
On October 21, 1998, we formed a second joint venture with Elan, Endorex
Newco, Ltd. In connection with the new agreement, Endorex issued and sold to
EIS 84,105 shares of Series C Exchangeable Convertible Preferred Stock
("Series C Preferred"), at a price of $100 per share. The Series C Preferred
Stock is non-voting and pays a 7% annual cumulative in-kind dividend. The
shares can be exchanged for common stock in the joint venture or converted to
Endorex common stock at $9.00 per common share.
Item 6. Management's Discussion and Analysis or Plan of Operations.
The following "Discussion and Analysis" provides information that we
believe is relevant to an assessment and understanding of our results of
operation and financial condition. You should read this analysis in
conjunction with our audited consolidated financial statements and notes
thereto. This report contains statements of a forward-looking nature relating
to future events or our future financial performance. These statements are
only predictions and actual events or results may differ materially. In
evaluating such statements, you should carefully consider the various factors
identified in this report, which could cause actual results to differ
materially from those indicated from any forward-looking statements, including
those set forth in "Risk Factors" on this Annual Report Form 10-KSB.
Material Changes in Results of Operations
Net loss for the twelve months ended December 31, 1999 of $7.5 million
decreased approximately $14.3 million as compared to the $21.8 million loss
recorded for the twelve months ended December 30, 1998. Reduction in equity
losses from Endorex's two joint ventures with Elan accounted for substantially
all of the reduction in consolidated net loss from 1998 to 1999. For 1999,
equity losses from joint ventures were $2.9 million as compared with $17.1
million for 1998. The 1998 equity losses include our 80.1% share of the
aggregate $20.0 million license fees paid by the joint ventures to Elan to
acquire two technologies: 1) an oral delivery technology for vaccines, and 2)
a medical device called MEDIPAD for delivery of certain drugs for treatment of
life-threatening diseases.
Research and development expenditures for the year ended December 31, 1999
were $2.0 million, approximately the same as compared to the year ended
December 31, 1998. The increased effort devoted to the InnoVaccines joint
venture versus other Endorex activities offset the reduction related to
expenses we incurred in 1998 to transfer the laboratory facilities and
scientific personnel to Lake Forest, IL from Fargo, ND.
Excluding the impact of the license fees paid to Elan in 1998, equity in
losses from joint ventures increased $1.8 million or 166% from 1998 to 1999.
Elan and Endorex each funded research and development related to InnoVaccines
equally from the inception of the joint venture through March 31, 1999, in
accordance with the agreement between Elan and Endorex. As of April 1, 1999,
Endorex and Elan fund future joint venture expenditures in proportion to our
respective ownership levels, therefore Endorex includes 80.1% of the joint
ventures results. The current year equity loss also includes $0.4 million for
Endorex's portion of InnoVaccines' acquisition of an exclusive worldwide
license and intellectual property for proprietary oral microsphere delivery
technology for human and veterinary vaccines. The license encompasses a
portfolio of over 50 patents acquired from Vaxcel, Inc., which was the
previous exclusive licensee for this technology from the Southern Research
Institute and the University of Alabama-Birmingham Research Foundation. The
current year equity loss includes $400,500 reflecting Endorex's 80.1% share of
losses relating to the second joint venture.
General and administrative expenses for the year ended December 31, 1999
decreased $0.5 million, or 13%, to $3.0 million as compared to $3.5 million
for the year ended December 31, 1998. The decrease was mainly
14
<PAGE>
due to a $0.3 million reduction in amortization of fair value of warrants
issued in connection with the financial advisory agreement with Paramount
Capital, Inc. The warrants, which were amortized over a two-year period, were
fully amortized by the end of the third quarter of 1999. Excluding this
amortization, legal expenses decreased approximately $160,000 as compared to
1998. During 1998, we had additional legal expenses related to the initiation
of Endorex's listing on the American Stock Exchange, effective August 6, 1998
under our new symbol DOR, joint venture activity, and private placement
activities.
Interest income for the year ended December 31, 1999 decreased
approximately $0.3 million as compared to the year ended December 31, 1998 due
to a depletion of cash and marketable securities utilized in research and
development activities. Endorex is a development stage enterprise and expects
no significant revenue from the sale of products in the near future.
Plan of Operation and Financial Condition
Endorex continues to progress preclinical development of the Orasome
delivery system for the oral delivery of vaccines and drugs. Development
includes ongoing work with Elan and several major medical and academic
institutions for vaccines and key hormones such as insulin and human growth
hormone. A new patent for this technology was issued in February 2000. During
2000, we anticipate that InnoVaccines will begin to scale up an oral tetanus
vaccine to take into human clinical trials. Additionally the joint venture
will develop prototype oral hepatitis B and flu vaccines and evaluate them in
animal models during 2000. Such new vaccines have been made possible by
InnoVaccines's advances in delivery technology that include safe and effective
adjuvants and site specific targeting. "Targeting" vaccines to the correct
sites in the gastrointestinal tract or the nasal passage gets the antigen to
the right place; otherwise, antigens are lost and are ineffective. Adjuvants
boost the overall immune response to the antigen, creating a higher level of
immunization. This element is critical in persons with diminished immune
systems, such as the elderly, where many vaccines are much less effective.
InnoVaccines combines novel existing and future delivery systems of the two
companies for the development of human vaccines, a $6 billion market that is
projected to increase to $10 billion by 2003, as well as for the growing
veterinary vaccine market.
During 1999 collaborative development efforts began for our second joint
venture with Elan, Endorex Newco, Ltd., established for the commercialization,
research and development of two iron chelator drugs using the MEDIPAD
technology. The MEDIPAD system is a small, disposable drug delivery system,
which combines a microinfusion pump with the convenience of patch technology.
We expect to initiate clinical trials during 2000 with MEDIPAD in one iron
chelator drug through the joint venture, and our recently announced agreement
with Schein Pharmaceutical, Inc.
Endorex recently signed a research and option agreement with Novo Nordisk
A/S (a major pharmaceutical company with a significant share of the estimated
$1.7 billion global market for hGH), to evaluate the commercial attractiveness
of Novo's brand of hGH delivered orally, Norditropin(R). They plan to evaluate
the Orasome system in several animal models. Novo Nordisk has taken an
exclusive option to license the Orasome technology for Norditropin(R).
During 2000, Endorex will also evaluate the Orasome system for oral
delivery of a DNA vaccine.
On March 1, 2000, we announced that in spite of several active phase I and
II trials with our two oncology drugs, POH and ImmTher(R), Endorex has decided
to divest the oncology business in favor of focusing on the rapid expansion
and promise of our drug delivery business. Further development of the oncology
business would require a substantial step-up in investment in product
development and human resources at a time when we are facing a similar
requirement in our drug delivery business that has already attracted initial
partners. Oncology has been our focus for many years. However, to be a serious
participant in this highly competitive arena would require a significant
restructuring of our business and significantly higher financial resources. We
have already begun to pursue several alternatives for terminating our role in
this business early in 2000.
15
<PAGE>
On December 31, 1999 and December 31, 1998, we had cash, cash equivalents,
and marketable securities of $8.5 million and $13.2 million, respectively, and
working capital of $6.9 million and $12.6 million, respectively, exclusive of
deferred costs. Our current level of activities requires the expenditure of
approximately $400,000 per month, including costs associated with the joint
ventures. We believe that our current cash resources will be sufficient to
support currently planned operations for the next two years. However, we
intend, from time to time in the future, to seek to expand our research and
development activities into other technologies and/or products that we either
may license from other persons or develop. Any such activities may require the
expenditure of funds not presently available. We also may seek to obtain funds
from possible future public or private sales of our securities or other
sources. See "Risk Factors--If we cannot obtain additional funding, our
product development and commercialization efforts may be reduced or
discontinued."
Item 7. Financial Statements.
Pursuant to Exchange Act Rule 12b-23, the financial statements set forth on
pages F-1, et seq. attached hereto are incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
16
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(A) of the Exchange Act.
The information required by this Item is incorporated by reference from our
definitive proxy statement to be filed with the Commission prior to 120 days
after December 31, 1999.
Item 10. Executive Compensation.
The information required by this Item is incorporated by reference from our
definitive proxy statement to be filed with the Commission prior to 120 days
after December 31, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated by reference from our
definitive proxy statement to be filed with the Commission prior to 120 days
after December 31, 1999.
Item 12. Certain Relationships and Related Transactions.
The information required by this Item is incorporated by reference from our
definitive proxy statement to be filed with the Commission prior to 120 days
after December 31, 1999.
Item 13. Exhibits and Reports on Form 8-K.
(a) The following financial statements are filed as part of this report:
Financial Statements.
(1) Balance Sheet as of December 31, 1999.
(2) Statements of Operations for the periods ended December 31, 1999
and 1998 and cumulative from February 15, 1985 (date of inception) to
December 31, 1999.
(3) Statements of Cash Flows for the periods ended December 31, 1999
and 1998 and cumulative from February 15, 1985 (date of inception) to
December 31, 1999.
(4) Statements of Stockholders' Equity for the period from February
15, 1985 (date of inception) to December 31, 1999.
(5) Notes to Financial Statements.
(6) Independent Accountants' Report.
(b) Reports on Form 8-K
During the fiscal quarter ended December 31, 1999 we did not file any
Current Reports on Form 8-K.
(c) Exhibits:
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of Endorex. (1)
3.2 Certificate of Ownership and Merger filed March 30, 1987. (1)
3.3 Certificate of Amendment to Certificate of Incorporation filed September
7, 1989. (2)
3.4 Certificate of Amendment to Certificate of Incorporation filed November
13, 1990. (3)
3.5 Certificate of Amendment to Certificate of Incorporation filed May 29,
1991. (3)
3.6 Certificate of Amendment to Certificate of Incorporation filed February
27, 1992. (3)
</TABLE>
17
<PAGE>
<TABLE>
<C> <S>
3.7 Certificate of Amendment to Certificate of Incorporation filed February
27, 1992. (3)
3.8 Certificate of Amendment to Certificate of Incorporation filed June 29,
1993. (4)
3.9 Certificate of Amendment to Certificate of Incorporation filed April
15, 1996. (5)
3.10 Certificate of Amendment to Certificate of Incorporation filed June 10,
1997. (8)
3.11 Certificate of Amendment to Certificate of Incorporation filed December
9, 1998. (11)
3.12 Series B Preferred Certificate of Designations, Preferences and Rights
filed January 21, 1998. (10)
3.13 Series C Preferred Certificate of Designations, Preferences and Rights
filed October 21, 1998. (10)
3.14 By-laws of the Company. (1)
4.1 Specimen Common Stock Certificate. (1)
4.2 Warrant for the Purchase of 864,865 Shares of Common Stock. (7)
4.3 Warrant for the Purchase of 1,297,297 Shares of Common Stock. (7)
4.4 Warrant for the Purchase of 230,770 Shares of Common Stock. (8)
10.1 Patent License Agreement dated December 16, 1996 between Endorex and
Massachusetts Institute of Technology. (6)
10.2 Employment Agreement dated July 25, 1996 between Endorex and Michael S.
Rosen. (4)
10.3 Employment Agreement dated December 1, 1996 between Endorex and Robert
N. Brey. (6)
10.4 Purchase Agreement dated as of June 26, 1996 between Endorex, The Aries
Fund and The Aries Domestic Fund, L.P. (6)
10.5 Amended and Restated 1995 Omnibus Incentive Plan. (9)
10.6 Placement Agency Agreement between Endorex and Paramount Capital, Inc.,
dated July 1, 1997. (7)
10.7 Side Letter #1 to Placement Agency Agreement. (7)
10.8 Form of Subscription Agreement for the purchase of Common Stock. (7)
10.9 Lease dated December 19, 1997 between Endorex and Howard M. Ruskin. (8)
10.12+ Joint Development and Operating Agreement, dated as of January 21,
1998, between Endorex, Elan Corporation, plc, Orasomal Technologies,
Inc. and Endorex Vaccine Delivery Technologies, Inc. (8)
10.13 Securities Purchase Agreement, dated as of January 21, 1998, between
Endorex and Elan International Services, Ltd. (8)
10.14 Registration Rights Agreement, dated as of January 21, 1998, between
the Company and Elan International Services, Ltd. (8)
10.15+ License Agreement, dated as of January 21, 1998, between Elan
Pharmaceuticals, plc. and Endorex Vaccine Delivery Technologies, Inc.
(8)
10.16+ License Agreement, dated as of January 22, 1998, between Orasomal
Technologies, Inc., Endorex Vaccine Delivery Technologies, Inc. and the
Company. (8)
10.17 Securities Purchase Agreement, dated as of October 21, 1998, between
Endorex and Elan International Services, Ltd. (10)
10.18 Registration Rights Agreement, dated as of October 21, 1998, between
Endorex and Elan International Services, Ltd. (10)
10.19+ License Agreement, dated as of October 21, 1998, between Endorex, Elan
Corporation, plc, Endorex Newco. Ltd., and Elan Medical Technologies
Ltd. (10)
10.20+ Joint Development and Operating Agreement, dated as of October 21,
1998, between Endorex, Elan Corporation, plc, Elan International
Services, Ltd. and Endorex Newco, Ltd. (10)
10.21* Development License and Supply Agreement, dated February 2, 2000,
between Endorex Newco, Ltd. and Schein Pharmaceutical (Bermuda), Ltd.
</TABLE>
18
<PAGE>
<TABLE>
<C> <S>
10.22 Employment Agreement, dated February 8, 2000, between Endorex
Corporation and Frank C. Reid.
10.23 Letter Agreement, dated March 13, 2000, between Endorex Corporation and
David Franckowiak.
21 Subsidiaries of Endorex.
23.1 Consent of PricewaterhouseCoopers LLP, independent certified public
accountants.
27 Financial Data Schedule.
</TABLE>
- --------
+ Endorex applied for Confidential Treatment of portions of this exhibit
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
* Endorex has applied for Confidential Treatment of portions of this exhibit
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
(1) Incorporated by reference to our Registration Statement on Form S-1 (File
No. 33-13492).
(2) Incorporated by reference to our Annual Report on Form 10-K for the
fiscal year ended January 31, 1989.
(3) Incorporated by reference to our Annual Report on Form 10-K for the
fiscal year ended January 31, 1992.
(4) Incorporated by reference to our Annual Report on Form 10-KSB for the
fiscal year ended January 31, 1996.
(5) Incorporated by reference to our Quarterly Report on Form 10-QSB for the
fiscal quarter ended July 31, 1996.
(6) Incorporated by reference to our Annual Report on Form 10-KSB, as
amended, for the transition period ended December 31, 1996.
(7) Incorporated by reference to our Quarterly Report on Form 10-QSB, as
amended, for the fiscal quarter ended September 30, 1997.
(8) Incorporated by reference to our Annual Report on Form 10-KSB, as
amended, for the period ended December 31, 1997.
(9) Incorporated by reference to our Registration Statement on Form S-8 dated
September 23, 1998.
(10) Incorporated by reference to our Quarterly Report on Form 10-QSB, for the
fiscal quarter ended September 30, 1998.
(11) Incorporated by reference to our Registration Statement on Form 10-KSB,
for the period ended December 31, 1998.
19
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ 4,995,906
Marketable securities--available for sale...................... 3,547,847
Prepaid expenses............................................... 102,546
------------
Total current assets....................................... 8,646,299
Leasehold improvements and equipment, net of accumulated
amortization of $649,092........................................ 448,951
Patent issuance costs, net of accumulated amortization of $5,088. 176,875
------------
Total Assets..................................................... $ 9,272,125
============
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses.......................... $ 496,889
Accrued compensation........................................... 184,508
Due to joint ventures.......................................... 942,333
Current portion of line of credit.............................. 110,342
------------
Total current liabilities.................................. 1,734,072
Long-term portion of line of credit.............................. 281,899
------------
Total Liabilities................................................ 2,015,971
Series C exchangeable convertible preferred stock, $.05 par
value. Authorized 200,000 shares; 91,218 issued and outstanding
at liquidation value............................................ 9,027,012
Stockholders' Deficit:
Preferred stock, $.05 par value. Authorized 100,000 shares;
none issued and outstanding
Series B convertible preferred stock, $.05 par value.
Authorized 200,000 shares; 92,973 issued and outstanding at
liquidation value............................................. 9,297,300
Common stock, $.001 par value. Authorized 50,000,000 shares;
10,874,295 issued and 10,755,653 outstanding.................. 10,878
Additional paid-in capital..................................... 33,659,131
Deficit accumulated during the development stage............... (44,294,417)
------------
(1,327,108)
------------
Less: treasury stock, at cost, 118,642 shares.................... (443,750)
------------
TOTAL STOCKHOLDERS' DEFICIT................................ (1,770,858)
------------
Total Liabilities, Convertible Preferred Stock, And Stockholders'
Deficit......................................................... $ 9,272,125
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-1
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative Period
February 15,
Year Ended Year ended 1985 (Inception)
December December 31, to December 31,
31, 1999 1998 1999
----------- ------------ -----------------
<S> <C> <C> <C>
SBIR contract revenue............. $ -- $ -- $ 100,000
Expenses:
SBIR contract research and
development.................... -- -- 86,168
Proprietary research and
development.................... 2,028,945 1,977,994 13,876,263
General and administrative...... 3,046,684 3,500,682 10,970,277
----------- ------------ ------------
Total expenses.................... 5,075,629 5,478,676 24,932,708
----------- ------------ ------------
Loss from operations.............. (5,075,629) (5,478,676) (24,832,708)
Equity in losses from joint
ventures......................... (2,865,908) (17,097,975) (19,963,883)
Other income...................... 3,790 -- 5,302
Interest income................... 488,582 799,335 2,294,515
Interest expense.................. (51,854) (15,854) (261,421)
----------- ------------ ------------
Loss before income taxes.......... (7,501,019) (21,793,170) (42,758,195)
Income taxes...................... -- -- --
----------- ------------ ------------
Net loss.......................... (7,501,019) (21,793,170) (42,758,195)
Preferred stock dividends......... (1,285,413) (713,187) (1,998,600)
----------- ------------ ------------
Net loss applicable to common
stockholders..................... $(8,786,431) $(22,506,357) $(44,756,795)
=========== ============ ============
Basic and diluted net loss per
share applicable to common
stockholders..................... $ (0.82) $ (2.09) $ (17.80)
Basic and diluted weighted average
common shares outstanding........ 10,755,328 10,760,988 2,513,871
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(Deficit)
Preferred Accumulated Treasury Total
Common Stock Stock Additional During the Stock Stockholders'
---------------- ------------ Paid-In Development ------------- Deferred Note Equity
Shares Par Value Shares Value Capital Stage Shares Cost Compensation Receivable (Deficit)
------ --------- ------ ----- ---------- ----------- ------ ------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock
issued for cash
in February 1985
at $1.50 per
share........... 667 $ 1 -- $ -- $ 999 $ -- -- $ -- $ -- $ -- $ 1,000
Net earnings for
the period from
February 15,
1985 to
January 31,
1996............ -- -- -- -- -- 6,512 -- -- -- -- 6,512
----- ---- --- ----- ---------- --------- --- ------ -------- ------ ----------
Balance--January
31, 1986........ 667 1 -- -- 999 6,512 -- -- -- -- 7,512
Common stock
issued for cash
in October 1986
at $750.00 per
share........... 666 1 -- -- 499,999 -- -- -- -- -- 500,000
Excess of fair
market value
over option
Price of
non-qualified
stock option
granted......... -- -- -- -- 13,230 -- -- -- -- -- 13,230
Net loss for the
year............ -- -- -- -- -- (34,851) -- -- -- -- (34,851)
----- ---- --- ----- ---------- --------- --- ------ -------- ------ ----------
Balance--January
31, 1987........ 1,333 2 -- -- 514,228 (28,339) -- -- -- -- 485,891
Common stock
issued in May
1987 at $750.00
per share for
legal services
performed for
the company..... 7 -- -- -- 5,000 -- -- -- -- -- 5,000
Net proceeds
from initial
public stock
offering in June
1987 at
$6,000.00 per
share, less
issuance costs.. 333 -- -- -- 1,627,833 -- -- -- -- -- 1,627,833
Non-qualified
stock options
exercised....... 48 -- -- -- 33,808 -- -- -- (28,188) -- 5,620
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 7,425 -- 7,425
Excess of fair
market value
over option
price of
non-qualified
stock options
granted......... -- -- -- -- 75,063 -- -- -- -- -- 75,063
Net loss for the
year............ -- -- -- (627,652) -- -- -- -- (627,652)
----- ---- --- ----- ---------- --------- --- ------ -------- ------ ----------
Balance--January
1988--forward... 1,721 $ 2 -- -- $2,255,932 $(655,991) -- $ -- $(20,763) $ -- $1,579,180
</TABLE>
F-3
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)--(Continued)
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Preferred Stock Additional During the Treasury Stock
----------------- ----------------- Paid-In Development ----------------- Deferred Note
Shares Par Value Shares Value Capital Stage Shares Cost Compensation Receivable
------ --------- -------- -------- ----------- ------------ -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--January
1988--forward... 1,721 $ 2 -- -- $ 2,255,932 $ (655,991) -- $ -- $ (20,763) $ --
Non-qualified
stock options
exercised....... 18 -- -- -- 256 -- -- -- -- --
Stock warrants
exercised....... 1 -- -- -- 12,000 -- -- -- -- --
Common stock
redeemed and
retired......... (10) -- -- -- (150) -- -- -- -- --
Excess of fair
market value
over option
price of
non-qualified
stock options
granted......... -- -- -- -- 36,524 -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 19,113 --
Net loss for the
Year............ -- -- -- -- -- (1,092,266) -- -- -- --
----- ---- ------ -------- ----------- ------------ ------ -------- --------- -----
Balance--January
31, 1989........ 1,730 2 -- -- 2,304,562 (1,748,257) -- -- (1,650) --
Non-qualified
stock options
exercised....... 71 -- -- -- 1,060 -- -- -- -- --
Common stock
redeemed and
retired......... (12) -- -- -- (175) -- -- -- -- --
Excess of fair
market value
over option
price of
non-qualified
stock options
granted......... -- -- -- -- 113,037 -- -- -- -- --
Net proceeds
from secondary
public stock
offering in
April 1989 at
$525.00 per
share, less
issuance cost... 2,174 2 -- -- 980,178 -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 1,650 --
Net loss for the
year............ -- -- -- -- -- (1,129,477) -- -- -- --
----- ---- ------ -------- ----------- ------------ ------ -------- --------- -----
Balance--January
31,1990--
forward......... 3,963 $ 4 -- $ -- $ 3,398,662 $ (2,877,734) -- $ -- $ -- $ --
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
-------------
<S> <C>
Balance--January
1988--forward... $ 1,579,180
Non-qualified
stock options
exercised....... 256
Stock warrants
exercised....... 12,000
Common stock
redeemed and
retired......... (150)
Excess of fair
market value
over option
price of
non-qualified
stock options
granted......... 36,524
Amortization of
deferred
compensation.... 19,113
Net loss for the
Year............ (1,092,266)
-------------
Balance--January
31, 1989........ 554,657
Non-qualified
stock options
exercised....... 1,060
Common stock
redeemed and
retired......... (175)
Excess of fair
market value
over option
price of
non-qualified
stock options
granted......... 113,037
Net proceeds
from secondary
public stock
offering in
April 1989 at
$525.00 per
share, less
issuance cost... 980,180
Amortization of
deferred
compensation.... 1,650
Net loss for the
year............ (1,129,477)
-------------
Balance--January
31,1990--
forward......... $ 520,932
</TABLE>
F-4
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)--(Continued)
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Preferred Stock Additional During the Treasury Stock
----------------- ----------------- Paid-In Development ----------------- Deferred Note
Shares Par Value Shares Value Capital Stage Shares Cost Compensation Receivable
------- --------- -------- -------- ---------- ------------ -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--January
31, 1990--
forward......... 3,963 $ 4 -- $ -- $3,398,662 $ (2,877,734) -- $ -- $ -- $ --
Common stock
issued for cash
in October 1990
through January
1991 at $9.00
per share....... 5,694 6 -- -- 51,244 -- -- -- -- --
Excess of fair
market value
over option
price of non-
qualified stock
options granted. -- -- -- -- 30,635 -- -- -- -- --
Net loss for the
year............ -- -- -- -- -- (854,202) -- -- -- --
------- ---- ------ -------- ---------- ------------ ------ -------- ----- --------
Balance--January
31, 1991........ 9,657 10 -- -- 3,480,541 (3,731,936) -- -- -- --
Common stock
issued for cash
in February 1991
through April
1991 at $9.00
per share....... 2,772 3 -- -- 24,947 -- -- -- -- --
Common stock
issued for cash
and services in
November 1991 at
$1.50 per share. 15,333 15 -- -- 22,985 -- -- -- -- --
Common stock
issued for cash
and note in
December 1991 at
$0.75 per share. 296,949 297 -- -- 200,018 -- -- -- -- (50,315)
Excess of fair
market value
over option
price of non-
qualified stock
options granted. -- -- -- -- 16,570 -- -- -- -- --
Non-qualified
stock options
exercised....... 1 -- -- -- 1 -- -- -- -- --
Net loss for the
year............ -- -- -- -- -- (410,149) -- -- -- --
------- ---- ------ -------- ---------- ------------ ------ -------- ----- --------
Balance--January
31, 1992--
forward......... 324,712 $325 -- $ -- $3,745,062 $ (4,142,085) -- $ -- $ -- $(50,315)
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
-------------
<S> <C>
Balance--January
31, 1990--
forward......... $ 520,932
Common stock
issued for cash
in October 1990
through January
1991 at $9.00
per share....... 51,250
Excess of fair
market value
over option
price of non-
qualified stock
options granted. 30,635
Net loss for the
year............ (854,202)
-------------
Balance--January
31, 1991........ (251,385)
Common stock
issued for cash
in February 1991
through April
1991 at $9.00
per share....... 24,950
Common stock
issued for cash
and services in
November 1991 at
$1.50 per share. 23,000
Common stock
issued for cash
and note in
December 1991 at
$0.75 per share. 150,000
Excess of fair
market value
over option
price of non-
qualified stock
options granted. 16,570
Non-qualified
stock options
exercised....... 1
Net loss for the
year............ (410,149)
-------------
Balance--January
31, 1992--
forward......... $(447,013)
</TABLE>
F-5
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)--(Continued)
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Preferred Stock Additional During the Treasury Stock
----------------- ----------------- Paid-In Development ---------------- Deferred Note
Shares Par Value Shares Value Capital Stage Shares Cost Compensation Receivable
------- --------- -------- -------- ----------- ----------- ------ --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--January
31, 1992--
forward......... 324,712 $ 325 -- $ -- $ 3,745,062 $(4,142,085) -- $ -- $ -- $(50,315)
Payment on note
receivable...... -- -- -- -- -- -- -- -- -- 11,300
Net proceeds
from secondary
public stock
offering in
August 1992 at
$112.50 per
share, less
issuance costs.. 66,666 66 -- -- 6,230,985 -- -- -- -- --
Non-qualified
stock options
exercised....... 2,000 2 -- -- 28 -- -- -- -- --
Net loss for the
year............ -- -- -- -- -- (564,173) -- -- -- --
------- ----- ------ -------- ----------- ----------- ------ --------- --------- --------
Balance--January
31, 1993........ 393,378 393 -- -- 9,976,075 (4,706,258) -- -- -- (39,015)
Excess of fair
market value
over option
price of non-
qualified stock
options granted. -- -- -- -- 126,000 -- -- -- (126,000) --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 40,750 --
Non-qualified
stock options
exercised....... 67 -- -- -- 57 -- -- -- -- --
Collection of
note receivable. -- -- -- -- -- -- -- -- -- 39,015
Net loss for the
year............ -- -- -- -- -- (1,012,882) -- -- -- --
------- ----- ------ -------- ----------- ----------- ------ --------- --------- --------
Balance--January
31, 1994........ 393,445 393 -- -- 10,102,132 (5,719,140) -- -- (85,250) --
Acquisition of
treasury stock.. -- -- -- -- -- -- 41,975 (300,000) -- --
Forfeiture of
non-qualified
stock options
granted......... -- -- -- -- (22,402) -- -- -- 22,402 --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 49,348 --
Net loss for the
year............ -- -- -- -- -- (1,349,678) -- -- -- --
------- ----- ------ -------- ----------- ----------- ------ --------- --------- --------
Balance--January
31, 1995--
forward......... 393,445 $ 393 -- $ -- $10,079,730 $(7,068,818) 41,975 $(300,000) $ (13,500) $ --
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
-------------
<S> <C>
Balance--January
31, 1992--
forward......... $ (447,013)
Payment on note
receivable...... 11,300
Net proceeds
from secondary
public stock
offering in
August 1992 at
$112.50 per
share, less
issuance costs.. 6,231,051
Non-qualified
stock options
exercised....... 30
Net loss for the
year............ (564,173)
-------------
Balance--January
31, 1993........ 5,231,195
Excess of fair
market value
over option
price of non-
qualified stock
options granted. --
Amortization of
deferred
compensation.... 40,750
Non-qualified
stock options
exercised....... 57
Collection of
note receivable. 39,015
Net loss for the
year............ (1,012,882)
-------------
Balance--January
31, 1994........ 4,298,135
Acquisition of
treasury stock.. (300,000)
Forfeiture of
non-qualified
stock options
granted......... --
Amortization of
deferred
compensation.... 49,348
Net loss for the
year............ (1,349,678)
-------------
Balance--January
31, 1995--
forward......... $ 2,697,805
</TABLE>
F-6
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)--(Continued)
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Preferred Stock Additional During the Treasury Stock
------------------- ----------------- Paid-In Development ----------------- Deferred Note
Shares Par Value Shares Value Capital Stage Shares Cost Compensation Receivable
--------- --------- -------- -------- ----------- ------------ ------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--January
31, 1995--for-
ward............ 393,445 $ 393 -- $ -- $10,079,730 $ (7,068,818) 41,975 $(300,000) $(13,500) $ --
Acquisition of
treasury stock.. -- -- -- -- -- -- 76,667 (143,750) -- --
Forfeiture of
non-qualified
stock options
granted......... -- -- -- -- (1,379) -- -- -- 1,379 --
Amortization of
deferred compen-
sation.......... -- -- -- -- -- -- -- -- 12,121 --
Net loss for the
year............ -- -- -- -- -- (1,187,985) -- -- -- --
--------- ------ ------ -------- ----------- ------------ ------- --------- -------- -----
Balance--January
31, 1996........ 393,445 $ 393 -- $ -- $10,078,351 $ (8,256,803) 118,642 $(443,750) $ -- $ --
Common stock is-
sued at $0.975
per share....... 333,333 333 -- -- 324,667 -- -- -- -- --
Common stock is-
sued at $3.00
per share....... 333,333 333 -- -- 999,667 -- -- -- -- --
Non-qualified
stock options
exercised....... 145,283 146 -- -- 379,003 -- -- -- -- --
Net loss for the
period.......... -- -- -- -- -- (1,962,877) -- -- -- --
--------- ------ ------ -------- ----------- ------------ ------- --------- -------- -----
Balance--Decem-
ber 31, 1996.... 1,205,394 1,205 -- -- 11,781,688 (10,219,680) 118,642 (443,750) -- --
Warrents exer-
cised at $1.20
per share....... 1,173 1 -- -- 1,407 -- -- -- -- --
Proceeds on ex-
ercise of stock
options......... -- -- -- -- 5,000 -- -- -- -- --
Warrants Issued. -- -- -- -- 5,407,546 -- -- -- -- --
Net proceeds
from private
placement at
$2.3125 per
share, less is-
suance cost..... 8,648,718 8,650 -- -- 15,122,943 -- -- -- -- --
Net loss for the
year............ -- -- -- (3,244,326) -- -- -- --
--------- ------ ------ -------- ----------- ------------ ------- --------- -------- -----
Balance--Decem-
ber 31, 1997--
forward......... 9,855,285 $9,856 -- $ -- $32,318,584 $(13,464,006) 118,642 $(443,750) $ -- $ --
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
-------------
<S> <C>
Balance--January
31, 1995--for-
ward............ $ 2,697,805
Acquisition of
treasury stock.. (143,750)
Forfeiture of
non-qualified
stock options
granted......... --
Amortization of
deferred compen-
sation.......... 12,121
Net loss for the
year............ (1,187,985)
-------------
Balance--January
31, 1996........ $ 1,378,191
Common stock is-
sued at $0.975
per share....... 325,000
Common stock is-
sued at $3.00
per share....... 1,000,000
Non-qualified
stock options
exercised....... 379,149
Net loss for the
period.......... (1,962,877)
-------------
Balance--Decem-
ber 31, 1996.... 1,119,463
Warrents exer-
cised at $1.20
per share....... 1,408
Proceeds on ex-
ercise of stock
options......... 5,000
Warrants Issued. 5,407,546
Net proceeds
from private
placement at
$2.3125 per
share, less is-
suance cost..... 15,131,593
Net loss for the
year............ (3,244,326)
-------------
Balance--Decem-
ber 31, 1997--
forward......... $18,420,684
</TABLE>
F-7
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)--(Continued)
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Preferred Stock Additional During the Treasury Stock
--------------------- ------------------ Paid-In Development ------------------ Deferred
Shares Par Value Shares Value Capital Stage Shares Cost Compensation
---------- --------- ------- ---------- ------------ ------------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--
December 31,
1997--forward... 9,855,285 $ 9,856 -- $ -- $ 32,318,584 $ (13,464,006) 118,642 $ (443,750) $ --
Net proceeds
from issuance of
common stock and
warrants........ 307,692 308 -- -- 1,871,537 -- -- -- --
Proceeds from
exercise of
stock options... 25,000 25 -- -- 61,725 -- -- -- --
Purchase and
retirement of
common stock.... (133,335) (134) -- -- (129,866) -- -- -- --
Net proceeds
from issuance of
Series B
Preferred Stock
at $100 per
share........... -- -- 80,100 8,010,000 -- -- -- -- --
Accrued
preferred stock
dividends....... -- -- 5,986 598,666 (713,187) -- -- -- --
Net loss for the
year............ -- -- -- -- -- (21,793,170) -- -- --
---------- ------- ------- ---------- ------------ ------------- ------- ---------- -----
Balance--
December 31,
1998............ 10,054,642 $10,055 86,086 $8,608,666 $ 33,408,793 $ (35,257,176) 118,642 $ (443,750) $ --
Proceeds from
exercise of
stock options... 334 4 -- -- 347 -- -- -- --
Common stock
dividends
issued.......... 819,319 819 1,535,404 (1,536,223) -- -- --
Accrued
preferred stock
dividends....... 68,867 688,634 (1,285,413)
Net loss for the
year............ -- -- -- -- -- (7,501,019) -- -- --
---------- ------- ------- ---------- ------------ ------------- ------- ---------- -----
Balance--
December 31,
1999............ 10,874,295 $10,878 154,953 $9,297,300 $ 33,659,131 $ (44,294,417) 118,642 $ (443,750) $ --
========== ======= ======= ========== ============ ============= ======= ========== =====
<CAPTION>
Total
Stockholders'
Note Equity
Receivable (Deficit)
---------- --------------
<S> <C> <C>
Balance--
December 31,
1997--forward... $ -- $ 18,420,684
Net proceeds
from issuance of
common stock and
warrants........ -- 1,871,845
Proceeds from
exercise of
stock options... -- 61,750
Purchase and
retirement of
common stock.... -- (130,000)
Net proceeds
from issuance of
Series B
Preferred Stock
at $100 per
share........... -- 8,010,000
Accrued
preferred stock
dividends....... -- (114,521)
Net loss for the
year............ -- (21,793,170)
---------- --------------
Balance--
December 31,
1998............ $ -- $ 6,326,588
Proceeds from
exercise of
stock options... -- 351
Common stock
dividends
issued.......... -- --
Accrued
preferred stock
dividends....... (596,778)
Net loss for the
year............ -- (7,501,019)
---------- --------------
Balance--
December 31,
1999............ $ -- $ (1,770,858)
========== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Cumulative Period
Year Ended Year Ended February 15, 1985
December 31, December 31, (Inception) to
1999 1998 December 31, 1999
------------ ------------ -----------------
<S> <C> <C> <C>
Operating Activities:
Net Loss......................... $(7,501,019) $(21,793,170) $(42,758,195)
Adjustments to reconcile net
loss to cash used in operating
activities:
Depreciation and amortization.. 153,894 93,722 1,217,724
Gain on sale of marketable
securities--available for
sale.......................... (110,244) -- (110,244)
Amortization of deferred
compensation.................. 131,786
Equity in losses from joint
ventures...................... 2,865,908 17,097,975 19,963,883
Excess of fair market value
over option prices on non-
qualified stock options....... -- -- 528,680
Amortization of fair value of
warrants...................... 1,253,856 1,577,644 3,307,546
Gain on sale of assets......... (3,790) -- (4,530)
Write off patent issuance cost. 327,078 -- 439,725
Changes in assets and
liabilities:
Restricted cash................ 500,000 (500,000) --
Prepaid expenses............... (36,785) 70,027 (102,546)
Accounts payable and accrued
expenses...................... 188,503 (177,734) 586,859
Accrued compensation........... (56,509) 97,655 184,508
Due to joint ventures.......... 442,333 500,000 942,333
----------- ------------ ------------
Total adjustments............ 5,524,244 18,759,289 27,085,724
----------- ------------ ------------
Net Cash Used In Operating
Activities....................... (1,976,775) (3,033,881) (15,672,471)
Investing Activities:
Patent issuance cost............. (152,530) (96,933) (676,513)
Investment in joint ventures..... (2,465,408) (17,498,475) (19,963,883)
Organizational costs incurred.... -- -- (135)
Purchases of leasehold
improvements.................... (20,054) (255,888) (695,613)
Purchases of office and lab
equipment....................... (107,873) (190,738) (911,276)
Proceeds from assets sold........ 3,790 -- 4,790
Purchases of marketable
securities--available for sale.. (4,663,099) (950,000) (5,613,099)
Proceeds from sale of marketable
securities--available for sale.. 2,175,496 -- 2,175,496
----------- ------------ ------------
Net Cash Used In Investing
Activities....................... (5,229,678) (18,992,034) (25,680,233)
Financing Activities:
Net proceeds from issuance of
common stock.................... -- 1,871,845 30,024,722
Net proceeds from issuance of
preferred stock................. -- 16,325,712 16,325,712
Proceeds from exercise of
options......................... 351 61,750 201,338
Proceeds from borrowings from
President....................... -- -- 41,433
Repayment of borrowings from
President....................... -- -- (41,433)
Proceeds from borrowings under
line of credit.................. 95,774 392,649 1,150,913
Repayment of borrowings under
line of credit.................. (96,181) -- (758,672)
Proceeds from note payable to
bank............................ -- -- 150,000
Payments on note payable to
bank............................ -- -- (150,000)
Proceeds from borrowings from
stockholders.................... -- -- 15,867
Repayment of borrowings from
stockholders.................... -- -- (15,867)
Advances from parent company..... -- -- 135,000
Payments to parent company....... -- -- (135,000)
Repayment of long-term note
receivable...................... -- -- 50,315
Repayment of note payable issued
in exchange for legal service... -- (71,968)
Purchase and retirement of
common stock.................... -- (130,000) (130,000)
Purchase of treasury stock....... -- -- (443,750)
----------- ------------ ------------
Net Cash Provided By (Used In)
Financing Activities............. (56) 18,521,956 46,348,610
----------- ------------ ------------
Net Increase (decrease) In Cash
And Cash Equivalents............. (7,206,509) (3,503,959) 4,995,906
Cash And Cash Equivalents-
Beginning Of Period.............. 12,202,415 15,706,374 --
----------- ------------ ------------
Cash And Cash Equivalents-End Of
Period........................... $ 4,995,906 $ 12,202,415 $ 4,995,906
=========== ============ ============
Supplemental Disclosure Of Cash
Flow:
Cash paid for interest........... $ 51,950 $ 15,854 $ 108,452
Non-cash Transactions
Issuance of common stock
dividends in kind............... $ 1,536,223 $ -- $ 1,536,223
Issuance of preferred stock
dividends in kind............... 1,285,413 713,187 1,998,600
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Operations
Basis of Presentation--Endorex Corporation and Subsidiaries was
incorporated in January 1987 as ImmunoTherapeutics, Inc, a wholly owned
subsidiary of BiologicalTherapeutics, Inc. ("BTI"). BTI was incorporated on
December 19, 1984 and commenced operations on February 15, 1985 [inception
date]. On March 30, 1987 BTI was merged into Endorex. Our financial statements
include the accounts of our predecessor, BTI, for all periods presented. In
October 1996 Endorex formed its first subsidiary, Orasomal Technologies, Inc.
("Orasomal"), and in July 1997, we formed a second subsidiary, Wisconsin
Genetics, Inc. ("WGI").
Nature of Business--Endorex Corporation is a development-stage drug
delivery company. Our core drug delivery technology focuses on oral/mucosal
delivery of drugs and vaccines previously delivered only by injection. The
Company's Orasome system utilizes technology licensed from MIT to develop the
oral/mucosal delivery of vaccines, proteins and peptides.
In 1998 Endorex formed two joint ventures with Elan Corporation, plc, one
of the world's leading drug delivery companies. The purpose of the first joint
venture, InnoVaccines, is to research, develop, and commercialize novel
delivery systems for the human and veterinary vaccine markets. The second
joint venture, Newco, focuses on the utilization of the MEDIPAD microinfusion
pump, developed by Elan, to deliver iron chelators for the treatment of a
series of genetic blood disorders known as iron overload disorders.
2. Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include
Endorex and its subsidiaries, Orasomal and WGI. Intercompany accounts and
transactions have been eliminated. We account for the joint ventures by
recognizing Endorex's portion of the joint venture losses as Equity in losses
from joint ventures.
Segment and Geographic Information -- Endorex operates exclusively in the
biotechnology drug delivery industry. We are currently in the development
stage and do not have any revenues, or any segregation of assets relating to
products or business entities. All development work is performed in the United
States. During 1999, we made operating decisions based upon product and market
potential and collaborative agreements and did not utilize specific operating
results to manage the business. Therefore, we do not have reportable operating
segments as defined by Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Cash and Cash Equivalents--Cash equivalents are comprised of certain highly
liquid investments with maturity of three months or less when purchased.
Marketable Securities--Marketable securities are comprised of high-grade
commercial paper and short-term government agency notes that have maturities
ranging from six to twelve months from the purchase date. The fair value of
marketable securities classified as available for sale approximates the
carrying value of these assets due to the short maturity of the instruments.
Office and Lab Equipment and Leasehold Improvements--Office and lab
equipment is stated at cost. Depreciation is computed on a straight-line basis
over five years. Leasehold improvements are amortized utilizing the straight-
line method over the term of the lease. Depreciation expense was $138,582 and
$75,934 for the periods ended December 31, 1999 and 1998, respectively.
Research and Development Costs--Expenditures for research and development
activities are charged to operations as incurred. Previously reported research
and development expenses related to our first year funding
F-10
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of InnoVaccines have been reclassified in the accompanying 1998 consolidated
statement of operations to Equity in losses from joint ventures to conform to
our 1999 presentation of expenditures. The reclassification did not impact
previously reported net loss or deficit accumulated during the development
stage.
Patent Issuance Costs--The cost of patents is accumulated during the
approval process. Patents granted are amortized on a straight-line basis over
the remaining legal life of the patent or the estimated remaining economic
life. When a patent is not granted, or the process is terminated, the
accumulated cost is charged to operations.
Common Stock Dividend--Common stock dividends are reflected as a charge to
accumulated deficit, using the fair market value method computed with the
closing price as of the day before the declaration date.
Investment in Joint Ventures--We own 80.1% of each of the joint ventures
with Elan as of December 31, 1999. Each joint venture is governed by a joint
development and operating agreement which provides that both Elan and Endorex
must approve all major transactions, research and development plans, and
budgets. Therefore, Endorex records its share of the joint ventures'
expenditures as Equity in losses from joint ventures.
Impairment of Long-Lived Assets--In the event that facts and circumstances
indicate that the cost of any long-lived assets may be impaired, an evaluation
of recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow is required.
Concentrations of Credit Risk--Financial instruments that potentially
subject us to concentrations of credit risk primarily are limited to cash,
cash equivalents, and marketable securities. Cash is primarily invested in
money market mutual funds managed by investment banks approved by the Board of
Directors. Our marketable securities investments consist of high-grade
commercial paper and short-term government agency notes.
Use of Estimates--While preparing financial statements in conformity with
generally accepted accounting principles, our management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Risk and Uncertainties--We are subject to risks common to companies in the
biotechnology industry, including, but not limited to, litigation, product
liability, development by ourselves or our competitors of new technological
innovations, dependence on key personnel, protections of proprietary
technology, and compliance with FDA regulations.
3. Joint Ventures
In 1998 Endorex formed the two joint ventures with Elan as follows:
InnoVaccines Corporation
InnoVaccines was established in January 1998 pursuant to agreements between
Endorex and Elan. At the time of closing, we issued to Elan International
Services, Ltd. ("EIS") 307,692 shares of Endorex common stock and a six-year
warrant to purchase an additional 230,777 shares of Endorex common stock at an
exercise price of $10.00 per share for an aggregate purchase price of $2.0
million. In addition, EIS purchased $8.0 million of Endorex Series B
convertible preferred stock, which is convertible into Endorex common stock at
a price of $7.50 per share, subject to adjustment. The Series B convertible
preferred stock pays an 8% annual in-kind dividend.
F-11
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
InnoVaccines is initially owned 80.1% by Endorex and 19.9% by Elan. It
licensed certain technology from Elan and certain other technology from
Orasomal. Endorex and Elan invested $8.0 and $2.0 million in the joint
venture, respectively.
At the time of closing, InnoVaccines paid Elan an initial $10.0 million
license payment. Elan may receive future milestones and royalties based on the
joint venture's performance. Since the technology did not yet represent a
commercial product, the joint venture recorded an expense in the first quarter
of 1998 for the initial license fee. We recorded our $8.0 million share of
that expense and simultaneously recorded Elan's purchase of $8.0 million of
Endorex Series B convertible preferred stock.
Orasomal sub-licensed to InnoVaccines oral vaccine rights to its
proprietary Orasome polymerized liposome technology exclusively licensed from
MIT. In consideration of the license, Orasomal may receive milestone payments
and royalties.
Elan and Endorex each funded research and development related to
InnoVaccines equally from the inception of the joint venture through March 31,
1999, in accordance with the agreement between Elan and Endorex. Those
expenditures by Endorex aggregated $1.1 million and $0.4 million for the year
ended December 31, 1998 and 1999, respectively, and are included in Equity in
losses from joint ventures. As of April 1, 1999, Endorex and Elan fund future
joint venture expenditures in proportion to our respective ownership levels.
Accordingly, Endorex and Elan each invoice InnoVaccines for activities
performed on behalf of the venture. During the period April 1, 1999 through
December 31, 1999, Endorex incurred research and development expenditures
aggregating $1.1 million related to the joint venture. Endorex billed the
joint venture $1.6 million during that period related to this research and
development activity. Endorex has a net due to joint venture of $0.6 million
as of December 31, 1999 relating to InnoVaccines, which represents the
difference between Endorex's funding obligations to the venture and receivable
from the venture for activities performed. In addition, Elan has agreed to
lend Endorex up to $2.5 million, restricted to Endorex's funding obligations
for the joint venture. During 1999, the joint venture acquired certain rights
to licenses, aggregating $870,000, which were immediately recorded as expense
of the joint venture, as such technology did not yet represent a commercial
product. Elan and Endorex agreed to fund these licensing expenditures equally.
Endorex Newco, Ltd.
Newco was established in October 1998 pursuant to agreements between
Endorex and Elan. At the time of closing, Endorex and EIS purchased $8.4
million and $2.1 million of Newco's common stock, respectively. In addition,
Elan purchased $8,410,500 of Endorex Series C exchangeable convertible
preferred stock ("Series C Preferred"). The Series C Preferred is exchangeable
at Elan's option for an additional 30.1% ownership interest of Newco's common
stock, or it may be converted into Endorex's common stock at a price of $9.00
per share. The Series C Preferred pays a 7% annual in-kind dividend.
Newco is initially owned 80.1% by Endorex and 19.9% by EIS. At the time of
closing, Newco paid Elan an initial $10.0 million license payment. Elan may
receive future milestones and royalties based on Newco's performance. Since
the technology did not yet represent a commercial product, Newco recorded an
expense in the fourth quarter of 1998 for the initial license fee. We also
recorded our $8.0 million share of that expense and simultaneously recorded
EIS's $8.4 million purchase of Series C Preferred.
In consideration of the license fee, Newco has obtained an exclusive
worldwide license to the MEDIPAD drug delivery system developed by Elan with
two drugs. Newco is now focusing on development of the first of those drugs,
iron chelators, for the treatment of a series of genetic blood disorders known
as iron overload
F-12
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
disorders. MEDIPAD is a lightweight, microinfusion pump, which combines the
simplicity of a patch with the extensive delivery capabilities of an infusion
pump.
During 1999, Newco's research and development activities were funded from
working capital. As of December 31 1999, Elan and Endorex invoiced activities
totaling approximately $500,000. Endorex has a net due to joint venture of
$350,000 as of December 31, 1999 relating to Newco, which represents the
difference between Endorex's funding obligations to the venture and receivable
from the venture for activities performed. During 2000 and 2001, Elan and
Endorex are required to fund Newco expenditures according to their respective
ownership interests. However, Endorex may require Elan to lend up to $4.8
million, pursuant to a convertible note, to fund our portion of the joint
venture's research and development expenses.
Unaudited Condensed Financial Statements for Unconsolidated Joint Ventures
Condensed, unaudited financial statement information of the joint ventures
is stated below. The joint ventures had no revenues. Net expenses equaled the
net loss for all periods.
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
InnoVaccines, net of Endorex mark-up on
billings to InnoVaccines.................. $ (3,731,588) $ (12,577,975)
Newco...................................... (500,000) (10,000,000)
------------ -------------
Total net loss............................. $ (4,231,588) $ (22,577,975)
============ =============
Reconciliation to Equity in losses from
joint ventures:
Total joint venture net losses............. $ (4,231,588) $ (22,577,975)
Less: Elan Minority Interest............... 1,365,680 5,480,000
------------ -------------
Equity in losses from joint ventures....... $ (2,865,908) $ (17,097,975)
============ =============
</TABLE>
4. Development Stage Activities and Operations
For the period from our incorporation to date, we have been a "development
stage enterprise" and our operations have consisted primarily of financial
planning, raising capital, and research and development activities. We have
not produced any revenues from product sales since our inception.
5. Leasehold Improvements and Equipment
As of December 31, 1999, leasehold improvements and equipment consisted of
the following:
<TABLE>
<S> <C>
Leasehold improvements...................................... $ 255,888
Laboratory equipment........................................ 730,803
Office equipment............................................ 111,302
----------
1,097,993
Accumulated depreciation.................................... (649,042)
----------
$ 448,951
==========
</TABLE>
F-13
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Lines of Credit
On December 31, 1998, Endorex obtained a $750,000 equipment financing line
with Finova Technology Financing, Inc. ("Finova"). As of December 31, 1999, we
had used approximately $456,000 to finance equipment and leasehold
improvements related to the Lake Forest Research and Development Center.
Interest rates for each draw are based upon a base interest rate of 7.4%, plus
an index rate equivalent to the highest yield as published in The Wall Street
Journal of three-year United States Treasury Notes two days prior to the loan
draw. The index rates for the first and second draws were 4.75% and 5.83%,
respectively, resulting in an aggregate interest rate of 12.15% and 13.23%,
respectively. Draws are payable in monthly installments over a period of 48
months, which currently amounts to approximately $11,000 per month. Finova
filed security interest in the assets. In addition, the agreement is subject
to certain terms and covenants, including the right of Finova to call the loan
in the event of materially adverse financial conditions. We estimate the fair
value of the line of credit to be approximately the carrying value based upon
borrowing rates currently available to us for borrowings with similar terms.
On May 19, 1997, Endorex entered into a senior line of credit agreement
with The Aries Funds, two of our major stockholders, pursuant to which we
could borrow up to $500,000 (the "Bridge Loan"). During 1997, we paid the
outstanding principal and interest on the Bridge Loan. In partial
consideration of the Bridge Loan, Endorex granted warrants to purchase an
aggregate of 66,668 shares of common stock at an initial exercise price equal
to $2.54 per share. The warrant exercise price and the number of shares of
common stock that the warrants can be used to purchase are subject to
adjustment in certain circumstances. The warrants are exercisable until May
19, 2002.
7. Stockholders' Equity
Private Placement--Pursuant to a Private Placement, Endorex issued and sold
an aggregate of 8,648,718 shares of common stock on July 16, October 10 and
October 16, 1997 to certain accredited investors. The aggregate proceeds of
these issuances were $20 million and the net proceeds to Endorex, after
deducting commissions and expenses, were $17.2 million.
In connection with the Private Placement, we issued warrants to purchase
864,865 shares of Endorex common stock at an exercise price of $2.54375 per
share to Paramount Capital, Inc., the Placement Agent ("Paramount") and
certain of its affiliates and employees. The estimated fair value at the
warrants' grant date was $2.1 million, which we recorded as a reclassification
of additional paid-in capital. We also executed a financial advisory agreement
with Paramount. In connection with the financial advisory agreement, we issued
warrants to purchase 1,297,297 shares of Endorex common stock at an exercise
price of $2.54375 per share to certain employees of Paramount. The estimated
fair value at the warrants' grant date was $3.16 million, which was recorded
as a deferred cost and amortized to expense over two years, the term of the
agreement. The warrants currently are exercisable and expire on April 16,
2003.
Common Stock Dividend--The terms of the Private Placement also included 5%,
semi-annual dividends payable in additional shares of common stock based on
the number of shares held as of the record date, including previous dividend
distributions.
The first and second semi-annual common stock dividends were payable to
holders of stock with dividend rights as of the record date of April 16, 1999
and October 16, 1999, respectively. We distributed the first and second
dividends on June 1, 1999 and November 16, 1999, respectively. Semi-annual
common stock dividends continue to be payable through October 16, 2002.
F-14
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The stock dividends were reflected as a charge to accumulated deficit,
using the fair market value method computed with the closing price as of the
day before the declaration date.
Net Loss Per Share--Pursuant to Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings per Share," we presented earnings per share on the
Consolidated Statement of Operations in accordance with SFAS No. 128 for the
current and prior periods. As operations resulted in a net loss for all
periods presented, diluted earnings per share are the same as basic earnings
per share due to the anti-dilutive effect of potential dilutive common shares,
including warrants discussed above and stock options discussed in Note 8.
8. Stock Based Compensation
The Amended and Restated 1995 Omnibus Plan ("the Plan") is intended to
promote Endorex's interests by providing eligible persons with the opportunity
to acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Company as an incentive for them to remain in the service of
the Company. The Plan is divided into three separate equity programs: 1) the
Discretionary Option Grant Program, under which eligible persons may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
common stock, 2) the Salary Investment Option Grant Program, under which
eligible employees may elect to have a portion of their base salary invested
each year in options to purchase shares of common stock, 3) the Automatic
Option Grant Program, under which eligible non-employee Board members will
automatically receive options at periodic intervals to purchase shares of
common stock, and 4) the Director Fee Option Grant Program, under which non-
employee Board members may elect to have all, or any portion, of their annual
retainer fee otherwise payable in cash applied to a special option grant.
The terms of the options, including vesting periods, are determined by the
Compensation Committee of the Board of Directors in accordance with the Plan.
Options generally vest over four years. No one person participating in the
Plan may receive options and separately exercisable stock appreciation rights
for more than 750,000 shares of Common Stock per calendar year.
F-15
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
We elected the disclosure-only option under Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" and accordingly account for stock options per the terms of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." If instead, compensation expense for stock options had been
determined based upon the fair value at the grant date, according to the terms
of SFAS No. 123, our net loss would have increased by approximately $0.4
million, or $.03 per share, and $1.3 million, or $0.12 per share, for 1999 and
1998, respectively. Net loss and net loss per share would have increased as
follows:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Net loss applicable to common stockholders:
As reported.............................. $ (8,786,431) $ (22,506,357)
Pro forma................................ (9,118,581) (23,814,669)
Basic and diluted net loss per share
applicable to common stockholders
As reported.............................. $ (0.82) $ (2.09)
Pro forma................................ (0.85) (2.21)
</TABLE>
The weighted average fair value of options granted with an exercise price
equal to the fair market value of the stock was $1.45 and $5.46 for 1999 and
1998, respectively.
For purposes of estimating the fair value of options according to SFAS 123,
we estimated the fair value of each option grant as of the date of the grant
using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used: dividend yield 0%, volatility of 139% and 149-226%,
expected life of four (4) years, and risk-free interest rates as of the date
of grant ranging from 5.05%-6.2% and 5.36-6.06% for 1999 and 1998,
respectively.
Option activity for the periods ended December 31, 1999 and 1998 was as
follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Shares
---------------- ---------
<S> <C> <C>
Ending Balance at December 31, 1997........... $2.66 1,300,114
Granted....................................... $6.24 209,500
Expired/Cancelled............................. $2.70 (23,838)
Exercised..................................... $2.47 (25,000)
---------
Ending Balance at December 31, 1998........... $3.18 1,460,776
=========
Granted....................................... $1.93 229,000
Expired/Cancelled............................. $5.11 (117,940)
Exercised..................................... $1.05 (334)
---------
Ending Balance at December 31, 1999........... $2.82 1,571,502
=========
</TABLE>
F-16
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The range of exercise prices and weighted average contractual lives are as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- ------------------------
Weighted Average Weighted Average
Exercise Price Shares Term Exercise Price Shares Exercise Price
-------------- --------- ---- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$1.05 1,002 0.02 $1.05 1,002 $1.05
$2.47 1,155,000 7.81 $2.47 812,935 $2.47
$4.75 35,000 7.97 $4.75 19,687 $4.75
$5.50 20,000 7.97 $5.50 20,000 $5.50
$5.63 35,000 7.92 $5.63 35,000 $5.63
$6.50 18,000 0.06 $6.50 18,000 $6.50
$6.75 80,000 8.12 $6.75 27,500 $6.75
$6.63 12,500 8.16 $6.63 3,125 $6.63
$2.00 86,000 9.16 $2.00 -- $2.00
$1.75 3,000 9.21 $1.75 -- $1.75
$1.88 20,000 9.37 $1.88 -- $1.88
$2.54 36,000 9.82 $2.54 9,000 $2.54
$2.54 10,000 0.82 $2.54 10,000 $2.54
$1.38 60,000 9.81 $1.38 7,500 $1.38
--------- -------
1,571,502 7.92 $2.82 963,749 $2.90
========= =======
</TABLE>
9. Income Taxes
At December 31, 1999, we had a usable net operating loss carryforward of
approximately $15.9 million after limitations based on ownership. If not
utilized to offset future taxable income, this carryforward will expire in
years 2007 to 2019. Pursuant to SFAS No. 109, we have deferred taxes as of
December 31, 1999 consisting of the following:
<TABLE>
<S> <C>
Net operating loss carryforward............................. $ 5,414,203
Research & development credit carryforward.................. 618,058
Licensing fees--amortization................................ 5,045,090
Depreciation................................................ 108,008
------------
Gross deferred tax assets................................... 11,185,359
Valuation allowance......................................... (11,185,359)
------------
Net deferred tax assets..................................... $ --
============
</TABLE>
Due to the uncertainty that we will generate income in the future
sufficient to fully or partially utilize these carryovers, a valuation
allowance of $11,185,359 has been established to offset the deferred tax
asset. This represents an increase of $1.9 million over the valuation
allowance at December 31, 1998. Under the Internal Revenue Code certain stock
transactions including sales of stock and the granting of options to purchase
stock, could limit the amount of net operating loss carry forwards that may be
utilized on an annual basis to offset taxable income in future periods. If
utilization is limited by such transactions the net operating loss carry
forwards may expire before they are utilized.
10. Leases
Endorex leases its executive offices and research facilities under
operating leases, which provide for annual minimum rent and additional rent
based on increases in operating costs and real estate taxes. Rental expense
was $83,153 during 1999 and $95,522 during 1998.
F-17
<PAGE>
ENDOREX CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments for operating leases are as follows:
<TABLE>
<S> <C>
2000............................. $54,012
2001............................. 55,632
2002............................. 57,300
2003............................. 59,016
</TABLE>
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Endorex Corporation (A
Development Stage Enterprise):
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows, present fairly, in all material respects, the financial
position of Endorex Corporation and its subsidiaries (a development stage
enterprise) at December 31, 1999, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998, and for the
period cumulative from inception (February 15, 1985) to December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 4, 2000
F-19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Lake Forest, State of Illinois, on March 29, 2000.
Endorex Corporation
/s/ Michael S. Rosen
By: _________________________________
Michael S. Rosen
President and Chief Executive
Officer, and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Lake Forest, State of Illinois, on March 29, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Michael S. Rosen President, Chief Executive Officer and
By: __________________________________ Director
Michael S. Rosen
/s/ David G. Franckowiak Chief Financial Officer (Principal
By: __________________________________ Financial and Accounting Officer)
David G. Franckowiak
* Director
By: __________________________________
Richard Dunning
* Director
By: __________________________________
Steve H. Kanzer
* Director
By: __________________________________
Paul D. Rubin
Director
By: __________________________________
H. Laurence Shaw
* Director
By: __________________________________
Steve Thornton
* Chairman of the Board
By: __________________________________
Kenneth Tempero
/s/ David G. Franckowiak
*By: _________________________________
David G. Franckowiak
</TABLE>
Attorney-in-fact
<PAGE>
EXHIBIT 10.21
-------------
CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR
------------------------------------------
PORTIONS OF THIS EXHIBIT PURSUANT TO RULE 24B-2
-----------------------------------------------
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
-----------------------------------------------------
Dated 2/nd/ February, 2000
ENDOREX NEWCO, LTD.
AND
SCHEIN PHARMACEUTICAL (BERMUDA), LTD.
DEVELOPMENT, LICENCE AND SUPPLY AGREEMENT
1
<PAGE>
CONTENTS
CLAUSE 1 PRELIMINARY
CLAUSE 2 THE LICENCE
CLAUSE 3 INTELLECTUAL PROPERTY
CLAUSE 4 COMPETING PRODUCTS
CLAUSE 6 PROJECT TEAM AND MANAGEMENT COMMITTEE
CLAUSE 5 DEVELOPMENT OF THE SYSTEM, COMPOUND AND PRODUCT
CLAUSE 7 REGISTRATION OF THE PRODUCT
CLAUSE 8 MARKETING AND PROMOTION OF THE PRODUCT
CLAUSE 9 SUPPLY OF THE PRODUCT
CLAUSE 10 SUPPLY OF THE COMPOUND
CLAUSE 11 FINANCIAL PROVISIONS
CLAUSE 12 PAYMENTS, REPORTS AND AUDITS
CLAUSE 13 DURATION AND TERMINATION
CLAUSE 14 CONSEQUENCES OF TERMINATION
CLAUSE 15 WARRANTY AND INDEMNITY
CLAUSE 16 CUSTOMER COMPLAINTS AND PRODUCT RECALL
CLAUSE 17 MISCELLANEOUS PROVISIONS
SCHEDULE 1 ENDOREX JV PATENTS
SCHEDULE 2 SCHEIN COMPOUND PATENTS
SCHEDULE 3 THE PROJECT
SCHEDULE 4 PROJECT SYSTEM SPECIFICATIONS
SCHEDULE 5 PRODUCT SPECIFICATIONS
2
<PAGE>
THIS AGREEMENT is made on /2nd/ February, 2000.
BETWEEN:
- -------
(1) ENDOREX NEWCO, LTD., a company incorporated in Bermuda with offices at
Clarendon House, 2 Church Street, Hamilton, Bermuda; and
(2) SCHEIN PHARMACEUTICAL (BERMUDA), LTD., a company incorporated in Bermuda,
with offices at Grosvenor Trust LTD, 33 Church Street, Hamilton, Bermuda.
RECITALS:
- --------
A. ENDOREX JV is a joint venture company of ELAN and ENDOREX and is
beneficially entitled to the ENDOREX JV PATENTS under a licence from ELAN
for use in the research, development and commercialisation of iron
chelating agents.
B. SCHEIN wishes ENDOREX JV to develop the SYSTEM for SCHEIN as a method of
drug delivery incorporating the COMPOUND for the FIELD.
C. ENDOREX JV is willing to use its technology to do so and to grant SCHEIN an
exclusive sublicence of the ENDOREX JV PATENTS and ENDOREX JV KNOW-HOW to
package, import, use, offer for sale, distribute and sell the PRODUCT in
the TERRITORY.
D. ENDOREX JV and SCHEIN are desirous of entering into an agreement to give
effect to the arrangements described at Recitals B and C.
NOW IT IS HEREBY AGREED AS FOLLOWS:
CLAUSE 1 - PRELIMINARY
1.1 Definitions: In this Agreement unless the context otherwise requires:
-----------
AFFILIATE shall mean any corporation or entity controlling or controlled or
under common control with ENDOREX JV or SCHEIN, as the case may be. For the
purposes of this Agreement, "control" shall mean the direct or indirect
ownership of more than 50% of the issued voting shares or other voting
rights of the subject entity to elect directors, or if not meeting the
preceding criteria, any entity owned or controlled by or owning or
controlling at the maximum control or ownership right permitted in the
country where such entity exists.
ANDA shall mean the new drug application, abbreviated new drug application,
or any other application acceptable to an RHA for marketing approval for
the COMPOUND, which SCHEIN will file with an RHA in a country of the
TERRITORY, including any supplements or amendments thereto.
ANDA APPROVAL shall mean the final approval of an ANDA by an RHA to market
the COMPOUND in a country in the TERRITORY.
3
<PAGE>
CFR shall mean the US Code of Federal Regulations 21, as amended from time
to time.
cGCP, cGMP, cGLP shall mean respectively current Good Clinical Practice,
current Good Manufacturing Practice and current Good Laboratory Practice,
respectively, as defined in the FFDCA.
COMPETING PRODUCT shall have the meaning assigned to it in Clause 4.1.
COMPOUND shall mean any formulations of [*****] and any of its analogues,
isomers or derivatives.
COMPOUND SPECIFICATIONS shall have the meaning assigned to it in Clause
10.5.
DEVELOPMENT COST shall mean [*****]
DEVICE REGULATORY APPLICATION shall mean 510(K) Kit or equivalent
applications for approval to market the SYSTEM with the COMPOUND which
SCHEIN will file with the RHA in any country of the TERRITORY as the
parties may from time to time determine hereunder, including any
supplements or amendments thereto.
DEVICE REGULATORY APPROVAL shall mean the final approval by the RHA to
market the SYSTEM with the COMPOUND in any country of the TERRITORY,
including any governmental pricing and reimbursement approval and any other
approval which is required to launch the SYSTEM with the COMPOUND in the
normal course of business.
MAF shall mean a Master File for the SYSTEM, as defined in the CFR Sections
814.3(d) and 814.20(c) and/or its equivalent in the other countries of the
TERRITORY.
EFFECTIVE DATE shall mean 2nd February, 2000.
ELAN shall mean Elan Corporation, plc and any of its AFFILIATES.
ENDOREX shall mean Endorex Corporation and any of its AFFILIATES (including
ENDOREX JV but excluding ELAN).
ENDOREX JV shall mean Endorex Newco, Ltd.
ENDOREX JV BACKGROUND TECHNOLOGY shall mean ENDOREX JV PATENTS, and/or
ENDOREX JV KNOW HOW.
___________________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
4
<PAGE>
ENDOREX JV IMPROVEMENTS shall mean any and all improvements or
enhancements, patentable or otherwise, that have been conceived, created or
developed during the TERM which can be usefully applied to the SYSTEM
and/or the PRODUCT, including the manufacture thereof, except for [*****]
ENDOREX JV KNOW-HOW shall mean all knowledge, information, trade secrets,
data and expertise which is not generally known to the public, owned by
ENDOREX JV, or to which ENDOREX JV has rights under the terms of a licence
or licences in force on the EFFECTIVE DATE, which permit(s) disclosure of
same to SCHEIN, relating to the SYSTEM and/or the PRODUCT, whether or not
covered by any patent, copyright, design patent, trademark, trade secret or
other industrial or any intellectual property rights.
ENDOREX JV PATENTS shall mean the patents and patent applications as set
forth in Schedule 1, that are owned or licensed by or on behalf of ENDOREX
JV as of the EFFECTIVE DATE. ENDOREX JV PATENTS shall also include all
extensions, continuations, continuations-in-part, divisionals, patents-of-
additions, re-examinations, re-issues, supplementary protection
certificates and foreign counterparts of such patents and patent
applications and any patents issuing thereon and extensions of any patents
licensed hereunder.
ENDOREX JV TRADEMARK shall mean one or more trademarks, trade names, or
service marks that are owned or licensed by or on behalf of ENDOREX JV that
ENDOREX JV may nominate and approve in writing from time to time for use in
connection with the sale or promotion of the PRODUCT by SCHEIN. For the
purposes of this Agreement, the trademark "Medipad"* which has been
licensed by ENDOREX JV from ELAN shall be deemed to be an ENDOREX JV
TRADEMARK hereunder.
ENFORCEMENT PROCEEDINGS shall mean the proceedings referred to in Clause
3.4.2.
EX WORKS shall have the meaning as such term is defined in the ICC
Incoterms, 1990, International Rules for the Interpretation of Trade Terms,
ICC Publication No. 460.
FCA shall have the meaning as such term is defined in the ICC Incoterms,
1990, International Rules for the Interpretation of Trade Terms, ICC
Publication No. 460.
FFDCA shall mean the US Federal Food, Drug and Cosmetic Act of 1934, and
the regulations promulgated thereunder, as the same may be amended from
time to time.
FIELD shall mean the [*****].
____________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
5
<PAGE>
IN MARKET shall mean the sale of the PRODUCT by SCHEIN or its AFFILIATES or
SUBLICENSEES to an unaffiliated third party such as (i) an end-user
consumer of the PRODUCT or (ii) a wholesaler, distributor, managed care
organisation, hospital or pharmacy or other third party payor for final
commercial sale by such party to the consumer, and shall exclude in any
event the transfer pricing of the PRODUCT by SCHEIN to an AFFILIATE or a
SUBLICENSEE.
INITIAL PERIOD shall mean the initial period of this Agreement, as more
fully described in Clause 13.
LAUNCH STOCKS shall mean the quantities of stocks of the PRODUCT required
by SCHEIN in relation to the launch of the PRODUCT following DEVICE
REGULATORY APPROVAL in the USA, as more fully described in Clause 9.7.
LICENSE FEES shall mean [*****]
MANAGEMENT COMMITTEE shall mean the group to be established pursuant to
Clause 5.
MANUFACTURING COST shall mean [*****]
MARKETING AND SELLING EXPENSES shall mean dedicated marketing and selling
expenses for the PRODUCT which have been agreed in advance by the
MANAGEMENT COMMITTEE in accordance with Clause 8.2.
NSP shall, subject to the provisions of Clauses 11.4.5, mean [*****]
Party shall mean ENDOREX JV or SCHEIN as the case may be. Parties shall
mean ENDOREX JV and SCHEIN.
PRODUCT shall mean the SYSTEM containing, or packaged with, the COMPOUND.
PRODUCT SPECIFICATIONS shall mean the specifications for the PRODUCT set by
the Parties for the DEVICE REGULATORY APPLICATIONS and which shall be
attached as Schedule 5, as well as such other specifications such as
interim specifications which may be required during the PROJECT and such
additional specifications for the PRODUCT as may be agreed by the parties
in writing.
PROFIT shall mean [*****]
PROJECT shall mean all activity in order to develop the SYSTEM and the
PRODUCT for commercialisation in the USA in accordance with the plan shown
in Schedule 3, as may be amended from time to time as agreed by the parties
in writing.
_____________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
6
<PAGE>
PROJECT SYSTEM SPECIFICATIONS shall mean the specifications for the SYSTEM
which shall be set by the parties for the DEVICE REGULATORY APPLICATIONS
and which shall be attached as Schedule 4, as well as such other
specifications such as interim specifications which may be required during
the PROJECT and such additional specifications for the SYSTEM as may be
agreed by the parties in writing.
PROJECT TEAM shall mean the group to be established pursuant to Clause 6.
RHA shall mean any relevant government health authority (or successor
agency thereof) in any country of the TERRITORY whose approval is necessary
to market the SYSTEM, COMPOUND and/or PRODUCT, as applicable, in the
relevant country of the TERRITORY, including, without limitation, the
United States Food and Drug Administration.
ROYALTY shall mean [*****]
SCHEIN shall mean Schein Pharmaceutical (Bermuda) Ltd. and any of its
AFFILIATES.
SCHEIN COMPOUND IMPROVEMENTS shall mean any and all improvements or
enhancements, patentable or otherwise, relating exclusively to the COMPOUND
which are owned or licensed by SCHEIN and which can be usefully applied to
the PRODUCT including the manufacture or use thereof which were first
conceived, developed, invented or reduced to practice by SCHEIN or ENDOREX
JV during the TERM except for [*****]
SCHEIN COMPOUND KNOW-HOW shall mean all knowledge, information, trade
secrets, data and expertise which is not generally known to the public,
owned or licensed by SCHEIN or to be developed or licensed by SCHEIN as of
the EFFECTIVE DATE relating exclusively to the COMPOUND, whether or not
covered by any patent, copyright, design, trademark or other industrial or
intellectual property rights.
SCHEIN COMPOUND PATENTS shall mean all patents and patent applications as
set forth in Schedule 2, that are owned by, or licensed to SCHEIN as of the
EFFECTIVE DATE relating exclusively to the COMPOUND. SCHEIN PATENTS shall
also include all extensions, continuations, continuations-in-part,
divisionals, patents-of-additions, re-examinations, re-issues,
supplementary protection certificates and foreign counterparts of such
patents and patent applications and any patents issuing thereon and
extensions of any patents licensed hereunder.
____________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
7
<PAGE>
SCHEIN COMPOUND TECHNOLOGY shall mean SCHEIN COMPOUND PATENTS and SCHEIN
COMPOUND KNOW HOW.
SUBLICENSEE shall mean any independent third party appointed by SCHEIN,
with the unanimous approval of the MANAGEMENT COMMITTEE, pursuant to Clause
2.2, to market, distribute and sell the PRODUCT in any country of the
TERRITORY outside of the USA.
SYSTEM shall mean the ambulatory subcutaneous infusion drug delivery system
for direct attachment to the body of a patient having a flexible diaphragm
drug reservoir, which is capable of delivering factory pre-programmed
continuous amounts of drug upon activation as disclosed and described in
the ENDOREX JV PATENTS set forth in Schedule 1 attached hereto.
TECHNOLOGICAL COMPETITOR shall mean [*****]
TERM shall mean the term of this Agreement, as set out in Clause 14.
TERRITORY shall mean all of the countries of the world.
$ shall mean United States Dollars.
"US" or "USA" shall mean the United States of America, its territories and
possessions
1.2 Interpretation: In this Agreement:
--------------
1.2.1 the singular includes the plural and vice versa, the masculine
includes the feminine and vice versa and references to natural
persons include corporate bodies, partnerships and vice versa.
1.2.2 any reference to a Clause or Schedule, unless otherwise specifically
provided, shall be respectively to a Clause or Schedule of this
Agreement.
1.2.3 the headings of this Agreement are for ease of reference only and
shall not affect its construction or interpretation.
CLAUSE 2 - THE LICENCE
2.1 Licence to SCHEIN:
-----------------
2.1.1 Subject to the terms of this Agreement, ENDOREX JV hereby grants to
SCHEIN, and SCHEIN hereby accepts for the TERM, an exclusive licence
to the ENDOREX JV BACKGROUND TECHNOLOGY and ENDOREX JV
_________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
8
<PAGE>
IMPROVEMENTS to package, import, use, offer for sale and sell and
otherwise distribute the PRODUCT for the FIELD in the TERRITORY.
2.2 Sub-licensing by SCHEIN:
-----------------------
2.2.1 Any appointment of a SUBLICENSEE for the PRODUCT in any country of
the TERRITORY outside of [*****] shall be determined by the
MANAGEMENT COMMITTEE and shall require the prior unanimous consent
of the MANAGEMENT COMMITTEE. In the event that such unanimous
decision is made by the MANAGEMENT COMMITTEE, SCHEIN shall grant
such SUBLICENSEE a sub-license to package, import, use, offer for
sale and sell the PRODUCT for the FIELD in such country of the
TERRITORY. [*****]SUBLICENSEE only shall be appointed per country
and no sub-licence shall be granted to a TECHNOLOGICAL COMPETITOR of
ENDOREX JV.
2.2.2 The MANAGEMENT COMMITTEE shall be responsible for deciding by
unanimous vote upon the commercial terms of any sub-licence granted
hereunder. Any such sub-licence shall be on terms mutatis mutandis
as the terms of this Agreement insofar as they are applicable, but
excluding the right to grant a sub-licence or a production licence.
2.2.3 For the avoidance of doubt, ENDOREX JV shall have the same rights of
audit and inspection vis-a-vis a SUBLICENSEE, as ENDOREX JV has
pursuant to this Agreement concerning SCHEIN. SCHEIN shall also
provide copies of all sublicense agreements to ENDOREX JV.
2.2.4 SCHEIN shall be liable to ENDOREX JV for all acts and omissions of
any SUBLICENSEE as though such acts and omissions were by SCHEIN and
SCHEIN shall provide the indemnity to ENDOREX JV outlined in Clause
15.9.
2.2.5 Where a sub-licence has been granted under Clause 2.2.1, such sub-
licence shall automatically terminate if this Agreement terminates
for the country or countries covered by the sub-licence.
2.2.6 SCHEIN shall undertake to protect the confidentiality of ENDOREX
JV's engineering and manufacturing processes for the SYSTEM and/or
PRODUCT in its dealings with SUBLICENSEES.
2.2.7 For the avoidance of doubt:-
_______________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED
9
<PAGE>
(1) the parties agree that any sub-licence granted pursuant to this
Clause 2.2 shall not be capable of surviving the termination of
this Agreement; and
(2) IN MARKET sales of the PRODUCT by SUBLICENSEES or other agreed
upon arrangements shall be included in calculating NSP for the
purposes of this Agreement.
CLAUSE 3 - INTELLECTUAL PROPERTY
3.1 Ownership of ENDOREX JV PATENT RIGHTS/KNOW-HOW:
----------------------------------------------
3.1.1 ENDOREX JV shall be and remain the sole beneficial owner or licensee
of the ENDOREX JV BACKGROUND TECHNOLOGY and ENDOREX JV IMPROVEMENTS.
3.1.2 ENDOREX JV shall be entitled to use the ENDOREX JV BACKGROUND
TECHNOLOGY and ENDOREX JV IMPROVEMENTS, and all technical and
clinical data, generated by ENDOREX JV, SCHEIN, its AFFILIATES or
any SUBLICENSEE pursuant to this Agreement in connection with
ENDOREX JV's commercial arrangements otherwise than in relation to
the PRODUCT for the FIELD, and in connection with the PRODUCT for
the FIELD in any countries which cease to be part of the TERRITORY;
and in the TERRITORY following termination of this Agreement. SCHEIN
hereby makes any assignment or license to the extent necessary to
achieve the foregoing and shall execute such further documents to
confirm the same as ENDOREX JV may reasonably request from time to
time. In addition, SCHEIN agrees to promptly disclose to ENDOREX JV
any ENDOREX JV IMPROVEMENTS and all related technical and clinical
data that are generated by SCHEIN, its AFFILIATES or SUBLICENSEES.
3.2 Ownership of SCHEIN PATENT RIGHTS/KNOW-HOW:
------------------------------------------
3.2.1 SCHEIN shall be and remain the sole owner of the SCHEIN COMPOUND
TECHNOLOGY and SCHEIN COMPOUND IMPROVEMENTS.
3.3 Filing and maintenance of patents:
---------------------------------
3.3.1 Subject to licensing agreements pre-existing as of the EFFECTIVE
DATE, by and between ENDOREX JV and any third party having ownership
or controlling interest in ENDOREX JV PATENTS and ENDOREX JV
IMPROVEMENTS, ENDOREX JV will be entitled, at its own expense, to
file or have filed and prosecute or have prosecuted ENDOREX JV
PATENTS and patentable ENDOREX JV IMPROVEMENTS; to determine or have
determined the patent filing strategy in relation to same at its
sole discretion; to assert or have asserted and defend or have
defended the foregoing patent
10
<PAGE>
applications against third party oppositions; and upon grant of any
letters patent, to maintain or have maintained such letters patent
in force.
3.3.2 SCHEIN will be entitled, at its own expense, to file and prosecute
any SCHEIN COMPOUND PATENTS and patentable SCHEIN COMPOUND
IMPROVEMENTS; to determine the patent filing strategy in relation to
same at its sole discretion; to assert and defend the foregoing
patent applications against third party oppositions; and upon grant
of any letters patent, to maintain such letters patent in force
subject to the following conditions:-
(1) SCHEIN shall promptly notify ENDOREX JV in writing in relation
to the existence of SCHEIN COMPOUND IMPROVEMENTS and upon
request by ENDOREX JV, SCHEIN shall provide ENDOREX JV with
copies of any documents relating to the SCHEIN COMPOUND
IMPROVEMENTS.
(2) SCHEIN shall promptly notify ENDOREX JV in writing of any
patent applications filed by SCHEIN under this Clause 3.3.2 and
upon request by ENDOREX JV shall provide copies to ENDOREX JV
to such patent applications and any patents issuing thereon, to
the extent reasonably required in order for ENDOREX JV to
fulfil its obligations under this Agreement.
3.3.3 If SCHEIN does not intend to make an application for patents or
continue prosecution of a pending application in respect of SCHEIN
COMPOUND TECHNOLOGY or SCHEIN COMPOUND IMPROVEMENTS, or continue to
maintain the SCHEIN COMPOUND PATENTS in any or some countries of the
TERRITORY, ENDOREX JV, subject to the prior written consent of
SCHEIN, not to be unreasonably withheld or delayed, will be entitled
to file, prosecute and maintain patent applications and patents in
respect thereof, at its own expense, in accordance with the
following terms:-
(1) ENDOREX JV shall consult with SCHEIN on a regular basis in
relation to the status of its activities under this Clause
3.3.3;
(2) SCHEIN shall execute all documents, forms and declarations,
provide all necessary information and data, and do all such
things as shall be necessary to enable ENDOREX JV to exercise
the foregoing right;
(3) ENDOREX JV shall promptly notify SCHEIN in writing of any
patent applications filed by ENDOREX JV hereunder and shall
provide all reasonable access to SCHEIN to such patent
applications and any patents issuing thereon.
3.4 Enforcement:
-----------
3.4.1 SCHEIN and ENDOREX JV shall promptly inform the other in writing of
any alleged infringement of which it shall become aware by a third
party of any patents within the SCHEIN COMPOUND PATENTS, SCHEIN
11
<PAGE>
COMPOUND IMPROVEMENTS, ENDOREX JV PATENTS or ENDOREX JV IMPROVEMENTS
and provide such other with any available evidence of infringement.
3.4.2 ENDOREX JV, at its option and subject to its preexisting licensing
agreements by and between ENDOREX JV and any third party having
ownership or controlling interest in ENDOREX JV PATENTS and ENDOREX
JV IMPROVEMENTS, shall be entitled to institute or have instituted
any administrative, judicial or other proceeding to prevent or stop
any infringement or unauthorised use ("ENFORCEMENT PROCEEDINGS") of
the ENDOREX JV PATENTS or ENDOREX JV IMPROVEMENTS.
3.4.3 SCHEIN agrees to provide all reasonable co-operation and assistance
in relation to any such ENFORCEMENT PROCEEDINGS and agrees to be
named as a party in any ENFORCEMENT PROCEEDINGS, as necessary, that
may be instituted hereunder. ENDOREX JV shall reimburse SCHEIN, its
reasonable costs and expense for such cooperation.
3.4.4 SCHEIN, at its option, shall be entitled to institute ENFORCEMENT
PROCEEDINGS in respect of any infringement or unauthorised use of
the SCHEIN COMPOUND TECHNOLOGY or SCHEIN COMPOUND IMPROVEMENTS at
its own expense and for its own benefit. ENDOREX JV agrees to
provide all reasonable co-operation and assistance to SCHEIN in
relation to any such ENFORCEMENT PROCEEDINGS and agrees to be named
as a party in any ENFORCEMENT PROCEEDINGS, as necessary, instituted
by SCHEIN hereunder. SCHEIN shall reimburse ENDOREX JV its
reasonable costs and expense for such cooperation.
3.4.5 In the event that ENDOREX JV does not want to institute ENFORCEMENT
PROCEEDINGS relating to ENDOREX JV BACKGROUND TECHNOLOGY or ENDOREX
JV IMPROVEMENTS, then SCHEIN may enforce such rights at its own
expense. ENDOREX JV shall cooperate with SCHEIN and provide all
reasonable assistance in relation to any such ENFORCEMENT
PROCEEDINGS. SCHEIN must seek written approval from ENDOREX JV,
which may not be unreasonably withheld or delayed, prior to taking
action and must keep ENDOREX JV informed of the action and may not
enter into any settlement agreement without ENDOREX JV's consent,
which may not be unreasonably withheld or delayed. Any reasonable
fees and costs borne by ENDOREX JV shall be reimbursed by SCHEIN. In
the event that SCHEIN decides to enforce the ENDOREX JV BACKGROUND
TECHNOLOGY or ENDOREX JV IMPROVEMENTS in accordance with this
paragraph, any recovery remaining after the deduction of reasonable
expenses (including attorney's fees and expenses) incurred in
relation to such ENFORCEMENT PROCEEDINGS shall [*****].
___________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
12
<PAGE>
3.4.6 In the event that SCHEIN does not want to institute ENFORCEMENT
PROCEEDINGS relating to SCHEIN COMPOUND TECHNOLOGY or SCHEIN
COMPOUND IMPROVEMENTS, then ENDOREX JV may enforce such rights at
its own expense. SCHEIN shall cooperate with ENDOREX JV and provide
all reasonable assistance in relation to any such ENFORCEMENT
PROCEEDINGS. ENDOREX JV must seek written approval from SCHEIN,
which may not be unreasonably withheld or delayed, prior to taking
action and must keep SCHEIN informed of the action and may not enter
into any settlement agreement without SCHEIN's consent, which may
not be unreasonably withheld or delayed. Any reasonable fees and
costs borne by SCHEIN shall be reimbursed by ENDOREX JV. In the
event that ENDOREX JV decides to enforce the SCHEIN COMPOUND
TECHNOLOGY or SCHEIN COMPOUND IMPROVEMENTS in accordance with this
paragraph, any recovery remaining after the deduction of reasonable
expenses (including attorney's fees and expenses) incurred in
relation to such ENFORCEMENT PROCEEDINGS shall [*****].
3.5 Defence:
-------
3.5.1 In the event that a claim or proceeding is brought against SCHEIN by
a third party alleging that the manufacture, sale, use or offer for
sale of the SYSTEM and/or the PRODUCT as claimed exclusively in the
ENDOREX JV PATENTS or a patented ENDOREX JV IMPROVEMENT, infringes
the patent rights of such a third party in the TERRITORY, SCHEIN
shall promptly advise ENDOREX JV of such threat or suit.
3.5.2 [*****]
3.5.3 [*****]
3.5.4 [*****]
3.5.5 Neither party shall have any liability to the other party whatsoever
or howsoever arising for any losses incurred as a result of SCHEIN
having to cease selling the PRODUCT or having to defer the launch of
selling the PRODUCT as a result of an infringement claim. Neither
ENDOREX JV nor SCHEIN shall have any liability to the other for any
enhanced or punitive damages awarded as a result of any willful
patent infringement
3.5.6 [*****] At its option, SCHEIN may elect to take over the conduct of
such proceedings from ENDOREX JV with counsel of SCHEIN's choice. In
such event SCHEIN shall keep ENDOREX JV advised of all material
developments in the said proceedings and shall not settle or
compromise
__________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
13
<PAGE>
such proceedings without the consent of ENDOREX JV which shall not
be unreasonably withheld or delayed.
3.6 Trademarks:
----------
3.6.1 SCHEIN shall market the PRODUCT in the TERRITORY under the ENDOREX
JV TRADEMARK and such other trademarks as may be authorized under
Clause 3.6.5 below.
3.6.2 ENDOREX JV hereby grants to SCHEIN a non-exclusive royalty free
licence in the TERRITORY for the TERM to use the ENDOREX JV
TRADEMARK solely for the purposes of exercising its rights and
performing its obligations under this Agreement and the following
provisions shall apply as regards the use of the ENDOREX JV
TRADEMARK by SCHEIN:
(1) SCHEIN shall ensure that each reference to and use of the
ENDOREX JV TRADEMARK by SCHEIN is in a manner from time to time
approved by ENDOREX JV and accompanied by an acknowledgement,
in a form approved by ENDOREX JV, that the same is a trademark
licensed from ENDOREX JV, such approvals not to be unreasonably
withheld or delayed.
(2) SCHEIN undertakes that all related advertising, promotional and
other related uses of the ENDOREX JV TRADEMARK by SCHEIN, shall
conform to standards set by, ENDOREX JV. Such standards shall
be agreed between the parties in advance of SCHEIN's first use
of the ENDOREX JV TRADEMARK, negotiating in good faith.
(3) SCHEIN shall use the ENDOREX JV TRADEMARK for the benefit of
ENDOREX JV and any third parties having an ownership interest
in the same and upon termination of the Agreement, all of the
goodwill associated with the ENDOREX JV TRADEMARK shall
transfer without charge to ENDOREX JV and any such third
parties.
(4) Subject to any obligations from any third party licenses
entered into between ENDOREX JV and any third party having an
ownership interest in ENDOREX JV TRADEMARK, ENDOREX JV shall
file or have filed, prosecute or have prosecuted, maintain or
have maintained the registrations for the ENDOREX JV TRADEMARK
in the MAJOR MARKETS. SCHEIN shall provide upon request all
reasonable assistance to ENDOREX JV in performing such
activities.
(5) SCHEIN shall not use the ENDOREX JV TRADEMARK in any way which
might prejudice its distinctiveness or validity or the goodwill
associated therewith.
(6) SCHEIN shall not use in relation to the PRODUCT any trademarks
other than the ENDOREX JV TRADEMARK without obtaining the prior
consent in writing of ENDOREX JV.
14
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(7) SCHEIN shall not use in the TERRITORY any trademarks or trade
names so resembling the ENDOREX JV TRADEMARK as to be likely to
cause confusion, deception or dissolution.
(8) SCHEIN shall promptly notify ENDOREX JV in writing of any
alleged infringement of which it becomes aware by a third party
of the ENDOREX JV TRADEMARK and provide ENDOREX JV with any
applicable evidence of infringement.
3.6.3 Subject to any obligations from any third party licenses entered
into between ENDOREX JV and any third party having an ownership
interest in ENDOREX JV TRADEMARK, ENDOREX JV will be entitled to
conduct or have conducted all proceedings relating to the ENDOREX JV
TRADEMARK and shall at its sole discretion decide what action, if
any, to take in respect of any infringement or alleged infringement
of the ENDOREX JV TRADEMARK or passing-off or any other claim or
counter-claim brought or threatened in respect of the use or
registration of the ENDOREX JV TRADEMARK. Any such proceedings shall
be conducted at [*****].
In the event that ENDOREX JV fails to take action in respect of any
infringement or alleged infringement of the ENDOREX JV TRADEMARK or
passing-off or any other claim or counter-claim brought or
threatened in respect of the use or registration of the ENDOREX JV
TRADEMARK, SCHEIN may request ENDOREX JV to take such action at
[*****].
3.6.4 Except as provided in this Clause 3.6, SCHEIN will have no rights in
respect of the ENDOREX JV TRADEMARK or any trade names or trademarks
used by ENDOREX JV in relation to the PRODUCT or of the goodwill
associated therewith, and SCHEIN hereby acknowledges that, except as
expressly provided in this Agreement, it shall not acquire any
rights in respect thereof.
SCHEIN shall not, at any time during or after the TERM, challenge or
assist others to challenge the ENDOREX JV TRADEMARK, or the
registration thereof or attempt to register any trademarks, marks,
or trade names confusingly similar to the ENDOREX JV TRADEMARK.
3.6.5 In conjunction with the ENDOREX JV TRADEMARK, SCHEIN shall be also
entitled to market the PRODUCT in the TERRITORY under such
trademarks as are designated by SCHEIN provided that such trademarks
have been agreed in advance with ENDOREX JV.
CLAUSE 4 - COMPETING PRODUCTS
4.1 [*****]
________________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
15
<PAGE>
4.2 [*****]
4.3. In addition and subject to Clauses 4.1 and 4.2 and to its obligations under
Clause 8, (i), SCHEIN agrees that, prior to receipt of the DEVICE
REGULATORY APPROVAL of the PRODUCT, SCHEIN shall not take any actions to
fundamentally damage the market for the PRODUCT in the TERRITORY and (ii)
prior to and after the launch of the PRODUCT in each country of the
TERRITORY, SCHEIN shall not take any actions that would be detrimental to
the market for the PRODUCT in such country of the TERRITORY.
4.4. In the event that SCHEIN wishes to manufacture or sell any pharmaceutical
product containing any compound other than the COMPOUND ("Alternative
Compound") for the treatment of iron overloading disorder by subcutaneous
delivery and the SYSTEM is a suitable, competitive delivery system for such
Alternative Compound, SCHEIN shall notify ENDOREX JV and ENDOREX JV shall
have the right of first negotiation to develop the SYSTEM to deliver such
Alternative Compound on terms to be negotiated by the parties in good
faith.
4.5. [*****].
CLAUSE 5 - PROJECT TEAM AND MANAGEMENT COMMITTEE
5.1 It is recognised by the parties that a significant resource shall be
required from each party to accomplish successful DEVICE REGULATORY
APPROVAL in the TERRITORY and launch of the PRODUCT, particularly in the
co-ordination of logistics, finalisation of various specifications,
preparation and agreement of clinical study designs and protocols,
methodologies transfer, supply and packaging configurations, shipping and
handling procedures and for this purpose, the parties will establish a
PROJECT TEAM.
5.2 The PROJECT TEAM shall consist of a chief representative from each party
together with such additional business and development personnel from each
party who are appropriately skilled and knowledgeable in relation to the
PROJECT and who are deemed necessary to accomplish the work of the PROJECT.
5.3 Unless otherwise agreed by the parties, the PROJECT TEAM shall meet as
needed, such meetings to continue until the time of launch or such later
time as may be agreed. The PROJECT TEAM may meet in person or by means of
such telephone, video or other communication facilities as permit all
members of the PROJECT TEAM to communicate with each other simultaneously
and instantaneously. If the PROJECT TEAM decides to meet in person, such
meetings shall be held alternatively at the offices of ENDOREX JV and
SCHEIN or as otherwise agreed by the parties. Meetings shall be co-chaired
by the chief representatives of the parties. At and
______________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
16
<PAGE>
between meetings of the PROJECT TEAM, each party shall keep the other fully
and regularly informed as to its progress with its respective obligations.
5.4 The Parties shall also establish a MANAGEMENT COMMITTEE which shall consist
of a senior executive of ENDOREX JV and a senior executive of SCHEIN along
with up to two observers from each of ENDOREX JV and SCHEIN. The
MANAGEMENT COMMITTEE shall have overall responsibility for the development
and commercialisation of the PRODUCT in the TERRITORY including but not
limited to:
(i) supervising the PROJECT TEAM,
(ii) approving and implementing all project plans, including the
project development timetable and schedules, timing of launch of
the PRODUCT, and budgets for the development of the PRODUCT,
(iii) agreeing with SCHEIN that all direct marketing and selling
expenses for the PRODUCT are in accordance with Clause 8.2, and
(iv) deciding upon the appointment of any SUBLICENSEES for the
PRODUCT in any country of the TERRITORY outside of the USA,
including approving the commercial terms for any such
appointment.
5.5 Unless otherwise agreed by the Parties, the MANAGEMENT COMMITTEE shall meet
at least quarterly. Such meeting may be held in person or by means of such
telephone, video or other communication facilities as permit all members of
the MANAGEMENT COMMITTEE to communicate with each other simultaneously and
instantaneously.
5.6 In the event of a dispute between the project managers of each Party on the
PROJECT TEAM, the project managers shall refer the dispute to the
MANAGEMENT COMMITTEE, who shall discuss the matter and attempt to reach an
amicable solution. In the event that the MANAGEMENT COMMITTEE cannot
resolve the dispute amicably, the said officers shall refer the dispute to
the Chairman of ENDOREX JV and the Chief Executive Officer of SCHEIN who
shall discuss the matter and attempt to reach an amicable solution. The
provisions of this Clause 5.6 shall be without prejudice to the Parties'
other rights and remedies.
5.7 The Chairman of ENDOREX JV and the Chief Executive Officer of SCHEIN shall,
if they are unable to resolve a dispute or difference when it is referred
to them under Clause 5.6, refer the matter to an independent expert who is
knowledgeable of the medical device/drug delivery industry (the "Expert").
The selection of the Expert shall be mutually agreed upon by the Chairman
of ENDOREX JV and the Chief Executive Officer of SCHEIN. The Expert shall
be selected having regard to his suitability to determine the particular
dispute or difference on which he is being requested to determine. Unless
otherwise agreed between the Chief Executive Officers, the following rules
shall apply to the appointment of the Expert. The fees of the Expert shall
be shared equally between the Parties in dispute. The Expert shall be
entitled to inspect and examine all documentation and any other material
which he
17
<PAGE>
may consider to be relevant to the dispute. He shall afford each Party a
reasonable opportunity (in writing or orally) of stating reasons in support
of such contentions as each Party may wish to make relative to the matters
under consideration. The Expert shall give notice in writing of his
determination to the Parties within such time as may be stipulated in his
terms of appointment or in the absence of such stipulation as soon as
practicable. The Parties shall request that the Expert in any event
complete and deliver his findings within four (4) weeks from the reference
of the dispute or difference to him. Any determination by the Expert of a
dispute or difference shall not be final and binding on the Parties.
5.8 The PROJECT TEAM and MANAGEMENT COMMITTEE shall not have the authority to
amend or vary any of the terms of this Agreement unless in accordance with
the provisions of Clause 17.7.
CLAUSE 6 - DEVELOPMENT OF THE SYSTEM, COMPOUND AND PRODUCT
6.1 SCHEIN wishes ENDOREX JV to develop the SYSTEM to deliver the COMPOUND, and
ENDOREX JV shall diligently pursue the same in a commercially reasonable
manner in accordance with the PROJECT pursuant to the terms of this
Agreement. However, it is acknowledged that device development incorporates
inherent risk in terms of outcomes and ENDOREX JV does not guarantee the
further development of the SYSTEM, the ability of the SYSTEM to achieve the
PROJECT SYSTEM SPECIFICATIONS or PRODUCT SPECIFICATIONS, and/or to obtain
the MAF or DEVICE REGULATORY APPROVAL in one or more of the countries of
the TERRITORY.
6.2 Within [*****]of the execution of this Agreement, ENDOREX JV and SCHEIN
shall agree upon the PRODUCT SPECIFICATIONS for the PRODUCT for the USA.
The Parties acknowledge that their primary purpose shall be to develop the
PRODUCT for commercialisation in the USA in accordance with the PROJECT.
6.3 ENDOREX JV and SCHEIN shall undertake their respective obligations under
the PROJECT on a collaborative basis. Accordingly, the parties shall co-
operate in good faith particularly with respect to unknown problems or
contingencies and shall perform their respective obligations in good faith
and in a commercially reasonable, diligent and workmanlike manner.
6.4 ENDOREX JV shall be responsible for all reasonable activities and costs
associated with the development of the SYSTEM for the USA in accordance
with the PROJECT to meet the PROJECT SYSTEM SPECIFICATIONS up to a maximum
cost of [*****], as calculated in accordance with Clause 11.2.1 below. In
the event that additional expenditure in excess of such [*****] is required
to develop the SYSTEM to meet the PROJECT SYSTEM SPECIFICATIONS, the
parties shall meet to discuss the matter in good faith.
____________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
18
<PAGE>
6.5 The Parties recognise that the SYSTEM may require additional development
after achieving the PROJECT SYSTEM SPECIFICATIONS in order to meet the
PRODUCT SPECIFICATIONS for the USA. Such additional development work may
include, but is not limited to:
6.5.1 modifying or qualifying the adhesive system for use with children;
and
6.5.2 modifying or qualifying the integral needle for use with children.
6.5.3 designing and manufacturing the drug vial which will contain the
COMPOUND and will be made in connection with the SYSTEM (beyond the
work described in Clause 6.6.2 below) in accordance with
specifications to be mutually agreed within [*****] of the EFFECTIVE
DATE. The design and manufacture of the drug cartridge shall be
performed to a development plan and budget set by the PROJECT TEAM.
The PROJECT TEAM shall also decide which Party shall perform such
development work.
The Parties agree that the cost of any such additional development work
shall [*****]. In the event that additional expenditure in excess of the
[*****], the Parties shall meet to discuss the matter in good faith.
6.6 SCHEIN shall be responsible for all activities and costs associated with,
the development of the COMPOUND for delivery with the SYSTEM in the USA,
and the development of the PRODUCT in accordance with the PROJECT, pursuant
to the terms of this Agreement and in particular, but not limited to
sourcing, supplying and, if necessary, formulating, all COMPOUND for
delivery with the SYSTEM.
6.7 Subject to the maximum cost set forth in Clause 6.4 and 6.5, SCHEIN and
ENDOREX JV shall be responsible for determining the scope and nature and
paying in equal shares the costs associated with carrying out all clinical
studies program in human patients, including for the avoidance of doubt any
pharmacokinetic/pharmacodynamic studies. Such studies shall be performed
by the Parties for the USA in accordance with the following:
6.7.1 the primary objectives of the program so conducted shall be to
complete the DEVICE REGULATORY APPLICATION and DEVICE REGULATORY
APPROVAL in the USA and it is the Parties' expectation that the body
of data so generated in the PROJECT will also support such
applications for DEVICE REGULATORY APPROVAL which SCHEIN or its
AFFILIATES or SUBLICENSEES shall make in the other countries of the
TERRITORY in accordance with the terms of this Agreement. SCHEIN
shall carry out and complete the clinical program in the USA to a
standard and timeframe which it would otherwise find appropriate for
one of their major branded products;
___________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
19
<PAGE>
6.7.3 SCHEIN shall keep ENDOREX JV informed as to the progress and
completion of the studies and, shall provide to ENDOREX JV summary
study reports thereon;
6.7.4 SCHEIN undertakes that it shall carry out all such clinical studies
to prevailing cGCP and cGLP and most specifically in accordance with
the applicable RHA standards and guidelines;
6.7.5 SCHEIN shall be responsible at its cost for the preparation and
filing of appropriate regulatory applications (to the extent deemed
appropriate by the PROJECT TEAM and subject to the provisions of
Clause 7.) to the extent required to allow it to undertake such
clinical studies. ENDOREX JV shall co-operate with SCHEIN as
reasonably necessary in the preparation and filing of such
regulatory applications. The parties agree that ENDOREX JV's charges
to SCHEIN for any such work shall be as set out in Clause 11.2 of
the Agreement.
6.8 SCHEIN may conduct any pharmacokinetic, clinical, pharmacoeconomic, and any
other market analysis, study or test on the PRODUCT which SCHEIN deems
appropriate, at SCHEIN's sole cost. In the event that SCHEIN does conduct
such analysis, study or test and pay all such costs, SCHEIN shall own the
said data and information. SCHEIN shall provide ENDOREX JV with a summary
report of any such material analysis, study or test performed by SCHEIN as
soon as is reasonably possible following its completion. ENDOREX JV shall
be entitled to use any such data and information in connection with ENDOREX
JV's commercial arrangements for the SYSTEM otherwise than in relation to
the PRODUCT for the FIELD, and in connection with the PRODUCT for the FIELD
in any countries which cease to be part of the TERRITORY; and in the
TERRITORY following termination of this Agreement.
6.9 The PROJECT TEAM shall be responsible for identifying any additional
development work outside of the PROJECT which may be required to
commercialise the PRODUCT in any country of the TERRITORY outside of
[*****]("[*****] Development Work"). [*****]. The Parties agree that
ENDOREX JV's charges to SCHEIN for any such work shall be as set out in
Clause 11.2 of the Agreement.
6.10 In the event that SCHEIN wishes ENDOREX JV to develop any other
configurations of the SYSTEM apart from the PROJECT SYSTEM SPECIFICATIONS,
the Parties shall negotiate in good faith as to the costs to be paid to
ENDOREX JV for such development of the SYSTEM and/or PRODUCT. The Parties
agree that ENDOREX JV's charges to SCHEIN for any such work shall be as set
out in Clause 11.2 of the Agreement.
6.11 SCHEIN shall supply to ENDOREX JV such quantities of COMPOUND [*****] as
ENDOREX JV reasonably requires for the development of the SYSTEM in
___________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
20
<PAGE>
accordance with the PROJECT. The quantity and delivery dates of such
quantities of COMPOUND shall be agreed upon by the Parties during the
PROJECT.
CLAUSE 7 - REGISTRATION OF THE PRODUCT
7.1 The PROJECT TEAM shall establish the regulatory procedure to be followed by
ENDOREX JV and SCHEIN in order to secure all necessary regulatory approvals
to market the PRODUCT in the TERRITORY as swiftly as practicable.
7.2 If determined by the PROJECT TEAM, ENDOREX JV shall be responsible for
filing and maintaining a MAF (or equivalent) for the SYSTEM with the RHA
(or equivalent) in such countries in the TERRITORY as the MANAGEMENT
COMMITTEE shall select from time to time. ENDOREX JV shall use reasonable
endeavours in filing and maintaining each MAF with the RHA in the TERRITORY
as swiftly as practicable. The cost of filing and maintaining such MAF for
the SYSTEM shall be shared equally between ENDOREX JV and SCHEIN.
7.3 At its expense, SCHEIN shall be responsible for the filing and maintaining
all required ANDAs and DEVICE REGULATORY APPLICATIONS in respect of the
COMPOUND and PRODUCT respectively, with the RHAs in the TERRITORY. SCHEIN
shall use reasonable endeavours in prosecuting each required ANDA and
DEVICE REGULATORY APPLICATION to approval by the RHA as swiftly as
practicable.
7.4 SCHEIN shall notify ENDOREX JV of the date of submission of any ANDA or
DEVICE REGULATORY APPLICATION in any country of the TERRITORY and shall
also notify ENDOREX JV of any ANDA APPROVAL or DEVICE REGULATORY APPROVAL
as soon as is reasonably possible following said approval.
7.5 SCHEIN will be the holder of the ANDA APPROVAL and DEVICE REGULATORY
APPROVAL for the COMPOUND and PRODUCT respectively, in the TERRITORY,
provided however, that in the event that a DEVICE REGULATORY APPROVAL is
granted for the SYSTEM alone, such DEVICE REGULATORY APPROVAL shall be the
property of ENDOREX JV. In such event, ENDOREX JV shall provide SCHEIN with
reference rights to such DEVICE REGULATORY APPROVAL mutatis mutandis with
the provisions of Clause 7.6 below.
7.6 SCHEIN will permit ENDOREX JV, or ENDOREX JV's licensees, without charge,
to have access to, to photocopy and to cross reference all DEVICE
REGULATORY APPROVALS or DEVICE REGULATORY APPLICATIONS for the PRODUCT for
the purpose of obtaining DEVICE REGULATORY APPROVALS for the SYSTEM in
connection with ENDOREX JV's commercial arrangements otherwise than in
relation to the PRODUCT for the FIELD, and in connection with the PRODUCT
for the FIELD in any countries which cease to be part of the TERRITORY; and
in the TERRITORY following termination of this Agreement.
21
<PAGE>
7.7 SCHEIN shall submit to ENDOREX JV a quarterly report, for every calendar
quarter prior to the marketing of the PRODUCT within [*****]of the end of
the relevant quarter fully outlining the regulatory status of the PRODUCT
in the TERRITORY, including an overview of any material communications with
the RHAs in the TERRITORY.
7.8 SCHEIN shall be responsible for obtaining and maintaining all applicable
state and local regulatory approvals for the distribution of the PRODUCT in
the TERRITORY. ENDOREX JV shall co-operate with SCHEIN in obtaining such
approvals.
7.9 SCHEIN shall provide ENDOREX JV with access to all DEVICE REGULATORY
APPROVALS to enable ENDOREX JV to exercise its rights and fulfil its
obligations hereunder.
7.10 [*****].
7.11 Subject to the express representations and warranties set out in this
Agreement, it is hereby acknowledged that there are inherent uncertainties
involved in the registration of pharmaceutical products and medical
devices with the RHA in relation to achieving the PROJECT SYSTEM
SPECIFICATIONS and/or PRODUCT SPECIFICATIONS, filing and maintaining the
MAF, and obtaining the ANDA APPROVAL and/or DEVICE REGULATORY APPROVAL and
such uncertainties form part of the business risk involved in undertaking
the form of commercial collaboration outlined in this Agreement.
Accordingly, ENDOREX JV and SCHEIN shall have no liability to the other as
a result of any failure of the PRODUCT to successfully achieve the PROJECT
SYSTEM SPECIFICATIONS or PRODUCT SPECIFICATIONS, or the MAF, ANDA APPROVAL
or DEVICE REGULATORY APPROVAL of the RHA, unless such failure is due to a
Party's gross negligence or intentional misconduct.
CLAUSE 8 - MARKETING AND PROMOTION OF THE PRODUCT
8.1 SCHEIN shall be responsible for the marketing, sale and distribution of the
PRODUCT in the USA. The PRODUCT may be marketed, sold and distributed in
all other countries of the TERRITORY by SUBLICENSEES appointed in
accordance with Clause 2.2. SCHEIN shall keep the MANAGEMENT COMMITTEE up
to date on the prevailing market conditions and SCHEIN's efforts at
marketing and selling the PRODUCT in the TERRITORY.
8.2 In general and consistently with the overall goals of optimizing PRODUCT
sales, profits and return on investments, SCHEIN shall employ all
commercially reasonable efforts to develop and maintain sales of the
PRODUCT in the TERRITORY and for a period of [*****] years from approval of
the PRODUCT shall employ a level of advertising, sales, marketing, and
promotion efforts in the TERRITORY which is: (1)
_________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
22
<PAGE>
commensurate with that put forth by other pharmaceutical companies of
similar size to SCHEIN for prescription products of similar market
potential for similar audience size/type in the TERRITORY, and (2)
sufficient with respect to the potential for the TERRITORY to fully exploit
the market potential for the PRODUCT with the understanding that
advertising, sales, marketing and promotional expenses in the [*****] after
launch shall not, without the MANAGEMENT COMMITTEE's consent, exceed
[*****] of the forecasted NSP, as determined by the MANAGEMENT COMMITTEE.
After the initial [*****] year period all dedicated direct marketing and
selling expenses for the PRODUCT shall be decided upon by the MANAGEMENT
COMMITTEE at least 6 months in advance. At least 3 months prior to the
planned launch of the PRODUCT in the USA, SCHEIN will outline to the
MANAGEMENT COMMITTEE the structure of the promotional activities to be
carried out by SCHEIN for the period up to the first commercial sale of the
PRODUCT and for a period of [*****] thereafter. SCHEIN shall both prior to
and subsequent to the launch of a PRODUCT communicate with the MANAGEMENT
COMMITTEE regarding its objectives for and performance of such PRODUCT in
the USA and in all of the other countries of the TERRITORY. At meetings of
the MANAGEMENT COMMITTEE, SCHEIN shall report on the ongoing sales
performance of the PRODUCT in the TERRITORY, including marketing
approaches, educational campaigns, promotional and advertising materials
and campaigns, sales plans, pricing and results, performance against
competitors, its objectives for the PRODUCT and its plans for the next year
of the Agreement. In addition the MANAGEMENT COMMITTEE shall review the
quarterly PROFIT statements and in particular the calculation of PROFIT,
NSP and the deductible items listed in the definition of NSP.
8.3 Subject to the trademark licensing procedures set forth in Clause 3.6
above, SCHEIN shall control and be responsible for the content and format
of the promotional campaign to be submitted to the RHA, but shall inform
ENDOREX JV thereof and provide to ENDOREX JV a copy of such submissions,
which shall be subject to the confidentiality obligations herein. To the
extent required by the laws, rules and regulations of the RHA in the
applicable country of the TERRITORY, SCHEIN shall use reasonable efforts to
obtain approval by the RHA of the promotional campaign for the PRODUCT.
8.4 Within [*****] of the EFFECTIVE DATE, the MANAGEMENT COMMITTEE shall agree
in good faith upon a schedule for the commercialisation of the PRODUCT in
such countries of the TERRITORY outside of the USA as the MANAGEMENT
COMMITTEE shall determine. Such schedule shall include but not be limited
to the target dates for appointing a SUBLICENSEE, filing the DEVICE
REGULATORY APPLICATION and for securing DEVICE REGULATORY APPROVAL for the
PRODUCT in such countries of the TERRITORY.
8.5 SCHEIN shall diligently pursue the commercialisation of the PRODUCT and
shall use commercially reasonable efforts, including reasonable IN MARKET
prices, to
_________________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
23
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market and promote the PRODUCT in the USA, and in doing so, shall use the
same level of effort as with other similar products of similar sales
potential which it markets. SCHEIN covenants that it shall not use the
PRODUCT as a "loss leader" in its marketing programs and shall at all times
use its reasonable efforts in marketing the PRODUCT.
8.6 SCHEIN shall submit to ENDOREX JV for ENDOREX JV's information, copies of
all trade packaging, cartons and labels and other printed materials
(Materials") which SCHEIN proposes at any time to use in relation to the
sale of the PRODUCT provided always that the provisions of this Clause 8.6
shall be without prejudice to the obligations and responsibilities of
SCHEIN under Clauses 8.3 and 15.7 and SCHEIN shall indemnify and hold
harmless ENDOREX JV from and against all claims, damages, losses,
liabilities and expenses to which ENDOREX JV may become liable relating to
such Materials, provided however that SCHEIN shall have no liability to the
extent that such claims, damages, losses, liabilities and expenses arise
from information which was provided to SCHEIN by ENDOREX JV in accordance
with the terms of this Agreement. Unless ENDOREX JV reasonably objects to
the use of any such materials within 14 days of receipt for information
purposes, SCHEIN shall be entitled to proceed to use such trade packaging,
cartons and labels and other printed materials in connection with the sale
of the PRODUCT provided however, that in no event shall such materials
contain any statement which may have a damaging or harmful effect on the
commercialisation of the PRODUCT and/or the goodwill of ENDOREX JV in the
TERRITORY.
8.7 To the extent permitted by law, the materials referred to in Clause 8.6
shall include due acknowledgement that the PRODUCT is licensed from ENDOREX
JV.
8.8 To the extent permitted by law, ENDOREX JV shall be entitled to mark or
have marked all patent number(s) in respect of the ENDOREX JV PATENTS or
patentable ENDOREX JV IMPROVEMENTS on all PRODUCT or PRODUCT packaging, or
otherwise reasonably communicate to the trade the existence of any ENDOREX
JV PATENTS for the countries within the TERRITORY in such a manner as to
ensure compliance with, and enforceability under, applicable laws.
8.9 SCHEIN shall effect the first full scale commercial launch of the PRODUCT
in the USA as soon as reasonably practicable but in any event within
[*****] in the USA, provided that ENDOREX JV has supplied SCHEIN with
LAUNCH STOCKS ordered in accordance with the terms of this Agreement. With
respect to each of the other countries of the TERRITORY, SCHEIN or its
SUBLICENSEES will effect a national commercial launch of the PRODUCT as
soon as reasonably practicable but in any event within [*****], provided
that ENDOREX JV has supplied SCHEIN with LAUNCH STOCKS ordered in
accordance with the terms of this Agreement.
__________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
24
<PAGE>
CLAUSE 9 - SUPPLY OF THE PRODUCT
9.1 Save as otherwise provided in this Agreement, ENDOREX JV's designee shall
produce and supply to SCHEIN its entire requirements of the PRODUCT.
ENDOREX JV shall supply the PRODUCT solely and exclusively to SCHEIN in
the TERRITORY and SCHEIN will purchase the PRODUCT exclusively from ENDOREX
JV in the TERRITORY.
9.2 The PRODUCT shall be supplied to SCHEIN by ENDOREX JV in such form as may
be agreed by the Parties during the PROJECT. ENDOREX JV shall deliver the
PRODUCT to SCHEIN and/or any party designated by SCHEIN in proper packaging
so as to permit safe storage and transport and to maintain the
sterilisation of the PRODUCT. ENDOREX JV shall be responsible at its sole
expense, for furnishing all operations, labour, supervision, equipment,
tools, machinery, and facilities necessary to manufacture the PRODUCT in
accordance with the SYSTEM SPECIFICATIONS, PRODUCT SPECIFICATIONS and
DEVICE REGULATORY APPROVALS; provided however, that in all events, SCHEIN
shall be responsible for the supply of the COMPOUND for the PRODUCT in
accordance with Clause 10.
9.3 ENDOREX JV shall deliver the PRODUCT within 120 days of the receipt of a
firm purchase order therefor (120 days in the case of LAUNCH STOCKS). The
delivery time for the PRODUCT shall be agreed upon by the Parties.
9.4 No later than 12 months prior to the filing of the first REGULATORY
APPLICATION in the TERRITORY, SCHEIN shall provide ENDOREX JV with a
forecast of SCHEIN's requirements for the PRODUCT for the 18 month period
following the first anticipated REGULATORY APPROVAL in the TERRITORY. The
said forecast will be updated quarterly until the first REGULATORY APPROVAL
in the TERRITORY. Except as otherwise provided herein, all forecasts made
hereunder shall be made to assist ENDOREX JV in planning its production and
SCHEIN in planning marketing and sales. Such forecasts shall not be
binding purchase orders, and shall be without prejudice to SCHEIN's
subsequent firm purchase orders for the PRODUCT in accordance with the
terms of this Agreement.
9.5 Prior to the commencement of commercial manufacture of the PRODUCT, SCHEIN
shall provide a rolling 18 months forecast for the period beginning on the
first day of the relevant calendar month. The format of such 18 months
forecasts shall be comprised of a 12 monthly forecast together with 2
quarterly forecasts. The first calendar quarter of such 18 months forecast
shall be a binding purchase commitment of SCHEIN. In addition to the
obligation of SCHEIN regarding rolling 18 month forecasts outlined herein,
SCHEIN shall provide ENDOREX JV with rolling 3 years' forecasts on 1 August
of each year of this Agreement.
Subject to the agreement of the PROJECT TEAM, the calendar quarterly
forecasts (other than for LAUNCH STOCKS) shall not increase or decrease
from one quarter to
__________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
25
<PAGE>
the next by more than [*****] in terms of volume of the PRODUCT ordered.
Notwithstanding the foregoing, ENDOREX JV will use its reasonable efforts
to fulfil SCHEIN's requirements in excess of forecasted amounts, but shall
not be obliged to meet such requirements if it is not reasonably
practicable to do so provided that ENDOREX JV shall supply the units of
PRODUCT so ordered but not immediately available as soon thereafter as
reasonably practicable.
9.6 The PROJECT TEAM shall agree upon a minimum batch for each form of the
PRODUCT which shall be manufactured by ENDOREX JV for SCHEIN pursuant to
the terms of this Agreement.
ENDOREX JV shall have the right to refuse to fulfil orders which do not
conform with the provisions of this Clause 9.6. Where ENDOREX JV in its
absolute discretion, fulfils any order which does not conform with the
provisions of this Clause 9.6, the fulfilment of such order by ENDOREX JV
shall not affect ENDOREX JV's right to refuse to fulfil any subsequent
order which does not conform with the provisions hereof.
9.7 In advance of the REGULATORY APPROVAL in the USA, the Parties shall discuss
and agree upon the manufacture and purchase of specific quantities of
LAUNCH STOCKS; however, for the avoidance of doubt, the parties hereby
confirm that ENDOREX JV's manufacturing obligations shall only arise on
receipt of firm purchase orders. For the avoidance of doubt, ENDOREX JV
shall only accept orders for LAUNCH STOCKS in respect of the launch of the
PRODUCT in the USA.
9.8 SCHEIN will notify ENDOREX JV within [*****] of its receipt of an approval
letter, or a pre-approval letter in respect of a REGULATORY APPLICATION
from an RHA. SCHEIN shall within [*****] of such notification place a firm
purchase order with ENDOREX JV for LAUNCH STOCKS, unless such a purchase
order has already been submitted to ENDOREX JV prior to that date. In
addition, SCHEIN will use its reasonable efforts to provide forecasts for
deliveries in addition to the LAUNCH STOCKS for the balance of the year in
which the REGULATORY APPROVAL is obtained.
9.9 Save as otherwise agreed between the Parties, delivery of consignments of
PRODUCT shall be effected to SCHEIN or SCHEIN's designee by ENDOREX JV's
designee EX-WORKS the applicable facility. Risk of loss of or damage to
any consignment of the PRODUCT shall pass to SCHEIN or it's designee when
each such consignment of the PRODUCT is loaded onto the vehicle of SCHEIN
or SCHEIN's designee's agent on which it is to be despatched from the
applicable facility. SCHEIN or it's designee shall fully insure or procure
the insurance of all consignments of the PRODUCT from the time when risk
passes as aforesaid and shall produce the supporting insurance when
requested by ENDOREX JV.
____________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
26
<PAGE>
9.10 All claims for failure of any delivery of the PRODUCT to conform in all
material respects to PRODUCT SPECIFICATIONS under Clause 9 shall be made
by SCHEIN to ENDOREX JV in writing as soon as possible but in any event
within 30 days following delivery except in the case of latent defects.
Claims for latent defects, which could not have been reasonably discovered
during the routine testing protocol (to be agreed by SCHEIN and ENDOREX
JV), shall be made by SCHEIN to ENDOREX JV in writing as soon as possible
but in any event within 30 days of discovery. Failure to make timely
claims in the manner prescribed shall constitute acceptance of the
delivery. Where possible, SCHEIN shall return the defective PRODUCT to
ENDOREX JV, in such amount as is agreed by the Parties, in support of any
claim pursuant to this Clause 9.10.
9.11 PRODUCT which has been delivered and which has been shown within the
period designated in Clause 9.10 not to conform in all material respects
to PRODUCT SPECIFICATIONS where such non-conformity is attributable to
negligent acts or omissions of ENDOREX JV shall be replaced at ENDOREX
JV's cost within 90 days of the receipt by ENDOREX JV of the failed SYSTEM
except where such non-conformity is attributable to negligent acts or
omissions of SCHEIN.
9.12 In the event of an unresolved dispute as to conformity of the PRODUCT with
the PRODUCT SPECIFICATIONS, the Parties shall within 30 days appoint an
independent first class laboratory to undertake the relevant testing and
its findings shall be conclusive and binding upon the Parties. All costs
relating to this process shall be borne solely by the unsuccessful Party.
9.13 The Parties shall negotiate in good faith to conclude a detailed technical
agreement(s) regulating the Parties' respective obligations from a
technical and quality perspective for the supply of the PRODUCT by ENDOREX
JV to SCHEIN or to any SUBLICENSEES.
9.14 [*****]
9.15 In manufacturing the PRODUCT under Clause 9.14, SCHEIN or its AFFILIATES
shall be responsible for all process and equipment validation required by
the RHA and the regulations thereunder and shall take all steps reasonably
necessary to pass government inspection by the RHA.
CLAUSE 10 - SUPPLY OF THE COMPOUND
10.1. Subject to the terms of this Agreement, SCHEIN hereby grants to ENDOREX
JV, and ENDOREX JV hereby accepts for the TERM, a royalty-free sub-
licensable licence to the SCHEIN COMPOUND TECHNOLOGY and SCHEIN COMPOUND
IMPROVEMENTS to develop, manufacture, use, offer for sale and sell the
PRODUCT to SCHEIN in accordance with the terms of this Agreement.
______________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
27
<PAGE>
10.2 SCHEIN shall be responsible at its sole expense, for furnishing all
operations, labour, supervision, equipment, tools, machinery, COMPOUND and
facilities necessary to ensure a reliable and continuous supply of the
COMPOUND for the PRODUCT in accordance with the SYSTEM SPECIFICATIONS,
PRODUCT SPECIFICATIONS and DEVICE REGULATORY APPROVALS.
10.3 SCHEIN shall be responsible for, and shall ensure that, all of the
suppliers of the COMPOUND and raw materials necessary for the COMPOUND,
shall hold all necessary licenses and registrations appropriate and
necessary for the inclusion of such materials in the PRODUCT. All COMPOUND
to be supplied by SCHEIN to ENDOREX JV shall be freeze dried, in a vial
with a stopper, and in proper packaging
10.4. SCHEIN shall supply to ENDOREX JV such quantities of COMPOUND [*****] as
ENDOREX JV requires for the manufacture and supply of PRODUCT to SCHEIN
and any SUBLICENSEES for commercial sale or promotional samples in all of
the countries of the TERRITORY. COMPOUND shall be supplied by SCHEIN in
accordance with orders placed by ENDOREX JV. At the placement of such
orders, ENDOREX JV shall notify SCHEIN of then remaining amount of stocks
of COMPOUND held by ENDOREX JV. SCHEIN shall be responsible for ensuring
that ENDOREX JV receives delivery of COMPOUND in such quantities and at
such times so as to ensure that ENDOREX JV has sufficient stocks of the
COMPOUND to meet SCHEIN's firm purchase orders and supply the PRODUCT to
SCHEIN. SCHEIN shall furnish the appropriate certificate of analysis with
each delivery of COMPOUND. ENDOREX JV shall be entitled to rely upon such
certificates of analysis without the necessity of additional testing. As
of the date of this Agreement, the Parties agree that adequate quantities
of COMPOUND shall be delivered by SCHEIN to ENDOREX JV at least [*****] in
advance of the date on which the delivery of PRODUCT is scheduled to be
made to SCHEIN or such longer period as may be agreed by the PROJECT TEAM.
During the period in which ENDOREX JV is manufacturing LAUNCH STOCKS, the
foregoing period of [*****] shall be increased to [*****].
10.5. Prior to the launch of the PRODUCT, the Parties shall negotiate in good
faith to conclude a technical agreement regulating the Parties' respective
obligations from a technical and quality perspective for the supply of the
COMPOUND by SCHEIN to ENDOREX JV and the supply of the PRODUCT by ENDOREX
to SCHEIN. In any event all quantities of the COMPOUND delivered by SCHEIN
hereunder shall conform with the specifications as approved by the RHA
under SCHEIN's ANDA APPROVAL and any further specifications as may be set
out or agreed to in the technical agreement referred to above (defined
herein as the "COMPOUND SPECIFICATIONS").
10.6. All quantities of the COMPOUND delivered by SCHEIN hereunder shall conform
to the COMPOUND SPECIFICATIONS and all prevailing laws and regulatory
______________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
28
<PAGE>
requirements of the country where the COMPOUND is manufactured and
intended to be sold.
10.7. Save as otherwise agreed between the Parties, delivery of consignments of
COMPOUND shall be effected by SCHEIN, FCA the manufacturing facility
designated by ENDOREX JV, and all risks therein shall pass to ENDOREX JV
when each such consignment of the COMPOUND is delivered to ENDOREX JV's
designated facility. ENDOREX JV shall fully insure or procure the
insurance of all consignments of the COMPOUND when risk passes as
aforesaid and shall produce such insurance documentation supporting same
as and when requested by SCHEIN. ENDOREX JV shall furnish the appropriate
certificate of analysis with each delivery of PRODUCT.
10.8. Title to the COMPOUND supplied to ENDOREX JV by SCHEIN shall at all times
remain in SCHEIN. ENDOREX JV shall clearly mark such COMPOUND as the
property of SCHEIN. At the termination of this Agreement, ENDOREX JV
shall surrender to SCHEIN all useable COMPOUND in ENDOREX JV's
possession.
10.9. All claims for failure of any shipment of the COMPOUND to conform to the
COMPOUND SPECIFICATIONS must be made by ENDOREX JV to SCHEIN in writing
within 30 days following delivery except in the case of latent defects.
Claims for latent defects shall be made by ENDOREX JV to SCHEIN in
writing as soon as possible but in any event within 30 days of discovery.
Failure to make timely claims in the manner prescribed shall constitute
acceptance of the shipment. COMPOUND which has been delivered and which
has been shown within the designated period not to conform to COMPOUND
SPECIFICATIONS shall be replaced at SCHEIN's cost within 90 days of the
receipt by SCHEIN of the failed COMPOUND.
10.10. In the event that the COMPOUND supplied by SCHEIN is not in compliance
with the COMPOUND SPECIFICATIONS, or is otherwise adulterated, misbranded
or defective, ENDOREX JV shall notify SCHEIN and shall follow all
reasonable written instructions of SCHEIN regarding, and be responsible,
at the sole cost and expense of SCHEIN, for re-analysis, sampling,
processing, return, disposal or destruction, including certification of
destruction, of such non-conforming bulk COMPOUND. In addition, SCHEIN
shall be responsible for all costs borne by ENDOREX JV in the use of such
non-conforming bulk COMPOUND, unless such non-compliance with the
COMPOUND SPECIFICATIONS was solely due to a failure by ENDOREX JV to
follow SCHEIN'S reasonable written instructions regarding such non-
conforming bulk COMPOUND.
10.11. In the event of an unresolved dispute as to conformity of the COMPOUND
with the COMPOUND SPECIFICATIONS, the Parties shall within 30 days
appoint an independent first class laboratory to undertake the relevant
testing and its findings shall be conclusive and binding upon the
Parties. All costs relating to this process shall be borne solely by the
unsuccessful Party.
10.12 SCHEIN shall indemnify ENDOREX JV against any claims, actions or losses
arising from any failure, inability or delay in supplying the PRODUCT to
customers arising out of any failure inability or delay by SCHEIN in
supplying the COMPOUND to
29
<PAGE>
ENDOREX JV or ENDOREX JV's designee in accordance with the provisions of
this Clause 10.
10.13 ENDOREX JV shall be responsible for, and shall ensure that, all of the
suppliers of equipment, tools, machinery and materials shall hold all
necessary licenses and registrations appropriate and necessary for the
inclusion of such materials in the PRODUCT.
10.14 Notwithstanding the foregoing provisions of Article 10, ENDOREX JV shall
be entitled, at its sole discretion, to take over some or all of the
activities associated with the manufacture of the drug vial containing
the COMPOUND which will be supplied by SCHEIN to ENDOREX JV; provided,
however, that there may be a transition period of up to 60 days during
which SCHEIN continues to perform the subject activities but only because
of commitments to third party suppliers that SCHEIN had agreed to prior
to the exercise of such right to take over by ENDOREX JV. Any such
manufacture of the drug vial by ENDOREX JV or ENDOREX JV's designee shall
be in a competitive manner.
10.15 In the event that any royalty, licence fees or other compensation
obligations related to the COMPOUND and/or the bulk substance which is
used to formulate the COMPOUND ("Bulk Substance") are payable to any
third parties as a result of the use of the COMPOUND in the PRODUCT,
SCHEIN shall be solely responsible for the payment of any such royalty,
licence fee or other compensation obligations. For the avoidance of
doubt, any such royalty, licence fee or other compensation obligations
relating to the COMPOUND and/or the Bulk Substance shall not be included
in the calculation of the MANUFACTURING COST of the COMPOUND and shall
not be deducted from the PROFIT.
10.16. [*****]. SCHEIN shall use its best commercial efforts to ensure a
continuous and uninterrupted supply of the Bulk Substance for the
COMPOUND throughout the TERM of this Agreement. ENDOREX JV shall be
entitled, at its sole discretion, to forthwith terminate this Agreement,
in the event that SCHEIN:
10.16.1 at any time during the TERM of this Agreement, (i) fails to
supply a shipment of the COMPOUND which has been ordered by
ENDOREX JV for a period exceeding [*****] from the receipt of an
order from ENDOREX JV or (ii) there are delays in filling each
of [*****] successive orders which delays cumulatively exceed
[*****] when each delay is measured beginning on the [*****] day
from receipt of the corresponding orders or (iii) there is a
shortfall in [*****] successive shipments delivered by SCHEIN
which on a cumulative basis, exceeds [*****] of the total amount
of said [*****] orders; or
10.16.2 fails to, within [*****] from the EFFECTIVE DATE, enter into a
supply arrangement with [*****], or enter into any other
arrangement which secures
_____________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
30
<PAGE>
SCHEIN supply rights to the Bulk Substance for the TERM of this
Agreement.
CLAUSE 11 - FINANCIAL PROVISIONS
11.1 Licence Royalties:
-----------------
11.1.1 In consideration of the licence of the ENDOREX JV PATENTS and
patentable ENDOREX JV IMPROVEMENTS granted to SCHEIN under this
Agreement, SCHEIN shall pay to ENDOREX JV [*****] of any LICENCE
FEES which are received from SUBLICENSEES.
11.2 Development Royalties:
---------------------
11.2.1 All work that ENDOREX JV shall perform pursuant to the PROJECT in
order to meet the PROJECT SYSTEM SPECIFICATIONS in accordance with
Clause 6.4 hereof, shall be charged [*****]. Except as otherwise
provided in this Agreement, all development or other technical
assistance which ENDOREX JV shall perform pursuant to the PROJECT
or the terms of this Agreement which is outside of the scope of
the PROJECT SYSTEM SPECIFICATIONS, or which is otherwise requested
by SCHEIN or any SUBLICENSEES and agreed to by ENDOREX JV, shall
be charged [*****]. Any such work shall be mutually agreed upon by
in writing in advance of the commencement of such work, which
agreement shall include an agreed upon budget.
11.2.2 All development and other work agreed upon by ENDOREX JV pursuant
to Clause 11.2.1. and carried out by ENDOREX JV hereunder, shall
be invoiced by ENDOREX JV to SCHEIN at the end of each calendar
quarter. Payment shall be effected in US Dollars within [*****] of
the date of receipt of the relevant invoice.
11.2.3 For the avoidance of doubt, the Parties acknowledge that in the
event that a SUBLICENSEE requests that ENDOREX JV perform
development work or that SCHEIN perform development, trial,
regulatory applications or other work for such SUBLICENSEE:
(i) [*****]
(ii) [*****].
______________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
31
<PAGE>
11.3 Price of Product:
----------------
11.3.1 ENDOREX JV shall supply the PRODUCT to SCHEIN [*****] in
accordance with the terms of this Agreement.
11.3.2 At the end of each quarter, [*****], there shall be a payment
either by ENDOREX JV to SCHEIN or by SCHEIN to ENDOREX JV to
[******].
11.3.3 Payment for all PRODUCT delivered from ENDOREX JV designee's
manufacturing facility to SCHEIN shall be effected in U.S. Dollars
($) within [*****] of the date of the delivery of the PRODUCT EX
WORKS the applicable facility.
11.4 Allocation:
----------
11.4.1 In consideration of the license of the ENDOREX JV PATENTS and
patentable ENDOREX JV IMPROVEMENTS to SCHEIN hereunder, SCHEIN
shall pay a royalty [*****] to ENDOREX JV.
11.4.2 Within four weeks of the end of each calendar quarter, SCHEIN
shall notify ENDOREX JV of the NSP of PRODUCT for that previous
calendar quarter. Payments shown by each calendar quarter report
to have accrued but which have not yet been paid shall be included
in calculating the NSP for that quarter.
11.4.3 Payment [*****] shall be made once in each calendar quarter within
45 days after the expiry of the relevant calendar quarter.
11.4.4 All payments due hereunder shall be made in U.S. Dollars.
11.4.5 In the event that SCHEIN or any AFFILIATE of SCHEIN shall sell the
PRODUCT together with other products of SCHEIN to third parties
(by the method commonly known in the pharmaceutical industry as
"bundling") and the price attributable to the PRODUCT is less than
the average price of "arms length" sales to similar customers for
the reporting period in which sales occur (such sales to be
excluded from the calculation of the average price of "arms
length" sales), [*****]
11.5 Method of calculation of royalties and other payments:
-----------------------------------------------------
The parties acknowledge and agree that the methods for calculating the
royalties and other payments hereunder are for the purposes of the
convenience of the parties, are freely chosen and not coerced.
________________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
32
<PAGE>
CLAUSE 12 - PAYMENTS, REPORTS AND AUDITS
12.1 SCHEIN shall keep true and accurate records of gross sales of the PRODUCT,
the number of units of PRODUCT sold, the items deducted from the gross
amount in calculating the NSP, the NSP, the PROFIT and the royalties
payable to ENDOREX JV under Clause 11. SCHEIN shall deliver to ENDOREX JV
a written statement ("the STATEMENT") thereof within 30 days following the
end of each calendar quarter, (or any part thereof in the first or last
calendar quarter of this Agreement) for such calendar quarter. The
STATEMENT shall outline on a country-by-country basis, the calculation of
the NSP from gross revenues during that calendar quarter, the applicable
percentage rate, and a computation of the sums due to ENDOREX JV. The
parties' financial officers shall agree upon the precise format of the
STATEMENT.
12.2 Unless otherwise notified in writing by ENDOREX JV, payments due on PROFIT
of the PRODUCT based on sales amounts in a currency other than US Dollars
shall first be calculated in the foreign currency and then converted to US
Dollars on the basis of the exchange rate in effect for the purchase of US
Dollars with such foreign currency quoted in the Wall Street Journal (or
comparable publication if not quoted in the Wall Street Journal) with
respect to the sale of currency of the country of origin of such payment
for the day prior to the date on which the payment by SCHEIN is being
made.
12.3 Any income or other taxes which SCHEIN is required by law to pay or
withhold on behalf of ENDOREX JV with respect to royalties and any other
monies payable to ENDOREX JV under this Agreement shall be deducted from
the amount of such PROFIT payments, royalties and other monies due. SCHEIN
shall furnish ENDOREX JV with proof of such payments. Any such tax
required to be paid or withheld shall be an expense of and borne solely by
ENDOREX JV. SCHEIN shall promptly provide ENDOREX JV with a certificate or
other documentary evidence to enable ENDOREX JV to support a claim for a
refund or a foreign tax credit with respect to any such tax so withheld or
deducted by SCHEIN. The parties will reasonably cooperate in completing
and filing documents required under the provisions of any applicable tax
treaty or under any other applicable law, in order to enable SCHEIN to
make such payments to ENDOREX JV without any deduction or withholding.
12.4 All payments due hereunder shall be made to the designated bank account of
ENDOREX JV in accordance with such timely written instructions as ENDOREX
JV shall from time to time provide.
12.5 SCHEIN shall pay interest to ENDOREX JV at the Prime Rate publicly
announced by Morgan Guaranty Trust Company of New York at its principal
office on the date (or next to occur business day, if such date is not a
business day) on which payment should have been made pursuant to the
applicable provisions of this Agreement plus [*****] on all late payments
under this Agreement applicable from the date on which
__________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
33
<PAGE>
payment should have been made pursuant to the applicable provisions of
this Agreement until the date of payment.
12.6 For the 180 day period following the close of each calendar year of the
Agreement, ENDOREX JV and SCHEIN will, in the event that the other party
reasonably requests such access, provide each other's independent
certified accountants (reasonably acceptable to the other party) with
access, during regular business hours and subject to the confidentiality
provisions as contained in this Agreement, to such party's books and
records relating to the PRODUCT, solely for the purpose of verifying the
accuracy and reasonable composition of the calculations hereunder for the
calendar year then ended.
12.7 In the event of a discovery of a discrepancy which exceeds [*****] of the
amount due or charged by a party for any period, the cost of such
accountants shall be borne by the audited party; otherwise, such cost
shall be borne by the auditing party.
CLAUSE 13 - DURATION AND TERMINATION
13.1 This Agreement shall be deemed to have come into force on the EFFECTIVE
DATE and, subject to the rights of termination outlined in this Clause 13
will expire on a country by country basis on the [*****] ("the INITIAL
PERIOD").
13.2 At the end of the INITIAL PERIOD, the Agreement shall continue
automatically for rolling [*****] periods thereafter, unless the Agreement
has been terminated by either of the parties by serving [*****] written
notice on the other immediately prior to the end of the INITIAL PERIOD or
any additional [*****] period provided for herein.
13.3 In addition to the rights of termination provided for elsewhere in this
Agreement, either party will be entitled forthwith to terminate this
Agreement by written notice to the other party if:
13.3.1 that other party commits any breach of any of the provisions of
this Agreement, and in the case of a breach capable of remedy,
fails to remedy the same within [*****] after receipt of a written
notice giving full particulars of the breach and requiring it to
be remedied;
13.3.2 that other party goes into liquidation (except for the purposes of
amalgamation or reconstruction and in such manner that the company
resulting therefrom effectively agrees to be bound by or assume
the obligations imposed on that other party under this Agreement);
13.3.3 an encumbrancer takes possession or a receiver is appointed over
any of the property or assets of that other party; or
UNDER THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED
34
<PAGE>
13.3.4 any proceedings are filed or commenced by that other party under
bankruptcy, insolvency or debtor relief laws or anything analogous
to any of the foregoing under the laws of any jurisdiction occurs
in relation to that other party.
13.4 For the purposes of Clause 13.3.1, a breach will be considered capable of
remedy if the party in breach can comply with the provision in question in
all respects other than as to the time of performance (provided that time
of performance is not of the essence).
13.5 In further addition to the rights and termination provided for elsewhere
in this Agreement, ENDOREX JV shall be entitled to forthwith terminate the
licence granted to SCHEIN under this Agreement for any country or
countries of the TERRITORY, in accordance with the terms set out below, in
the event that SCHEIN:-
13.5.1 fails to file a DEVICE REGULATORY APPLICATION for the PRODUCT in
the USA within 6 months from the completion of the PROJECT; or
13.5.2 fails to effect the commercial launch of the PRODUCT in the USA as
required by Clause 8 in accordance with the provisions thereof; or
13.5.3 notifies ENDOREX JV that it does not wish to commercialise the
PRODUCT in any country of the TERRITORY; or
13.5.4 a TECHNOLOGICAL COMPETITOR of ENDOREX JV, [*****] acquires
[*****].
CLAUSE 14 - CONSEQUENCES OF TERMINATION
14.1 Upon exercise of those rights of termination specified in Clauses 13 or
elsewhere in this Agreement, this Agreement and all licenses to SCHEIN of
ENDOREX JV BACKGROUND TECHNOLOGY and ENDOREX JV IMPROVEMENTS shall,
subject to the provisions of the Agreement which survive the termination
of the Agreement and Clause 14.2, automatically terminate forthwith and be
of no further legal force or effect.
14.2 Upon termination of the Agreement by either party, or upon termination by
ENDOREX JV of a licence for a particular country under Clause 14.5, the
following shall be the consequences relating to the TERRITORY or the
particular country, as applicable:-
14.2.1 any sums that were due from SCHEIN to ENDOREX JV under the
provisions of Clause 11 or otherwise howsoever prior to the
exercise of the right to terminate this Agreement as set forth
herein shall be paid in full within 30 days of termination of this
Agreement and receipt of the invoice in respect
_______________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
35
<PAGE>
thereto, and ENDOREX JV shall not be liable to repay to SCHEIN
any amount of money paid or payable by SCHEIN to ENDOREX JV up to
the date of the termination of this Agreement;
14.2.2 all confidentiality provisions set out herein shall remain in
full force and effect for a period of [*****] from the date of
termination of this Agreement;
14.2.3 all representations and warranties contained herein, including,
without limitation, those contained in Clause 15 hereof, shall
survive termination of this Agreement and all obligations of the
Parties intended to be performed after termination as provided
herein shall remain in full force and effect;
14.2.4 the rights of inspection and audit shall continue in force for
the period referred to in the relevant provisions of this
Agreement;
14.2.5 ENDOREX JV shall be entitled to research, develop, manufacture
and commercialise the SYSTEM in the FIELD for its own benefit in
the relevant country or countries of the TERRITORY or in all of
the TERRITORY, as appropriate, and either Party shall be entitled
to manufacture, market, sell, or assist in the distribution or
sale of a COMPETING PRODUCT;
14.2.6 ENDOREX JV shall be entitled to file for DEVICE REGULATORY
APPROVAL for the SYSTEM with any [*****] compound otherwise
available to ENDOREX JV, in any country which ceases to be a part
of the TERRITORY, or in any country of the TERRITORY in the event
of termination of this Agreement,;
14.2.7 SCHEIN shall transfer to ENDOREX JV or ENDOREX JV's designee
without charge (but at ENDOREX JV's expense, if any), and/or
permit ENDOREX JV or ENDOREX JV's designee without charge to
conduct sufficient cross-referencing to, and have sufficient
access to any and all pending DEVICE REGULATORY APPLICATIONS or
granted DEVICE REGULATORY APPROVALS for the PRODUCT for the
relevant country or countries of the TERRITORY; and
14.2.8 SCHEIN shall be entitled to research, develop, manufacture and
commercialise the COMPOUND in the FIELD for its own benefit in
the TERRITORY or in the relevant country or countries of the
TERRITORY and either party shall be entitled to manufacture,
market, sell, or assist in the distribution or sale of a
COMPETING PRODUCT.
CLAUSE 15 - WARRANTY AND INDEMNITY
15.1 ENDOREX JV represents and warrants that
_________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
36
<PAGE>
15.1.1 it has the sole, exclusive and unencumbered right to grant the
licences and rights herein granted to SCHEIN, and that it has not
granted any option, licence, right or interest in or to the
ENDOREX JV PATENTS or ENDOREX JV KNOW-HOW to any third party
which would conflict with the rights granted by this Agreement.
ENDOREX JV agrees to hold SCHEIN harmless from any and all costs,
expenses and damages (including reasonable attorneys' fees)
incurred or sustained by SCHEIN as the result of any third
party's challenges to ENDOREX JV's right to grant the rights and
licences herein granted to SCHEIN,
15.1.2 the execution of this Agreement and the full performance of its
obligations and rights under this Agreement will not breach or in
any way be inconsistent with the terms and conditions of any
licence, contract, understanding or agreement, whether express,
implied, written or oral between ENDOREX JV and any third party.
15.2 SCHEIN represents and warrants that
the execution of this Agreement and the full performance of its
obligations and rights under this Agreement will not breach or in
any way be inconsistent with the terms and conditions of any
licence, contract, understanding or agreement, whether express,
implied, written or oral between SCHEIN and any third party.
15.3 Except as expressly stated in this Clause 15 or otherwise in this
Agreement, all other warranties, conditions and representations, express
or implied, statutory or otherwise, including a warranty as to the
quality or fitness for any particular purpose of the SYSTEM are hereby
excluded and except as expressly stated in this Agreement, ENDOREX JV
shall not be liable in contract, tort or otherwise for any loss, damage,
expense or injury, arising out of or in connection with the PRODUCT or
any defect in the SYSTEM or from any other cause.
15.4 ENDOREX JV represents and warrants that, in performing the development
activities and manufacturing of the SYSTEM pursuant to this Agreement,
ENDOREX JV will exercise all due skill, care and diligence in conducting
such activities as are commercially reasonable and comply with all
applicable laws and regulations..
15.5.1 SCHEIN represents and warrants that the COMPOUND provided by SCHEIN under
this Agreement will conform and perform in all material respects to:-
15.5.1(a) the COMPOUND SPECIFICATIONS; and
15.5.2(b) all applicable regulations and requirements of the relevant RHA
including the then cGMP regulations which apply to the manufacture
and supply of the COMPOUND and the PRODUCT.
37
<PAGE>
15.5.2 ENDOREX JV represents and warrants that, once successfully assembled, the
PRODUCT under this Agreement will conform and perform in all material
respects to:-
15.5.2(a) the PRODUCT SPECIFICATIONS and DEVICE REGULATORY APPROVALS; and
15.5.2(b) all applicable regulations and requirements of the relevant RHA
including the then cGMP regulations which apply to the manufacture
and supply of the PRODUCT;
provided, however, that such representation and warranty shall not apply
to with respect to the manufacture and supply of the COMPOUND.
15.6 SCHEIN further represents and warrants to ENDOREX JV that in
transporting, storing, handling, distributing, marketing and selling the
PRODUCT hereunder:-
15.6.1 it will exercise all due skill, care and diligence in conducting
such activities as are commercially reasonable; and
15.6.2 it will comply with the provisions of this Agreement, all RHA and
other approvals, all applicable state and local regulatory
approvals and all applicable laws, ordinances and regulations.
15.7.1 ENDOREX JV shall indemnify, defend and hold SCHEIN harmless from all
actions, losses, claims, demands, damages, costs and liabilities
(including reasonable attorneys' fees) to which SCHEIN is or may become
liable insofar as they arise out of [*****]
15.7.2 SCHEIN shall indemnify, defend and hold harmless ENDOREX JV from all
actions, losses, claims, demands, damages, costs and liabilities
(including reasonable attorneys' fees) to which ENDOREX JV is or may
become liable insofar as they arise out of [*****]
15.8 With reference to Clause 2.3.4, SCHEIN shall indemnify and hold harmless
ENDOREX JV to the extent that any claims, damages, liabilities, claims,
costs or expenses arise out of any such acts or omissions of any
SUBLICENSEE.
15.9 As a condition of obtaining an indemnity in the circumstances set out in
Clauses 15.4, 15.5, 15.6, 15.7, 15.8 and 15.9, the party seeking an
indemnity shall:
15.9.1 fully and promptly notify the other party of any claim or
proceedings, or threatened claim or proceedings;
15.9.2 permit the indemnifying party to take full control of such claim
or proceedings;
_________________
[*****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
38
<PAGE>
15.9.3 assist in the investigation and defence of such claim or
proceedings;
15.9.4 not compromise or otherwise settle any such claim or proceedings
without the prior written consent of the other party, which consent
shall not be unreasonably withheld; and
15.9.5 take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceedings.
15.10 Notwithstanding anything to the contrary in this Agreement, ENDOREX JV and
SCHEIN shall not be liable to the other by reason of any representation or
warranty, condition or other term or any duty of common law, or under the
express terms of this Agreement, for any consequential or incidental or
punitive loss or damage (whether for loss of profits or otherwise) and
whether occasioned by the negligence of the respective parties, their
employees or agents or otherwise.
15.11 ENDOREX JV and SCHEIN shall maintain comprehensive general liability
insurance, including product liability insurance on the SYSTEM and PRODUCT
respectively, in such prudent amount as shall be determined by the PROJECT
TEAM. Each party shall provide the other party with a certificate from the
insurance company verifying the above and undertakes to notify such party
directly at least 30 days prior to the expiration or termination of such
coverage.
15.12 The representations and warranties of the Parties, including those set
forth in Clause 15, shall survive execution of the AGREEMENT.
CLAUSE 16 - CUSTOMER COMPLAINTS AND PRODUCT RECALL
16.1 SCHEIN shall notify ENDOREX JV promptly:-
16.1.1 of any complaints from third parties reported to SCHEIN involving
any serious and unexpected adverse reactions resulting from the
use of the PRODUCT; and
16.1.2 of any potential recall of the PRODUCT by any governmental
authority.
16.2 ENDOREX JV shall notify SCHEIN promptly:-.
16.2.1 of any complaints from third parties reported to ENDOREX JV
involving any serious and unexpected adverse device events or
incident reports resulting from the use of the SYSTEM; and
16.2.2 of any potential recall of the SYSTEM by any governmental
authority.
16.3 SCHEIN and ENDOREX JV shall establish a procedure for formal adverse event
handling, customer complaints and reporting. It is envisaged that SCHEIN
shall be responsible for furnishing post-marketing reports to the
applicable RHA's and other relevant regulatory agencies. SCHEIN and
ENDOREX JV shall keep each other
39
<PAGE>
informed and shall copy the other party with all communications with the
RHA's and other relevant regulatory agencies with respect to the PRODUCT
and such events.
16.4 In the event of any recall of the PRODUCT, as suggested or requested by
any governmental authority:
16.4.1 SCHEIN shall perform the recall of the PRODUCT in the TERRITORY
and save as provided in Clause 16.4.2, in all events the recall
costs shall be borne by SCHEIN.
16.4.2 If the recall arises from ENDOREX JV's acts or omissions in
manufacturing the SYSTEM or any failure to conform to the PROJECT
SYSTEM SPECIFICATIONS, the recall costs shall be borne by ENDOREX
JV provided that SCHEIN should not have discovered the said act
or omission prior to the sale of the PRODUCT by exercising the
quality procedures to be agreed upon by the parties for the
release of the PRODUCT.
In the event that ENDOREX JV should bear the costs of any recall
hereunder, ENDOREX JV shall be entitled but not obliged to take
over and perform the recall of the PRODUCT described in Clause
16.4.1 and SCHEIN shall provide ENDOREX JV with all such
reasonable assistance as may be required by ENDOREX JV, with
ENDOREX JV reimbursing SCHEIN for reasonable costs incurred.
16.4.3 Neither party shall be liable to the other party or to any third
party for consequential or incidental damages which may arise as
a result of the recall of the PRODUCT.
16.4.4 For the avoidance of doubt, in no event shall SCHEIN be
responsible under this Agreement for performing any recall of the
PRODUCT in any country of the TERRITORY for which SCHEIN's
license to the ENDOREX JV BACKGROUND TECHNOLOGY and ENDOREX JV
IMPROVEMENTS has been terminated in accordance with the terms of
this Agreement.
CLAUSE 17 - MISCELLANEOUS PROVISIONS
17.1 Secrecy:
-------
17.1.1 Any information, whether written or oral (oral information shall
be reduced to writing within one month by the party giving the
oral information and the written form shall be furnished to the
other party) pertaining to the PRODUCT that has been or will be
communicated or delivered by ENDOREX JV to SCHEIN, or by SCHEIN to
ENDOREX JV, including, without limitation, trade secrets, business
methods, and cost, supplier, manufacturing and customer
information, shall be treated by SCHEIN and ENDOREX JV,
respectively, as confidential information, and shall not be
disclosed or revealed to any third party whatsoever or used in any
manner except as expressly provided for herein; provided, however,
that such confidential information
40
<PAGE>
shall not be subject to the restrictions and prohibitions set
forth herein to the extent that such confidential information:-
(1) is available to the public in public literature or otherwise,
or after disclosure by one party to the other becomes public
knowledge through no default of the party receiving such
confidential information; or
(2) was known to the party receiving such confidential
information prior to the receipt of such confidential
information by such party, whether received before or after
the date of this Agreement; or
(3) is obtained by the party receiving such confidential
information from a third party not subject to a requirement
of confidentiality with respect to such confidential
information; or
(4) is required to be disclosed pursuant to: (A) any order of a
court having competent jurisdiction and power to order such
information to be released or made public; or (B) any lawful
action of a governmental or regulatory agency or stock
exchange provided that each party shall notify the other in
writing of any disclosure of information required hereunder
prior to such disclosure.
17.1.2 Each party shall take in relation to the confidential information
of the other party all such precautions as it normally takes with
its own confidential information to prevent any improper
disclosure of such confidential information to any third party;
provided, however, that such confidential information may be
disclosed within the limits required to obtain any authorisation
from the applicable RHA or any governmental or regulatory agency
or, with the prior written consent of the other party, which
shall not be unreasonably withheld, or as may otherwise be
required in connection with the purposes of this Agreement.
17.1.3 Each of the parties agrees that it will not use, directly or
indirectly, any know-how of the other party (ENDOREX JV KNOW-HOW
or SCHEIN KNOW-HOW, as the case may be), or other confidential
information disclosed to it by the other party or obtained by it
from the other party pursuant to this Agreement, other than as
expressly provided herein.
17.1.4 Neither party will publicise the existence of this Agreement in
any way without the prior written consent of the other party
subject to the disclosure requirements of applicable laws and
regulations. In the event that either party wishes to make an
announcement concerning the Agreement, that party will seek the
consent of the other party. The terms of any such announcement
shall be agreed in good faith. ENDOREX JV and SCHEIN shall also
co-operate in good faith with respect to any stock exchange
filings, public announcements, or filings with the United States
Securities and Exchange Commission which may be necessary
following execution of this Agreement.
41
<PAGE>
17.2 Assignments/ Sub-contracting:
----------------------------
This Agreement may not be assigned by SCHEIN or ENDOREX JV without
the prior written consent of the other party, save that either party
may assign this Agreement in whole or in part and delegate its duties
hereunder to its AFFILIATE or AFFILIATES without such consent
provided that such assignment or delegation has no material adverse
tax implications for the other party hereto. ENDOREX JV shall be
entitled to subcontract any of its obligations under this Agreement.
Each party shall be responsible for the acts and/or omissions of its
respective AFFILIATES or subcontractors.
17.3 Parties bound:
-------------
This Agreement shall be binding upon and enure for the benefit of
parties hereto, their successors and permitted assigns.
17.4 Severability:
------------
If any provision in this Agreement is agreed by the parties to be, or
is deemed to be, or becomes invalid, illegal, void or unenforceable
under any law that is applicable hereto:-
17.4.1 such provision will be deemed amended to conform to
applicable laws so as to be valid and enforceable or, if it
cannot be so amended without materially altering the
intention of the parties, it will be deleted, with effect
from the date of such agreement or such earlier date as the
parties may agree; and
17.4.2 the validity, legality and enforceability of the remaining
provisions of this Agreement shall not be impaired or
affected in any way.
17.5 Force Majeure:
-------------
Neither party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results
from causes beyond its reasonable control, including, without
limitation, acts of God, fires, earthquakes, strikes, acts of war, or
intervention of a government authority, non-availability of raw
materials, but any such delay or failure shall be remedied by such
party as soon as practicable.
17.6 Relationship of the parties:
---------------------------
Nothing contained in this Agreement is intended or is to be construed
to constitute ENDOREX JV and SCHEIN as partners or members of a joint
venture or either party as an employee of the other. Neither party
hereto shall have any express or implied right or authority to assume
or create any obligations on behalf of or in the name of the other
party or to bind the other party to any contract, agreement or
undertaking with any third party.
42
<PAGE>
17.7 Amendments:
----------
No amendment, modification or addition hereto shall be effective or
binding on either party unless set forth in writing and executed by a
duly authorised representative of both parties.
17.8 Waiver:
------
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the party charged
with such waiver, and no waiver of any breach or failure to perform
shall be deemed to be a waiver of any future breach or failure to
perform or of any other right arising under this Agreement.
17.9 No effect on other agreements:
-----------------------------
No provision of this Agreement shall be construed so as to negate,
modify or affect in any way the provisions of any other agreement
between the parties unless specifically referred to, and solely to
the extent provided, in any such other agreement.
17.10 Governing law and jurisdiction:
------------------------------
This Agreement shall be governed by the laws of the State of New
York, without regard to principles of conflicts of law. Each of the
Parties hereby irrevocably submits to the jurisdiction of any New
York State or United States Federal court sitting in the County, City
and State of New York over any action or proceeding arising out of or
relating to this Agreement, and each hereby waives the defence of any
inconvenient forum for the maintenance of such action.
17.11 Notice:
------
17.11.1 Any notice to be given under this Agreement shall be sent in
writing in English by registered airmail or telecopied to:
ENDOREX JV at:
Clarendon House
2 Church Street
Hamilton, Bermuda
Attention: Chairman
Telefax 1 441 292 4720
With a copy to:
Elan Corporation, plc
Lincoln House
Lincoln Place
Dublin 2
Ireland
43
<PAGE>
Attention: Vice President & General Counsel
Elan Pharmaceutical Technologies
Telefax: 353 1 7094124
SCHEIN at:
Schein Pharmaceutical (Bermuda) Ltd.
C/o Grosvenor Trust LTD
33 Church Street
Hamilton, Bermuda
Attention: Chairman
Telefax: 1 441 292 5152
With a copy to:
Schein Pharmaceutical Inc.
100 Campus Drive
Florham Park
New Jersey 07932
Attention: General Counsel
Telefax: 973 593 5152
or to such other address(es) and telecopier numbers as may from
time to time be notified by either party to the other hereunder.
17.11.2 Any notice sent by mail shall be deemed to have been delivered
within 10 working days after despatch and any notice sent by
telex or telecopy shall be deemed to have been delivered within
24 hours of the time of the despatch. Notice of change of address
shall be effective upon receipt.
17.12. Patent Due Diligence
- ----------------------------
The obligations of SCHEIN under this Agreement are expressly [*****]
SCHEIN's PATENT DUE DILIGENCE REVIEW (as defined below) of the SYSTEM, the
PRODUCT and the ENDOREX JV PATENTS, and relevent third party patents with
results satisfactory to SCHEIN, under the following terms and conditions:
17.12.1 During the period commencing on the date hereof and ending on [*****]
(the "REVIEW PERIOD"), SCHEIN will promptly conduct or have conducted a
due
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
44
<PAGE>
diligence review of (1) [*****], (2) [*****], and (3) [*****] (the
"PATENT DUE DILIGENCE REVIEW"). [*****]. The PATENT DUE DILIGENCE
REVIEW shall be for the entire TERRITORY or any portion thereof that
SCHEIN, in its sole discretion, determines is necessary. Each Party
shall provide reasonable cooperation to the other Party during the
PATENT DUE DILIGENCE REVIEW.
17.12.2 Upon expiration of the REVIEW PERIOD, SCHEIN shall confirm its
acceptance of this AGREEMENT, in which event the conditions contained
in this Clause 17.12 shall be deemed fulfilled and the AGREEMENT and
its provisions shall remain in full force and effect unless [*****].
IN WITNESS of which the parties have executed this Agreement.
__________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
45
<PAGE>
SCHEDULE 1
ENDOREX JV PATENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
File Number Brief Description Country Status
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMT 13 Original Medipad Australia Granted (693136)
[*****] [*****]
[*****] [*****]
Israel Granted (111685)
[*****] [*****]
New Zealand Granted (276485)
Taiwan Granted (079227)
United States 2 Granted (5,527,288;
5,848,991), [*****]
South Africa Granted (94/9185)
- ------------------------------------------------------------------------------------------------------------
EMT 19 Medipad-Vial on board, needle on the [*****] [*****]
periphery [*****] [*****]
[*****] [*****]
Ireland Granted (77523)
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
United States Granted (5,814,020)
[*****] [*****]
South Africa Granted (96/7502)
- ------------------------------------------------------------------------------------------------------------
EMT 24 Delivery Needle [*****] [*****]
[*****] [*****]
[*****] [*****]
Ireland Granted (80772)
[*****] [*****]
[*****] [*****]
[*****] [*****]
South Africa Granted (97/5065)
[*****] [*****]
Taiwan Issued (096579)
[*****] [*****]
- ------------------------------------------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
[*****] [*****]
[*****] [*****]
- ------------------------------------------------------------------------------------------------------------
</TABLE>
______________________
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
46
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[*****] [*****]
[*****] [*****]
- ------------------------------------------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
- ------------------------------------------------------------------------------------------------------------
EMT 33 Improved Method of Packaging a Drug [*****] [*****]
Delivery Kit [*****] [*****]
South Africa Issued (98/5188)
[*****] [*****]
[*****] [*****]
- ------------------------------------------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
[*****] [*****]
[*****] [*****]
- ------------------------------------------------------------------------------------------------------------
EMT41DES Design of Medipad Housing (3ml) United States Granted (D404482)
- ------------------------------------------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
- ------------------------------------------------------------------------------------------------------------
</TABLE>
All countries are initially designated when filing in the European Patent Office
or the Patent Cooperation Treaty, and are then selected during the regional or
national phase.
[*****]REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED
47
<PAGE>
SCHEDULE 2
COMPOUND PATENTS
NONE.
48
<PAGE>
SCHEDULE 3
PROJECT
To be agreed upon by the Parties.
49
<PAGE>
SCHEDULE 4
PROJECT SYSTEM SPECIFICATIONS
To be agreed upon by the Parties
50
<PAGE>
SCHEDULE 5
PRODUCT SPECIFICATIONS
To be agreed upon by the Parties.
51
<PAGE>
Executed by SCHEIN PHARMACEUTICAL (BERMUDA), LTD. on 2/nd/ February, 2000
By : /s/ Peter Dickson
Name: Peter Dickson
Title: Director
Executed by ENDOREX NEWCO, LTD. on 2/nd/ February, 2000
By : /s/ Kevin Insley
Name: Kevin Insley
Title: Director
52
<PAGE>
EMPLOYMENT AGREEMENT
By and Between
Endorex
And
Frank C. Reid
Agreement made this 8/th/ day of February 2000, between ENDOREX
CORPORATION, a Delaware Corporation, (the "Company") and FRANK C. REID (the
"Executive").
The company is desirous of employing the Executive as VICE PRESIDENT,
FINANCE AND CORPORATE DEVELOPMENT of the Company, and the Executive is desirous
of becoming employed by the Company in this capacity.
The Company and the Executive desire to set forth in this Agreement the
terms and conditions on which the Executive will be employed by the Company as
its VICE PRESIDENT, FINANCE AND CORPORATE DEVELOPMENT.
Accordingly, in consideration of the promises and the respective covenants
and agreements of the parties herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Employment
The Company hereby agrees to employ the Executive, and the Executive hereby
agrees to serve the Company, on the terms and conditions set forth herein.
2. Term
The employment of the Executive by the Company as provided in Section 1
will commence on February 21, 2000 and end on February 20, 2004 unless
further extended or sooner terminated as hereinafter provided.
3. Position and Duties
The Executive shall serve as VICE PRESIDENT, FINANCE AND CORPORATE
DEVELOPMENT of Endorex Corporation and its subsidiaries and shall have such
responsibilities and authority consistent with this position as may, from
time to time, be assigned to the Executive by the President/CEO or Board of
Directors of the Company. The Executive shall devote substantially all his
working time and efforts to the business affairs of the Company. The
Executive will report directly to the President/CEO of the Company.
4. Place of Performance
In connection with the Executive's employment by the Company, the Executive
shall be based at the Company's offices in Lake Forest, IL except for
required travel on the Company's business.
5. Compensation and Related Matters
(A) Salary. During the period of the Executive's employment hereunder, the
Company shall pay to the Executive a salary at a rate of not less than
$130,000 per annum, payable in accordance with the Company's normal
payroll and withholding practices. The Executive's salary and
performance shall be subject to a review commencing at the end of the
calendar year but in any case no later than twelve (12) months
following the commencement of the term of the Executive's employment
hereunder.
(B) Bonuses. At the end of each full year of employment, Executive shall
be entitled to a targeted bonus of up to 30% of the Executive's annual
base salary, as in effect at the time. Determination of any actual
bonus shall be based upon the Executive's meeting mutually agreed
written objectives and the overall performance of the Company for that
period of time, and is at the discretion of the President/CEO and the
<PAGE>
Board of Directors. The written objectives for the first year of this
Agreement will be established during the first 45 days of employment.
(C) Expenses. The Company shall reimburse Executive for all normal, usual
and necessary expenses incurred by Executive in furtherance of the
business and affairs of the Company.
(D) Other Benefits. The Executive shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement made
available by the Company as of this date and in the future to its key
management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and
arrangements. Nothing paid to the employee under any plan or
arrangement presently in effect or made available in the future shall
be deemed to be in lieu of the salary payable to the employee pursuant
to paragraph (A) of this section.
(E) Vacations. The Executive shall be entitled to three (3) weeks of paid
vacation in each year of his employment (this will be prorated during
a calendar year by the amount of time an employee has worked with the
Company for that given year). The Executive shall also be entitled to
all paid holidays given by the Company to its employees.
(F) Services Furnished. The Company shall furnish the Executive with
office and such other facilities and services as shall be suitable to
the Executive's position and adequate for the performance of his
duties as set forth in Section 3 hereof and for the accomplishment of
Executive's mutually agreed written objectives.
(G) Options and Grants. Subject to execution of this Agreement, Executive
shall be granted on the date of execution of this Agreement, 60,000
share options of Endorex's Common Stock at a price per share equal to
the Closing Price of the Common Stock on the date of execution of this
Agreement. Such stock and options shall vest and become exercisable at
the rate of five equal tranches of 12,000 share options beginning with
the 90-day anniversary of the grant and with each successive tranche
of 12,000 share options vesting on the annual anniversary of the
grant. If Executive's employment with the Company shall terminate
before such stock is fully vested, except as otherwise provided in the
Company's Amended and Restated 1995 Omnibus Incentive Plan such stock
shall be exercisable only to the extent the stock is vested on the
date Executive's employment terminates. The grant of the foregoing
stock shall not preclude the participation of the Executive in any
other stock grant or option plan of the Company.
6. Offices
The Executive agrees to serve without additional compensation, if elected
or appointed thereto, as an executive of Endorex or other Endorex
subsidiaries (collectively "Endorex"), presently existing and as may be
established in the future, and consistent with the position of the
Executive with the Company at the time of such appointment, provided that
the Executive is indemnified for serving in any and all such capacities on
a basis no less favorable than is currently provided by Article VII of the
Company's by-laws and any Directors and Officers insurance in effect during
the term hereof. Executive agrees that, upon termination of his employment
with the Company, for any reason whatsoever, he will terminate from all
positions as an employee of Endorex and all of its subsidiaries.
7. Confidential Information
Executive covenants and agrees that he will not (except as required in the
course of his employment or as required by law), while in the employment of
the Company or thereafter, communicate or divulge to, or use for his own
benefit, or for the benefit of any other person, firm, association or
corporation, without the consent of the Company, as applicable, any
information concerning any inventions, discoveries, improvements,
processes, formulas, apparatus, equipment, methods, trade secrets,
research, secret
<PAGE>
data, cost or uses or purchasers of the Company's current or future
products, research activities, immunopharmaceutical agents, or services, or
other confidential matters possessed, owned, or used by the Company that
may be communicated to, acquired by, or learned of by the Executive in the
course of, or as a result of, his employment with the Company . All
records, files, memoranda, reports, price lists, customer lists, drawings,
plans, sketches, documents, equipment and like, relating to the business of
the Company, which the Company, as applicable shall use or prepare or come
into contact with, shall remain the sole property of the Company, as
applicable. The obligations of confidentiality shall not apply to such
information that (a) is at the time of receipt a matter of public knowledge
or after its receipt becomes public knowledge through no act or omission on
the part of Executive, (b) the Executive can establish by reasonable proof
was known to him prior to disclosure by the Company, (c) is received from a
third party who did not, directly or indirectly, obtain such information as
a result of Executive's breach of this Paragraph 7. EXECUTIVE ACKNOWLEDGES
THAT ANY INVENTION, IMPROVEMENT, DISCOVERY, PROCESS, FORMULA, METHOD OR
OTHER INTELLECTUAL PROPERTY ("INVENTIONS"), WHETHER OR NOT PATENTABLE OR
COPYRIGHTABLE DEVELOPED BY EXECUTIVE, ALONE OR JOINTLY WITH OTHERS, USING
MATERIAL, RESOURCES OR FACILITIES OF THE COMPANY OR WHICH RELATE TO
EXECUTIVE'S WORK FOR THE COMPANY OR ARE BASED ON THE COMPANY'S CONFIDENTIAL
INFORMATION IS THE EXCLUSIVE PROPERTY OF THE COMPANY. EXECUTIVE ASSIGNS ALL
OF HIS RIGHT, TITLE AND INTEREST IN AND TO ANY SUCH INVENTIONS TO THE
COMPANY.
8. Competition
(A) During the period of the Executive's employment by the Company and for
a period of twelve (12) months after such employment ends (the
"Restricted Period") (whether such employment shall have ended by
reason of the expiration or termination of this Agreement or
otherwise), Executive will not (i) engage in; (ii) have any interest
in any person, firm or corporation that engages in; or (iii) perform
any services for any person, firm or corporation that engages in
direct competition with the Company, or any of its subsidiaries in the
development, research relating to, manufacture, processing, marketing,
distribution, or sale of products that are substantially similar to
products ("Products") that were researched, developed, licensed,
manufactured, processed, distributed, or sold by the Company, or any
of its subsidiaries, during the twelve (12) month period immediately
preceding the termination of his employment, provided the Company
continues to engage in such activities with respect to the Products
during the Restricted Period. The parties agree that the Company
currently conducts business in the following areas: 1)
immunomodulators for cancer and infectious disease and vaccine
adjuvants based on muramyl dipeptide technology, 2) polymerized
liposomes for oral/mucosal vaccine and drug delivery, and 3)
monoterpene-based compounds for the prevention and treatment of
cancer, and 4) delivery of iron chelators using Elan Corporation's
Medipad technology. For the avoidance of doubt, the parties agree that
"Products" shall include any technology and/or products that the
Company in-licenses during the term of Executive's employment
hereunder.
(B) During the period of the Executive's employment by the Company and for
a period of two (2) years thereafter, Executive will not, directly or
indirectly, employ, solicit for employment, or advise or recommend to
any other person that they employ or solicit for employment, any
employee of the Company.
(C) Notwithstanding any provision of this Section 8 to the contrary,
Executive may own no more than three percent (3%) of the total shares
of all classes of stock outstanding of any corporation having
<PAGE>
securities registered with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
9. Termination
(A) Notwithstanding any provision of this Agreement to the contrary,
Executive's employment shall automatically terminate upon his death,
and the Company at any time may terminate his employment immediately
by giving him written notice of such termination (i) for cause, as
hereinafter defined; (ii) if Executive shall materially violate any of
the provisions of Section 7 or 8 hereof; or (iii) if Executive shall
become physically or mentally incapacitated and by reason thereof be
unable to perform his duties hereunder for a period of ninety (90)
consecutive days. For the purpose of clause (i) of this Subsection 9A,
"for cause" shall mean any of the following events: (x) conviction in
a court of law of any crime or offense involving money or other
property of the Company, or any of its subsidiaries, or any felony,
(y) violation of specific written directions of the President/CEO or
Board of Directors of the Company, provided, however, no discharge
shall be deemed "for cause" under this clause (y) unless Executive
shall have first received written notice from the President/CEO of the
Company advising of the acts or omissions that constitute such
violation, and such violation continues uncured for a period of (30)
days after Executive shall have received such notice, or (z)
intentional, reckless or grossly negligent conduct by Executive
constituting misconduct. Termination of Executive by the Company in a
circumstance other than one stipulated in this Subsection 9A shall
occur with 30 days written notice, provided that the Company may pay
Executive salary in lieu of any portion of such notice.
(B) Executive may terminate his employment with the Company upon thirty
(30) days written notice. If Executive terminates his Employment with
the Company pursuant to this Section 9B, Executive shall only be
entitled to any unpaid compensation accrued through the last day of
Executive's employment.
(C) In the event that (i) the Company terminates the employment of
Executive for any reason (other than "for cause" as defined or as a
consequence of Executive's violation of clause (ii) of Subsection 9A
above,) or (ii) Executive terminates his employment for Good Reason
within twelve (12) months after a Change in Control, then Executive
shall be paid any earned but unpaid bonus plus his then current salary
for a period of six (6) months following termination, subject to set
off for amounts earned from alternative employment. "Good Reason"
shall mean a material reduction in Executive's level of
responsibility, a reduction in his level of base salary or targeted
bonus level, or a proposed relocation without his consent by more than
50 miles from Lake Forest, IL. "Change in Control" shall have the same
meaning as in the Company's Amended and Restated 1995 Omnibus
Incentive Plan.
10. Successors: Binding Agreement
(A) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company, by agreement in form
and substance satisfactory to the Executive, to expressly assume and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and /or assets as aforesaid which executes and delivers the
agreement provided for in this Section 10, or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation
of law. If the successor does not agree to be bound by this
<PAGE>
agreement, and Executive is terminated, the Company will terminate
Executive as stipulated in Section 9(C).
(B) This Agreement, and all rights of the Executive hereunder, shall inure
to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while
any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee or, if there be no
such designee, to the Executive's estate. The Executive shall not be
entitled to assign any of his rights or obligations under this
Agreement.
11. Notice
For all purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to be effective upon personal delivery or fax or two
(2) days after deposit in the U.S. registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: If to the Employer:
748 Chatham Rd. 28101 N. Ballard Drive
Glenview, Ill. 60025 Lake Forest, Ill. 60045
Or to such other address as any party may have furnished to the others
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
signed by the parties hereto. No waiver by either party hereto at any time
of any breach by the other party hereto of, or in compliance with, any
condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set
forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the
laws of the State of Illinois.
13. Validity
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts
This agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
15. Arbitration
Any dispute or controversy arising under or in connection with this
Agreement, other than Sections 7 or 8, shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators, in Chicago,
Illinois, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitration's
award in any court having jurisdiction. The expense of such arbitration
shall be borne by the Company. The parties agree that any dispute arising
out of or relating to Sections 7 or 8 shall be resolved in the State and/or
<PAGE>
Federal courts located in Lake County, Illinois and the parties consent to
the jurisdiction of such courts.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
Endorex Corporation
_________________ By: _________________
Attest Michael S. Rosen
President/CEO
_________________
Frank C. Reid
<PAGE>
March 13th, 2000
Mr. David Franckowiak
4151 Dubois Blvd.
Brookfield, Illinois
60513
Dear David:
This is to confirm our agreement regarding your departure from Endorex. Your
employment as Vice President/Chief Financial Officer, Treasurer and Corporate
Secretary will be terminated effective at the close of business on March 31,
2000. You will continue to be paid your current base salary of $127,000 per year
up to July 12, 2000. The Company will also pay you four days of unused vacation
time.
You will not accrue any bonuses, vacation, personal time or other employee
benefits during the severance period, except as set forth below. Should you find
another position during this period, the Company will still pay you salary up to
July 12, 2000.
At your request, the Company will continue your employment during the severance
period or until you secure a full-time position with another company, whichever
is earlier (the "Final Termination Date"). Additionally, because of your
expressed interest in assisting the Company during this period, the Company will
also provide you with the following benefits in exchange for your successful
completion of the mutually agreed upon tasks/activities (a listing of which is
attached to this letter) up to the Final Termination Date. Such assistance shall
include but not be limited to your spending a minimum of 7 business days at
Endorex's offices in Lake Forest during the period of March 21 to April 21, with
the specific days to be mutually agreed with Frank Reid.
Benefits to be provided by Endorex (subject to the above) include:
1. A Special Performance Bonus of $6000 upon satisfactory completion of the
attached activities list;
2. Continued participation in the Company's medical insurance, life and
disability insurance, and 401k programs up to the Final Termination Date;
3. An office, telephone, computer and access to the Company fax machine for
business use at the Company's headquarters in Lake Forest up to the Final
Termination Date;
4. Continued vesting of your Oct. 21, 1997 Stock Option Grant to the next
quarterly vesting period (April 21, 2000);
1
<PAGE>
According to our calculations, the number of vested share options you will have
available for exercising at April 21, 2000 is as follows:
- 10/21/97 Grant = 34,375 shares options @ $2.46875/share exercise price
- 2/10/98 Grant = 25,000 shares options @ $6.75/share exercise price
- 2/23/99 Grant = 4,250 shares options @ $2.00/share exercise price
-------------------------------------------------------------------------
TOTAL = 63,625 share options
Please note that according to our stock option plan, you will have a period of
90 days after your Final Termination Date to exercise those stock options that
are vested. You can exercise any of the vested portion of these stock options
during this period, however, you agree not to sell any shares of Endorex stock
acquired through these options prior to your Final Termination Date and while
you are still an employee of the company.
You agree that we were not obligated to provide to you the payments and other
consideration described in this letter (other than 4 months' severance pay). You
accept the severance provisions set forth in this document, notwithstanding the
provisions of paragraph 9 (C) of your employment agreement dated March 10, 1997.
You further agree that your employment with the Company will irrevocably
terminate at the end of the severance period and that the Company will have no
obligations to you at the end of the severance period other than those
specifically described in this letter. In addition, by signing this letter, you
waive any and all claims, demands and causes of action, whether known or
unknown, that you have or may have against Endorex, its shareholders, directors,
officers, employees and agents, arising out of your association with Endorex or
the termination of your employment, existing from the beginning of time to the
date of this letter agreement. Such claims, demands and causes of action
include, but are not limited to, claims for wrongful termination, employment
discrimination or harassment, wage claims, claims involving stock options or
securities laws, tort claims, fraud claims, contract claims, equitable claims or
any other claims relating to your employment with Endorex.
Please confirm your agreement to these terms by signing below.
Sincerely,
/s/ Michael S. Rosen
Michael S. Rosen
President/CEO
Endorex Corporation Agreed by:
/s/ David Franckowiak
David Franckowiak
2
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
1) Orasomal Technologies, Inc.
Incorporated in the State of Delaware.
Does business as Orasomal Technologies, Inc.
2) Wisconsin Genetics, Inc.
Incorporated in the State of Delaware.
Does business as Wisconsin Genetics, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-64035), Form S-3 (No. 333-93577) and Form S-3
(No. 333-84269) of Endorex Corporation of our report dated February 4, 2000
relating to the financial statements which appears in this Form 10-KSB.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,995,906
<SECURITIES> 3,547,847
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,646,299
<PP&E> 1,097,993
<DEPRECIATION> 649,042
<TOTAL-ASSETS> 9,272,125
<CURRENT-LIABILITIES> 1,734,072
<BONDS> 0
9,027,012
9,297,300
<COMMON> 10,878
<OTHER-SE> (11,079,036)
<TOTAL-LIABILITY-AND-EQUITY> 9,272,125
<SALES> 0
<TOTAL-REVENUES> 488,582
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (7,937,747)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (51,854)
<INCOME-PRETAX> (7,501,019)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,501,019)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,501,019)
<EPS-BASIC> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
