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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-19041
AMERICAN BIOGENETIC SCIENCES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2655906
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1375 AKRON STREET, COPIAGUE NEW 11726
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
631-789-2600
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK
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(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of the close of business on March 17, 2000, there were outstanding
40,486,865 shares of the registrant's Class A Common Stock and 3,000,000 shares
of its Class B Common Stock. The approximate aggregate market value (based upon
the closing price on the OTC Bulletin Board) of shares held by non-affiliates of
the registrant as of March 17, 2000 was $94,986,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to its 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
report.
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CAUTIONARY STATEMENT FOR THE PURPOSES OF
THE "SAFE HABOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Report contains forward-looking statements. The words "believe,"
"expect," "anticipate," "estimate," "may," "will," "plan," "intend," "could,"
"estimate," "is being," "goal" and other expressions which are predictions of or
indicate future events and trends and which do not relate to historical matters
identify forward-looking statements. Such forward-looking statements are subject
to a number of known and unknown risks and uncertainties that, in addition to
general economic and business conditions (both in the United States and in the
overseas markets where the Company intends to distribute products), could cause
the Company's anticipated results, performance and achievements to differ
materially from those described or implied in the forward-looking statements.
Examples of these risks and uncertainties include, without limitation, the
Company's ability to complete products under development and to maintain
superior technological capability, foresee changes and identify, develop and
commercialize innovative and competitive products (see "--Products Under
Development"), obtain widespread acceptance of its products by the medical
community, including the reliability, safety and effectiveness of such products
(see "--Marketing and Sales"), meet competition (see "--Competition"), comply
with various governmental regulations related to the Company's products and
obtain government clearance to market its products (see "--Government
Regulation"), successfully expand its manufacturing capability (see
"--Manufacturing"), attract and retain technologically qualified personnel (see
"--Personnel"), and generate cash flows and obtain collaborative or other
arrangements with pharmaceutical companies or obtain other financing to support
its product development testing and marketing operations and growth (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 of this Report).
In addition to the foregoing, the Company's actual future results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth in the Company's various filings with the
Securities and Exchange Commission and of changes in general economic
conditions, changes in interest rates and changes in the assumptions used in
making such forward-looking statements. The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
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PART I
ITEM 1. BUSINESS
SUMMARY
American Biogenetic Sciences, Inc. ("ABS" or the "Company") is engaged in
researching, developing and marketing cardiovascular and neurobiology products
for commercial development. The Company commenced selling its products during
the last quarter of 1997.
The Company's products are designed for in vitro and in vivo diagnostic
procedures and therapeutic drugs. In vitro diagnostic procedures are those in
which blood, urine or other bodily fluid or tissue is extracted from the body
and diagnostic tests are performed in a test tube or other laboratory equipment.
In vivo diagnostic procedures are those in which proteins or compounds are
injected directly into the body or bloodstream to assess abnormal reactions or
conditions. The Company's therapeutic products have been identified for the
treatment of epilepsy, migraine and mania and neurodegenerative diseases.
At the present time ABS' principal products or activities are:
- THROMBUS PRECURSOR PROTEIN DIAGNOSTIC TEST (TpP(TM)). This is an in
vitro diagnostic test used to assess the risk of blood clots in the
veins or arteries. This test is also used to monitor the performance
of anti-clotting therapy or drugs used in the prevention of blood
clots.
- FUNCTIONAL INTACT FIBRINOGEN DIAGNOSTIC TEST (FiF(R)). This is an in
vitro diagnostic test which measures the levels of fibrinogen in
blood. Fibrinogen is a protein used in the blood-clotting process.
- THERAPEUTIC NEUROCOMPOUNDS. These are chemical compounds which have
been identified for the treatment of epilepsy, migraine and mania and
neurodegenerative diseases.
- IN VITRO DIAGNOSTIC PRODUCTS FOR INFECTIOUS AND AUTO-IMMUNE DISEASE.
These can determine the status of such diseases as human herpes and
lupus.
- MOUSE SERUM. This is a blood component that lacks blood cells which is
used in diagnostic tests by major in vitro diagnostic product
manufacturers for a variety of purposes.
ABS was incorporated in Delaware in September 1983. The Company's principal
executive offices are located at 1375 Akron Street, Copiague, New York 11726 and
its telephone number is 631-789-2600.
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CORE TECHNOLOGIES
THE ANTIGEN-FREE MOUSE COLONY - MONOCLONAL ANTIBODIES
One of the Company's core technologies is a patented antigen-free mouse
colony which allows the generation of highly specific monoclonal antibodies that
are difficult to obtain from conventional systems. The Company utilizes this
technology to supply antibodies for its in vitro and in vivo diagnostic
products. The proprietary antigen-free mouse colony is maintained in a germ-free
environment and fed a chemically defined and ultrafiltered diet. When the
antigen-free mice are challenged with a foreign entity, there is a large immune
response that eventually results in the proliferation of a large number of
antibody secreting cells with a spectrum of specificities to the foreign entity.
The Company holds several United States patents covering the antigen-free mouse
colony and methods of producing antibodies relating to it. See "--Intellectual
Property."
THERAPEUTIC NEUROCOMPOUNDS
The Company has developed a series of neurocompounds for possible treatment
of epilepsy, migraine, mania and neurodegeneration diseases.
CURRENT PRODUCTS
MEDICAL BACKGROUND FOR CARDIOVASCULAR PRODUCTS
Using its antigen-free mouse colony, the Company developed patented two
antibodies, 45J and MH1. These antibodies react specifically with both
fibrinogen (a blood protein) and fibrin (a component of blood clots). These
antibodies are used in two of ABS' main products, the FiF and TpP tests. These
tests assist doctors in diagnosing blood clots lodged in the legs and the lungs,
known as thrombosis.
Blood clots that form in the bloodstream consist of two major parts:
- a cellular component made up of platelets; and
- a meshwork of fibrin fibers that cements the platelets into an
insoluble mass which has the mechanical strength to withstand the
pressure of blood in the circulation.
The fibrin component is insoluble and is derived from fibrinogen, a blood
protein that is manufactured in the liver. When thrombin, an enzyme produced in
response to injury of a blood vessel, is present in blood, it converts soluble
fibrinogen into fibrin at the site of vascular injury.
Similarly, the generation of plasmin plays the major role in fragmentation
of the fibrin meshwork, a process known as fibrinolysis. Like thrombin, plasmin
does not ordinarily circulate in plasma but is derived from the circulating
protein plasminogen when the fibrinolytic system is activated. In addition to
causing fragmentation of fibrin, plasmin also attacks fibrinogen and
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institutes changes in its structure that prevent its polymerization to fibrin.
In extreme cases, this process, called fibrinogenolysis, can lead to bleeding
caused by lack of clottable fibrinogen.
Fragmentation of fibrin leads to the production of soluble fibrin
degradation products that circulate in plasma and are generally elevated in
patients following a thrombotic event. Since all these products are proteins, it
is possible to produce antibodies that can react specifically with individual
fibrin degradation products.
Electrophoretic techniques have identified soluble fibrin polymers in the
plasma of patients with different clinical conditions, including myocardial
infarction and deep vein thrombosis. Laboratory tests have also reported
elevated soluble fibrin levels in other clinical intravascular fibrin formation
conditions, including disseminated intravascular coagulation and patients
undergoing surgical procedures who are experiencing thrombotic complications.
Thrombosis itself can be fatal. It is also associated with a number of
other medical conditions, such as heart attack, stroke, and complications from
pregnancy.
Some of the most hazardous sites for blood clot formation include the
coronary arteries where a blood clot can lead to myocardial infarction (heart
attack); the arteries leading to the brain, where a blood clot can cause stroke;
and the veins of the legs which can lead to a pulmonary embolism. There are
approximately 12 million surgical procedures performed each year in the United
States alone which put patients at risk of forming a blood clot.
Approximately 10 million people in the United States go to emergency rooms
each year due to chest pain. However, as many as 80% of these individuals are
not suffering heart attacks and may have from some less serious conditions.
An early warning test that establishes those patients that are not having a
heart attack will eliminate expensive diagnostic procedures and unnecessary
hospital admissions. Furthermore, the early identification of those patients who
are forming life threatening blood clots or suffering from a heart attack would
permit earlier use of clot dissolving drugs or anticoagulants.
Current biochemical tests for acute myocardial infarction measure cardiac
muscle proteins which leak out as a result of dying heart muscle. This release
of cardiac specific proteins only occurs 4-6 hours after the onset of clinical
symptoms. There is a strong clinical need for an earlier warning of myocardial
infarction. The detection of blood clot formation early in the clinical event
should facilitate proper identification and treatment of myocardial infarction
patients with life saving, clot dissolving drugs.
Several epidemiological studies have revealed a significant causal
relationship between high fibrinogen levels and coronary artery disease. It is
widely accepted that events leading to coronary artery disease are caused as
much by biochemical processes in the coagulation (blood-clotting) system as by
the metabolism of cholesterol. The most important landmark trial to show a
causal relationship between high fibrinogen and coronary artery disease is the
Framingham epidemiology study (1985) conducted at the Institute for Prevention
of Cardiovascular Disease at
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the Deaconess Hospital, Harvard Medical School. That study concluded that
elevated levels of fibrinogen "exceeded that of all risk factors except elevated
systolic blood pressure."
Other studies indicate that individuals with elevated levels of fibrinogen
are predisposed to thrombosis. On the other hand, diminished levels may result
in hemorrhage. Thus, reagents that can be used to measure fibrinogen can play a
vital role in determining the appropriate level of thrombolytic therapy, as well
as determine an individual's risk of coronary artery disease.
THROMBUS PRECURSOR PROTEIN ASSAY (TpP)
The Company's Thrombus Precursor Protein Assay (TpP) is an in vitro
diagnostic enzyme test using the Company's patented monoclonal antibodies MH1
and 45J to measure soluble fibrin polymers in blood to indicate active blood
clot formation (thrombosis) in individuals with possible myocardial infarction
and other clinical conditions precipitated by clot formation.
TpP provides a means to measure intravascular coagulation (fibrin
formation) in post-operative patients to determine the risk of deep vein
thrombosis and its clinical sequelae, pulmonary embolism.
It has also been demonstrated that thrombosis precursor protein levels are
significantly lower in patients who are undergoing invasive surgical procedures
and have been adequately anticoagulated. TpP relies on the measurement of
soluble fibrin polymers which are produced and circulate freely when a clot
starts to form, even before the onset of clinical symptoms, and is elevated when
the patient first begins to experience chest pain. TpP is also expected to offer
physicians a screening tool to monitor patients post-operatively for blood clot
formation and to effect therapeutic intervention if required and monitor their
response to anticoagulant therapy.
A study using TpP to monitor patients post-operatively was conducted at
Johns Hopkins School of Medicine and a second at the University of Perugia,
Italy in 1997. These studies showed that thrombosis precursor protein was
elevated post operatively.
The Company has patented:
- the TpP test kit itself;
- the antibodies used to recognize the presence of thrombosis precursor
protein in blood; and
- the use of TpP to measure intravascular fibrin polymer formation in
patients with symptoms indicating a blood clotting event.
See "--Intellectual Property."
In October 1996, ABS received 510(k) clearance from the FDA to market TpP
to aid in the risk assessment of blood clot formation and the monitoring of
anticoagulant therapy. See "--Government Regulation." The Company began to
market TpP in late 1997 through independent distributors.
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In 1998 and 1999, ABS put additional effort into clinical evaluation of TpP
with the goal to characterize the most promising applications and demonstrate
the advantages of TpP over competitor products. Dr. Yale Arkel was appointed as
the Company's Coordinator of Clinical Development for TpP. Dr. Arkel is an
outside consultant to the Company.
In addition, ABS has developed a hand-held, disposable, rapid assay device
which measures TpP levels in plasma. The prototype of a hand-held device for
obtaining semi-quantitative test results (i.e. qualitative test results derived
from numerical data) has been produced and the Company plans to submit a 510(k)
to the FDA for marketing approval of the rapid assay format TpP test in 2000.
The Company believes that the more user-friendly and rapid point-of-care format
will greatly enhance the market opportunity for the TpP test. The Company
intends to seek outside sources for the manufacture of its point-of-care device
and corporate partners to market this product.
FUNCTIONAL INTACT FIBRINOGEN ASSAY (FiF)
The Company's Functional Intact Fibrinogen Assay (FiF) is an in vitro
diagnostic tool using the Company's patented monoclonal antibody, 45J, to
provide a direct and accurate quantitative measurement of the amount of
fibrinogen present in plasma. FiF has received FDA approval for use. See
"--Intellectual Property."
Traditional clotting tests are an indirect measure of fibrinogen, estimated
by the amount of time that passes before a clot is formed, which can be
influenced by the presence of degradation products of fibrin/fibrinogen. FiF, on
the other hand, is a direct measure of fibrinogen that is not adversely
influenced by these products.
In May 1996, a research group of the Framingham Heart Study reported that
FiF is an accurate method of detecting elevated fibrinogen levels, a risk factor
for cardiovascular disease. Furthermore, the findings demonstrated that the
fibrinogen levels measured by FiF were correlated with the prevalence of
cardiovascular disease both by itself and when adjusted for age, weight, smoking
and diabetes.
The Company has been marketing FiF in a manual format kit since late 1997
and continues to seek corporate partners to include FiF on automated diagnostic
testing equipment.
THERAPEUTIC NEUROCOMPOUNDS
The Company has developed a series of neurocompounds for possible treatment
of epilepsy, migraine, mania and neurodegenerative diseases.
Epilepsy; Migraine; Mania. ABS is developing a series of anticonvulsant
compounds which have improved properties compared to valproate, a significant
drug which is currently used for the treatment of epilepsy, migraine and mania.
In pre-clinical trials in Germany, one of these compounds, ABS-103, has been
shown to control seizure activity without any of the sedative action or side
effects commonly associated with other anticonvulsants.
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Scientists have recently discovered that, many drugs exist as two forms,
enantiomers, which are mirror images of each other and where one of the
enantiomers is responsible for the therapeutic effects and the other enantiomer
may be inactive or cause unwanted side effects. R-103 is the preferred chemical
entity for commercial development. The Company has isolated the R- enantiomer
(R-103) of ABS-103. ABS scientists were able to isolate the R (right) enantiomer
from the S (left) to produce R-103. The value of isolating R-103 lies in its
superior safety and efficacy profile. The Company has patented the use of
ABS-103 as an anticonvulsant in the U.S. and in Europe and additional
applications relating to this technology are pending. See "--Intellectual
Property."
In January 2000, ABS entered into a license agreement with Abbott
Laboratories ("Abbott") granting Abbott exclusive worldwide rights to ABS-103
for certain applications. See "--Marketing and Sales."
Neurodegenerative Diseases. The Company, in collaboration with the National
University of Ireland, Dublin, University of Hanover, Germany, University of
Notre Dame, United States and fellow researchers within the Global Scientific
Network(R), has identified certain chemical compounds for the potential
treatment of neurodegenerative diseases, designated as the ABS 200 series.
See"--Research and Development Agreements -Global Scientific Network."
The ABS 200 series of compounds are putative neuroprotectants designed to
treat and halt the progression of neurodegenerative diseases. The compounds have
been evaluated in cells where they exhibit nerve growth factor-like activity.
The ABS 200 series of compounds can penetrate the blood-brain barrier, unlike
nerve growth factor, which requires specific development of a delivery system.
One of the ABS 200 Series compounds, ABS-205, has been shown to induce the
expression of a protein known as neural cell adhesion molecule in vitro. Neural
cell adhesion molecule is involved in memory, neurodevelopment and other
neuroplastic events. ABS-205 also has been shown to enhance neural cell adhesion
molecule function in the rat hippocampus and cortex, areas known to be involved
in memory formation. Moreover, ABS-205 protects against chemical induced memory
loss (amnesia) in animals. The Company has patented this technology in the
United States. See "--Intellectual Property."
The Company has also developed the ABS 300 series of compounds relating to
small molecules which may be useful for enhancing memory. It has filed two
United States patent applications relating to this series of compounds.
IN VITRO DIAGNOSTIC PRODUCTS FOR INFECTIOUS AND AUTO-IMMUNE DISEASE
The Company also owns a series of in vitro diagnostic products for
infectious and auto-immune disease. These products are manufactured and
distributed by the Company's wholly owned subsidiary, Stellar Bio Systems, Inc.
("Stellar"). Stellar manufactures in vitro
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immunodiagnostic assays utilizing an immunofluorescent antibody assay format.
These assays determine the presence of various infectious diseases and
autoimmune conditions. including:
- - human herpes simplex virus 1; - human parvovirus B-19;
- - human herpes simplex virus 2; - measles virus;
- - Epstein-Barr virus; - rubella virus;
- - cytomegalovirus; - adenovirus;
- - varicella zoster virus; - mumps virus;
- - respiratory syncytial virus; - antinuclear bodies Hep-2;
- - human herpes virus 6; - anti-nuclear bodies KB;
- - human herpes virus 7; - anti- mitochondrial bodies; and
- anti-native DNA bodies.
MOUSE SERUM; RESEARCH REAGENTS
Stellar also is the largest domestic provider of high quality mouse serum.
Stellar's mouse serum is used as an assay component by in vitro diagnostic assay
manufacturers. Stellar additionally provides contract services for the
development, process scale up, manufacture and purification of research reagents
such as monoclonal and polyclonal antibodies. Research reagents are individual
components of diagnostic products, such as antibodies, calibrators and serum
used in the biotechnology industry.
PRODUCTS UNDER DEVELOPMENT
MH1
MH1 as an Imaging Agent. ABS has labeled an antibody fragment of its MH1
antibody that contains the binding site for fibrin with a radioisotope for use
as an in vivo imaging agent to show the size and location of blood clots. Images
have been generated in pre-clinical animal studies and clinical human studies
with the resolution required for commercial use. The product is intended to
permit the rapid imaging of blood clots in the lungs, a condition known as
pulmonary embolism, and the detection of blood clots in the legs (deep vein
thrombosis). The primary protein component of a thrombus is fibrin, and an
antibody that can differentiate fibrin from its plasma precursor, fibrinogen,
can be used when, appropriately labeled with a radioisotope, to image the site
and extent of an occlusion and to carry thrombolytic reagents to the site.
Traditional methods for detecting a thrombus in the circulatory system have
consisted of angiography, venography, duplex doppler and monitoring radio
labeled blood clot components, derived from a human donor, injected into the
circulatory system and then absorbed by the clot. These procedures are costly,
often may lack sensitivity and some can pose potential risks to the patient. The
large quantity of dye required in angiography and venography may cause kidney
problems and may irritate the walls of blood vessels. Also, in angiography a
catheter is used for delivery of the dye into the arterial system which adds
further to the risk of the patient. In contrast, only a minimum quantity of ABS'
radio labeled MH1 need be used, and since the
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antibody is not derived from man, there is no risk of human blood-borne disease.
However, whenever a foreign substance is introduced into the human body, there
is the risk of an immune reaction and cases of reactions to mouse-derived
antibody have been reported.
In January 1995, ABS completed Phase I testing of MH1 in imaging blood
clots for pulmonary embolism and deep vein thrombosis. The final Phase I report
was submitted to the FDA in October 1995. The Company has compiled all necessary
information regarding the Phase I/II clinical trials for MH1 imaging that were
subsequently conducted and submitted a final report to the FDA in 1998. Clinical
trial results demonstrated that MH1 is effective and safe as an imaging agent
for pulmonary embolism and deep vein thrombosis. ABS is seeking corporate
partners to fund, collaborate, license and to conduct full Phase II and Phase
III trials and market the product.
MH1 as a Delivery Vehicle for Thrombolytic Therapy. The Company is seeking
to develop a product using MH1 as a delivery-vehicle for known thrombolytics
(drugs that dissolve blood clots). Tests by the Company have demonstrated the
ability to link MH1 to a known thrombolytic agent to form a potent, fibrin
specific, therapeutic agent which, in animals, has demonstrated superior clot
dissolving properties. In March 1998, ABS obtained a United States patent for
this application. See "--Intellectual Property."
MH1 as an Antithrombotic. The Company is also investigating the utility of
MH1 as an antithrombotic agent (to prevent clot formation) for the interference
and/or inhibition of excess fibrin deposition in surgical procedures such as
angioplasty. In January 1996, ABS obtained a United States patent for this
application. See "--Intellectual Property."
NEUROBIOLOGY PROGRAM
The goal of this longer term program is to develop fine chemical compounds
for use in the treatment of epilepsy, migraine and mania and to treat and halt
the progression of neurodegenerative diseases such as Alzheimer's, Parkinson's,
neuropathy, trauma and stroke. Most of the applications developed to date have
been developed in conjunction with scientists in the Company's Global Scientific
Network. See "--Research and Development Agreements Global Scientific Network."
There can be no assurance that the Company's products in development will
prove to be commercially viable, that any of the products will receive
regulatory clearance or clearance for particular indications, or that ABS will
successfully market any products or achieve significant revenues or profitable
operations. The Company is seeking to enter into additional collaborative,
licensing, distribution, and/or co-marketing arrangements with third parties to
expedite the commercialization of its products. However, there can be no
assurance that ABS will be able to enter into any such additional arrangements
or, if it does, that any such arrangements will be on terms that will be
favorable to ABS.
RESEARCH AND DEVELOPMENT AGREEMENTS
GLOBAL SCIENTIFIC NETWORK
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The Company formed its Global Scientific Network to promote and facilitate
collaborative research leading to product development. The network is comprised
of certain of the members of the Company's Scientific Advisory Committee and
additional scientists from various disciplines. See "--Scientific Advisory
Committee." The network is a joint effort to expedite the research, development
and commercialization of ABS' diagnostic and therapeutic products. Though the
network does not hold meetings, communication among its participants is
facilitated through the Company. The network offers the Company's management an
opportunity to review and evaluate new technologies. In addition, it offers a
network of scientific leaders who can offer advice and direction. To facilitate
the identification and screening of new technologies, the Company has scientific
coordinators in St. Petersburg, Russia; and Beijing, China. These activities are
coordinated from the Company's office in Dublin, Ireland.
The Company is currently collaborating with leading medical and scientific
institutions worldwide including University College Dublin, Ireland; University
of Hanover, Germany; William Harvey Research Institute, London, England.
Through its Global Scientific Network, ABS has entered into various
agreements which generally grant the Company an exclusive license to the results
of the research, as discussed below.
AGREEMENTS FOR NEUROSCIENCE PROGRAMS
ABS has entered into various agreements with universities and/or individual
scientists who are part of the Global Scientific Network. These agreements
generally grant the Company an exclusive license to the results of the research
for use in various neuroscience applications, which may include compounds and
antibodies. In general, the agreements are for a term equal to the duration of
any patents that may be granted, with a minimum term of 10 years. In exchange
for a license, ABS is obligated to pay certain research expenses and the costs
of filing and processing patent applications in the United States and any other
countries that ABS may select. Pursuant to these agreements, ABS is also
required to pay the inventors or the university a royalty, typically 5% of net
product sales. The Company is seeking to commercialize the products under
development by entering into collaborative arrangements, licensing agreements
and/or through research and development partners.
ABS has also entered into development agreements with the National
Institutes of Health (NIH) for some of its neurobiology products, including an
agreement with the NIH (epilepsy branch) in 1998 to evaluate ABS-103 and R-103.
These evaluations have been completed and have demonstrated anticonvulsant
activity with little or no toxicity. In addition, results of an evaluation under
a Phase I Small Business Innovation Research (SBIR) grant from the NIH, have
demonstrated that ABS-205 can enhance learning and memory in pre-clinical
models.
There can be no assurance that the Company's neurobiology products will
prove to be commercially viable, or that ABS will successfully market the
products or achieve significant revenues or profitable operations or enter into
any arrangements with third parties for
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development of the neurobiology products, or if it does, that any such
arrangements will be on terms that will be favorable to ABS.
OTHER RESEARCH AND DEVELOPMENT AGREEMENTS
As part of its development stage activities, ABS, in the ordinary course of
business, enters into various agreements that provide for the expenditure by the
Company of funds for research and development activities. These agreements
typically provide for the payment of royalties (typically 2% to 8% of net sales)
by ABS if any products are successfully developed and marketed as a result of
the work being performed under the agreement. Reference is made to Note 10 of
the Notes to Consolidated Financial Statements for a discussion of various
arrangements which the Company has entered into for collaborative research and
development projects (including arrangements for the use of space and services)
and technology license arrangements for the development and prospective
manufacturing and sale of products being developed.
MARKETING AND SALES
MARKETS
The Company's commercial sales of its in vitro test kits are directed to
hospitals, laboratories, clinical laboratories and physicians in large group
medical practices. The Company believes that sales to hospitals and clinical
laboratories will be dependent upon physician general acceptance of use of
direct fibrinogen level measurement as part of routine and special blood
analyses.
MARKETING AND SALES
During fiscal year 1999, the Company had one customer account for 30% of
the Company's revenue, while another customer accounted for 20% and a third
customer accounted for 11% of the Company's revenues. The Company does not
believe that the loss of any of these customers would have a material adverse
effect on the Company.
Sales of ABS' proposed products on a commercial basis will be substantially
dependent on widespread acceptance by the medical community. The use of any
products that the Company may develop for diagnosis and therapy will require
educating the medical community as to their reliability, safety and
effectiveness. The Company, and any pharmaceutical company with which it may
collaborate, may use several approaches to obtain general acceptance in the
medical community of the Company's proposed products. Such promotional
approaches may include: publicizing existing studies; offering the products to
current practitioners and researchers who are leaders in their fields for their
use and publication of their findings; conducting comparative studies with
competitive products and methodologies and publishing the results of the
studies; and sponsoring professional symposia and seminars.
The Company has begun marketing its TpP diagnostic kit through
distributors. This approach requires the Company to pay the expenses of
developing promotional literature and
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aids, hiring sales support personnel and completing studies to support clinical
use of the product. The independent distributors that ABS uses also market
similar products produced by others.
ABS intends to rely on collaborative arrangements with pharmaceutical firms
to conduct and fund the major portion of the human clinical trials that are
necessary to obtain regulatory approval for any in vivo products it may develop.
The Company also intends to rely on these firms to market and sell the products
exclusively, especially during the first few years of the collaboration. While
arrangements may vary, the Company intends to require payments of a royalty
based on sales of the product, with an amount to be paid "up front" upon
entering into the arrangement.
The personnel and financial resources of the Company are not sufficient to
permit the Company to alone gain the acceptance of the medical community for
ABS' proposed in vivo pharmaceutical products or vaccines. Accordingly, the
Company may be required to collaborate with one or more pharmaceutical
companies, which will provide the necessary financing and expertise, in order to
obtain medical community's acceptance. Such arrangements are likely to entail,
among other things, the sharing of revenue or profits with such companies. The
Company continues to seek arrangements with large pharmaceutical companies to
market its products. In the event ABS is unable to enter into arrangements or if
the arrangements into which it enters are not successful, the Company will
likely seek to market such products through distributors. This would require ABS
to develop a marketing program to support sales.
In January 1992, the Company entered into an agreement with Yamanouchi
Pharmaceutical Co., Ltd. ("Yamanouchi") of Japan granting Yamanouchi the
exclusive right to manufacture, use and sell in Japan and Taiwan diagnostic test
kits which utilize 45J. The Company received an initial payment of $900,000 (net
of Japanese taxes). The license agreement requires Yamanouchi to purchase its
45J requirements from ABS. The agreement is for a period of fifteen years,
provided that if any of the Company's patent rights for 45J have not yet expired
at the end of that period, the agreement will continue until such expiration.
The Company has filed a patent application in Japan relating to 45J. To date,
Yamanouchi has not made any sales of the diagnostic tests covered by this
agreement. The Company does not have any further obligations and could terminate
the agreement.
In October 1995, ABS entered into a license and collaboration agreement
with F. Hoffmann-La Roche, Ltd. ("Hoffman-La Roche") for the co-development and
marketing of the Company's TpP test for the detection of active blood clot
formation (thrombosis). The agreement grants Hoffmann-La Roche a worldwide
license to market the TpP test in a latex based particle agglutination format,
but does not obligate Hoffman-La Roche to do so. Under the agreement, the
Company received a $60,000 non-refundable development payment to adapt the TpP
test in the latex based particle agglutination format to Hoffmann-La Roche's
automated diagnostic systems. The Company may also receive milestone payments
upon achievement of certain commercialization goals. The TpP test is to be
manufactured by the Company for use on Hoffmann-La Roche's instruments. Prior to
marketing the test, Hoffman-La Roche must obtain 510(k) clearance. See
"--Government Regulation." ABS is to receive a percentage of Hoffmann-La Roche's
net selling price for the Company's manufacturing of the TpP test plus a 5%
royalty on net sales made by Hoffmann-La Roche. Under the agreement, the TpP
test is also
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to be sold by ABS and Hoffmann-La Roche to other diagnostic companies using
similar particle agglutination technology. On these sales, gross profit is to be
shared equally between the Company and Hoffmann-La Roche. To date, ABS has not
received any milestone or royalty payments.
In December 1995, ABS entered into a license agreement with Abbott for the
marketing of the Company's TpP assay. The license agreement grants Abbott a
worldwide license to market the TpP test for Abbott's immunoassay formats, but
does not obligate Abbott to do so. The Company received a $100,000
non-refundable up-front payment and is to receive milestone payments upon
achievement of certain development and commercialization goals. The Company is
to receive a 5% royalty on net sales made by Abbott. In addition, the reagent
for the TpP test is to be manufactured by the Company for use by Abbott. Prior
to marketing the test, Abbott must obtain 510(k) clearance. See "--Government
Regulation." To date, ABS has not received any milestone or royalty payments.
In January 2000, ABS entered into a license agreement with Abbott granting
Abbott exclusive worldwide rights to its ABS-103 compound, related technology
and patent rights. The license gives Abbott the exclusive rights to develop and
market the compound which presently is in the pre-clinical stage. Abbott will
complete development of the product and conduct appropriate clinical trials to
test for safety and effectiveness. In consideration for the license and in
addition to customary royalties on net sales, Abbott paid the Company
non-refundable up-front license fee of $500,000 and agreed to pay additional
milestone payments aggregating up to $17 million depending upon successfully
reaching development milestones, generally by indication. There can be no
assurance that these milestones will be achieved. In conjunction with entering
into the license, Abbott made an additional $1,500,000 equity investment in ABS.
There can be no assurance that any future marketing arrangements will be
entered into or, that if entered into, they will be on terms similar to those
discussed above or on terms that will be favorable to the Company. If no
arrangements are entered into, ABS will require substantial alternative
financing in order to market its products. There can be no assurance that any
such financing arrangements will be available to the Company or, if available
to, it will be available on terms acceptable or favorable to the Company.
There can be no assurance that any of the Company's products will be
accepted in the medical community, and ABS is unable to estimate whether it will
be able, and if so the length of time it would take, to gain such acceptance.
COMPETITION
The biotechnology industry is characterized by rapid technological
advances, evolving industry standards and technological obsolescence. ABS has
numerous competitors, none of whom is believed to be dominant, and it is likely
that others may enter the field. Competitors may develop products which may
render ABS' products obsolete or which have advantages over ABS' products, such
as greater accuracy and precision or greater acceptance by the medical
community. ABS' inability to meet and surpass its competitors' technological
advances could have a material adverse effect on the Company's business,
financial condition and results of
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operations. Competing products may also get through the regulatory approval
process sooner than ABS' products, enabling those competitors to market their
products earlier than ABS. Usually, the first person to market a product has a
significant marketplace advantage. In addition, other products now in use,
presently undergoing the regulatory approval process, or under development by
others, may perform functions similar to ABS' existing products or those which
it has under development.
INTELLECTUAL PROPERTY
Patents. ABS' policy is to seek patent protection for its proposed
products, whether resulting from its own research and development activities or
from development and licensing arrangements into which the Company enters.
ABS has been issued United States Patents, Nos. 4,870,023 and 5,041,379,
which will expire 2006 and 2008, respectively; United States Patent No.
5,294,548, relating to the Hepatitis A vaccine, filed jointly with the
University of Iowa, which will expire 2011. In addition, ABS has been issued
United States Patent, Nos. 5,091,512 and 5,120,834, each of which will expire in
2009, covering monoclonal antibodies specific for fibrinogen and monoclonal
antibodies specific for fibrin, respectively. ABS has also been issued United
States Patent No. 5,223,410, which will expire in 2010, covering the use of its
antigen-free mouse colony to generate monoclonal antibodies. ABS has also been
issued United States Patent No. 5,721,122 which expires in 2015, covering a
method of obtaining primed lymphocytes collected from immunized antigen-free
mice. ABS has further been issued United States Patent No. 5,453,359, which will
expire in 2012, covering an immunoassay for soluble fibrin using the Company's
proprietary fibrin-specific monoclonal antibody as a method of detecting a
thrombotic event, such as myocardial infarction. ABS has also been issued United
States Patent No. 5,487,892, which will expire in 2014, covering use of the
Company's proprietary fibrin-specific monoclonal antibody as an antithrombotic
agent. ABS has further been issued United States Patent No. 5,723,126, which
will expire in 2015, covering the use of the Company's propriety fibrin-specific
monoclonal antibody in conjunction with a thrombolytic reagent for the treatment
of thrombosis. ABS has been issued United States Patent No. 5,837,540, which
will expire in 2016, covering a method of producing fibrin-specific antibody.
ABS has also been issued United States Patent No. 5,843,690, which will expire
in 2015, covering a method and an assay kit for the in vitro detection of the
presence or amount of soluble fibrin polymers in a sample from a subject. ABS
has also been issued United States Patent No. 5,871,737, which will expire in
2008, covering a fibrin-specific monoclonal antibody.
Additional patent applications are pending covering alternative embodiments
of the Company's proprietary fibrin-specific monoclonal antibody, as well as
improved methods of raising fibrin specific monoclonal antibodies and of using
the soluble fibrin immunoassay. ABS has twenty-two counterpart applications
(including designated countries under patent treaties) covering monoclonal
antibodies specific for fibrinogen, monoclonal antibodies specific for fibrin,
methods for use of the Company's proprietary fibrin-specific monoclonal antibody
in a soluble fibrin assay, and as an antithrombotic agent, and the use of the
antigen-free mouse colony to generate monoclonal antibodies. ABS presently has
issued three patents in Australia covering monoclonal antibodies specific for
fibrinogen, monoclonal antibodies specific for
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fibrin, methods for localizing a blood clot in a patient, an immunoassay for
determining fibrin levels in a patient's blood, and use of the antigen-free
mouse colony to generate monoclonal antibodies.
The Company has exclusive worldwide rights in technology relating to
certain methods and compositions for treating epilepsy. ABS has the exclusive
license for United States Patent No. 5,786,380, which will expire in 2015,
covering a method of reducing seizure activity in an individual by administering
an anti-epileptic compound that contains ABS-103. Six patents protect this
technology on behalf of the Company which include patents in the United States
and Europe. The European Patent has been activated in 16 European countries. ABS
has filed additional patent applications in the United States and other foreign
jurisdictions to further protect this technology. The Company also has exclusive
worldwide rights in technology related to certain novel neurotrophic methods and
compositions. United States Patent No. 5,672,746 was issued September 30, 1997.
A reissue application for this patent is pending. Foreign applications to
protect this technology worldwide are pending. ABS is the worldwide exclusive
licensee of United States Patent No. 5,492,812, issued to Trinity College
(Dublin, Ireland), which will expire in 2013, covering a method for diagnosing
Alzheimer's disease, and a corresponding pending European patent application.
Ono Pharmaceutical, Ltd., ("Ono"), has filed third party observations to
the patent applications relating to the neurotrophic compounds in the Japan and
Australian patent offices, as well as the European Patent Office. These
applications remain pending and the Company is continuing their prosecution. ABS
has filed a reissue application of its United States Patent No. 5,672,746 to
provide the United States Patent and Trademark Office an opportunity to examine
this patent in light of the issues raised by Ono. On November 30, 1998, the
United States Patent and Trademark declared an interference between an
application of Ono and one of the Company's applications related to its
5,672,746 patent to determine the priority of invention of commonly claimed
subject matter. The Company recently resolved the interference in the United
States Patent and Trademark Office. The Company received a judgment that permits
it to pursue patent protection relating to the use of ABS-205 as a therapeutic
with claims which were previously allowed prior to the interference.
There can be no assurance that any of the claims in pending or future
applications will issue as patents, that any issued patents will provide ABS
with significant competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patent issued to ABS
or, if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity of patents and prevent infringement can be
substantial. Furthermore, there can be no assurance that others have not
independently developed or will not independently develop similar technologies
or will not develop distinctively patentable technology duplicating the
Company's technology or that they will not design around the patentable aspects
of the Company's technology. While obtaining patents is deemed important by ABS,
patents are not considered essential to the success of its business. However, if
patents do not issue from present or future patent applications, ABS may be
subject to greater competition. Moreover, unpatented technology could be
independently developed by others who would then be free to use the technology
in competition with unpatented technology of ABS.
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Exclusive Licenses. The Company has exclusive worldwide rights in
technology relating to certain methods and compositions for treating epilepsy.
ABS has the exclusive license for United States Patent No. 5,786,380, which will
expire in 2015, covering a method of reducing seizure activity in an individual
by administering an anti-epileptic compound that contains ABS-103. Patents
protect this technology on behalf of the Company in the United States and the
European Patent Office. The European Patent has been activated in 16 European
countries. ABS has filed additional patent applications in the United States and
other foreign jurisdictions to further protect this technology.
The Company also has exclusive worldwide rights in technology related to
certain novel neurotrophic methods and compositions (United States Patent No.
5,672,746, issued September 30, 1997). Foreign applications to protect this
technology worldwide are pending. ABS is the worldwide exclusive licensee of a
United States patent covering a method for diagnosing Alzheimer's disease
(United States Patent No. 5,492,812, issued to Trinity College (Dublin,
Ireland), expiring in 2013) and a corresponding pending European patent
application.
Trade Secrets. With respect to certain aspects of its technology, ABS
currently relies upon, and intends to continue to rely upon, trade secrets,
unpatented proprietary know-how and continuing technological innovation to
protect its potential commercial position. Relationships between ABS and its
scientific consultants and collaborators may provide access to the Company's
know-how, although, ABS has generally entered into confidentiality agreements
with the parties involved. Similarly, ABS' employees and consultants have
entered into agreements with the Company which require that they forebear from
disclosing confidential information of ABS and that they assign to the Company
all rights in any inventions made while in ABS' engagement relating to Company
activities. However, members of the Company's Scientific Advisory Committee may
be employed by or have consulting agreements with third parties, the businesses
of which may conflict with or compete with ABS, and any inventions discovered by
such individuals as part of their agreement with third parties will not become
the property of ABS. There can be no assurance that trade secrets will be
developed and maintained, that secrecy obligations will be honored, or that
others will not independently develop similar or superior technology. To the
extent that consultants, employees, collaborators or other third parties apply
technological information independently developed by them or by others to
Company projects, disputes may arise as to the ownership of such information
which may not be resolved in favor of ABS. See "--Scientific Advisory
Committee."
Trademarks. ABS owns trademarks registered with the United States Patent
and Trademark Office for the names FiF(R), Global Scientific Network(R) and
Cadkit(R). Federally registered trademarks have a perpetual life, as long as
they are renewed on a timely basis, subject to the rights of third parties to
seek cancellation of the marks. ABS has filed other trademark applications,
including TpP(TM) and may claim common law trade name rights as to other
potential products. It anticipates filing additional trademark applications in
the future. ABS does not believe that any of its trademarks (or applied for
trademarks) is material to its business.
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GOVERNMENT REGULATION
ABS' present and proposed activities are subject to government regulation
in the United States and most other countries in which the Company may choose to
market its proposed products or conduct product development, research or
manufacturing. ABS has not determined those countries, other than the United
States, where it will seek regulatory approvals to market its proposed products.
The following is a discussion of the processes required in order to obtain FDA
approval for marketing a product, which are different for the three types of
products being developed by ABS: monoclonal antibodies for in vitro use,
monoclonal antibodies for in vivo use and drugs to treat neurological diseases.
Regulation of In Vitro Products. Some in vitro diagnostic products are
regulated as medical devices and can be approved by the FDA under a process
known as a "510(k)." This procedure is available if the proposed product is
"substantially equivalent" to another product that was in commercial
distribution in the United States before May 28, 1976 or is lawfully marketed
under a 510(k) approval (a "predicate device"). When a 510(k) review is used, a
sponsor is required to submit a pre-market notification to the FDA. ABS cannot
proceed with commercial sales of such products for diagnostic use in the United
States until it receives 510(k) clearance from the FDA. In the event that the
FDA requests additional information for the pre-market notification, this could
result in multiple cycles of submissions, each potentially involving additional
review periods until 510(k) clearance is granted or the FDA determines that the
device is not substantially equivalent.
In cases where ABS' product is determined by the FDA not to be
"substantially equivalent" to a predicate device, a pre-market approval
application ("PMA") will be required to be submitted and approved before
commercial distribution is permitted. There can be no assurance that any present
or future in vitro test ABS develops will be determined to be substantially
equivalent by the FDA or receive PMA approval by the FDA in a timely manner or
at all. A PMA may be required for some or all the Company's future proposed in
vitro products.
The FDA sometimes requires supporting clinical data for a 510(k) and
invariably requires clinical data for a PMA. ABS expects that it will submit
clinical data in at least some of its anticipated 510(k) notices. The clinical
data must be gathered in accordance with FDA's regulations.
Medical devices may be exported before receiving 510(k) clearance or PMA
approval under certain conditions. Once cleared for marketing in the United
States, a diagnostic device must comply with certain regulatory requirements,
such as good manufacturing practices (also known as the Quality System
Regulation), medical device reporting, and restrictions on advertising and
promotion. Failure to comply with these rules can lead to FDA enforcement
actions.
The European Union also has developed a structure for the regulation of in
vitro diagnostic devices. ABS believes that there are no material regulatory
impediments to the sale of its in vitro diagnostic tests presently under
development in North Africa and the Middle East.
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Regulation of In Vivo Products. Any products intended for in vivo use,
including vaccines, will be subject to regulation by the FDA. The products
produced, depending on their characteristics, may be classified as "biologics"
or products regulated under the Public Health Service Act (the "PHS Act") and
the Federal Food, Drug, and Cosmetic Act (the "FDCA") or may be classified as
non-biologic drugs regulated only under the FDCA. Development of a
pharmaceutical product for use in humans under either statute is a multistep
process. First, laboratory animal testing establishes probable safety and
parameters of use of the experimental product for testing in humans and suggests
potential effectiveness with respect to a given disease. Once the general
investigative plan and protocols for specific human studies are developed, an
investigational new drug ("IND") application is submitted to the FDA. FDA
clearance of the IND is required before the study can begin.
Normally, the initial phase of clinical testing (Phase I) is conducted to
evaluate the pharmacological actions and side effects of the experimental
product in humans, i.e. the safety of the drug. A demonstration of therapeutic
benefit is not required in order to complete such trials successfully. If
acceptable product safety is demonstrated, then Phase II trials may be
initiated. Phase II trials are designed to evaluate the effectiveness of the
product in the treatment of a given disease, and often involve well-controlled,
closely monitored studies in a relatively small number of patients. Routes,
dosages and schedules of administration may also be studied. If Phase II trials
are successfully completed, Phase III trials may be commenced. Phase III trials
are expanded, controlled trials which are intended to gather additional
information about safety and effectiveness in order to evaluate the overall
risk/benefit relationship of the product and provide the evidence of safety and
effectiveness necessary for product approval. Although this is the standard drug
testing pattern, different approaches are often used, such as combining Phases I
and II.
It is not possible to estimate the time within which Phase I, II and III studies
will be completed with respect to a given product, although the time period to
complete all the testing can exceed five years. Following the successful
completion of clinical trials, the clinical evidence that has been accumulated
is submitted to the FDA as part of a marketingapplication. Approval of the
application is necessary before a company may market the product. The approval
process can be very lengthy and depends upon the FDA's review of the application
and the time required to provide satisfactory answers or additional clinical
data when requested. For any given product, there is no assurance that an
application will be approved in a timely manner, or at all. Failure to obtain
such approvals would prevent ABS from commercializing its products and would
have a material adverse effect on the Company's business.
The process of seeking and obtaining FDA approval for a new product
generally requires substantial funding. ABS anticipates that in most instances
where it develops a product, the Company will seek to enter into a joint venture
or similar arrangement with an established chemical or pharmaceutical company
that will help conduct the required preclinical studies and clinical trials and
bear a substantial portion of the expense of obtaining FDA approval.
Good Manufacturing Practices. The FDA also has extensive regulations
concerning good manufacturing practices applicable to both biologic and
non-biologic drug products once they are approved. ABS' compliance with good
manufacturing practice, and its ability to assure the
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potency, purity and quality of the drugs and biologics manufactured, must be
documented in the applications submitted for the products, and manufacturing
facilities will be subject to pre-approval and other inspections by the FDA and
other government agencies.
Failure to comply with the good manufacturing practice regulations, or to
comply with other applicable legal requirements, can lead to seizure of
violative products, injunctive actions, other enforcement actions, and potential
criminal and civil liability on the part of a Company and of the officers and
employees of a Company.
In addition to complying with FDA regulations, ABS and the facilities used
by it are also required to comply with federal and state environmental,
occupational health and other applicable regulations. ABS believes that its
facilities comply with such regulations.
MANUFACTURING
While ABS has produced a limited quantity of monoclonal antibodies for
testing and evaluation of its in vitro products, there can be no assurances that
ABS will be able to either finance or meet FDA regulations for good
manufacturing practices required in order to convert and operate its facility
for commercial production of such products. ABS does not intend to establish its
own manufacturing operations for its in vivo products unless and until, in the
opinion of management of ABS, the size and scope of its business and its
financial resources so warrant. It is the Company's intention to enter into
manufacturing agreements, joint ventures or license agreements for the
manufacture of monoclonal antibodies. Each joint venture partner or contract
manufacturer participating in the process of manufacturing the Company's
monoclonal antibody must comply with FDA regulations and provide documentation
to support that part of the manufacturing process in which it is involved. ABS
has contracted with several different GMP manufacturers for the production of
antibodies and the TpP and FiF kits. The Company intends that the manufacture
and assembly of TpP kits will be performed in house at the Stellar facility in
Columbia, Maryland. The Stellar facility presently complies with GMP regulations
and has received International Standards Organization ("ISO") 9001 series
certification.
There is no assurance that the Company will be able to enter into
arrangements for the manufacture of sufficient quantities of the Company's in
vivo monoclonal antibody necessary to obtain full FDA clearance, that the FDA
will accept the Company's manufacturing arrangements, or find the facilities in
GMP compliance, or that commercial manufacturing arrangements can be obtained on
acceptable terms.
PRODUCT LIABILITY
The testing, marketing, manufacture and sale of pharmaceutical products
entails a risk of product and other liability claims by consumers and others.
ABS' monoclonal antibodies are generated from an antigen free mouse colony and
there have been clinical reports of instances of the human immune system
negatively reacting to mouse derived antibodies. Product and other liability
claims may be asserted by physicians, laboratories, hospitals or patients
relying upon the results of ABS' diagnostic tests (MH1 imaging). Product
liability claims may be asserted by physicians, laboratories, hospitals or
patients relying upon the results of the Company's
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diagnostic tests (TpP, FiF and Stellar products). Claims may also be asserted
against ABS by end users of the Company's products, including persons who may be
treated with any in vivo diagnostic or therapeutics.
Certain distributors of pharmaceutical products require minimum product
liability insurance coverage as a condition precedent to purchasing or accepting
products for distribution. Failure to satisfy these insurance requirements could
impede the ability of ABS to achieve broad distribution of its proposed
products, which would have a material adverse effect upon the business and
financial condition of ABS.
ABS has obtained product liability insurance covering its TpP and FiF
products. Although ABS will attempt to obtain product liability insurance prior
to the marketing of any of its other proposed products, there is no assurance
that ABS will be able to obtain such insurance. Also, there can be no assurance
that any insurance obtained (including its existing policies) can be maintained
or that such insurance can be acquired or maintained at a reasonable cost or
will be sufficient to cover all possible liabilities. In the event of a
successful suit against ABS, lack or insufficiency of insurance coverage could
have a material adverse effect on ABS.
SCIENTIFIC ADVISORY COMMITTEE
ABS has a Scientific Advisory Committee comprised of scientists and
physicians active in the fields of microbiology, immunology and molecular
biology and in cardiovascular disease, hepatic disease and drug development.
These scientists serve as advisors to the Company. Members of the Scientific
Advisory Committee are selected by the Company's management and generally make
themselves available on an informal basis for consultations with ABS.
Members of the Scientific Advisory Committee review the feasibility of the
Company's proposed research and development programs review the progress of
programs undertaken and assist in establishing both the scientific goals of ABS
and the priorities of its product development. Members of the Scientific
Advisory Committee may be employed by or have consulting agreements with third
parties, the business of which may conflict or compete with ABS. Any inventions
discovered by such individuals as part of their agreements with third parties
will not become the property of ABS. These individuals are not required to
devote any, and are expected to devote only a small portion, of their time to
ABS, and are not expected to actively participate in the development of the
Company's technology. It is possible regulations or policies now in effect or
adopted in the future might limit the ability of the scientific advisors to
continue their relationship with ABS. Members of the Scientific Advisory
Committee were used on an informal basis for consultations in 1999.
Members are paid $1,000 per meeting attended, plus expenses. Members of the
Scientific Advisory Committee have been granted ten year options to purchase
from 5,000 to 25,000 shares of Class A Common Stock from the Company. As of
December 31, 1999, there were outstanding options for an aggregate of 263,000
shares held by members of the Scientific Advisory Committee (excluding options
held by Dr. Born in his capacity as a non-employee director of the Company), at
exercise prices ranging from $.28 per share to $7.75 per share. The 1999 cash
payments to the advisors for informal meetings and other consultations as a
group
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were approximately $65,000. Certain members of the Committee are associated with
institutions with which ABS has undertaken or may in the future undertake
collaborative research efforts. Arrangements with these institutions may result
in a member of the Scientific Advisory Committee receiving royalties or other
compensation from that institution or from ABS if such member works as a
scientist in the collaborative effort.
The members of the Scientific Advisory Committee have no general fiduciary
duties to ABS, have entered into limited confidentiality agreements and may, in
their discretion, engage in activities which are competitive with those engaged
in by the Company. The members of the Committee as of March 17, 2000 are:
Giancarlo Agnelli, M.D., is Professor of Internal Medicine at the
University of Perugia, Italy, where he received his medical education. Prior to
appointment to his present post he was a research fellow and clinical fellow in
the Department of Pathology and Department of Medicine at McMaster University,
Hamilton, Ontario, Canada. He continues as an associate member of the Hamilton
Civic Hospital Research Center at McMaster University. He is co-chairman of the
Sub-Committee on Control of Anti-coagulation of the Scientific and
Standardization Committee of the International Society on Thrombosis and
Hemostasis. He has presented lectures at more than 200 international and
national meetings and is the author or co-author of more than 200 scientific
articles.
Denian Ba, M.D., Ph.D., is presently Academician, The Chinese Academy of
Engineering; President of the Chinese Academy of Medical Sciences & Peking Union
Medical College; Chairman, Chinese Society of Immunology; Vice Chairman, Chinese
Medical Association. Dr. Ba was engaged in research on Cancer Immunology as
Associate Chief, Chief, Department of Immunology at the Institute of Cancer
Research in Harbin Medical University, and Deputy Director, Director at the
Institute of Cancer Research in Harbin Medical University. Dr. Ba received his
M.D. from the Department of Medicine of Harbin Medical University and received
his Ph.D. from the School of Medicine of Hokkaido University, Japan.
Konrad T. Beyreuther, Ph.D., is presently professor of Molecular Biology
and Head of Laboratory for Molecular Neuropathology at the Center of Molecular
Biology, University of Heidelberg, Federal Republic of Germany. His primary
research deals with genetics and molecular biology of Alzheimer's disease and
related dementia disorders. He earned his doctorate at the Max-Plank Institute
for Biochemistry Munich, University of Munich, Germany.
Gustav Victor Rudolf Born, M.D., D. Phil., F.R.S., is presently Research
Director of The William Harvey Research Institute at St. Bartholomew's Hospital
Medical College, London, England, and Emeritus Professor of Pharmacology in the
University of London. Among Professor Born's distinctions, appointments and
activities are: Fellowship and Royal Medal of the Royal Society; Foundation
President of the British Society for Thrombosis and Haemostasis; Corresponding
Member of the Belgian Royal Academy of Medicine; Professor of the Foundation de
France, Paris; Robert Pfleger, Paul Morawitz and Alexander-von-Humbolst Prizes;
Honorary Life Member of the New York Academy of Sciences; Medical Advisor of the
Heineman Medical Research Center, Charlotte, North Carolina; Co-Director for
Centre for Thrombosis Research,
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Perugia, Italy; Honorary Doctorates from eight universities, including Brown and
Loyola. Dr. Born is also a director of the Company.
Francis J. Castellino, Ph.D., is Dean of the College of Science, and
Kleiderer-Pezold Professor of Biochemistry at the University of Notre Dame. He
earned a doctorate in biochemistry at the University of Iowa, and was a
postdoctoral fellow at Duke University Medical Center. He maintains a research
program studying blood coagulation and fibrinolysis.
Jeffrey Ginsberg, M.D., is a hematologist with research training in
clinical and laboratory aspects of thrombosis. His current research interests
include the clinical development of novel antithrombotic agents, the diagnosis
and management of thrombosis during pregnancy, the prevention and treatment of
the post- phlebitic syndrome, the investigation of the clinical complications of
antiphospholipid antibodies, and the diagnosis of venous thrombosis and
pulmonary embolism. He is currently the principal investigator of a number of
clinical trials relative to thrombosis. He is the Director of the
Thromboembolism Unit at Chedoke-McMaster Hospitals and a Career Investigator of
the Heart and Stroke Foundation of Ontario.
Lawrence Grossman, Ph.D., is University Distinguished Service Professor of
Biochemistry at the Johns Hopkins University School of Hygiene and Public
Health, Baltimore, Maryland. He is consultant to Applied DNA Systems, Inc. He
earned a Ph.D. degree from the University of Southern California, and
subsequently trained and worked thereafter at Johns Hopkins University and
Brandeis University. His areas of expertise are in DNA repair, molecular basis
of mutagenesis and molecular biology in general.
Thomas W. Meade, CBE, DM, FRCP, FRS, is presently Director of the Medical
Research Council Epidemiology and Medical Care Unit, Wolfson Institute of
Preventive Medicine, St. Bartholomew's and the Royal London Hospital School of
Medicine and Dentistry, London, England. Additional appointments include:
Professor of Epidemiology at the University of London, Hon. Consultant in
Epidemiology, North West London Hospitals NHS Trust, Hon. Consultant in
Epidemiology, St. Bartholomew's and Royal London Hospitals NHS Trust. He is:
Doctor of Medicine, Fellow of the Royal College of Physicians and Fellow of the
Royal Society.
Daniel M. Michaelson, Ph.D., is presently Professor of Neurobiology,
Department of Neurobiochemistry, Tel Aviv University, Tel Aviv, Israel. He
earned a Ph.D. in Biophysics from the University of California, Berkeley. Among
Professor Michaelson's distinctions, appointments and activities are: Membership
of the International Society of Neurochemistry, International Society for
Developmental Neuroscience, International Brain Research Organization, the New
York Academy of Sciences, Israel Society of Neurosciences, Israel Biochemical
Society and the Israel Society for Pharmacology and Physiology. He is a member
of the Scientific Advisory Board of the Alzheimer Foundation, and a board member
of Ramot University Authority for Applied Research and Industrial Development
Ltd.
Peter Victorovich Morozov, M.D., Ph.D., is Professor of Psychiatry at the
Russian State Medical University, Moscow. He has served as the Secretary of the
International Section of the National Scientific Society of Psychiatrists and is
currently secretary of the Russian Section of French-Russian Society of
Psychiatrists. Dr. Morozov's primary area of research is
21
<PAGE> 24
psychopharmacology, problems of classification and diagnosis, post-traumatic
stress disorders. Dr. Morozov graduated from Pirogov II Medical School and
received his doctorate from the Institute of Psychiatry AMS USSR.
Heinz Nau, Ph.D., is presently Professor and Chairman, Department of Food
Toxicology at the School of Veterinary Medicine in Hannover, Germany. He
obtained his Ph.D. degree in Chemistry from the University Innsbruck, Austria.
He then did post-doctoral work at Massachusetts Institute of Technology,
Cambridge, Massachusetts, and was a Professor at the Institute of Toxicology and
Embryopharmacology in Berlin, Germany. Dr. Nau holds an Honorary Doctorate from
the University of Uppsala, Sweden, and is currently President of the European
Teratology Society, and a Member of the Scientific Committee of Food at the
European Commission in Brussels, Belgium, as well as a member of the
International Federation of Teratological Societies. He has published over 350
scientific papers and is an editor of several books.
Alfred Nisonoff, Ph.D., is Professor of Biology (Emeritus) at the
Rosenstiel Research Center, Brandeis University, Waltham, Massachusetts. He
earned a doctorate in chemistry from Johns Hopkins University, Baltimore,
Maryland and was a postdoctoral fellow at the Johns Hopkins Medical School. Dr.
Nisonoff is on the Scientific Advisory Committee of the Roswell Park Cancer
Institute, Buffalo, New York and was employed by ABS from November 1996 to
November 1997 as Research and Development Executive. His expertise is in the
field of immunology and idiotypic antibodies. He was also Executive Secretary
for the Task Force on Immunology, National Institute of Allergy and Infectious
Diseases (1998). Member, United States National Academy of Sciences; Former
President, American Association of Immunologists; Member, American Academy of
Arts and Sciences; Foreign Correspondent, Belgian Academy of Medicine.
Rem V. Petrov, M.D., is currently Vice-President of Russian Academy of
Sciences, Moscow, Russia and chief of the Immunology Department of the Institute
of Bioorganic Chemistry of the Academy. His main scientific interests are in the
fields of Immunogenetics (genetical control of Immune response, interactions of
syngeneic and nonsyngeneic cells) and Immunobiotechnology (artificial immunogens
and vaccines, immunopharmacology-myelopeptides and other natural
immunodulators).
Craig M. Pratt, M.D., is currently a Professor of Medicine and Director,
Clinical Cardiology Research, Section of Cardiology, Department of Internal
Medicine, Baylor College of Medicine, Houston, Texas. Dr. Pratt is currently
Director of the Coronary Care Unit and Non-invasive Laboratories at The
Methodist Hospital. Nationally, Dr. Pratt is a consultant to the Cardiovascular
and Renal Drugs Advisory Board to the Food and Drug Administration.
John H. Proctor, Ph.D., Fellow and formerly Secretary General of the World
Academy of Art and Science from 1986-1997, Life Fellow and Past President of the
Washington Academy of Sciences in Washington, D.C., a full member of the Russian
Academy of Sciences and a corresponding member of the Spanish Royal Academy of
Sciences. He has facilitated national and international technology transfer,
organizational development and productivity improvement
22
<PAGE> 25
projects for over thirty years. Dr. Proctor has written three books and has
published seventy-eight technical papers.
Ciaran M. Regan, Ph.D., D.Sc. is presently Associate Professor of
Pharmacology at University College, Dublin, Ireland. Dr. Regan received his
B.Sc. and Ph.D. from University College, Dublin. He is a past Postdoctoral
Fellow, Department of Biochemistry, University of Nijmegen, The Netherlands and
past Scientific Officer of Medical Research Council, Institute of Neurology,
London. Dr. Regan has numerous publications.
Jacob Szmuszkovicz, Ph.D., is a Professor of Chemistry at the University of
Notre Dame, South Bend, Indiana. He earned a doctorate in Chemistry from the
Hebrew University, Jerusalem. He served as a Member of Staff at the Weizmann
Institute before joining the Upjohn Company where he held the position of a
Distinguished Scientist in the CNS (Central Nervous System) Unit from 1954 to
1985. Dr. Szmuszkovicz is co-inventor on over 100 patents. He has served as a
Member of the Executive Committee of the Organic Division of the American
Chemical Society.
PERSONNEL
As of March 17, 2000, ABS had 25 full time employees and 3 part-time
employees. Of the full-time employees, 5 are research and development personnel,
including 3 Ph.D.s, 6 are manufacturing personnel, and the rest are executive
and administrative personnel.
ABS' President and Chief Executive Officer and its Executive Vice President
are parties to employment agreements with the Company ending November 15, 2001
and September 30, 2001, respectively. Those officers also are parties to
agreements with ABS to keep corporate information with regard to the business of
the Company confidential during and subsequent to their employment with ABS.
None of ABS' employees is represented by a labor organization. ABS believes
its relationship with its employees is satisfactory. The Company has
standardized procedures for recruiting, interviewing and reference checking
prospective personnel.
ITEM 2. PROPERTIES
ABS leases 6,000 square feet of office space in Copiague, New York under a
lease expiring July 2000 (with an annual base rent of $39,000), which it intends
to renew, and office space in Dublin, Ireland under a short-term arrangement.
ABS' subsidiary, Stellar, has a lease covering 16,000 square feet in
Columbia, Maryland, with an annual base rent of $136,000 and a term ending March
31, 2001. ABS has terminated its lease with Boston University and has
consolidated its research and development activities at Stellar's facility.
ITEM 3. LEGAL PROCEEDINGS
23
<PAGE> 26
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's Class A Common Stock (the "Common Stock") was traded on the
Nasdaq National Market under the trading symbol "MABXA" until December 6, 1999
and on the Nasdaq Smallcap Market from December 6, 1999 to January 6, 2000 under
the trading symbol "MABAC." Since January 6, 2000, the Common Stock has traded
on the OTC Bulletin Board under the symbol "MABA." The following table sets
forth the high and low closing bid prices for the Company's Common Stock for the
periods indicated, as reported by Nasdaq, without retail mark-ups, mark-downs or
commissions.
<TABLE>
<CAPTION>
Fiscal Years
- ------------
High Low
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
1999
- ----
First Quarter $1 7/16 $ 27/32
Second Quarter 1 7/32 15/16
Third Quarter 1 5/32 1/4
Fourth Quarter 21/32 9/32
1998
- ----
First Quarter $2 3/8 $1 17/32
Second Quarter 2 31/32
Third Quarter 1 3/16 13/32
Fourth Quarter 1 23/32 5/32
</TABLE>
24
<PAGE> 27
There were approximately 664 holders of record of Common Stock as of March
17, 2000 (exclusive of stockholders whose shares are held in street name by
brokers, depositories and other institutional firms).
ABS has not paid any cash dividends on its Common Stock since its inception
and does not anticipate paying dividends for the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the periods indicated have been
derived from the consolidated financial statements of the Company audited by
Arthur Andersen LLP, independent public accountants. This information should be
read in conjunction with the related financial statements and notes thereto and
management's discussion and analysis of financial conditions and results of
operations included elsewhere in this report.
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998 1997 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
- -----------------
Revenues:
Sales $ 1,361,000 $ 1,197,000 $ 150,000 -- --
Royalties/License -- -- -- -- $ 100,000
Collaborative Agreements $ 82,000 -- $ 9,000 $ 54,000 $ 27,000
Net Loss $ (5,351,000) $ (7,548,000) $ (7,147,000) $ (7,700,000) $ (5,607,000)
Net Loss Per Share
Basic and Diluted $ (.14) $ (.29) $ (.35) $ (.45) $ (.39)
Weighted Average Shares 39,266,000 25,740,000 20,223,000 17,209,000 14,455,000
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1999 1998 1997 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet
- -------------
Working Capital (Deficit) $ (1,436,000) $ 2,947,000 $ 4,761,000 $ 13,697,000 $ 9,485,000
Total Assets $ 3,938,000 $ 6,514,000 $ 9,388,000 $ 16,473,000 $ 12,521,000
Long-Term Debt $ 33,000 $ 56,000 $ 8,000 $ 10,319,000 $ 7,865,000
Total Liabilities $ 2,360,000 $ 918,000 $ 2,705,000 $ 10,931,000 $ 8,376,000
Accumulated Deficit $(62,314,000) $(56,963,000) $(49,415,000) $(42,268,000) $(34,568,000)
</TABLE>
25
<PAGE> 28
ABS has not paid any cash dividends on its Common Stock since its
inception. The following pro forma data reflects certain transactions which
occurred subsequent to December 31 1999. See Note 11 of the Consolidated
Financial Statements.
<TABLE>
<CAPTION>
Pro Forma Information Dec. 31, 1999
- --------------------- -------------
<S> <C>
Working Capital $4,064,000
Total Assets $8,938,000
Total Liabilities $1,860,000
Total Stockholders' Equity $7,078,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis provides information which ABS'
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
appearing elsewhere herein.
OVERVIEW
ABS is a development stage company incorporated in September 1983. To date,
ABS has launched two commercial products ( TpP, ABS' Thrombus Precursor Protein
diagnostic test, and FiF, ABS' Functional Intact Fibrinogen diagnostic test),
although it has not yet derived any significant revenues from the sale of these
products.
On April 23, 1998, the Company acquired Stellar Bio Systems, Inc.
("Stellar"), a manufacturer and distributor of in vitro diagnostic products and
research reagents. Reagents are individual components of diagnostic products,
such as antibodies, calibrators and serum used in the biotechnology industry.
The purchase price was $120,000 in cash and $700,000 in Class A Common Stock at
the market value on the acquisition date (398,406 shares), plus future
contingent payments of $650,000 in Class A Common Stock to be paid over three
years based upon future sales levels of Stellar, with the Class A Common Stock
to be valued at its market value on the acquisition agreement anniversary dates.
On April 23, 1999, the Company made the first contingent payment of $150,000 in
Class A Common Stock (131,118 shares) (see Note 5 to the Consolidated Financial
Statements).
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its research and development activities to date
principally from (i) the sale of Common Stock issued in an initial public
offering, (ii) the exercise of the Class A and Class B Warrants issued in the
initial public offering, (iii) private placements of Convertible Debentures,
Convertible Preferred Series A Stock and Class A Common Stock, (iv) the exercise
of stock options, (v) capital contributions to ABS by it's Chairman of the
Board, (vi) initial license fee payments and fees from collaborative contract
services and (vii) the income on funds
26
<PAGE> 29
invested in bank deposits, United States Treasury bills and notes and other high
grade liquid investments.
ABS expects to continue to incur substantial expenditures in research and
product development in the neurobiology program and in the development and
commercialization of a rapid assay format for TpP, as well as in the FDA
approval process relating to additional 510(k) filings for TpP and Stellar's
products.
As of December 31,1999, ABS, had a negative working capital of $1,436,000;
however on a pro forma basis (See Note 11 of the Consolidated Financial
Statements), the working capital was $4,064,000, compared to $2,947,000 at
December 31, 1998. The Company implemented a cash conservation plan during the
second and third quarters of 1999, which included salary deferrals by executive
officers and other employees ranging from 5% to 100% of salary. As of December
31, 1999, accounts payable and accrued expenses includes $302,000 of deferred
salaries. In addition, non-essential projects and consultants were terminated or
agreed to other methods of payment for services, including the issuance of stock
or deferral of payments. The Company's Chairman funded operating cash needs
between late August 1999 and January 2000 by loaning the Company money. As of
December 31, 1999, the Chairman had loaned the Company $695,000 on a demand
basis, bearing interest at the rate of 6% per annum. Between January 1, 2000 and
January 19, 2000, the Company's Chairman loaned the Company an additional
$81,000 (See Note 11 of the Consolidated Financial Statements).
ABS' management believes that current pro forma working capital, together
with the receipt of additional licensing fees and milestone payments projected
to be received within the next 12 months will be sufficient to fund its planned
activities through the first quarter of 2001. Currently, product development
plans include licensing TpP and the ABS-205 neurobiology compound, to large
pharmaceutical companies provide additional funding and clinical expertise,
perform additional testing necessary to obtain regulatory approvals, provide
manufacturing expertise and market ABS' products. Without such licensing fees,
milestone payments or co-marketing arrangements, additional sources of funding
will be required to finance ABS beyond the first quarter of 2001.
During 1999, the Company's cash and cash equivalents decreased by
$2,945,000 to $93,000, primarily because cash used in operations ($3,724,000)
and investing activities ($548,000) exceeded net proceeds from financing
activities ($1,318,000). Net cash of $3,724,000 was used to fund the Company's
cash loss from operations of $4,535,000 (net of non cash expenses of $318,000
for depreciation and amortization, $4,000 gain on sale of fixed asset, and
$502,000 incurred in connection with the issuance of stock and warrants). Cash
of $811,000 was provided by changes in operating assets, primarily as a result
of an increase in accounts payable and accrued expenses ($840,000), a decrease
in inventory ($34,000) and a decrease in other assets ($7,000). This was
partially offset by higher accounts receivable ($34,000) and an increase in
other current assets ($36,000) due to a $100,000 loan made to the Company's
President/CEO (of which $50,000 had been forgiven in 1999) as part of the
inducement to him to join the Company. Cash was used in investing activities for
capitalized patent costs ($539,000) primarily for ABS 103 and ABS 205 and the
purchase of equipment ($13,000). This was slightly offset by the proceeds from
the sale of fixed asset ($4,000). New financing activities provided
27
<PAGE> 30
$1,318,000 as a result of the purchase by the Company's Chairman of 440,000
shares of Class A Common Stock for $495,000, the purchase by the Company's
President/CEO of 82,000 shares of Class A Common Stock for $82,000, the issuance
of 500,000 shares of Class A Common Stock in lieu of a cash payment of $80,000
for the development and manufacture of the rapid assay format of TpP, loans from
the Company's Chairman of $702,000 and the exercise of stock options, offset in
part, by payments of $44,000 under capital lease obligations and notes payable.
At December 31, 1999, ABS had net operating loss carryforwards of
approximately $59,900,000 for income tax purposes. The net operating loss
carryforwards will expire in varying amounts through 2019. In addition, ABS has
approximately $1,230,000 of available research and development tax credits to
offset future taxes. These credits expire through 2019. In accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," ABS has recorded a valuation allowance of $61,130,000 to fully reserve
for the deferred tax benefit attributable to its net operating loss and tax
credit carryforwards due to the uncertainty as to their ultimate realizability.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of a corporation of greater than 50 percentage points within
a three-year period places an annual limitation on the corporation's ability to
utilize its existing net operating loss carryforwards, investment tax and
research and development credit carryforwards (collectively "tax attributes").
Such a change in ownership was deemed to have occurred in connection with ABS'
1990 initial public offering at which time ABS' tax attributes amounted to
approximately $4.9 million. The annual limitation of the utilization of such tax
attributes is approximately $560,000. To the extent the annual limitation is not
utilized, it may be carried forward for utilization in future years. At December
31, 1999, $4,900,000 million of net operating losses is no longer subject to
this limitation.
RESULTS OF OPERATIONS
ABS has not generated any significant revenues from the sale of any
products. Revenues from inception through December 31, 1999 of $4,092,000 are
attributable to nonrefundable initial license fees and collaborative research
agreements, sales of TpP and FiF and, since April 1998, sales of Stellar
products. As a result of ABS' substantial start-up expenses and minimal
revenues, ABS had an accumulated deficit of $62,314,000 as of December 31, 1999.
ABS' research and development expenses are anticipated to be substantial for the
foreseeable future and ABS expects to continue to incur significant operating
losses.
ABS initiated its marketing efforts for TpP and FiF in the microtiter plate
format in November 1997. TpP kits have been marketed through European, Japanese
and United States distributors as well as direct sales to specialty laboratories
and research hospitals. ABS' efforts in 2000 will be directed toward adding new
distributors and specialty labs, completing clinical studies with the rapid
assay format (POC) of TpP, filing a 510(k) application for TpP POC format,
entering into license agreements for the POC TpP and the ABS-205 therapeutic
neurocompound and expanding Stellar's product base through additional 510(k)
application filings and product acquisitions. ABS has licenses for TpP with
Abbott and Roche in the automated instrument format and a license for 45J with
Yamanouchi. ABS does not have any
28
<PAGE> 31
performance obligations under these agreements. In order to market the product
the licensees will be required to file for the appropriate governmental
clearances. ABS has a sufficient quantity of antibodies to initially supply
these licensees. Management believes that the POC format will increase the
commercial potential of the TpP test and encourage the licensees to complete the
commercialization process under these agreements.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
ABS' net loss for the year ended December 31, 1999 was $5,351,000 compared
to $7,548,000 for the year ended December 31, 1998. The decrease was primarily
the result of the absence of an extraordinary charge for the early retirement of
debentures ($1,140,000), a $598,000 decrease in interest expense, a $436,000
decrease in research and development expense and a $246,000 increase in
revenues. The Company completed its consolidation of facilities in Maryland
which resulted in savings in R&D expenses.
Sales during 1999 of $1,361,000 include sales of Stellar products for a
full year and sales of TpP. Sales of TpP declined in 1999 due to a slow market
acceptance of the current test format. Stellar product sales increased over 1998
due to a full years' operation. Collaborative agreement revenue of $82,000
reflects the earned portion of an NIH National Institute on Aging grant and
contract services. The Company obtained a grant of $135,000 from the NIH for
additional studies of the Company's ABS-205 therapeutic neurocompound. These
studies have been completed and the final report filed at the end of 1999.
Cost of sales increased by $133,000 during 1999 compared to 1998 due
primarily to increased sales. Cost of sales as a percentage of sales was 43.9%
in 1999 and 38.8% in 1998. The percentage increase was due to increased payroll
costs and higher fixed TpP costs being absorbed by a lower sales volume.
Research and development costs decreased $436,000 from $2,161,000 in 1998
to $1,725,000 in 1999 primarily due to the consolidation of R&D facilities in
Columbia, Maryland. This was partially offset by the inclusion of Stellar's
costs for the full year of 1999 compared to eight months in 1998, increases in
Stellar's post-acquisition research and development costs relating to FDA 510(k)
filings, and continued TpP rapid assay POC development and clinical costs.
Selling, general and administrative expenses increased by $56,000 from
$4,432,000 in 1998 to $4,488,000 in 1999, primarily as a result of the inclusion
of Stellar's selling and general expenses for the full year of 1999 compared to
eight months in 1998, increased cost of investor relations, and the noncash
value of warrants issued for services. This was offset in part by a reduction in
other consulting costs.
Interest expense was $598,000 lower in 1999 than in 1998, resulting from
the repurchase of convertible debentures in the fourth quarter of fiscal 1998.
Interest income, net, was $290,000 lower in 1999 than in 1998 due to lower
average cash balances.
29
<PAGE> 32
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
ABS' net loss was $7,548,000 for the calendar year 1998 compared to
$7,147,000 for the calendar year 1997. The increase was primarily the result of
an extraordinary chargeof 1,140,000 for the early retirement of the Company's 5%
Convertible Debentures. The loss before the extraordinary charge decreased by
$739,000. This decrease was due to Stellar operations (included from April 23,
1998), continued sales of TpP and FiF and reduced research and development costs
offset, in part, by increased selling, general and administrative and the
facility consolidation costs.
Sales during 1998 of $1,197,000 include sales of Stellar
products since the date of acquisition in late April 1998 and sales of TpP and
FiF kits. TpP sales were comparable to the 1997 sales of $150,000. Stellar
product sales increased over 1997 (prior to its acquisition and accordingly,
prior to the inclusion of it's results in the Company's consolidated results of
operations.
Cost of sales increased by $433,000 during the twelve months ended December
31, 1998 compared to the twelve months ended December 31, 1997 due primarily to
increased sales. Cost of sales as a percentage of sales was 38.8% in 1998 and
21.3% in 1997. The percentage increase was due to Stellar products having a
higher cost, plus an increase in the cost of TpP and FiF kits.
Research and development costs decreased $1,081,000 from $3,242,000 in 1997
to $2,161,000 in 1998. The decrease was primarily due to the absence of costs
incurred during the first six months of 1997 relating to the relocation of ABS'
research laboratories from South Bend, Indiana to Boston, Massachusetts. The
cost of relocation included severance, relocation and moving costs as well as
duplicate facility costs. The decrease was also attributable to a reduction in
personnel (FDA filing related) and consulting costs offset, in part, by
increases in the cost of TpP clinical studies and the TpP point of care
development costs.
Selling, general and administrative expenses increased by $765,000 from
$3,667,000 in 1997 to $4,432,000 in 1998, primarily as a result of the inclusion
of Stellar, selling expenses relating to the marketing and promotion of TpP and
increased personnel cost relating to marketing of TpP and business development.
Facility consolidation cost of $252,000 includes severance costs, lease
termination expenses and a write-down of leasehold improvements. In order to
conserve resources and operate more efficiently with less duplication,
management decided to close the Boston facility and consolidate the research and
development and antigen free mouse colony at the Stellar facilities in Columbia,
Maryland. The process of closing the Boston facility was completed in June of
1999.
Interest expense was $301,000 lower in 1998 than in 1997 due to a lower
average amount of debentures being outstanding during the year, with those being
outstanding bearing a lower average interest rate.
30
<PAGE> 33
Interest income, net, was $230,000 lower in 1998 than in 1997 due to lower
average cash balances.
YEAR 2000
State of Readiness: The Year 2000 problem is the result of some computer
programs being written using two-digits rather than four to define the
applicable year. Therefore, it is possible that programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in a system failure or miscalculation.
ABS uses software developed and supported by third parties for various
applications, including financial reporting, sales, purchasing and inventory.
During 1999, ABS assessed the potential impact of the Year 2000 problem
issue on its information systems. While it is possible that a problem may yet
arise, to date the Company has not experienced any Year 2000 related problems.
Management does not expect disruptions caused by the failures of third parties
to remediate their year 2000 issues. Costs related to the year 2000 program were
not significant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's available cash is invested in highly liquid investments
(primarily United States Treasury Bills) which have a maturity, at the time of
purchase, of less than three months. ABS does not have operations subject to
risks of foreign currency fluctuations, nor does it use derivative financial
instruments in its operations. ABS does not have exposure to market risks
associated with changes in interest rates because it has no variable interest
rate debt outstanding. ABS does not believe it has any other material exposure
to market risks associated with interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted in a separate section of this
report, starting on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The information called for by Part III (Items 10, 11, 12 and 13 of Form
10-K) is incorporated herein by reference to such information which will be
contained in ABS' Proxy Statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 with respect to ABS' 2000 Annual Meeting of
Stockholders.
PART IV
31
<PAGE> 34
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) 1. and 2. Financial Statements and Financial Statement Schedules
The following consolidated financial statements of ABS are annexed hereto
immediately following the signature page of this Report.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Index to Consolidated Financial Statements F-1
Report of Independent Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6 - F-8
Notes to Consolidated Financial Statements F-9 - F-26
</TABLE>
Information required by schedules called for under Regulation S-X is either not
applicable or the information required therein is included in the consolidated
financial statements or notes thereto.
(b) Exhibits
Exhibit No. Description
- --------------------------------------------------------------------------------
3.1* Restated Certificate of Incorporation of ABS, as filed with
the Secretary of State of Delaware on July 30, 1996 and
amended through March 3, 2000.
3.2 Amended and Restated By-Laws of ABS. Incorporated herein by
reference to Exhibit 4.02 to ABS' Registration Statement on
Form S-8, File No. 333-09473.
4.1 Form of Purchase and Investment Agreement executed by ABS
and several investors on October 27, 1998. Incorporated
herein by reference to Exhibit 99 to ABS' Registration
Statement on Form S-3, file number 333-69735, filed with the
Commission on December 24, 1998.
4.2 Form of Warrant issued to several individuals under ABS'
Financial Advisory Agreement with M.H. Meyerson & Co., Inc.,
dated as of August 13, 1998 and schedule of holders thereof.
Incorporated herein by reference to Exhibit 4.1(e) to
32
<PAGE> 35
Exhibit No. Description
- --------------------------------------------------------------------------------
ABS' Form 10-K for the fiscal year ended December 31, 1998,
File No. 0-19041.
4.3(a) Stock Purchase Agreement, dated as of January 27, 2000,
between ABS and Abbott Laboratories. Incorporated herein by
reference to Exhibit 99.1 to ABS' Current Report on Form 8-K
dated January 27, 2000 (date of earliest event reported),
File No. 0-19041.
4.3(b) Registration Rights Agreement, dated as of January 27, 2000,
between ABS and Abbott Laboratories. Incorporated herein by
reference to Exhibit 4.1 to ABS' Current Report on Form 8-K
dated January 27, 2000 (date of earliest event reported),
File No. 0-19041.
4.4(a)* Securities Purchase Agreement, dated as of February 3, 2000,
among ABS and Biotechnology Value Fund, L.P., Biotechnology
Value Fund II, L.P., Investment 10 L.L.C. and Alfred J.
Roach.
4.4(b)* Registration Agreement, dated as of March 3, 2000, among ABS
and Biotechnology Value Fund, L.P., Biotechnology Value Fund
II, L.P., Investment 10 L.L.C. and Alfred J. Roach.
10.1(a)+ Employment Agreement dated October 1, 1996 between ABS and
Ellena M. Byrne. Incorporated herein by reference to Exhibit
10.1(b) to ABS' Form 10-K/A, dated April 30, 1997, File No.
0-19041.
10.1(b)+ Employment Agreement dated November 2, 1998 between ABS and
Mr. John S. North. Incorporated herein by reference to
Exhibit 10.1(b) to ABS' Form 10-K for the fiscal year ended
December 31, 1998, File No. 0-19041.
10.2(a)+ ABS' Stock Option Plan, as amended. Incorporated herein by
reference to Exhibit 28.1 to ABS' Registration Statement on
Form S-8, File No. 33-51240.
10.2(b)+ ABS' 1993 Non-Employee Director Stock Option Plan.
Incorporated herein by reference to Exhibit 99.01 to ABS'
Registration Statement on Form S-8, File No. 33-65416.
10.2(c)*+ ABS' 1996 Stock Option Plan, as amended.
10.3 Exclusive License Agreement dated January 24, 1992 between
ABS and Yamanouchi Pharmaceutical Co., Ltd. Incorporated
herein by reference to Exhibit 10.29 to ABS' Current Report
on Form 8-K dated January 24, 1992, File No. 0- 19041.
10.4 Warrant dated October 25, 1995 issued to Swartz Investments,
Inc. Incorporated herein by reference to Exhibit 10.13 to
ABS' Current Report on Form 8-K dated
33
<PAGE> 36
Exhibit No. Description
- --------------------------------------------------------------------------------
October 12, 1995, File No. 0-19041.
10.5 Exclusive License Agreement, dated as of January 27, 2000,
between ABS and Abbott Laboratories. Incorporated herein by
reference to Exhibit 10.1 to ABS' Current Report on Form 8-K
dated January 27, 2000, File No. 0-19041.
21 List of Subsidiaries. Incorporated herein by reference to
Exhibit 21 to ABS' Form 10-K for the fiscal year ended
December 31, 1998, File No. 0-19041.
23* Consent of Independent Public Accountants.
27* Financial Data Schedule.
*Filed herewith. All other exhibits are incorporated by reference to the
document following the description thereof.
+Management contract or compensatory plan.
(b) Reports on Form 8-K.
None
34
<PAGE> 37
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.
March 29, 2000 AMERICAN BIOGENETIC SCIENCES, INC.
-------------- (Registrant)
(Date)
By: /s/ Josef C. Schoell
-----------------------------------
Josef C. Schoell
Vice President, Finance
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
March 29, 2000 /s/ Alfred J. Roach
-------------- --------------------------------
(Date) Alfred J. Roach, Chairman of the
Board of Directors
March 29, 2000 /s/ Josef C. Schoell
-------------- --------------------------------
(Date) Josef C. Schoell
Vice President, Finance
March 29, 2000 /s/ John S. North
-------------- --------------------------------
(Date) John S. North
President and Chief Executive
Officer
March 29, 2000 /s/ Timothy J. Roach
-------------- --------------------------------
(Date) Timothy J. Roach, Secretary,
Treasurer, and Director
March 29, 2000 /s/ Ellena M. Byrne
-------------- --------------------------------
(Date) Ellena M. Byrne, Executive
Vice President and Director
March 29, 2000 /s/ Joseph C. Hogan
-------------- --------------------------------
(Date) Joseph C. Hogan, Director
March 29, 2000
-------------- --------------------------------
(Date) Gustav Victor Rudolf Born,
Director
March 29, 2000 /s/ Glenna M. Crooks
-------------- --------------------------------
(Date) Glenna M. Crooks, Director
<PAGE> 38
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6 - F-8
Notes to Consolidated Financial Statements F-9 - F-26
</TABLE>
Information required by schedules called for under Regulation S-X is either
not applicable or the information required therein is included in the
consolidated financial statements or notes thereto.
F-1
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Biogenetic Sciences, Inc.:
We have audited the accompanying consolidated balance sheets of American
Biogenetic Sciences, Inc. (a Delaware corporation in the development stage) and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999 and for the period from
inception (September 1, 1983) to December 31, 1999. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Biogenetic
Sciences, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 and for the period from inception to December
31, 1999 in conformity with accounting principles generally accepted in the
United States.
ARTHUR ANDERSEN LLP
Melville, New York
March 10, 2000
F-2
<PAGE> 40
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $93,000 $3,047,000
Accounts receivable 211,000 177,000
Inventory 511,000 545,000
Other current assets 76,000 40,000
------------ ------------
Total current assets 891,000 3,809,000
------------ ------------
Fixed assets, net 476,000 631,000
Patent costs, net of accumulated
amortization of $502,000 and $390,000, respectively 1,895,000 1,468,000
Intangible assets, net 657,000 580,000
Other assets 19,000 26,000
------------ ------------
$3,938,000 $6,514,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $1,581,000 $797,000
Current portion of capital lease obligation - 8,000
Current portion of notes payable 746,000 57,000
------------ ------------
Total current liabilities 2,327,000 862,000
------------ ------------
Long Term Liabilities:
Notes payable, less current portion 33,000 56,000
------------ ------------
Total liabilities 2,360,000 918,000
------------ ------------
Commitments (Notes 1, 5, 8, 10 and 12)
Stockholders' Equity:
Class A common stock, par value $.001 per
share; 100,000,000 shares authorized;
36,918,510 and 35,559,556 shares issued
and outstanding, respectively 37,000 36,000
Class B common stock, par value $.001 per share;
3,000,000 shares authorized; 3,000,000 shares
issued and outstanding, respectively 3,000 3,000
Additional paid-in capital 63,852,000 62,520,000
Deficit accumulated during the development stage (62,314,000) (56,963,000)
------------ ------------
Total stockholders' equity 1,578,000 5,596,000
------------ ------------
$3,938,000 $6,514,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 41
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
From Inception
Year Ended December 31, (September 1,
------------------------------------------ 1983) Through
December 31,
1999 1998 1997 1999
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Sales $1,361,000 1,197,000 150,000 $2,708,000
Royalties / license fees - - - 1,000,000
Collaborative agreements 82,000 - 9,000 384,000
------------ ------------ -------------- --------------
1,443,000 1,197,000 159,000 4,092,000
Costs and expenses:
Cost of sales 598,000 465,000 32,000 1,095,000
Research and development 1,725,000 2,161,000 3,242,000 30,531,000
Selling, general and administrative 4,488,000 4,432,000 3,667,000 33,581,000
Facility consolidation cost - 252,000 - 252,000
------------ ------------ -------------- --------------
Loss from operations (5,368,000) (6,113,000) (6,782,000) (61,367,000)
------------ ------------ -------------- --------------
Other Income (Expense):
Interest expense (16,000) (614,000) (915,000) (4,372,000)
Net gain on sale of fixed assets 4,000 - 1,000 11,000
Investment income, net 29,000 319,000 549,000 4,554,000
------------ ------------ -------------- --------------
Loss before extraordinary charge (5,351,000) (6,408,000) (7,147,000) (61,174,000)
Extraordinary charge for early
retirement of debentures, net - (1,140,000) - (1,140,000)
------------ ------------ -------------- --------------
Net loss ($5,351,000) ($7,548,000) ($7,147,000) ($62,314,000)
============ ============ ============== ==============
Per Share Information (Note 2):
Basic and Diluted loss per share
Loss before extraordinary charge ($0.14) ($0.25) ($0.35)
============ ============ ==============
Extraordinary charge for early
retirement of debentures, net - ($0.04) -
============ ============ ==============
Net loss ($0.14) ($0.29) ($0.35)
============ ============ ==============
Common shares used in computing
per share amounts:
Basic and Diluted 39,266,000 25,740,000 20,223,000
============ ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 42
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
From Inception
(September 1,
Year Ended December 31, 1983)
------------------------------------------ Through
December 31,
1999 1998 1997 1999
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ($5,351,000) ($7,548,000) ($7,147,000) ($62,314,000)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Depreciation and amortization 318,000 497,000 531,000 3,040,000
Net (gain) loss on sale of fixed assets (4,000) - (1,000) (11,000)
Net (gain) loss on sale of marketable securities - - - (217,000)
Other non-cash expenses accrued primarily for stocks and warrants 502,000 306,000 299,000 2,544,000
Amortization of debt discount included in interest expense - 317,000 492,000 2,160,000
Extraordinary loss on repurchase of debt - 1,140,000 - 1,140,000
Write-off of patent costs - - - 93,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (34,000) (69,000) - (103,000)
(Increase) decrease in inventory 34,000 (91,000) (296,000) (353,000)
(Increase) decrease in other current assets (36,000) 1,000 487,000 (76,000)
(Increase) decrease in other assets 7,000 1,000 (2,000) 80,000
Increase (decrease) in accounts payable and accrued expenses 840,000 265,000 46,000 1,816,000
Increase in interest payable to stockholder - - - 112,000
------------ ------------ -------------- --------------
Net cash used in operating activities (3,724,000) (5,181,000) (5,591,000) (52,089,000)
------------ ------------ -------------- --------------
Cash Flows From Investing Activities:
Capital expenditures (13,000) (41,000) (222,000) (2,056,000)
Proceeds from sale of fixed assets 4,000 - 2,000 22,000
Payments for patent costs and other assets (539,000) (229,000) (434,000) (2,467,000)
Business acquisition, net of stock issued and cash acquired - (119,000) - (119,000)
Proceeds from maturity and sale of marketable securities - - 5,817,000 67,549,000
Purchases of marketable securities - - (2,796,000) (67,332,000)
------------ ------------ -------------- --------------
Net cash provided by (used in) investing activities (548,000) (389,000) 2,367,000 (4,403,000)
------------ ------------ -------------- --------------
Cash Flows From Financing Activities:
Payments to debentureholders - (1,000,000) (1,246,000) (2,246,000)
Proceeds from issuance of common stock, net 660,000 3,182,000 834,000 40,144,000
Proceeds from issuance of 5% convertible debentures, net - 3,727,000 - 3,727,000
Proceeds from issuance of 7% convertible debentures, net - - - 8,565,000
Proceeds from issuance of 8% convertible debentures, net - - - 7,790,000
Principal payments under capital lease obligation and notes payable (44,000) (61,000) (3,000) (114,000)
Redemption of 8% convertible debentures - (500,000) - (500,000)
Repurchase of 5% convertible debentures - (3,852,000) - (3,852,000)
Capital contributions from chairman - - - 1,000,000
Increase in loans payable to stockholder / affiliates 702,000 - - 3,371,000
Repayment of loans payable to stockholder and affiliates
(remainder contributed to capital by the stockholder) - - - (1,300,000)
------------ ------------ -------------- --------------
Net cash provided (used in) by financing activities 1,318,000 1,496,000 (415,000) 56,585,000
------------ ------------ -------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents (2,954,000) (4,074,000) (3,639,000) 93,000
Cash and Cash Equivalents at Beginning of Period 3,047,000 7,121,000 10,760,000 -
------------ ------------ -------------- --------------
Cash and Cash Equivalents at End of Period $93,000 $3,047,000 $7,121,000 $93,000
============ ============ ============== ==============
Supplemental Disclosure of Non-cash Activities:
Capital expenditure made under capital lease obligation - - - $20,000
============ ============ ============== ==============
Convertible debentures converted into 0, 4,851,618, 2,995,006,
and 10,470,853 shares of Common Stock, respectively - $1,447,000 $7,155,000 $14,658,000
============ ============ ============== ==============
Warrants issued to debentureholders and placement agents - $63,000 - $588,000
============ ============ ============== ==============
Conversion of stockholder loan to paid-in capital - - - $1,481,000
============ ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 43
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Class B
Per Common Stock Common Stock
Share --------------------------- ------------------------
Amount Shares Dollars Shares Dollars
------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, AT INCEPTION, (SEPTEMBER 1, 1983) $ - $ - - $ -
Sale of common stock to chairman for cash .33 78,000 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1983 78,000 - - -
Sale of common stock to chairman for cash .33 193,500 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1984 271,500 - - -
Sale of common stock to chairman for cash .33 276,700 1,000 - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1985 548,200 1,000 - -
Sale of common stock to chairman for cash .33 404,820 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1986 953,020 1,000 - -
Sale of common stock to chairman for cash .33 48,048 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1987 1,001,068 1,000 - -
Exchange of common stock for Class B stock (1,001,068) (1,000) 1,001,068 1,000
Sale of Class B stock to chairman for cash .33 - - 1,998,932 2,000
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1988 - - 3,000,000 3,000
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1989 - - 3,000,000 3,000
Conversion of loans payable to stockholder into
additional paid-in capital - - - -
Sale of 1,150,000 Units to public consisting of
3,450,000 shares of Class A common stock and
warrants (net of $1,198,000 underwriting expenses) 2.00 3,450,000 3,000 - -
Conversion of Class B stock into
Class A stock 668,500 1,000 (668,500) (1,000)
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1990 4,118,500 $4,000 2,331,500 $2,000
------------ ------------- ----------- -----------
</TABLE>
CONTINUED
F-6
<PAGE> 44
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1990 $ 4,118,500 $4,000 2,331,500 $2,000
Exercise of Class A Warrants (net of $203,000
in underwriting expenses) for cash 3.00 3,449,955 3,000 - -
Exercise of Class B Warrants for cash 4.50 79,071 - - -
Conversion of Class B stock
into Class A stock 850,000 1,000 (850,000) (1,000)
Exercise of stock options 2.00 417,750 1,000 - -
Expense for warrants issued - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1991 8,915,276 9,000 1,481,500 1,000
Exercise of Class B Warrants (net of $701,000
in underwriting expenses) for cash 4.50 3,370,884 3,000 - -
Conversion of Class B stock
into Class A stock 106,000 - (106,000) -
Exercise of stock options 2.49 348,300 1,000 - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1992 12,740,460 13,000 1,375,500 1,000
Sale of common stock to Medeva PLC. 7.50 200,000 - - -
Exercise of stock options 2.00 32,700 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1993 12,973,160 13,000 1,375,500 1,000
Exercise of stock options 2.16 91,250 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1994 13,064,410 13,000 1,375,500 1,000
Conversion of 8% convertible debentures into
Class A Common Stock 1.85 354,204 - - -
Exercise of stock options 1.82 12,750 - - -
Expense for warrants/options issued - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000
------------ ------------- ----------- -----------
</TABLE>
CONTINUED
F-7
<PAGE> 45
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1995 $ 13,431,364 $13,000 1,375,500 $1,000
Conversion of 8% Convertible Debentures into
Class A Common Stock 2.74 2,269,755 2,000 - -
Exercise of stock options 2.53 569,875 1,000 - -
Expense for warrants/options issued - - - -
Discount on 7% convertible debentures - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1996 16,270,994 16,000 1,375,500 1,000
------------ ------------- ----------- -----------
Conversion of 7% and 8% convertible debentures
into Class A Common Stock 2.93 2,995,006 3,000 - -
Sale of Class B Common Stock to Chairman for cash 2.23 - - 350,000 1,000
Exercise of stock options 2.00 27,500 - - -
Expense for warrants issued - - - -
Class A Common Stock issued 3.12 48,117 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1997 19,341,617 19,000 1,725,500 2,000
------------ ------------- ----------- -----------
Conversion of 5%, 7% and 8% convertible debentures
into Class A Common Stock 0.32 4,851,618 5,000 - -
Sale of Class B Common Stock to Chairman for cash 0.37 - - 1,274,500 1,000
Exercise of stock options 1.75 4,000 - - -
Expense for warrants issued - - - -
Class A Common Stock issued 1.06 163,915 - - -
Class A Common Stock issued for Stellar 1.76 398,406 1,000 - -
Class A Common Stock issued for Private Placement 0.25 10,800,000 11,000 - -
Discount on 5% convertible debentures - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1998 35,559,556 36,000 3,000,000 3,000
------------ ------------- ----------- -----------
Sale of Class A Common Stock to Chairman for cash 1.13 440,000 - - -
Exercise of stock options 0.61 5,250 - - -
Expense for warrants issued - - - -
Class A Common Stock issued 0.50 913,704 1,000 - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1999 36,918,510 $37,000 3,000,000 $3,000
============ ============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE> 46
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-in Development
Capital Stage Total
------------ ------------- -----------
<S> <C> <C> <C>
BALANCE, AT INCEPTION, (SEPTEMBER 1, 1983) $ - $ - $ -
Sale of common stock to chairman for cash 26,000 - 26,000
Net (loss) for the period - (25,000) (25,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1983 26,000 (25,000) 1,000
Sale of common stock to chairman for cash 65,000 - 65,000
Net (loss) for the period - (242,000) (242,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1984 91,000 (267,000) (176,000)
Sale of common stock to chairman for cash 92,000 - 93,000
Net (loss) for the period - (305,000) (305,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1985 183,000 (572,000) (388,000)
Sale of common stock to chairman for cash 134,000 - 134,000
Net (loss) for the period - (433,000) (433,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1986 317,000 (1,005,000) (687,000)
Sale of common stock to chairman for cash 16,000 - 16,000
Net (loss) for the period - (730,000) (730,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1987 333,000 (1,735,000) (1,401,000)
Exchange of common stock for Class B stock - - -
Sale of Class B stock to chairman for cash 664,000 - 666,000
Net (loss) for the period - (1,031,000) (1,031,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1988 997,000 (2,766,000) (1,766,000)
Net (loss) for the period - (1,522,000) (1,522,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1989 997,000 (4,288,000) (3,288,000)
Conversion of loans payable to stockholder into
additional paid-in capital 1,481,000 - 1,481,000
Sale of 1,150,000 Units to public consisting of
3,450,000 shares of Class A common stock and
warrants (net of $1,198,000 underwriting expenses) 5,699,000 - 5,702,000
Conversion of Class B stock into
Class A stock - - -
Net (loss) for the period - (2,100,000) (2,100,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1990 $8,177,000 ($6,388,000) $1,795,000
------------ ------------- -----------
</TABLE>
CONTINUED
F-6 (column continuation)
<PAGE> 47
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1990 $8,177,000 ($6,388,000) $1,795,000
Exercise of Class A Warrants (net of $203,000
in underwriting expenses) for cash 10,143,000 - 10,146,000
Exercise of Class B Warrants for cash 356,000 - 356,000
Conversion of Class B stock
into Class A stock - - -
Exercise of stock options 835,000 - 836,000
Expense for warrants issued 900,000 - 900,000
Net (loss) for the period - (4,605,000) (4,605,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1991 20,411,000 (10,993,000) 9,428,000
Exercise of Class B Warrants (net of $701,000
in underwriting expenses) for cash 14,465,000 - 14,468,000
Conversion of Class B stock
into Class A stock - - -
Exercise of stock options 865,000 - 866,000
Net (loss) for the period - (4,016,000) (4,016,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1992 35,741,000 (15,009,000) 20,746,000
Sale of common stock to Medeva PLC. 1,500,000 - 1,500,000
Exercise of stock options 65,000 - 65,000
Net (loss) for the period - (6,521,000) (6,521,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1993 37,306,000 (21,530,000) 15,790,000
Exercise of stock options 197,000 - 197,000
Net (loss) for the period - (7,431,000) (7,431,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1994 37,503,000 (28,961,000) 8,556,000
Conversion of 8% convertible debentures into
Class A Common Stock 571,000 - 571,000
Exercise of stock options 23,000 - 23,000
Expense for warrants/options issued 602,000 - 602,000
Net (loss) for the period - (5,607,000) (5,607,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1995 $38,699,000 ($34,568,000) $4,145,000
------------ ------------- -----------
</TABLE>
CONTINUED
F-7 (column continuation)
<PAGE> 48
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $38,699,000 ($34,568,000) $4,145,000
Conversion of 8% convertible debentures into
Class A Common Stock 5,483,000 - 5,485,000
Exercise of stock options 1,438,000 - 1,439,000
Expense for warrants/options issued 330,000 - 330,000
Discount on 7% convertible debentures 1,843,000 - 1,843,000
Net (loss) for the period - (7,700,000) (7,700,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1996 47,793,000 (42,268,000) 5,542,000
------------ ------------- -----------
Conversion of 7% and 8% convertible debentures
into Class A Common Stock 7,152,000 - 7,155,000
Sale of Class B Common Stock to Chairman for cash 778,000 - 779,000
Exercise of stock options 55,000 - 55,000
Expense for warrants issued 149,000 - 149,000
Class A Common Stock issued 150,000 - 150,000
Net (loss) for the period - (7,147,000) (7,147,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1997 56,077,000 (49,415,000) 6,683,000
------------ ------------- -----------
Conversion of 5%, 7% and 8% convertible debentures
into Class A Common Stock 1,442,000 - 1,447,000
Sale of Class B Common Stock to Chairman for cash 465,000 - 466,000
Exercise of stock options 7,000 - 7,000
Expense for warrants issued 205,000 - 205,000
Class A Common Stock issued 174,000 - 174,000
Class A Common Stock issued for Stellar 699,000 - 700,000
Class A Common Stock issued for Private Placement 2,689,000 - 2,700,000
Discount on 5% convertible debentures 762,000 - 762,000
Net (loss) for the period - (7,548,000) (7,548,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1998 62,520,000 (56,963,000) 5,596,000
------------ ------------- -----------
Sale of Class A Common Stock to Chairman for cash 495,000 - 495,000
Exercise of stock options 3,000 - 3,000
Expense for warrants issued 376,000 - 376,000
Class A Common Stock issued 458,000 - 459,000
Net (loss) for the period - (5,351,000) (5,351,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1999 $63,852,000 ($62,314,000) $1,578,000
============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
CONTINUED
F-8 (column continuation)
<PAGE> 49
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND DEVELOPMENT STAGE RISKS:
American Biogenetic Sciences, Inc. (together with its subsidiaries (Note
2), the "Company" or "ABS") was incorporated in Delaware on September 1, 1983.
The Company was formed to engage in the research, development and production of
bio-pharmaceutical products. As a development stage company, the Company has not
materially commenced its principal operations. Most of its efforts have been
devoted to research and development, acquiring equipment, recruiting and
training personnel, and financial planning. The Company's research efforts have
been focused on the development of products to diagnose, prevent and treat
diseases in humans.
The Company has had limited product sales to date and has had limited
revenues from collaborative and licensing agreements (Notes 10 and 11). Since
its inception, the Company has been dependent upon the receipt of capital
investment or other financing to fund its continuing research and
commercialization activities. The Company expects to incur substantial
expenditures in research and product development and the Food and Drug
Administration approval process relating to 510(k) applications for its TpP and
other diagnostic tests. Currently product development plans of the Company
include entering into additional collaborative, licensing and co-marketing
arrangements with large pharmaceutical companies to provide additional funding
and clinical expertise to perform tests necessary to obtain regulatory
approvals, provide manufacturing expertise and market the Company's products.
Without such collaborative, licensing or co-marketing arrangements, additional
sources of funding will be required to finance the Company. In addition to the
normal risks associated with a business engaged in research and development of
new products, there can be no assurance that the Company's research and
development will be successfully completed, that any products developed will
obtain the necessary U.S. regulatory approvals (principally from the FDA), that
any approved product will be a commercial success, that adequate product
liability insurance can be obtained or that sufficient capital will be available
when required to permit the Company to realize its plans. In addition, the
Company operates in an environment of rapid changes in technology and in an
industry which has many competitors who have far more resources available to
them than does the Company. Further, the Company is dependent upon the services
of several key employees and advisors.
While losses from development stage activities are expected to continue in
2000, management believes that its liquidity and capital resources at December
31, 1999, including the license and financing transactions that occurred
subsequent to year-end as discussed in Note 11, together with the receipt of
milestone fees expected to be received within the next year, additional
licensing fees will be sufficient to fund its planned activities through the
first quarter of 2001.
F-9
<PAGE> 50
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
During 1989, the Company formed a subsidiary, American Biogenetic Sciences
(Ireland), Ltd., which is 99% owned by the Company and, to fulfill legal
requirements, 1% owned by an officer of the Company. On April 23, 1998, the
Company acquired all of the capital stock of Stellar Bio Systems, Inc.
("Stellar") (Note 5). The financial statements reflect the accounts of the
Company and these subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents include highly liquid investments which have an original
maturity of less than three months from date of purchase.
CONCENTRATION OF CREDIT RISK
As of December 31, 1999, the Company had two customers whose balances
exceeded 10% of the accounts receivable balance. These customers accounted for
35% and 24% of the accounts receivable balance. As of December 31, 1998, the
Company had four customers whose balances exceeded 10% of the accounts
receivable balance. These customers accounted for 22%, 21%, 18% and 11% of the
accounts receivable balance.
During fiscal year 1999, one customer accounted for 30% of the Company's
revenues, another customer accounted for 20% while a third customer accounted
for 11% of the Company's revenues. During fiscal year 1998, one customer
accounted for 34% of the Company's revenues, another customer accounted for 17%
while a third customer accounted for 10% of the Company's revenues.
There were no customers in fiscal year 1997 that exceeded 10% of revenues.
INVENTORY
Inventory is valued at the lower of cost (first-in, first-out) or market.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," ABS periodically reviews long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the fair value of the asset
measured by the future net cash flows (on an undiscounted basis) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized would be measured by the amount by which the
carrying amount of the assets exceeds the underlying fair value of the assets.
ABS has performed a review
F-10
<PAGE> 51
of its long-lived assets and has determined that no impairment of the respective
carrying values has occurred as of December 31, 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is generally provided for by the
straight-line method over the estimated useful lives of the assets. Laboratory
equipment, office equipment, furniture and vehicles are depreciated over five
years. Leasehold improvements are amortized over the life of the lease, usually
five years.
PATENT COSTS
Costs of certain patent applications are capitalized. Upon issuance of a
patent, such costs are charged to operations utilizing the straight-line method
over the lesser of the estimated useful life or 17 years. Costs of unsuccessful
patent applications or discontinued projects are charged to expense.
DEFERRED FINANCING COSTS
Deferred financing cost incurred by the Company in connection with the
issuance of convertible debentures (Note 7) were capitalized and charged to
operations as additional interest expense over the life of the related debt.
Upon conversion of the underlying debt, any unamortized deferred financing costs
were charged to paid-in capital during 1998.
INTANGIBLE ASSETS
Intangible assets include goodwill and intellectual know-how relating to
the acquisition of Stellar. Intangible assets are being amortized over a 10-year
period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company accounts for the fair value of its financial instruments in
accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments." The carrying value of all financial instruments reflected in the
accompanying balance sheets approximated fair value at December 31, 1999 and
December 31, 1998, respectively.
REVENUE RECOGNITION
Revenue on product sales is recognized at the time the products are shipped
to customers. Revenue from royalties and license fees are recognized when
earned, provided that no significant performance obligations remain.
F-11
<PAGE> 52
RESEARCH AND DEVELOPMENT INCOME AND EXPENSES
Revenues from collaborative agreements are recognized as the Company
performs research activities under the terms of each agreement, provided that no
further performance obligations remain. Research and development costs are
charged to expense in the year incurred.
STOCK-BASED COMPENSATION
The Company follows the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. SFAS No. 123
encourages entities to adopt a fair value based method of accounting for stock
compensation plans. However, SFAS No. 123 also permits the Company to continue
to measure compensation costs under pre-existing accounting pronouncements. If
the fair value based method of accounting is not adopted, SFAS No. 123 requires
pro forma disclosures of net loss and net loss per common share in the notes to
consolidated financial statements. The Company has elected to provide the
necessary pro forma disclosures (Note 8).
NET LOSS PER COMMON SHARE
The Company follows the provisions of SFAS No. 128, "Earnings Per Share."
Basic net loss per common share ("Basic EPS") is computed by dividing net loss
by the weighted average number of common shares outstanding. Diluted net loss
per common share ("Diluted EPS") is computed by dividing net loss by the
weighted average number of common shares and dilutive potential common shares
then outstanding. SFAS No. 128 requires the presentation of both Basic EPS and
Diluted EPS on the face of the consolidated statements of operations. The impact
of the adoption of this statement was not material to all previously reported
EPS amounts. Diluted EPS for 1999, 1998 and 1997 is the same as Basic EPS
because the inclusion of stock options and convertible debentures then
outstanding would be anti-dilutive. For the purposes of the calculation of both
basic and diluted EPS, Class A and Class B Common Stock have been treated as one
class. The following equity instruments were not included in the diluted net
loss per share calculation as their effect would be anti-dilutive:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Stock Options - Exercisable 3,761,132 3,279,334 3,018,543
Conversion of Convertible Debentures -- -- 1,160,000
Exercise of Warrants 1,039,295 709,445 445,216
--------- --------- ---------
Total Shares 4,800,427 3,988,779 4,623,759
========= ========= =========
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
F-12
<PAGE> 53
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME
In fiscal 1999 the Company adopted SFAS No. 130 "Reporting Comprehensive
Income," which establishes new rules for the reporting of comprehensive income
and its components. The adoption of this statement had no impact on the
Company's net income or shareholders' equity. For the fiscal years ended 1999,
1998 and 1997, the Company's operations did not give rise to items includable in
comprehensive income which were not already included in net income. Therefore,
the Company's comprehensive income is the same as its net income for all periods
presented.
DERIVATIVE INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal years beginning after June 15, 2000 and will not require retroactive
restatement of prior period financial statements. This statement requires the
recognition of all derivative instruments as either assets or liabilities in the
balance sheet measured at fair value. Derivative instruments will be recognized
as gains or losses in the period of change. If certain conditions are met where
the derivative instrument has been designated as a fair value hedge, the hedge
items may also be marked to market through earnings, thus creating an offset. If
the derivative is designed and qualifies as a cash flow hedge, the changes in
fair value of the derivative instrument may be recorded in comprehensive income.
The Company does not presently make use of derivative instruments.
3. INVENTORY
INVENTORY CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Raw Materials $334,000 $339,000
Work in Progress 71,000 91,000
Finished Goods 106,000 115,000
-------- --------
$511,000 $545,000
======== ========
</TABLE>
F-13
<PAGE> 54
4. FIXED ASSETS
FIXED ASSETS CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Laboratory equipment $ 1,279,000 $ 1,261,000
Office equipment, furniture and vehicles 523,000 554,000
Leasehold improvements 514,000 534,000
----------- -----------
2,316,000 2,349,000
Accumulated depreciation and amortization (1,840,000) (1,718,000)
----------- -----------
$ 476,000 $ 631,000
=========== ===========
</TABLE>
5. ACQUISITION
On April 23, 1998, the Company acquired all of the capital stock of
Stellar, a manufacturer of immunodiagnostic kits and reagents. The purchase
price was $120,000 in cash and $700,000 in Class A Common Stock (398,406 shares
were issued) plus future contingent payments of $650,000 in Class A Common Stock
to be paid over three years based upon future sales levels of Stellar, with the
Class A Common Stock to be valued at its market value on the acquisition
agreement anniversary dates. The Company made a contingent payment of $150,000
in Class A Common Stock (131,118 shares) as of April 23, 1999 representing the
first contingent payment. This amount was charged to Intangible Assets and is
being amortized over 10 years. The Acquisition was accounted for by the purchase
method. Results of operations of Stellar have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the aggregate purchase price over the fair value of net assets acquired of
$771,000 has been allocated to intangible assets (intellectual know-how of
$100,000 and goodwill of $671,000) and is being amortized over a 10-year period.
Any additional future payments required under the contingent earnout provisions
of the purchase agreement will be accounted for as additional goodwill and will
be amortized over the remaining life of the goodwill. Accumulated amortization
of intangible assets was approximately $114,000 and $41,000 as of December 31,
1999 and 1998, respectively.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Accounts Payable $1,117,000 $ 355,000
Professional Fees 98,000 110,000
Payroll and Related Expenses 366,000 85,000
Facility Consolidation Reserve -- 247,000
---------- ----------
$1,581,000 $ 797,000
========== ==========
</TABLE>
F-14
<PAGE> 55
7. LONG TERM DEBT:
On May 20, 1998, the Company completed a private placement to three
accredited investors of an aggregate of $4,000,000 of 5% Convertible Debentures
due May 20, 2001, and three series of Warrants to purchase up to an aggregate of
261,288 shares of the Company's Class A Common Stock. Interest on the Debentures
was payable only on maturity, conversion, redemption or when other payment was
made on the Debentures in cash or, if registered for resale under the Securities
Act of 1933, as amended, in shares of the Company's Class A Common Stock valued
at the applicable Debenture conversion price. These debentures were repurchased
on November 11, 1998 (see below).
The Company also issued to the investors warrants in series entitling the
investors to purchase, at an exercise price of $1.9141 per share, an aggregate
of 261,228 shares of the Company's Class A Common Stock at any time to and
including May 19, 2002. These warrants were cancelled on November 11, 1998 (see
below).
In conjunction with the private placement, the Company incurred both cash
and noncash issuance costs totaling $525,000. These issuance costs were
amortized on a straight-line basis as a component of interest expense through
November 11, 1998. Upon conversion of the Debentures, the related unamortized
deferred financing costs were charged to paid-in capital. The fair value of the
warrants as determined using an option-pricing model of $252,000, was recorded
as additional paid-in capital and included in the $525,000 total issuance costs
related to these Debentures. In addition, the Company recorded additional
paid-in capital and debt discount of $762,000 to reflect the intrinsic value of
the maximum market price conversion discount (16%) related to these Debentures.
The debt discount was amortized and charged to interest expense from May 20,
1998 through November 11, 1998. The unamortized issuance costs and debt discount
were included in the extraordinary charge for early extinguishment discussed
below.
On November 11, 1998, the Company repurchased the then outstanding
Debentures for a total of $3,852,000 (principal amount of $3,248,000 plus
accrued interest of $79,000 and a $525,000 premium). As a result of the
repurchase the Company has recorded a one-time extraordinary charge to earnings
of $1,140,000 which represents the loss on early extinguishment.
For each of the aforementioned debt instruments and warrants, the fair
value of each was estimated on the date of the agreement using an option-pricing
model with the following assumptions: dividend yield of 0%; expected volatility
of 135% in 1998; risk-free interest rate of range 5.7% to 6.5% and expected
lives of 2 to 5 years dependent on the life of the instrument.
8. STOCKHOLDERS' EQUITY:
DESCRIPTION OF CLASS A AND CLASS B COMMON STOCK
Holders of Class A Common Stock and Class B Common Stock have equal rights
to receive dividends, equal rights upon liquidation, vote as one class on all
matters requiring stockholder approval, have no preemptive rights, are not
redeemable and do not have cumulative voting rights;
F-15
<PAGE> 56
however, holders of Class A Common Stock have one vote for each share held while
holders of the Class B Common Stock have ten votes for each share held on all
matters to be voted on by the stockholders. All Class B Common Stock is owned by
the Chairman of the Board and may be converted into Class A Common Stock on a
share-for-share basis at the option of the holder and generally is
automatically converted in the event of sale or, with certain exceptions,
transfer.
PRIVATE PLACEMENT
On October 27, 1998, the Company entered into an agreement to issue an
aggregate of 10,800,000 shares of its Class A Common Stock to a group of
accredited investors at a price of $.25 per share, a price above the market
price of the Company's Class A Common Stock at the time. Of such shares,
4,000,000 shares were purchased by Alfred J. Roach, the Company's Chairman of
the Board of Directors and Chief Executive Officer, for an aggregate price of
$1,000,000. The Company has registered the shares issued in the private
placement under the Securities Act of 1933, as amended. The proceeds from this
private placement were used to repurchase the 5% Convertible Debentures (see
Note 7).
STOCK OPTION PLANS
The Company's 1986 Stock Option Plan (the "1986 Plan") provided for the
grant of incentive stock options and/or non-qualified options until July 1997 to
purchase up to an aggregate of 4,450,000 shares of Class A Common Stock. Options
were granted at exercise prices not less than the fair market value at the date
of grant and for a term not to exceed ten years from the date of grant; except
that an incentive stock option granted under the 1986 Plan to a stockholder
owning more than 10% of the outstanding Common Stock of the Company could not
have a term which exceeded five years nor have an exercise price of less than
110% of the fair market value of the Class A Common Stock on the date of the
grant. The outstanding options have a vesting period ranging two years to four
years ratably from the date of grant.
Changes in outstanding options and options available for grant under the
1986 Plan, expressed in number of shares, are as follows:
F-16
<PAGE> 57
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- -------------------------------
Shares Weighted Avg. Shares Weighted Avg.
Under Option Under Option
Option Price Option Price
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Options outstanding, 2,790,500 $ 4.11 2,873,625 $ 4.10
beginning of year
Granted -- -- -- --
Exercised -- -- (4,000) $ 1.75
Cancelled 272,250 $ 3.65 (79,125) $ 3.74
Expired 42,000 $ 2.00 -- --
Options outstanding, 2,476,250 $ 4.20 2,790,500 $ 4.11
end of year
Options exercisable, 2,453,250 $ 4.21 2,730,750 $ 4.13
end of year
Options available -- --
for grant, end of year
</TABLE>
The Company's 1993 Non-Employee Director Stock Option Plan (the "1993
Plan") provides for the issuance of stock options for up to 500,000 shares of
Class A Common Stock to outside directors of the Company. Options to purchase
10,000 shares of Class A Common Stock are automatically granted immediately
following each Annual Meeting of the Company to each outside director elected at
the Annual Meeting. The option exercise price is 100% of the fair market value
of the Class A Common Stock on the date of grant and the option may be exercised
during a period of five years from the date of grant at the rate of 25% each
year on a cumulative basis, commencing one year from the date of grant.
Changes in outstanding options and options available for grant under the
1993 Plan, expressed in number of shares, are as follows:
F-17
<PAGE> 58
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- -------------------------------
Shares Weighted Avg. Shares Weighted Avg.
Under Option Under Option
Option Price Option Price
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Options outstanding, 120,000 $ 3.27 110,000 $ 4.05
beginning of year
Granted 40,000 $ 1.09 30,000 $ 1.00
Exercised -- -- -- --
Cancelled -- -- -- --
Expired (20,000) $ 3.38 (20,000) $ (4.13)
Options outstanding,
end of year 140,000 $ 2.63 120,000 $ 3.27
Options exercisable,
end of year 57,500 $ 3.76 52,250 $ 3.86
Options available
for grant, end of year 347,500 367,500
</TABLE>
The Company's 1996 Stock Option Plan, as amended (the "1996 Plan"),
which replaced the 1986 plan, provides for the grant of incentive stock options
and/or non-qualified options to employees, officers and consultants of the
Company to purchase up to an aggregate of 4,000,000 shares of Class A Common
Stock. Options may be granted at exercise prices not less than the fair market
value at the date of grant and may be exercisable for a period not to exceed ten
years from the date of grant; except that the term of an incentive stock option
granted under the 1996 Plan to a stockholder owning more than 10% of the
outstanding Common Stock of the Company must not exceed five years nor have an
exercise price of less than 110% of the fair market value of the Class A Common
Stock on the date of the grant. The majority of options outstanding are
exercisable 25% each year on a cumulative basis, commencing one year from the
date of grant.
Changes in outstanding options and options available for grant under the
1996 Plan, expressed in number of shares, are as follows:
F-18
<PAGE> 59
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- -------------------------------
Shares Weighted Avg. Shares Weighted Avg.
Under Option Under Option
Option Price Option Price
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Options outstanding, 1,487,750 $ 1.99 821,000 $ 3.35
beginning of year
Granted 2,255,000 $ .70 741,500 $ .58
Exercised (5,250) $ .61 -- --
Cancelled (448,498) $ 2.40 (74,750) $ 2.95
Options outstanding,
end of year 3,289,002 $ 1.05 1,487,750 $ 1.99
Options exercisable,
end of year 1,250,382 $ 1.75 496,084 $ 3.41
Options available
for grant, end of year 705,748 512,250
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for options granted in 1999, 1998, and 1997 in accordance with the
provisions of SFAS No. 123, the Company's net loss and loss per share would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss - as reported $ (5,351,000) $ (7,548,000) $ (7,147,000)
Net loss - pro forma $ (6,130,000) $ (8,243,000) $ (7,522,000)
Basic and diluted loss per share - as
reported $ (.14) $ (.29) $ (.35)
Basic and diluted loss per share - pro
forma $ (.16) $ (.32) $ (.37)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997: dividend yield of 0%;
expected volatility of 106% in 1999, 135% in 1998 and 84% in 1997; risk-free
interest rate of range 4.4% to 6.8% and expected lives of seven years.
F-19
<PAGE> 60
The weighted average fair value of all three option plans for options
granted were $.59, $.50 and $2.10 in 1999, 1998 and 1997, respectively. The
following table sets forth additional SFAS No. 123 disclosure information as to
options outstanding for all three plans at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercisable Exercise Weighted Average Remaining
Outstanding Shares Price Range Exercise Price Contractual Life
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,342,500 137,500 $ .25 - $ .31 $ .26 8.7
160,000 25,000 $ .40 - $ .66 $ .53 9.5
86,250 55,500 $ .61 - $ .85 $ .67 8.8
1,187,502 568,382 $1.00 - $1.50 $ 1.04 8.1
744,750 658,250 $1.52 - $2.25 $ 1.87 4.6
435,500 409,500 $2.38 - $3.50 $ 3.3 6.4
1,490,500 1,460,500 $3.66 - $5.38 $ 4.76 2.5
457,250 445,500 $5.50 - $7.75 $ 5.63 2.3
1,000 1,000 $10.00 $10.00 2.2
- ------------------------------------
5,905,252 3,761,132
</TABLE>
OTHER OPTIONS GRANTED
The Company entered into a consulting agreement with an unaffiliated third
party to assist in the strategic planning and implementation of the Company's
licensing, collaborative and co-marketing plans, which expired February 29,
1996. Pursuant to the agreement, the Company granted an option to purchase
50,000 shares of Class A Common Stock on or before February 28, 2000 at $2.25
per share. The Company also granted performance options to purchase 50,000
shares of Class A Common Stock at $2.25 for licensing or collaborative
agreements entered into which met certain criteria. These options are
exercisable for five years from the date of grant.
The Company has granted an investor relations consultant a warrant to
purchase 50,000 shares of Class A Common Stock on or before November 14, 2000 at
$3.50 per share pursuant to an agreement dated November 27, 1995.
The Company entered into an agreement with an unaffiliated third party
dated October 6, 1995 to assist with the marketing of the Company's products and
intellectual property, which agreement has expired. Pursuant to this agreement,
the Company granted performance options to purchase 25,000 shares of Class A
Common Stock and issued 5,000 shares for services rendered under the agreement.
Options were granted for 12,500 shares at $3.00 per share and 12,500 shares at
$5.50 per share. These options are exercisable for five years from the date of
grant.
The Company entered into an agreement with an unaffiliated third party to
render financial consulting advice, dated August 13, 1998 and amended on October
1, 1998. Pursuant to this agreement, the Company granted performance options to
purchase up to 400,000 shares of Class
F-20
<PAGE> 61
A Common Stock. Options were granted for 150,000 shares at $.75 per share,
150,000 shares at $1.00 per share and 100,000 shares at $1.50 per share. The
options are exercisable for four years from the agreement date. The fair value
of these options as determined using an option-pricing model was $124,000, which
is being recorded as a noncash charge over the vesting/service period of the
options. The following assumptions were used for this fair value computation:
dividend yield of 0%, volatility of 135%, risk-free interest rate of 4.26% and
expected lives of 4 years. The charge was $81,000 in 1999 and $43,000 in 1998.
The Company has granted an investor relations consultant a warrant to
purchase up to 300,000 shares of Class A Common Stock on or before January 19,
2004 at $1.00 per share pursuant to an agreement dated January 20, 1999. The
warrant may be exercised in increments of 50,000 share amounts only if certain
milestones are met during the period ending June 30, 2000. The fair value of
these warrants as determined using an option-pricing model was $264,000 which
was recorded as a noncash charge over the one year service period (fiscal year
1999). The following assumptions were used for this fair value computation:
dividend yield of 0%, volatility of 149%, risk-free interest rate of 4.6% and
expected lives of 4 years.
The Company performed a valuation of the aforementioned options and
warrants using an option-pricing model at the date of grant and recorded a
charge to operations over the related service period.
9. FEDERAL INCOME TAXES:
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $59,900,000 for income tax purposes. The net operating loss
carryforwards will expire in varying amounts through 2019. In addition, the
Company has approximately $1,230,000 of available research and development tax
credits to offset future taxes. These credits expire through 2019. In accordance
with SFAS No. 109 "Accounting for Income Taxes," the Company has recorded a
valuation allowance of $61,130,000 to fully reserve for the deferred tax benefit
attributable to its net operating loss and tax credit carryforwards due to the
uncertainty as to their ultimate realizability.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of a corporation of greater than 50 percentage points within
a three-year period places an annual limitation on the corporation's ability to
utilize its existing net operating loss carryforwards, investment tax and
research and development credit carryforwards (collectively "tax attributes").
Such a change in ownership was deemed to have occurred in connection with the
Company's 1990 initial public offering, at which time the Company's tax
attributes amounted to approximately $4.9 million. The annual limitation of the
utilization of such tax attributes is approximately $560,000. To the extent the
annual limitation is not utilized, it may be carried forward for utilization in
future years. At December 31, 1999, $4,900,000 of net operating losses is no
longer subject to this limitation.
10. VARIOUS AGREEMENTS
AGREEMENTS WITH BOSTON UNIVERSITY
F-21
<PAGE> 62
On December 1, 1996, the Company entered into a Sublease Agreement and,
effective January 1, 1997, an Agreement for Services with Boston University.
These two agreements provided for the Company's use of approximately 7,700
square feet of space for laboratories and for its antigen-free technology at a
total annual payment of $275,000. The agreements had an initial term of three
years. In connection with this lease agreement, the Company may, at its option,
pay a portion of the annual lease obligation with Class A Common Stock plus a
warrant to purchase shares of Class A Common Stock. The number of shares are
computed using the average market price of the Company's Class A Common Stock
during the ten days prior to issuance. The warrant shares are to be exercisable
at a price equal to the closing price of the underlying Class A Common Stock on
the date the warrant is issued and for a period of four years from the date of
issuance. During 1997, the Company issued 48,117 shares of Class A Common Stock
and warrants to purchase 48,117 shares of Class A Common Stock with the exercise
price ranging from $2.13 to $4.75. During 1998, the Company issued 129,847
shares of Class A Common Stock and warrants to purchase 129,847 shares of Class
A Common Stock with the exercise price ranging from $.63 to $2.19. During 1999,
the Company issued 29,850 shares of Class A Common Stock and warrants to
purchase 29,850 shares of Class A Common Stock with the exercise price of $1.28.
The fair values of the warrants were calculated using an option-pricing model at
the date of issue and recorded a charge to operations of $32,000 in 1999,
$99,000 in 1998 and $93,000 in 1997. In the fourth quarter of 1998, the Company
implemented a consolidation of its research and development facilities. In 1998,
the Company recorded a $252,000 reserve for consolidating facilities which
included severance costs, lease termination, and the write-down of leasehold
improvements. The Boston facilities were closed in June 1999 and consolidated at
the Stellar facilities in Columbia, Maryland.
UNIVERSITY OF NOTRE DAME AGREEMENT
On December 1, 1983, the Company entered into a lease agreement with the
University of Notre Dame ("Notre Dame Agreement") which was amended and extended
until November 30, 1993, at which time it was terminated. On December 1, 1993,
the Company entered into a lease with Notre Dame ("Notre Dame Lease") for
substantially the same premises occupied by the Company under the Notre Dame
Agreement for a term ending August 31, 1995. Notre Dame extended the rental of a
portion of the space through August 31, 1996. In February 1996, the Company
entered into a lease in South Bend, Indiana for approximately 5,200 square feet
with an annual base rent of $52,200. This lease commenced on April 1, 1996 for
an initial five-year term with three one-year renewal options. In September
1996, the Company entered into a second lease for a three year term in South
Bend, Indiana for approximately 3,000 square feet with an annual base rent of
$30,400. In 1997, the Company moved its research and development activities from
South Bend, Indiana to Boston, Massachusetts. The Company closed both facilities
and has terminated both leases.
Under the Notre Dame Agreement, the Company was required to pay Notre Dame
for the direct and indirect payroll cost of substantially all of the Company's
research and development personnel, purchases of laboratory supplies, items of
equipment or other costs associated with the research projects.
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<PAGE> 63
Notre Dame has granted the Company all rights, title and interest in and to
any inventions, patents and patent applications for research projects funded by
the Company. Inventors of any processes or technology which receive Company
support have assigned his or her interest in the product, patent or patent
applications to the Company. The Company did not incur costs under the Notre
Dame Agreement during the three years ended December 31, 1999, and incurred
$6,150,000 for the period from inception (September 1, 1983) through December
31, 1996.
The Company has agreed to pay Notre Dame a royalty of 5% of the net income
the Company achieves from sales of products resulting from Company-sponsored
research activities at Notre Dame. Royalty payments shall continue for a
ten-year period from the date of the first commercial sale of a product,
regardless of the continuation of the Notre Dame Agreement.
EMPLOYMENT AGREEMENTS
The President and Chief Executive Officer and the Executive Vice-President
are parties to employment agreements with the Company ending November 15, 2001
and September 30, 2001, respectively. The aggregate annual minimum compensation
under these agreements as of December 31, 1999 was approximately $350,000. Those
officers also are parties to confidentiality agreements with the Company
requiring them to maintain certain information in confidence during and
subsequent to their employment with the Company.
SCIENTIFIC ADVISORY COMMITTEE AGREEMENTS
The Company has entered into advisory board agreements with certain
research scientists with respect to specific projects in which the Company has
an interest. The payments to the advisors for informal meetings and other
consultations as a group were approximately $65,000, $115,000 and $87,000, for
the three years ended December 31, 1999, 1998 and 1997, respectively. Generally,
members of the Company's Scientific Advisory Committee are employed by or have
consulting agreements with third parties, the businesses of which may conflict
or compete with the Company and any inventions discovered by such individuals
will not become the property of the Company.
As part of its development stage activities, the Company enters into
various agreements that provide for the expenditure of funds for research and
development activities and typically provide for the payment of royalties
(between 2% to 8% of net sales) by the Company if any products are successfully
developed and marketed as a result of the work being performed under the
agreement. The following is a summary of significant agreements the Company has
entered into:
LICENSE AGREEMENTS
On January 24, 1992, the Company entered into an exclusive, 15 year license
agreement with Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"), a Japanese
pharmaceutical company. Under this agreement, Yamanouchi may manufacture, use or
market diagnostic assays that contain the Company's monoclonal antibody, 45-J,
in Japan and Taiwan. Yamanouchi paid a non-refundable, initial sign-up payment
to the Company of $900,000 (net of Japanese taxes). The agreement provides that
Yamanouchi is to pay the Company a fixed percentage over the Company's
F-23
<PAGE> 64
manufacturing costs of the 45-J antibody supplied to Yamanouchi. On an ongoing
basis, Yamanouchi is to pay the Company royalties at the rate of 10% of all net
sales of diagnostic assays sold by Yamanouchi or its affiliates during each
calendar year of the agreement term. Additionally, Yamanouchi is to pay the
Company 50% of any initial fees, royalties or other consideration received with
respect to any sublicense granted by Yamanouchi. To date, Yamanouchi has not
made any sales.
On December 10, 1992, the Company entered into an agreement (as amended)
with University College Dublin, Ireland granting the Company an exclusive
license for drugs/compounds to halt the onset and/or progression of
neurodegenerative diseases, in general, and Alzheimer's Disease, in particular.
The agreement's term is the duration of any patents that may be granted to the
university with a minimum of 10 years. Pursuant to the agreement, the Company is
to pay the university a royalty of 5% of net income relating to product sales.
The Company expensed $18,000 in 1999, $5,000 in 1998 and $12,000 in 1997 for
certain research expenses, supplies and equipment under this agreement.
On August 10, 1993, the Company entered into a five-year collaboration
agreement with the Free University of Berlin to develop therapeutic compounds.
The Company also acquired a series of anticonvulsant compounds. Pursuant to the
agreement, the Company is to pay a royalty of 5% of the net product sales. The
agreement lasts the life of the patent or a minimum of 10 years. The Company
expensed $75,000 in 1999, $103,000 in 1998 and $116,000 in 1997 for research
expenses and supplies under this agreement.
In October 1995, ABS entered into a license and collaboration agreement
with F. Hoffmann-La Roche, Ltd. ("Hoffmann-La Roche") for the co-development and
marketing of the Company's TpP test for the detection of active thrombosis
(blood clot formation). The agreement grants Hoffmann-La Roche a worldwide
license to market the TpP test in a latex based particle agglutination format.
Under the agreement, the Company received a $60,000 non-refundable development
payment, to adapt the TpP test in the latex based particle agglutination format
to Hoffmann-La Roche's automated diagnostic systems. The Company is also to
receive milestone payments upon achievement of certain commercialization goals.
The TpP test is to be manufactured by the Company for use on Hoffmann-La Roche's
instruments. ABS is to receive a percentage of Hoffmann-La Roche's net selling
price for the Company's manufacturing of the TpP test plus a 5% royalty on net
sales made by Hoffmann-La Roche. Under the agreement, the TpP test is also to be
sold by ABS and Hoffmann-La Roche to other diagnostic companies using similar
particle agglutination technology. On these sales, gross profit is to be shared
equally between the Company and Hoffmann-La Roche. To date, ABS has not received
any milestone or royalty payments.
In December 1995, ABS entered into a license agreement with Abbott
Laboratories ("Abbott") for the marketing of the Company's TpP assay. The
license agreement grants Abbott a worldwide license to market the TpP test for
Abbott's immunoassay formats. The Company received a $100,000 non-refundable
up-front payment and is to receive milestone payments upon achievement of
certain development and commercialization goals. The Company is to receive a 5%
royalty on net sales made by Abbott. In addition, the reagent for the TpP test
is to be manufactured by the Company for use by Abbott. To date, ABS has not
received any milestone or royalty payments.
F-24
<PAGE> 65
11. SUBSEQUENT EVENTS
On January 27, 2000, the Company entered into an Exclusive License
Agreement with Abbott under which the Company granted to Abbott an exclusive
worldwide license to its ABS-103 compound, related technology and patent rights.
The Exclusive License Agreement gives Abbott the exclusive right to develop and
market the compound, which presently is in the pre-clinical stage. In
consideration for the license grant and in addition to customary royalties on
sales, Abbott paid the Company an initial license fee of $500,000 and agreed to
pay additional milestone payments aggregating up to $17 million depending upon
successfully reaching development milestones, generally by indication. In
connection with the entering into of the Exclusive License Agreement, the
Company and Abbott also entered into a Stock Purchase Agreement dated January
27, 2000 pursuant to which Abbott purchased 2,782,931 shares (the "Abbott
Shares") of the Company's Class A Common Stock for $1,500,000.
The Company also entered into a Registration Rights Agreement with Abbott
pursuant to which, among other things, the Company agreed to register the Abbott
Shares under the Securities Act of 1933, as amended upon Abbott's request at any
time after the first anniversary of the sale and to include the Abbott Shares in
any other registration of the Company's securities under the Securities Act
after that date. All expenses of registration of the Abbott Shares, other than
underwriting discounts, selling commissions and fees and disbursements of
counsel for Abbott, are to be borne by the Company.
On December 31, 1999 the Company and Biotechnology Value Fund, L.P. ("BVF")
signed a letter agreement, subject to negotiation of definitive agreements,
authorization of preferred stock and certain other matters, for BVF to invest
between $2 and 3 million for the purchase of between 4,000 and 6,000 shares of
Series A Convertible Preferred Stock (the "Preferred Stock") and related
Warrants.
When the Company and BVF began negotiating the definitive agreements for
the sale transaction in January 2000, in order to induce BVF to purchase the
full $3 million, at the suggestion of BVF, the Company's Chairman Mr. Roach
agreed that rather than demand repayment of his demand notes, he would convert
$500,000 of the approximately $776,000 plus accrued interest owed to him into an
additional investment in the Company on terms identical to the terms previously
negotiated with BVF and that the balance of the amount owed him (approximately
$276,000 of principal) could be repaid at the rate of $100,000 of principal and
interest per month until repaid in full. Accordingly, $500,000 of the amount
owed Mr. Roach was converted into 1,000 shares of Preferred Stock and 1,000,000
Warrants.
The Company entered into a Securities Purchase Agreement dated as of
February 3, 2000 with BVF and Mr. Roach relating to the issuance of the 7,000
shares of Preferred Stock and Warrants for 7,000,000 shares of Class A Common
Stock. On February 7, 2000, BVF loaned $3,000,000 to the Company, equaling the
purchase price for 6,000 shares of Preferred Stock and 6,000,000 Warrants. On
March 3, 2000, after receiving stockholder consent to the proposed sale, the
Company repaid BVF's loan and $500,000 of the Company's indebtedness to Mr.
Roach by issuing
F-25
<PAGE> 66
6,000 shares of Preferred Stock and 6,000,000 Warrants to BVF and 1,000 shares
of Preferred Stock and 1,000,000 Warrants to Mr. Roach.
The Shares of Preferred Stock: (i) have the right to participate with
dividends declared on the Common Stock, if, as and when declared, on an
as-converted basis; (ii) contain customary anti-dilution adjustments for
mechanical adjustments in the event of stock splits and similar transactions;
(iii) contain restrictions on subsequent issuances of other preferred stock
ranking equal to or superior to the Preferred Stock without the consent of the
holders of a majority of such Preferred Stock; (iv) have a liquidation
preference equal to the original issue price of the Preferred Stock, plus any
accrued and unpaid dividends; (v) will not be entitled to vote except as a
separate class when its rights are affected; and (vi) will be convertible at any
time after the original issue date at the option of the holder. Each share of
Preferred Stock initially will be convertible into 1,000 shares of Class A
Common Stock, or a conversion price of $.50 per share of Class A Common Stock.
Under the terms of the Securities Purchase Agreement, the Company also
entered into a Registration Agreement under which it agreed to file a
registration statement within 60 days after closing, registering the Class A
Common Stock issuable upon conversion of the Preferred Stock or exercise of the
Warrants and to use its best efforts to cause that registration to become
effective within 120 days after closing. The Company will bear the expenses of
such registration.
The following table summarizes the pro forma financial impact of the previously
described subsequent events upon the balance sheet of the company as of December
31, 1999:
<TABLE>
<CAPTION>
Condensed Balance Sheet Pro Forma Pro Forma
(in Thousands) 12/31/99 Adjustments 12/31/99
----------------------- -------- ----------- ---------
<S> <C> <C> <C>
Total current assets $ 891 $5,000 $5,891
Total assets 3,938 5,000 8,938
Total current liabilities 2,327 (500) 1,827
Total stockholders' equity 1,578 5,500 7,078
Total liabilities and stockholders' Equity 3,938 5,000 8,938
</TABLE>
Adjustments include:
1) Receipt of a $500,000 upfront license fee plus $1,500,000 for issuance
Class A Common Stock under agreements with Abbott.
2) Receipt of $3,000,000 investment in Preferred Stock and warrants by BVF.
3) Conversion of $500,000 of Notes payable to Mr. Roach into Preferred Stock
and warrants.
12. COMMITMENTS
ABS leases 6,000 square feet of office space in New York under a lease
expiring July 2000 (with an annual base rent of $39,000), which it intends to
renew. ABS' subsidiary, Stellar, has a lease covering 16,000 square feet in
Maryland, with an annual base rent of $136,000 and a term ending March 31, 2001.
F-26
<PAGE> 67
Commission File No. 0-19041
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
AMERICAN BIOGENETIC SCIENCES, INC.
<PAGE> 68
Exhibit No. Document
- ----------- --------
3.1* Restated Certificate of Incorporation of ABS, as filed with the
Secretary of State of Delaware on July 30, 1996 and amended
through March 3, 2000.
3.2 Amended and Restated By-Laws of ABS. Incorporated herein by
reference to Exhibit 4.02 to ABS' Registration Statement on Form
S-8, File No. 333-09473.
4.1 Form of Purchase and Investment Agreement executed by ABS and
several investors on October 27, 1998. Incorporated herein by
reference to Exhibit 99 to ABS' Registration Statement on Form
S-3, file number 333-69735, filed with the Commission on December
24, 1998.
4.2 Form of Warrant issued to several individuals under ABS'
Financial Advisory Agreement with M.H. Meyerson & Co., Inc.,
dated as of August 13, 1998 and schedule of holders thereof.
Incorporated herein by reference to Exhibit 4.1(e) to ABS' Form
10-K for the fiscal year ended December 31, 1998, File No.
0-19041.
4.3(a) Stock Purchase Agreement, dated as of January 27, 2000, between
ABS and Abbott Laboratories. Incorporated herein by reference to
Exhibit 99.1 to ABS' Current Report on Form 8-K dated January 27,
2000 (date of earliest event reported), File No. 0-19041.
4.3(b) Registration Rights Agreement, dated as of January 27, 2000,
between ABS and Abbott Laboratories. Incorporated herein by
reference to Exhibit 4.1 to ABS' Current Report on Form 8-K dated
January 27, 2000 (date of earliest event reported), File No.
0-19041.
4.4(a)* Securities Purchase Agreement, dated as of February 3, 2000,
among ABS and Biotechnology Value Fund, L.P., Biotechnology Value
Fund II, L.P., Investment 10 L.L.C. and Alfred J. Roach.
4.4(b)* Registration Agreement, dated as of March 3, 2000, among ABS and
Biotechnology Value Fund, L.P., Biotechnology Value Fund II,
L.P., Investment 10 L.L.C. and Alfred J. Roach.
10.1(a)+ Employment Agreement dated October 1, 1996 between ABS and Ellena
M. Byrne. Incorporated herein by reference to Exhibit 10.1(b) to
ABS' Form 10-K/A, dated April 30, 1997, File No. 0-19041.
10.1(b)+ Employment Agreement dated November 2, 1998 between ABS and Mr.
John S. North. Incorporated herein by reference to Exhibit
10.1(b) to ABS' Form 10-K for the fiscal year ended December 31,
1998, File No. 0-19041.
<PAGE> 69
Exhibit No. Document
- ----------- --------
10.2(a)+ ABS' Stock Option Plan, as amended. Incorporated herein by
reference to Exhibit 28.1 to ABS' Registration Statement on Form
S-8, File No. 33-51240.
10.2(b)+ ABS' 1993 Non-Employee Director Stock Option Plan. Incorporated
herein by reference to Exhibit 99.01 to ABS' Registration
Statement on Form S-8, File No. 33-65416.
10.2(c)*+ ABS' 1996 Stock Option Plan, as amended.
10.3 Exclusive License Agreement dated January 24, 1992 between ABS
and Yamanouchi Pharmaceutical Co., Ltd. Incorporated herein by
reference to Exhibit 10.29 to ABS' Current Report on Form 8-K
dated January 24, 1992, File No. 0- 19041.
10.4 Warrant dated October 25, 1995 issued to Swartz Investments, Inc.
Incorporated herein by reference to Exhibit 10.13 to ABS' Current
Report on Form 8-K dated October 12, 1995, File No. 0-19041.
10.5 Exclusive License Agreement, dated as of January 27, 2000,
between ABS and Abbott Laboratories. Incorporated herein by
reference to Exhibit 10.1 to ABS' Current Report on Form 8-K
dated January 27, 2000, File No. 0-19041.
21 List of Subsidiaries. Incorporated herein by reference to Exhibit
21 to ABS' Form 10-K for the fiscal year ended December 31, 1998,
File No. 0-19041.
23* Consent of Independent Public Accountants.
27* Financial Data Schedule.
*Filed herewith. All other exhibits are incorporated by reference to the
document following the description thereof.
+Management contract or compensatory plan.
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN BIOGENETIC SCIENCES, INC.
It is hereby certified that:
1. The present name of the Corporation (hereinafter called the
"Corporation") is American Biogenetic Sciences, Inc., which is the name under
which the Corporation was originally incorporated. The date of filing the
original Certificate of Incorporation of the Corporation with the Secretary of
State of the State of Delaware is September 1, 1983.
2. The provisions of the Certificate of Incorporation of the Corporation,
as heretofore amended and/or supplemented, are hereby restated and integrated
into the single instrument without further amendment and without any discrepancy
between the provisions of the Certificate of Incorporation as heretofore amended
and supplemented and the provisions of the said single instrument hereinafter
set forth.
3. The Board of Directors of the Corporation has duly adopted this
Restated Certificate of Incorporation pursuant to the provisions of Section 245
of the General Corporation Law of the State of Delaware in the form set forth as
follows:
<PAGE> 2
"RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN BIOGENETIC SCIENCES. INC.
*****
1. The name of the Corporation is
AMERICAN BIOGENETIC SCIENCES, INC.
2. The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The aggregate number of shares which the Corporation shall have
authority to issue is 53,000,000, of which (i) 50,000,000 shares, having a par
value of $.001 per share, shall be Class A Common Stock, and (ii) 3,000,000
shares, having a par value of $.00l per share, shall be Class B Common Stock
The following sets forth the relative rights, powers, preferences and
limitations of the shares of each class of stock.
(a) The holders of Class A Common Stock and the holders of Class B
Common Stock shall be entitled to the same rights and privileges, and shall
share equally, share and share alike, in the distribution of any funds which the
Board of Directors may declare or set aside or pay out as
-2-
<PAGE> 3
dividends, and shall share equally, share and share alike, in the distribution
of any and all dividends and in the distribution of assets in the event of
liquidation, whether voluntary or involuntary, and after the payment of all
debts of the Corporation, and shall be alike in all other respects, except that
each holder of Class B Common Stock shall be entitled to ten votes for each
share of Class B Common Stock held by such holder, and each holder of Class A
Common Stock shall be entitled to one vote for each share of Class A Common
Stock held by such holder. The holders of the Class A Common Stock and Class B
Common Stock shall vote as one class.
(b) Each share of Class B Common Stock may be converted into one
share of Class A Common Stock at the option of the bolder thereof.
(c) No person holding shares of Class B Common Stock of record
(hereinafter called a "Class B Holder") may transfer, and the Corporation shall
not register the transfer of, such shares of Class B Common Stock, as Class B
Common Stock, whether by sale, assignment, gift, bequest, appointment or
otherwise, except to a Permitted Transferee, and upon any attempted transfer of
shares not permitted hereunder said shares of Class B Common Stock shall be
converted into Class A Common Stock. A Permitted Transferee shall mean, with
respect to each person from time to time shown as the record holder of shares of
Class B Common Stock:
(i) a trust principally for the benefit of the Class B
Stockholder; and
(ii) a partnership or corporation a majority of the beneficial
ownership of which is owned by the Class B Stockholder.
(d) Notwithstanding anything to the contrary set forth herein, any
Class B Holder may pledge such Holder's shares of Class B Common Stock to a
pledgee pursuant to a bona fide pledge of such shares as collateral security for
indebtedness due to the pledgee, provided that such shares shall
-3-
<PAGE> 4
not be transferred to or registered in the name of the pledgee and shall remain
subject to the provisions of this Article 4. In the event of foreclosure or
other similar action by the pledgee, such pledged shares of Class B Common Stock
may only be converted into shares of Class A Common Stock.
(e) At any time when the number of outstanding shares of Class B
Common Stock as reflected on the stock transfer books of the Corporation falls
below 5% of the aggregate number of the issued and outstanding shares of the
Class A Common Stock and Class B Common Stock of the Corporation, or the Board
of Directors and the holders of a majority of the outstanding shares of Class B
Common Stock approve the conversion of all of the Class B Common Stock into
Class A Common Stock, then, immediately upon the occurrence of either such
event, the outstanding shares of Class B Common Stock shall be converted into
shares of Class A Common Stock. In the event of such a conversion, certificates
formerly representing outstanding shares of Class B Common Stock shall thereupon
and thereafter be deemed to represent the like number of shares of Class A
Common Stock.
(f) Shares of Class B Common Stock shall be registered in the names
of the beneficial owners thereof and not in "street" or "nominee" name. For this
purpose, a "beneficial owner" of any shares of Class B Common Stock shall mean a
person who, or an entity which, possess the power, either singly or jointly, to
direct the voting or disposition of such shares. The Corporation shall note on
the certificates for shares of Class B Common Stock the restrictions on transfer
and registration of transfer imposed by this Article 4.
(g) The Corporation shall, at all times, reserve and keep available
out of authorized but unissued shares of Class A Common Stock, solely for the
purpose of effecting the conversion of Class B Common Stock, such number of
shares of Class A Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Class B Common Stock.
-4-
<PAGE> 5
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the by-laws of the Corporation.
7. Elections of Directors need not be by written ballot unless the by-laws
of the Corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the by-laws of the Corporation.
8. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
9. No Director of the Corporation shall be liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability (1) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the Delaware General Corporation Law, or (4) for
any transaction from which the Director derived an improper personal benefit."
Signed on July 29, 1996
/s/ Alfred J. Roach
---------------------------------------------------
Alfred J. Roach, Chairman of the Board of Directors
-5-
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN BIOGENETIC SCIENCES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
American Biogenetic Sciences, Inc.
2. The Certificate of Incorporation of the Corporation if hereby amended
by striking out Article 4. thereof and by substituting in lieu of said Article
the following new Article:
"4. The aggregate number of shares which the Corporation shall have
authority to issue is 103,000,000, of which (i) 100,000,000 shares, having
a par value of $.001 per share, shall be Class A Common Stock, and (ii)
3,000,000 shares, having a par value of $.001 per share, shall be Class B
Common Stock.
The following sets forth the relative rights, powers,
preferences and limitations of the shares of each class of stock.
(a) The holders of Class A Common Stock and the holders of
Class B Common Stock shall be entitled to the same rights and privileges,
and shall share equally, share and share alike, in the distribution of any
funds which the Board of Directors may declare or set aside or pay out as
dividends, and shall share equally, share and share alike, in the
distribution of any and all dividends and in the distribution of assets in
the event of liquidation, whether voluntary or involuntary, and after the
payment of all debts of the Corporation, and shall be alike in all other
respects, except that each holder of Class B Common Stock shall be
entitled to ten votes for each share of Class B Common Stock held by such
holder, and each holder of Class A Common Stock shall be entitled to one
vote for each share of Class A Common Stock held by such holder. The
holders of the Class A Common Stock and Class B Common Stock shall vote as
one class.
(b) Each share of Class B Common Stock may be converted into
one share of Class A Common Stock at the option of the holder thereof.
(c) No person holding shares of Class B Common Stock of record
(hereinafter called a "Class B Holder") may transfer, and the Corporation
shall not register the transfer of, such shares of Class B Common Stock,
as Class B Common Stock, whether by sale, assignment, gift, bequest,
appointment or otherwise, except to a Permitted Transferee, and upon any
attempted transfer of shares not permitted
<PAGE> 7
hereunder said shares of Class B Common Stock shall be converted into
Class A Common Stock. A Permitted Transferee shall mean, with respect to
each person from time to time shown as the record holder of shares of
Class B Common Stock:
(i) a trust principally for the benefit of the Class B
Stockholder; and
(ii) a partnership or corporation a majority of the
beneficial ownership of which is owned by the Class B Stockholder.
(d) Notwithstanding anything to the contrary set forth herein,
any Class B Holder may pledge such Holder's shares of Class B Common Stock
to a pledge pursuant to a bona fide pledge of such shares as collateral
security for indebtedness due to the pledge, provided that such shares
shall not be transferred to or registered in the name of the pledge and
shall remain subject to the provisions of this Article 4. In the event of
foreclosure or other similar action by the pledgee, such pledged shares of
Class B Common Stock may only be converted into shares of Class A Common
Stock.
(e) At any time when the number of outstanding shares of Class
B Common Stock as reflected on the stock transfer books of the Corporation
falls below 5% of the aggregate number of the issued and outstanding
shares of the Class A Common Stock and Class B Common Stock of the
Corporation, or the Board of Directors and the holders of a majority of
the outstanding shares of Class B Common Stock approve the conversion of
all of the Class B Common Stock into Class A Common Stock, then,
immediately upon the occurrence of either such event, the outstanding
shares of Class B Common Stock shall be converted into shares of Class A
Common Stock. In the event of such a conversion, certificates formerly
representing outstanding shares of Class B Common Stock shall thereupon
and thereafter be deemed to represent the like number of shares of Class A
Common Stock.
(f) Shares of Class B Common Stock shall be registered in the
names of the beneficial owners thereof and not in "street" or "nominee"
name. For this purpose, a "beneficial owner" of any shares of Class B
Common Stock shall mean a person who, or an entity which, possess the
power, either singly or jointly, to direct the voting or disposition of
such shares. The Corporation shall note on the certificates for shares of
Class B Common Stock the restrictions on transfer and registration of
transfer imposed by this Article 4.
(g) The Corporation shall, at all times, reserve and keep
available out of authorized but unissued shares of Class A Common Stock,
solely for the purpose of effecting the conversion of Class B Common
Stock, such number of shares of Class A Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of
Class B Common Stock."
-2-
<PAGE> 8
3. The amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
Signed on June 15, 1999
/s/ John S. North
------------------------
John S. North, President
-3-
<PAGE> 9
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:00 AM 03/03/2000
001108829 - 2015219
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN BIOGENETIC SCIENCES, INC.
AMERICAN BIOGENETIC SCIENCES, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), pursuant to Section
242 of the Delaware General Corporation Law, hereby certifies as follows:
1. The Board of Directors of the Corporation by unanimous written consent
dated as of January 20, 2000, duly adopted the following resolutions in
accordance with the provisions of Sections 141 and 242 of the Delaware General
Corporation Law;
RESOLVED: The first two paragraphs of Article 4 of the Company's
Restated Certificate of Incorporation, as amended, are to be
deleted in their entirety and replaced with the following:
"4. The aggregate number of shares which the Corporation shall
have authority to issue is 113,000,000, of which (i)
100,000,000 shares, having a par value of $.001 per share,
shall be Class A Common Stock (ii) 3,000,000 shares, having a
par value of $.001 per share, shall be Class B Common Stock
and (iii) 10,000,000 shares, having a par value of $.001 per
share, shall be Preferred Stock.
PART A - COMMON STOCK
---------------------
The relative rights, powers, preferences and limitations
of the Corporation's classes of Common Stock are as follows:"
RESOLVED: Article 4 of the Company's Restated Certificate of
Incorporation, as amended. is further amended by adding a new
Part B immediately after the present paragraph 14(g) thereof:
PART B - PREFERRED STOCK
------------------------
SECTION 1. GENERAL. The Preferred Stock may consist of
one or more series. The Board of Directors may, from time to
time, establish and designate the different series and the
variations in the relative rights and preferences as between
the different series provided Part B, Section 2 of this
Article 4, but in all other respects all shares of the
Preferred Stock shall be identical. In the event that at any
time the Board of Directors
<PAGE> 10
shall have established and designated one or more series of
Preferred Stock consisting of a number of shares less than all
of the authorized number of shares of Preferred Stock, the
remaining authorized shares of Preferred Stock shall be deemed
to be shares of undesignated series of Preferred Stock until
designated by the Board of Directors as being a part of a
series previously established or a new series then being
established by the Board of Directors.
SECTION 2. ESTABLISHMENT OF A SERIES. Subject to the
provisions of this Article 4, the Board of Directors is
authorised to establish one or more series of Preferred Stock
and, to the extent now or hereafter permitted by the laws of
the State of Delaware, to fix and determine the voting powers,
designations preferences, and relative, participating,
optional, or other special rights and qualifications,
limitations or restrictions of each series, including but not
limited to:
(a) the number of shares to constitute such series and
the distinctive designation of such series;
(b) the dividend rate on the shares of such series and
preferences, if any, and the special and relative rights of
such shares of such series as to dividends;
(c) whether or not the shares of such series shall be
redeemable, and, if redeemable, the price, terms and manner of
redemption;
(d) the preferences, if any, and the special and
relative rights of the shares of such series upon liquidation
of the corporation;
(e) whether or not the shares of such series shall be
subject to the operation of a sinking or purchase fund and, if
so, the terms and provisions of such fund;
(f) whether or not the shares of such series shall be
convertible into shares of any other class or of any other
series of the same or any other class of stock of the
corporation and, if so, the conversion price or ratio and
other conversion rights;
(g) the conditions under which the shares of such series
shall have separate voting rights or no voting rights; and
(h) such other designations, preferences and relative,
participating, optional or other special rights and
qualifications, limitations
<PAGE> 11
or restrictions of such series to the full extant now and
hereafter permitted by the laws of the State of Delaware.
Notwithstanding the fixing of the number of shares
constituting a particular series, the Board of Directors may
at any time authorize the issuance of additional shares of the
same series.
SECTION 3. DIVIDENDS. Holders of Preferred Stock shall
be entitled to receive, when and as declared by the Board of
Directors, but only out of funds legally available for the
payment of dividends, cash dividends at the rates fixed by the
Board of Directors for the respective series, payable on such
dates in each year as the Board of Directors shall fix for the
respective series as provided in Part B, Section 2
(hereinafter referred to as "dividend dates"). Until all
accrued dividends on each series of Preferred Stock shall have
been paid through the last preceding dividend date of each
such series, no dividend or distribution shall be made to
holders of Common Stock other than a dividend payable in
Common Stock of the corporation. Dividends on shares of any
cumulative series of Preferred Stock shall accumulate from and
after the day on which such shares are issued, but arrearages
in the payment thereof shall not bear interest. Nothing herein
contained shall be deemed to limit the right of the
corporation to purchase or otherwise acquire at any time any
shares of its capital stock.
For purposes of this Article 4, the amount of dividends
"accrued" on any shares of any cumulative series of Preferred
Stock us at any dividend date shall be deemed to be the amount
of any unpaid dividends accumulated thereon to and including
such dividend date, whether or not earned or declared. The
amount of dividends "accrued" on any noncumulative series of
Preferred Stock shall mean only those dividends declared by
the Board of Directors, unless otherwise specified for such
series by the Board of Directors pursuant to Part B, Section
2.
SECTION 4. LIQUIDATION. Upon the voluntary or
involuntary liquidation of the corporation, before any payment
or distribution of the assets of the corporation shall be made
to or set apart for any other class of stock, the holders of
Preferred Stock shall be entitled to payment of the amount of
the preference payable upon such liquidation of the
corporation fixed by the Board of Directors for the respective
series as provided in Part B, Section 2. If, upon any such
liquidation, the assets of the corporation shall be
insufficient to pay in full to the holders of the Preferred
Stock the preferential amount aforesaid, then such assets, or
the proceeds thereof, shall be distributed among the holders
at each series of Preferred Stock ratably in accordance with
the sums which would be payable on such distribution of all
sums payable were discharged in full. The voluntary
<PAGE> 12
sale, conveyance, exchange or transfer of all or substantially
all of the property and assets of the corporation, the merger
or consolidation of the corporation into or with any other
corporation, or the merger of any other corporation into it,
shall not be deemed to be a liquidation of the corporation for
the purpose of this Section 4.
SECTION 5. RETIREMENT. Any shares of Preferred Stock
which shall at any time have been redeemed, or which shall at
any time have been surrendered for conversion or exchange or
for cancellation pursuant to any sinking or purchase fund
provisions with respect to any series of Preferred Stock,
shall be retired and shall thereafter have the status of
authorized and unissued shares of Preferred Stock undesignated
as to series.
SECTION 6. VOTING RIGHTS. The Common Stock shall have
exclusive voting power except as required by law and except to
the extent the Board of Directors shall, at the time any
series of Preferred Stock is established, determine that the
shares of such series shall vote (a) together as a single
class with shares of Common Stock and/or with shares of
Preferred Stock (or one or more other series thereof) on all
or certain matters presumed to the stockholders and/or upon
the occurrence of any specified event or condition, and/or (b)
exclusively on certain matters, or, upon the occurrence of any
specified event or condition, on all or certain matters. The
Board of Directors, in establishing a series of Preferred
Stock and fixing the voting rights thereof, may determine that
the voting power of each share of such series may be greater
or less than the voting power of each share of the Common
Stock or of other series of Preferred Stock notwithstanding
that the shares of such series of Preferred Stock may vote as
a single class with the shares of other series of Preferred
Stock and/or with the shares of Common Stock
2. The foregoing amendment to the Certificate of Incorporation was duly
adopted by the stockholders by written consent given in accordance with Section
228 of the Delaware General Corporation Law in accordance with the provision of
Section 242 of the General Corporation Law of Delaware as of March 2, 2000 and
written notice of the adoption of this amendment to the Restated Certificate of
Incorporation has been given as provided in Section 228 of the Delaware General
Corporation Law to every stockholder entitled so such notice.
<PAGE> 13
IN WITNESS WHEREOF, American Biogenetic Sciences, Inc. has caused this
Certificate of Amendment of its Restated Certificate of Incorporation to be
signed by Timothy J. Roach, its Secretary, as of this 2nd day of March, 2000.
AMERICAN BIOGENETIC SCIENCES, INC.
By: /s/ Timothy J. Roach
---------------------------------------
Timothy J. Roach, Secretary
<PAGE> 14
CERTIFICATE OF DESIGNATION, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS OF THE SERIES OF
THE PREFERRED STOCK
OF
AMERICAN BIOGENETIC SCIENCES, INC.
TO BE DESIGNATED
SERIES A CONVERTIBLE PREFERRED STOCK
American Biogenetic Sciences, Inc., a Delaware corporation (the
"Corporation"), pursuant to authority conferred on the Board of Directors of the
Corporation by the Restated Certificate of Incorporation and in accordance with
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, certifies that the Board of Directors of the Corporation, by written
consent dated January 20, 2000, duly adopted the following resolution providing
for the establishment and issuance of a series of Preferred Stock to be
designated "Series A Convertible Preferred Stock" and to consist of 7,000
shares, as follows:
RESOLVED, that, pursuant to the authority expressly granted and vested in
the Board of Directors of this Corporation in accordance with the provisions of
its Restated Certificate of Incorporation, of the 10,000,000 shares of Preferred
Stock authorized under the Restated Certificate of Incorporation, 7,000 shares
are hereby designated as Series A Convertible Preferred Stock (the "Series A
Preferred Stock"); the Board of Directors be and hereby is authorized to issue
such shares of Series A Preferred stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine; and
subject to the limitations provided by law and by the Restated Certificate of
Incorporation, the powers, designations, preferences and relative,
participating, optional or other special rights of, and the qualifications,
limitations or restrictions upon, the Series A Preferred Stock shall be as
follows:
SECTION 1. DEFINITIONS. For the purposes hereof, the following definitions
shall apply:
"Average Market Price" means the arithmetic average (rounded to the
nearest cent) of the Market Price per share of the Class A Common Stock for the
twenty (20) consecutive trading days ending on the second trading day prior to
the date of determination.
"Board of Directors" means the Board of Directors of this corporation.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:05 AM 03/03/2000
001108832 - 2016219
<PAGE> 15
"Common Stock" means the Class A Common Stock or the Class B Common Stock
of the corporation.
"Conversion Price" means the amount set forth in Section 4(a), as adjusted
pursuant to Section 5.
"Convertible Securities" means any evidence of indebtedness, stock (other
than Common Stock or the Series A Preferred Stock) or other securities
convertible into or exchangeable for Common Stock.
"Junior Shares" means all shares of Common Stock of this corporation or
any other stock ranking junior to the Series A Preferred Stock in dividends or
liquidation rights.
"Market Price" means on any particular date (a) if the Common Stock is
then principally traded on any national securities exchange or the Nasdaq
National Market, the closing sale price per share of the Common Stock on such
date on the principal market on which the Common Stock is then traded, or if
there is no such sale price on such date then the closing sale price on the date
nearest preceding such date, or (b) if the Common Stock is not then listed on a
national securities exchange or the Nasdaq National Market, the average of the
bid and asked price for a share of Common Stock on the Nasdaq SmallCap Market or
in the over-the-counter market as reported by the Nasdaq Bulletin Board or
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions or reporting prices), or (c) if the Common Stock is
not publicly traded, the fair market value of a share of Common Stock as
determined by an Appraiser (which shall conduct a good faith appraisal) selected
by the Holders of a majority in interest of the shares of the Series A Preferred
Stock; provided, however, that the Company, after receipt of the determination
by such Appraiser, shall have the right to select an additional Appraiser (which
shall conduct a good faith appraiser), in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser.
"Options" means rights, options or warrants to subscribe for, purchase or
otherwise acquire either Common Stock or Convertible Securities.
"Original Issue Date" means the date on which a share of Series A
Preferred Stock was first issued.
"Subsidiary" means any corporation at least 50% of whose outstanding
voting shares shall at the time be owned directly or indirectly by this
corporation or by one or more subsidiaries, or by this corporation and one or
more subsidiaries.
SECTION 2. DIVIDEND RIGHTS. In each fiscal year of the corporation, the
holders of shares of Series A Preferred Stock shall be entitled to receive,
before any cash dividends shall be declared and paid upon or set aside for the
Junior Shares in such fiscal year, when and as declared by the Board of
Directors of the corporation out of the funds legally available for that
purpose, dividends payable in cash in an amount per share for such fiscal year
at least equal to the product of (i) the per share amount, if any, of the cash
dividend declared, paid or set aside for the Class A Common Stock during such
fiscal year, multiplied by (ii) the number of whole
2
<PAGE> 16
shares of Class A Common Stock into which each share of Series A Preferred Stock
is then convertible.
SECTION 3. LIQUIDATION PREFERENCE.
(a) PREFERENCE. In the event of any liquidation, dissolution or winding up
of the affairs of the corporation, voluntarily or involuntarily, the holders of
each share of Series A Preferred Stock, prior to any distribution to the holders
of Junior Shares, shall be entitled to receive pro rata a preferential amount
equal to $500 per share (adjusted to reflect any stock split, stock dividend,
combination, recapitalization or reorganization) of Series A Preferred Stock
held by them (the "Series A Preferred Stock Liquidation Preference"). After
payment or setting apart for payment of the Series A Preferred Stock Liquidation
Preference, the remaining assets of the corporation, if any, shall be
distributed among the holders of the Junior Shares. If, upon such liquidation,
dissolution or winding up, the assets of the corporation are insufficient (after
payment of the liquidation preference of any class of preferred stock ranking
senior on liquidation to the Series A Preferred Stock) to provide for the
payment of the Series A Preferred Stock Liquidation Preference for each share of
Series A Preferred Stock outstanding, such assets as are available shall be paid
out pro rata among the shares of Series A Preferred Stock.
(b) MERGER OR ACQUISITION. A merger or consolidation of the corporation
with or into another corporation or entity (whether or not the corporation is
the surviving entity if, after the merger or consolidation, more than 50% of the
voting stock of the surviving corporation is owned by persons who were not
holders of voting stock of this corporation prior to the merger or
consolidation), or the sale of all or substantially all the assets of the
corporation, shall be deemed to be a liquidation, dissolution or winding up the
Corporation for purposes of this Section 3 if the holders of at least a majority
of the then outstanding shares of Series A Preferred Stock and of any class or
series of stock ranking on liquidation on a parity with the Series A Preferred
Stock, acting together as a single class, so elect by giving written notice
thereof to the corporation at least three days before the effective date of such
event. If no such notice is given, the provisions of Section 4(c) shall apply.
The amount deemed distributed to the holders of Series A Preferred Stock upon
any such merger or consolidation shall be the cash or the value of the property,
rights or other securities received in the merger or consolidation which shall
be determined in good faith by the Board of Directors of the corporation.
SECTION 4. CONVERSION OF SERIES A PREFERRED STOCK.
The holders of the Series A Preferred Stock shall have conversion rights
in accordance with the following provisions:
(a) RIGHT TO CONVERT AND CONVERSION PRICE. If the holders of at least a
majority of Series A Preferred Stock so elect at any time after the Original
Issue Date, all shares Series A Preferred Stock shall be converted, at the
office of the corporation or any transfer agent for the Series A Preferred
Stock, into such number of fully paid and non-assessable shares of Class A
Common Stock as is determined by dividing $500 by the Conversion Price,
determined and adjusted as hereafter provided, in effect at the time of
conversion. The initial Conversion Price
3
<PAGE> 17
shall be $500 per share, and it shall be subject to adjustment upon certain
events as provided in this Section 4.
(b) MANDATORY CONVERSION. The corporation at its option may elect to have
all the shares of Series A Preferred Stock automatically converted into shares
of Class A Common Stock at the then effective Conversion Price if the Market
Price at any time exceeds $5.00. All holders of record of shares of Series A
Preferred Stock will be given at least 20 days' prior written notice of the date
fixed and place designated for mandatory conversion of the Series A Preferred
Stock. Such notice shall be sent by certified mail, postage prepaid, to each
record holder of Series A Preferred Stock at such holder's address appearing on
the stock register of the corporation. On or before the date so fixed for
conversion, each holder of shares of Series A Preferred Stock shall surrender
his or its certificate or certificates for all such shares to the corporation at
the place designated in exchange for the number of shares of Class A Common
Stock to which such holder is entitled. The mechanics for conversion and other
provisions relating to conversion of Series A Preferred Stock into Class A
Common Stock and payments in lieu of fractions set forth elsewhere in this
Section 4 shall apply to the mandatory conversion of the Series A Preferred
Stock.
(c) EFFECT OF ACQUISITION ON SERIES A PREFERRED STOCK. In the event of a
merger or consolidation of the corporation with or into another corporation or
entity or a sale by the corporation of all or substantially all of its assets,
and in the case of successive such mergers, consolidations or sales except for
any such transactions as are treated as a liquidation under Section 3(b) hereof,
thereafter the shares of Series A Preferred Stock then outstanding shall be
convertible into the number and kind of securities of the acquiring or surviving
corporation (or such other entity whose securities are delivered in exchange for
the Class A Common Stock of the corporation) to which the holders of the Series
A Preferred Stock would have been entitled if such holders had converted their
Series A Preferred Stock into Class A Common Stock or the common stock of any
successor to the corporation upon the consummation of such sale, merger or
consolidation; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 and Section 5 with respect to the rights and
interest thereafter of the holders of the Series A Preferred Stock, to the end
that the provisions set forth in this Section 4 and Section 5 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
(d) MECHANICS OF CONVERSION. No fractional shares of Class A Common Stock
shall be issued upon conversion of Series A Preferred Stock. In lieu of any
fractional share to which a holder of Series A Preferred Stock would otherwise
be entitled, the corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into full shares of Class A Common
Stock, the holder shall surrender the certificate or certificates therefor, duly
endorsed for transfer, at the office of the corporation or of any transfer agent
for the Series A Preferred Stock, and shall give written notice to the
corporation at such office that he elects to convert the same. The corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
4
<PAGE> 18
such holder of Series A Preferred Stock a certificate or certificates for the
number of shares of Class A Common Stock to which he shall be entitled as
aforesaid and a check payable to the holder in the amount of any such amounts
payable in order to avoid a conversion into fractional shares of Class A Common
Stock, except as provided in paragraphs (b) and (c), such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Bonus A Preferred Stock to be converted, and
the person or persona entitled to receive the shares of Class A Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Class A Common Stock on such date.
(e) NO IMPAIRMENT. The corporation will not, by amendment of its Restated
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
(f) NOTICES OF RECORD DATE, ETC. In the event that the corporation shall
propose at any time:
(i) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of
earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any class
of its stock any additional shares of stock of any class or
other rights;
(iii) to subdivide, or combine its outstanding Common Stock;
(iv) so effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common
Stock; or
(v) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or
business, or so liquidate, dissolve or wind up;
then, in connection with each such event, the corporation shall send to the
holders of the Series A Preferred Stock:
(A) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend,
distribution, subscription rights, subdivision or
combination (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or
for
5
<PAGE> 19
determining rights to vote in respect of the matters
referred to in clauses (iv) and (v) above; and
(B) in the case of the matters referred to in clauses (iv)
and (v) above, at least 20 days' prior written notice of
the date when the same shall take place (specifying the
date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of
such event).
Each such written notice shall be given by certified mail, postage
prepaid, addressed to the holders of Series A Preferred Stock at the address for
each such holder as shown on the books of the corporation.
(g) ADJUSTMENT FOR COMBINATION OR CONSOLIDATION OF COMMON STOCK. In the
event the outstanding shares of Class A Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Class A Common Stock, the Conversion Price in effect immediately prior to
such combination or consolidation shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(h) ADJUSTMENT FOR STOCK DIVIDEND OR SUBDIVISION. In the event the
corporation at any time or from time to time after the Original Issue Date shall
declare or pay any dividend on the Common Stock payable in Class A Common Stock,
or effect a subdivision of the outstanding shares of Class A Common Stock into a
greater number of shares of Class A Common Stock by reclassification or
otherwise than by payment of a dividend in Class A Common Stock, then and in any
such event, the Conversion Price in effect immediately prior to such subdivision
or stock dividend shall forthwith be proportionately reduced.
(i) RESERVATION OF COMMON STOCK. The corporation shall, at all times when
the Series A Preferred Stock shall be outstanding, reserve and keep available
out of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of its duly authorized
shares of Class A Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Series A Preferred Stock. Before taking
any action which would cause an adjustment reducing she Conversion Price below
the then par value of the shares of Class A Common Stock issuable upon
conversion of the Series A Preferred Stock, the corporation will take any
corporate action which may in the opinion of its counsel, be necessary in order
that the corporation may validly and legally issue fully paid and nonassessable
shares of such Class A Common Stock at such adjusted Conversion Price.
(j) CANCELLATION OF SERIES A PREFERRED STOCK. All shares of Series A
Preferred Stock which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with respect
to such shares, including the rights, if any, to receive notice and to vote,
shall forthwith cease and terminate except only the rights of the holders
thereof to receive shares of Class A Common Stock in exchange therefor and
payment of any accrued amid unpaid dividends thereon. Any shares of Series A
Preferred Stock so converted
6
<PAGE> 20
shall be retired and cancelled, and shall not be reissued, and the corporation
may from time to time take such appropriate action as may be necessary to reduce
the authorized Series A Preferred Stock accordingly.
SECTION 5. VOTING RIGHTS OF SERIES A PREFERRED STOCK.
(a) GENERAL. Except as expressly set forth in this Section and except as
otherwise required by law, the Series A Preferred Stock shall have no voting
rights.
(b) MATTERS AFFECTING SERIES A PREFERRED STOCK. So long as any Series A
Preferred Stock shall be outstanding, the corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series A Preferred Stock, take any
of the following actions:
(i) amend or repeal any provision of, or add any provision to the
corporation's Restated Certificate of Incorporation or By-laws
if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the
benefit of, such Series A Preferred Stock;
(ii) authorize or issue shares of any class of stock having any
preference or priority as to dividends or users superior to or
on a parity with any such preference or priority of the Series
A Preferred Stock;
(iii) reclassify any Junior Shares into shares having any preference
to, or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the Series A
Preferred Stock;
(iv) declare any dividend or distribution upon any class of its
stock, whether in cash, property, stock or other securities,
whether or not a regular cash dividend and whether or not out
of earnings or earned surplus; or
(v) repurchase or redeem any class of its stock.
(c) SPECIAL VOTE FOR LIQUIDATIONS. The corporation may not liquidate,
dissolve or wind up if the assets of the corporation then available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Series A Preferred Stock the full amount to which they shall be
entitled upon such liquidation, dissolution or winding up under section 3(a),
without the prior written approval of the holders of a majority of the then
outstanding shares of Series A Preferred Stock. In the event such approval has
been obtained, and the amount distributed to holders of Series A Preferred Stock
shall be less than the full amount provided under section 3(a), the holders of
Series A Preferred Stock shall share ratably in any distribution of assets
according to the respective amounts which would be payable with respect to the
shares held by then upon such distribution if such amounts payable on or with
respect to such shares were paid in full.
7
<PAGE> 21
IN WITNESS WHEREOF, the corporation has caused its corporate seal to be
affixed hereto and this Certificate of Designation to be signed by its Chairman
of the Board and attested to by its Secretary this 2nd day of March, 2000.
AMERICAN BIOGENETIC SCIENCES, INC.
By: /s/ Alfred J. Roach
------------------------
Alfred J. Roach
Chairman of the Board
ATTEST
/s/ Timothy J. Roach
- --------------------------
Timothy J. Roach
Secretary
8
<PAGE> 1
Exhibit 4.4(a)
================================================================================
SECURITIES PURCHASE AGREEMENT
7,000 SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK
WARRANTS TO PURCHASE
7,000,000 SHARES OF CLASS A COMMON STOCK
OF
AMERICAN BIOGENETIC SCIENCES, INC.
AS OF FEBRUARY 3,2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I - ISSUANCE AND TERMS OF WARRANTS AND PREFERRED SHARES ............ 1
1.1 AUTHORIZATION OF SECURITIES ......................................... 1
1.2 PURCHASE AND SALE OF PREFERRED SHARES ............................... 2
1.4 PAYMENT ............................................................. 2
1.4 AGREEMENT REGARDING WARRANTS ........................................ 3
ARTICLE II- CLOSING
2.1 CLOSING ............................................................. 3
2.2 LEGEND .............................................................. 3
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................ 4
3.1 ORGANIZATION AND STANDING OF THE COMPANY ............................ 4
3.2 CAPITALIZATION 4
3.3 VALIDITY OF THIS AGREEMENT .......................................... 5
3.4 GOVERNMENTAL CONSENT, ETC ........................................... 5
3.5 VALID ISSUANCE OF SECURITIES ........................................ 5
3.6 FINANCIAL STATEMENTS ................................................ 6
3.7 ACCURACY AND COMPLETENESS OF INFORMATION ............................ 6
3.8 ADVERSE CHANGES ..................................................... 6
3.9 NO VIOLATION ........................................................ 6
3.10 ALL NECESSARY PERMITS ............................................... 7
3.11 TITLE TO PROPERTIES ................................................. 7
3.10 SECURITIES LAWS ..................................................... 7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE INVESTORS ............... 7
4.1 AUTHORITY OF INVESTORS, VALIDITY OF THIS AGREEMENT .................. 7
4.2 INVESTMENT REPRESENTATIONS .......................................... 8
ARTICLE V - CONDITIONS TO INVESTORS' OBLIGATIONS ........................... 8
5.1 CONDITIONS TO CLOSING ON CLOSING DATE ............................... 9
ARTICLE VI - CONDITIONS TO THE COMPANY'S OBLIGATIONS ....................... 10
6.1 CONDITIONS TO CLOSING ............................................... 10
ARTICLE VII- COVENANTS OF THE COMPANY ...................................... 11
7.1 FURNISHING OF INFORMATION ........................................... 11
7.2 INFORMATION WITH RESPECT TO THE SECURITIES .......................... 11
7.3 SHAREHOLDER APPROVAL ................................................ 11
7.4 LICENSE AGREEMENT ................................................... 11
7.5 INVESTOR'S RIGHTS ................................................... 11
ARTICLE VIII - SURVIVAL AND INDEMNIFICATION ................................ 11
8.1 SURVIVAL ............................................................ 11
8.2 INDEMNIFICATION ..................................................... 12
ARTICLE IX - MISCELLANEOUS ................................................. 13
9.1 NOTICES ............................................................. 13
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Securities Purchase Agreement ii
<PAGE> 3
9.2 ENTIRE AGREEMENT .................................................... 14
9.3 AMENDMENTS .......................................................... 14
9.4 ASSIGNMENT .......................................................... 14
9.5 BENEFIT ............................................................. 14
9.6 GOVERNING LAW ....................................................... 15
9.7 SEVERABILITY ........................................................ 15
9.8 HEADINGS AND CAPTIONS ............................................... 15
9.9 NO WAIVER OF RIGHTS, POWERS AND REMEDIES ............................ 15
9.10 EXPENSES ............................................................ 15
9.11 BROKERS ............................................................. 16
9.12 CONFIDENTIALITY ..................................................... 16
9.13 COUNTERPARTS ........................................................ 16
9.14 FURTHER ASSURANCES .................................................. 16
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Securities Purchase Agreement iii
<PAGE> 4
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), is made as of this
3rd day of February, 2000, by and among AMERICAN BIOGENETIC SCIENCES, INC., a
Delaware corporation (the "Company") and the investors listed on EXHIBIT A
hereto (collectively, the "Investors", and the Investors, excluding Alfred J.
Roach, his heirs and assigns, the "BVF Investors").
WITNESSETH:
WHEREAS, the Company intends to amend its Certificate of Incorporation to
authorize a class of Preferred Stock, par value $.001 per share (the "Preferred
Stock"), and to thereafter designate 7,000 shares of the Preferred Stock as the
Series A Convertible Preferred Stock, convertible into shares of the Company's
Class A Common Stock, par value $.001 per share (the "Common Stock"), and
otherwise having the designations, powers, preferences, and other terms set
forth on EXHIBIT B hereto (the "Preferred Shares");
WHEREAS, the Investors desire to invest $3,500,000 in the Company in
exchange for the Preferred Shares and the Company's common stock purchase
warrants substantially in the form of EXHIBIT C hereto (each, a "Warrant" and
collectively, the "Warrants") entitling the holders to purchase 7,000,000 shares
of the Common Stock (the "Warrant Shares");
WHEREAS, in connection with the transactions contemplated by this
Agreement, each of the BVF Investors has made a loan to the Company in a
principal amount equal to the purchase price of the Preferred Shares and
Warrants to be purchased by such BVF Investor hereunder and evidenced by
Promissory Notes, dated February 7, 2000, made by the Company and payable to the
order of (i) Biotechnology Value Fund, L.P. in the principal amount of
$1,050,000 (the "First Note"); (ii) Biotechnology Value Fund II, L.P. in the
principal amount of $1,800,000 (the "Second Note"); and (iii) to Investment 10
L.L.C. in the principal amount of $150,000 (the "Third Note", and collectively
with the First Note and the Second Note, the "Notes"); and
WHEREAS, the Company and the Investors desire to set forth certain
matters to which they have agreed relating to the Warrants and the Preferred
Shares.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I. ISSUANCE AND TERMS OF WARRANTS AND PREFERRED SHARES
1.1 AUTHORIZATION OF SECURITIES.
Subject to the terms and conditions of this Agreement, the Company has
authorized, or prior to the Closing (as hereinafter defined) will have
authorized, the issuance of the Preferred Shares, the Common Stock and the
Warrants pursuant to this Agreement.
<PAGE> 5
1.2 PURCHASE AND SALE OF PREFERRED SHARES, WARRANTS AND COMMON STOCK.
Subject to the terms and conditions of this Agreement and in reliance
upon the representations and warranties of the Company contained herein, the
Investors agree to purchase from the Company and the Company agrees to sell to
the Investors on the Closing Date (as hereinafter defined) for an aggregate
purchase price of three million five hundred thousand dollars ($3,500,000) (i)
the number of Preferred Shares set forth opposite each Investor's name on
EXHIBIT A attached hereto, aggregating 7,000 Preferred Shares, or, upon the
occurrence of the event described in Section 1.3(b) or (d) hereof, the number of
shares of Common Stock described in such Sections, respectively; and (ii) the
number of Warrants set forth opposite each Investor's name on EXHIBIT A attached
hereto, aggregating Warrants to purchase 7,000,000 Warrant Shares.
1.3 PAYMENT.
(a) On the Closing Date, (i) the entire principal amount of the Notes
plus accrued interest shall become due and payable; (ii) the BVF Investors shall
accept the number of Preferred Shares and Warrants set forth opposite the BVF
Investors' names in EXHIBIT A attached hereto as payment in full of all the
Company's obligations under the Notes; (iii) the Company shall pay the entire
principal amount plus accrued interest under the Notes to the BVF Investors in
the form of such Preferred Shares and Warrants; and (iv) thereupon, the BVF
Investors shall have satisfied their obligations under Section 1.2 hereof and
the Company shall have satisfied all of its obligations under the Notes.
(b) In the event that the Closing Date shall not have occurred on or
prior to March 15, 2000 due to the Company's failure to satisfy any of the
conditions set forth in Article V hereof, then (i) the entire principal amount
of the Notes plus accrued interest shall become due and payable; (ii) the BVF
Investors shall accept the number of shares of Common Stock into which the
number of Preferred Shares set forth opposite the BVF Investors' names in
EXHIBIT A attached hereto would otherwise have been convertible and the number
of Warrants set forth opposite the BVF Investors' names in EXHIBIT A attached
hereto as payment in full of all the Company's obligations under the Notes;
(iii) the Company shall pay the entire principal amount plus accrued interest
under the Notes to the BVF Investors in the form of such Common Stock and
Warrants; and (iv) thereupon, the BVF Investors shall have satisfied their
obligations under Section 1.2 hereof and the Company shall have satisfied all of
its obligations under the Notes.
(c) On the Closing Date, (i) Alfred J. Roach shall accept the number of
Preferred Shares and Warrants set forth opposite his name on EXHIBIT A attached
hereto as payment of $500,000 of the Company's indebtedness to him; (ii) the
Company shall pay such indebtedness in the form of such Preferred Shares and
Warrants; and (iii) thereupon, Alfred J. Roach shall have satisfied his
obligations under Section 1.2 hereof and the Company shall have satisfied
$500,000 of such indebtedness.
(d) In the event that the Closing Date shall not have occurred on or
prior to March 15, 2000, then (i) Alfred J. Roach shall accept the number of
shares of Common Stock equal to the number of Preferred Shares set forth
opposite his name on EXHIBIT A attached hereto and the number of Warrants set
forth opposite his name in EXHIBIT A attached hereto as payment of
- --------------------------------------------------------------------------------
Securities Purchase Agreement 2
<PAGE> 6
$500,000 of the Company's indebtedness to him; (ii) the Company shall pay such
indebtedness in the form of such Common Stock and Warrants; and (iii) thereupon,
Alfred J. Roach shall have satisfied his obligations under Section 1.2 hereof
and the Company shall have satisfied $500,000 of such indebtedness.
1.4 AGREEMENT REGARDING WARRANTS.
After the Closing, upon the request of the BVF Investors, the Company and
the BVF Investors agree to negotiate in good faith commercially reasonable
provisions permitting the "cashless exercise" of the Warrants, provided, that,
at such time each of such parties determines in good faith that the addition of
such provisions would be in such party's best interests.
ARTICLE II. CLOSING
2.1 CLOSING.
Subject to the satisfaction of the conditions set forth in Articles VI
and VII hereof, the closing (the "Closing") shall take place at a place and time
(the "Closing Date") mutually agreed by the Company and the Investors, but in
any event no later than March 15, 2000. At the Closing, (a) the Company shall
deliver to the Investors one or more stock certificates registered in their
names for an aggregate of 7,000 Preferred Shares, or the applicable number of
shares of Common Stock, as the case may be, against payment to the Company of
the purchase price therefor pursuant to Section 1.3, and (b) the Company shall
deliver to the Investors one or more Warrants registered in their names to
purchase the number of shares indicated therein.
2.2 LEGEND.
The certificates representing the Warrants and the Preferred Shares, or
the Common Stock, as the case may be, shall be subject to a legend restricting
transfer under the Securities Act of 1933, as amended (the "Securities Act"),
such legend to be substantially as follows:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED BY ANY PERSON UNLESS (1) EITHER (A) A REGISTRATION
STATEMENT WITH RESPECT TO SUCH SECURITIES SHALL BE EFFECTIVE UNDER
THE SECURITIES ACT OF 1933 ("ACT"), OR (B) THE COMPANY SHALL HAVE
REASONABLY REQUESTED AND RECEIVED AN OPINION OF COUNSEL SATISFACTORY
TO IT THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS THEN
AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL
APPLICABLE STATE SECURITIES LAWS."
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Securities Purchase Agreement 3
<PAGE> 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors that, as of
the date of this Agreement, the following are true and correct:
3.1 ORGANIZATION AND STANDING OF THE COMPANY.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Company has full corporate
power and authority to enter into, deliver, and perform its obligations and
undertakings under this Agreement. The Company is duly authorized to conduct its
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification would not
have a material adverse effect on the business, financial condition, operations,
results of operations, or future prospects of the Company. The Company has full
corporate power and authority to carry on the business in which it is engaged
and to own and use the properties owned and as used by it.
3.2 CAPITALIZATION.
The Company's entire authorized capital stock consists of: (i)
100,000,000 shares of Class A Common Stock. par value $.00l per share, of which
39,708,907 shares are validly issued and outstanding; and (ii) 3,000,000 shares
of Class B Common Stock, par value $.00l per share (the "Class B Common Stock"),
all of which are validly issued and outstanding on the date hereof. On or before
the Closing, the Company's Restated Certificate of Incorporation will have been
amended to authorize 10,000,000 shares of the Preferred Stock and to designate
7,000 shares of the Preferred Stock as Series A Convertible Preferred Stock
having the preferences, voting powers, qualifications and special or relative
rights or privileges set forth in EXHIBIT B. The issuance of all presently
issued and outstanding shares was duly authorized and all such shares are fully
paid and non-assessable. All such issued and outstanding shares have the
preferences, voting powers, qualifications and special or relative rights or
privileges set forth in the Company's Restated Certificate of Incorporation, as
amended as in effect on the date hereof, and as of the Closing Date the
Preferred Stock will have the preferences, voting powers, qualifications and
special or relative rights or privileges set forth in EXHIBIT B. The Preferred
Shares will be senior in liquidation preference to all outstanding shares of the
Common Stock and the Class B Common Stock. Other than as indicated on SCHEDULE
3.2 hereto or in the SEC Reports (as hereinafter defined), the Company does not
have outstanding any option, warrant, purchase right, subscription right, stock
appreciation right, phantom stock right, profit participation right, agreement
or other commitment to issue or to acquire any shares of its capital stock, or
any securities or obligations convertible into or exchangeable for its capital
stock, and the Company has not given any person any right to acquire from the
Company or sell to the Company any shares of its capital stock. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of the Company.
3.3 VALIDITY OF THIS AGREEMENT.
Subject to shareholder approval, the execution and delivery by the
Company of this Agreement and the performance by the Company of its obligations
under this Agreement, and
- --------------------------------------------------------------------------------
Securities Purchase Agreement 4
<PAGE> 8
the issuance, sale and delivery of the Preferred Shares, the Common Stock
issuable upon conversion of the Preferred Shares, the Warrants, the Warrant
Shares, and the Common Stock, if any, issuable pursuant to Section 1.3, have
been duly authorized and approved by all necessary corporate action. This
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable in accordance with its
terms. The execution and delivery by the Company of this Agreement and the
performance by the Company of its obligations under this Agreement and the
issuance, sale and delivery of the Preferred Shares, the Common Stock issuable
upon conversion of the Preferred Shares, the Warrants, the Warrant Shares and
the Common Stock, if any, issuable pursuant to Section 1.3, will not (i)
conflict with, or result in any breach of any of the terms of, or constitute a
default under, the Restated Certificate of Incorporation when the same will have
been amended to designate the Preferred Shares, or By-laws of the Company, (ii)
conflict with, result in a breach of or violation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under, any agreement, instrument, covenant or other
restriction or arrangement to which the Company is a party or by which it or any
of its properties or assets is bound or any statute law, rule, regulation,
judgment, order or decree applicable to the Company or any of its subsidiaries
of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any of its
subsidiaries or any of its or their properties.
3.4 GOVERNMENTAL CONSENT, ETC.
Except for filings, consents, permits, approvals and authorizations which
will be obtained by the Company prior to the Closing and which are set forth in
SCHEDULE 3.4, no consent, approval, authorization or other order of, action by,
filing with, or notification to any governmental authority is required under
existing law or regulation in connection with the execution, delivery and
performance of the Agreement or the offer, issuance, sale or delivery of the
Preferred Shares, the Common Stock issuable upon conversion of the Preferred
Shares, the Warrants, the Warrant Shares and the Common Stock issuable pursuant
to Section 1.3 pursuant to the Agreement or the consummation of any other
transactions contemplated thereby.
3.5 VALID ISSUANCE OF SECURITIES.
When issued and delivered against payment therefor in accordance with the
terms and conditions of this Agreement and EXHIBIT B hereto, the Preferred
Shares, the Common Stock issuable upon conversion of the Preferred Shares, the
Warrants, the Warrant Shares and the Common Stock, if any, issuable pursuant to
Section 1.3, shall be (i) duly authorized and validly issued, fully paid and
non-assessable and (ii) not subject to any preemptive rights, liens, claims or
encumbrances, or other restrictions on transfer or other agreements or
understandings with respect to the voting of the Common Stock or the Warrant
Shares, except as set forth in this Agreement or EXHIBIT B hereto.
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Securities Purchase Agreement 5
<PAGE> 9
3.6 FINANCIAL STATEMENTS.
The audited financial statements of the Company contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998,
including the notes relating thereto, and the unaudited financial statements of
the Company contained in the Company's Quarterly Reports on Form l0-Q for the
quarters ended March 31, 1999, June 30, 1999 and September 30, 1999, including
the notes thereto, disclose all material liabilities of the Company as of such
dates, except as set forth on SCHEDULE 3.6 hereto. Such financial statements,
including the notes relating thereto, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved. Said financial statements and related notes fairly present the
financial position and the results of operations and cash flow of Company as of
the respective dates thereof and for the periods indicated.
3.7 ACCURACY AND COMPLETENESS OF INFORMATION.
The Common Stock is registered pursuant to Section 12(g) of Exchange Act.
Copies of all reports filed by the Company with the United States Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act") during the period from December 31,
1998 to the date of this Agreement (the "Furnished SEC Reports") have been
furnished to the Investors. Since January 1, 1997, the Company has filed each
statement, annual, quarterly, and other report, registration statement and
definitive proxy statement required to be filed (other than preliminary
material) by the Company with the Commission (the "SEC Reports"). As of their
respective filing dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and none of the SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading.
3.8 ADVERSE CHANGES.
Since September 30, 1999, except as set forth on SCHEDULE 3.8 hereto,
there has not been any Material Adverse Change. For purposes of this Agreement,
a "Material Adverse Change" means a material adverse change in the business,
earnings, financial condition, results of operations, assets, employee
relations, or customer or supplier relations (in each case whether or not
arising in the ordinary course of business) or presently foreseeable prospects
of the Company and its subsidiaries on an aggregate basis.
3.9 NO VIOLATION.
Neither the execution and delivery by the Company of this Agreement, nor
the consummation of the transactions contemplated hereby will violate any
constitution, statute, rule, injunction, judgment, order, decree, ruling, charge
or other restriction of any government, governmental agency, or court known to
the Company to which the Company is subject, or, after obtaining shareholder
approval and amending the Restated Certificate of Incorporation to designate the
Preferred Shares, any provision of its Restated Certificate of Incorporation or
By-Laws.
- --------------------------------------------------------------------------------
Securities Purchase Agreement 6
<PAGE> 10
3.10 ALL NECESSARY PERMITS, ETC.
The Company and each subsidiary possesses such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies as are necessary to conduct their
respective businesses, and neither the Company nor any subsidiary has received
any notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Change.
3.11 TITLE TO PROPERTIES.
The Company and each of its subsidiaries has good and marketable title to
all the properties and assets reflected as owned by it in the financial
statements referred to in Section 3.6 in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and other
defects, except (i) as set forth on SCHEDULE 3.11, or (ii) such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or such subsidiary. The real property, improvements, equipment and
personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
such subsidiary.
3.12 SECURITIES LAWS.
All notices, filings, registrations or qualifications under state
securities or "blue sky" laws which are required in connection with the offer,
issue and delivery of the Preferred Shares, the Warrants, the Common Stock into
which such Preferred Shares and Warrants are convertible pursuant to this
Agreement and the Common Stock issuable pursuant to Section 1.3, if any, have
been or will be timely completed by the Company.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each of the Investors hereby acknowledges, represents, warrants and
agrees as follows:
4.1 AUTHORITY OF INVESTORS, VALIDITY OF THIS AGREEMENT.
Each of the Investors has all requisite power and authority to enter into
this Agreement and perform its obligations hereunder. The execution, delivery
and performance by each of the Investors of this Agreement, and the purchase of
the Warrants and the Preferred Shares pursuant hereto have been duly authorized
and approved by all necessary corporate action. This Agreement has been duly
executed and delivered and constitutes a valid and binding obligation of each of
the Investors, enforceable in accordance with its terms. The execution, delivery
and performance of this Agreement and the purchase of the Warrants and the
Preferred Shares will not conflict with, or result in a material breach of any
of the terms of, or constitute a material default under, any charter, by-law,
agreement, instrument, covenant or other restriction to which any of the
Investors is a party or by which it or any of its properties or assets is bound.
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Securities Purchase Agreement 7
<PAGE> 11
4.2 INVESTMENT REPRESENTATIONS.
Each of the Investors hereby acknowledges, represents, warrants and
agrees as follows:
(a) Each of the Investors has had the opportunity to review the
Furnished SEC Reports and the financial statements contained therein. Each of
the Investors acknowledges that the Company has made available to the Investors
documents and information that it has requested relating to the Company and has
provided answers to the Investors' questions concerning the Company, the
Preferred Shares and the Warrants.
(b) Each of the Investors is an "accredited investor" as defined in
Rule 501(a)(3) of the Securities Act.
(c) Each of the Investors understands that the offering of the
Warrants and the Preferred Shares has not been registered under the Securities
Act or the securities laws of any state or other jurisdiction and that such
Warrants and the Preferred Shares must be held indefinitely unless an exemption
from registration is available. Each of the Investors understands that the
offering and sale of the Warrants and the Preferred Shares is intended to be
exempt from registration under the Securities Act based, in part, upon the
representations, warranties and agreements of the Investors contained in this
Section 4.2, and the Company may rely on such representations, warranties and
agreements in connection therewith. Each of the Investors covenants that it will
not transfer the Warrants or the Preferred Shares in violation of the provisions
of any applicable Federal or state securities statute.
(d) Subject to the Investors' registration rights relating to the
Common Stock underlying the Warrants and Preferred Shares and the Common Stock
issuable pursuant to Section 1.3, in each case, pursuant to the terms of the
Registration Agreement referred to in Section 5.1(j) hereof, each of the
Investors is acquiring the Warrants and the Preferred Shares for investment, and
not with a view to the resale or distribution thereof; it has no present
intention of selling, negotiating, or otherwise disposing of the Warrants and
the Preferred Shares. Each of the Investors' financial condition and investments
are such that it is in a financial position to hold the Warrants and the
Preferred Shares for an indefinite period of time and to bear the economic risk
of, and withstand a complete loss of, such Warrants and the Preferred Shares. In
addition, by virtue of its expertise, the advice available to it, and its
previous investment experience, each of the Investors has sufficient knowledge
and experience in financial and business matters, investments, securities, and
private placements and the capability to evaluate the merits and risks of the
transactions contemplated by this Agreement.
ARTICLE V. CONDITIONS TO BVF INVESTORS' OBLIGATIONS
5.1 CONDITIONS TO CLOSING ON CLOSING DATE.
The obligation of the BVF Investors to purchase and pay for the Warrants
and the Preferred Shares and the Common Stock, if any, issuable pursuant to
Section 1.3, on the Closing Date is subject to the following:
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Securities Purchase Agreement 8
<PAGE> 12
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company made herein shall be true, correct and complete on and
as of the Closing Date with the same force and effect as if they had been made
on and as of the Closing Date.
(b) PERFORMANCE. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with.
(c) OPINION OF COMPANY'S COUNSEL. The BVF Investors shall have
received an opinion of Brown, Rudnick, Freed & Gesmer, counsel for the Company,
in form and substance reasonably satisfactory to the BVF Investors.
(d) CORPORATE PROCEEDINGS, CONSENTS, ETC. All corporate and other
proceedings to be taken and all waivers and consents to be obtained in
connection with the transactions contemplated by this Agreement shall have been
taken or obtained and all documents incident thereto shall be reasonably
satisfactory in form and substance to the BVF Investors and their counsel, each
of whom shall have received all such originals or certified or other copies of
such documents as each may reasonably request.
(e) SHAREHOLDER APPROVAL. The Company shall have obtained the
approval of shareholders representing at least a majority of the votes by all
then outstanding shares of the Common Stock and the Class B Common Stock, voting
together as one class, to the authorization of the Preferred Stock.
(f) NO PROCEEDING. No action, suit, investigation or proceeding
shall be pending or threatened before any court or governmental agency to
restrain, prohibit, collect damages as a result of or otherwise challenge this
Agreement or any transaction contemplated hereby or thereby.
(g) NO LAW PROHIBITING OR RESTRICTING SUCH SALE. There shall not be
in effect any law, rule or regulation prohibiting or restricting such sale, or
requiring any consent or approval of any person which shall not have been
obtained to issue the Warrants, the Preferred Shares, the Common Stock into
which the Warrants and Preferred Shares are convertible and the Common Stock
issuable pursuant to Section 1.3.
(h) OFFICER'S CERTIFICATE DELIVERED BY COMPANY. The Company shall
have delivered to the Investors a certificate, dated the Closing Date and signed
by the Chief Executive Officer or the President of the Company, to the effect
that each of the conditions to be satisfied by the Company pursuant to this
Section 5.1 on or before the Closing Date has been duly satisfied.
(i) AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION. The
Company's Restated Certificate of Incorporation shall have been amended to
authorize the issuance of Preferred Stock, and either that amendment or a
separate Certificate of Designation establishing the Preferred Shares having the
terms set forth on EXHIBIT B hereto shall have been filed with the Secretary of
State of the State of Delaware.
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Securities Purchase Agreement 9
<PAGE> 13
(j) REGISTRATION AGREEMENT. The Company and the Investors shall
have executed and delivered a Registration Agreement in the form of EXHIBIT D
hereto.
(k) ABBOTT LICENSE AND INVESTMENT. The Company shall have entered
into the Exclusive License Agreement, dated as of January 27, 2000 (the "License
Agreement"), with Abbott Laboratories related to the marketing of the Company's
ABS-103 Compound and a Stock Purchase Agreement, dated as of January 27, 2000
(the "Stock Purchase Agreement), with Abbott Laboratories pursuant to which
Abbott Laboratories shall have purchased 2,782,931 shares of Class A Common
Stock of the Company for $1.5 million in cash in accordance with the terms
thereof. The License Agreement and the Stock Purchase Agreement are attached
hereto as EXHIBITS E and F, respectively.
(l) NO MATERIAL ADVERSE CHANGE. There shall have been no Material
Adverse Change in the Company since the date of signing of this Agreement.
(m) LEGAL MATTERS. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby shall have
been reasonably approved by counsel to the BVF Investors.
ARTICLE VI. CONDITIONS TO THE COMPANY'S OBLIGATIONS
6.1 CONDITIONS TO CLOSING.
The obligation of the Company to issue the Warrants and the Preferred
Shares, respectively, to the Investors on the Closing Date is subject to the
following:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors made herein shall be true, correct and complete in
all respects on and as of the Closing Date with the same force and effect as if
they had been made on and as of the Closing Date.
(b) NO PROCEEDING. No action, suit, investigation or proceeding
shall be pending or threatened before any court or governmental agency to
restrain, prohibit, collect damages as a result of or otherwise challenge this
Agreement or any transaction contemplated hereby or thereby.
(c) NO LAW PROHIBITING OR RESTRICTING SUCH SALE. There shall not be
in effect any law, rule or regulation prohibiting or restricting such sale, or
requiring any consent or approval of any person which shall not have been
obtained to issue the Warrants and the Preferred Shares.
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Securities Purchase Agreement 10
<PAGE> 14
ARTICLE VII. COVENANTS OF THE COMPANY
For so long as the BVF Investors continue to hold not less than 50% of
the Preferred Shares held by such Investors on the Closing Date, the Company
hereby covenants to such Investors as follows:
7.1 FURNISHING OF INFORMATION.
The Company covenants to timely file (or obtain extensions in respect
thereof) all reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or 15(d) of the Exchange Act and to promptly furnish
the Investors with true and complete copies of all such filings. If the Company
is not at the time required to file reports pursuant to such sections, it will
prepare and furnish to the Investors annual and quarterly reports comparable to
those required by Section 13(a) or 15(d) of the Exchange Act in the time period
that such filings would have been required to have been made under the Exchange
Act.
7.2 INFORMATION WITH RESPECT TO THE SECURITIES.
The Company covenants to provide such information as is reasonably
requested by any of the Investors related to the terms of the Preferred Shares,
the Common Stock, Warrants or Warrant Shares.
7.3 SHAREHOLDER APPROVAL.
The Company shall use its best efforts to obtain the shareholder approval
described in Section 5.1(e) hereof prior to the Closing Date.
7.4 LICENSE AGREEMENT.
The Company covenants that it will not reduce, assign, transfer or
otherwise convey all or any portion of the royalties under the License Agreement
without the consent of the BVF Investors; provided, that nothing in the
foregoing shall prohibit the Company from causing or permitting liens or
security interests upon such royalties in connection with a financing for
borrowed money from a financial institution.
7.5 INVESTOR'S RIGHTS.
Notwithstanding anything to the contrary in the foregoing, the Investors
shall be entitled to such information, privileges, rights and benefits accorded
to them as holders of the Preferred Shares under applicable law and under the
Company's Restated Articles of Incorporation, as amended, and By-laws.
ARTICLE VIII. SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL.
Notwithstanding any examination made by or on behalf of any party hereto,
the knowledge of any party or the acceptance by any party of any certificate or
opinion, each
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Securities Purchase Agreement 11
<PAGE> 15
representation, warranty contained herein shall survive the Closing for a period
of two years, and each covenant shall survive for the period indicated therein.
8.2 INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless each Investor, its
shareholders, officers, directors, employees, agents and representatives against
any damage, claim, loss, liability and expense (including reasonable counsel
fees and expenses) which may be suffered or incurred by any of them as a result
of a breach of any representation or warranty or covenant made by the Company in
this Agreement, provided that, solely with respect to such representation or
warranty, a claim is asserted within the time provided in Section 8.1.
(b) The Investors, jointly and severally, agree to indemnify the Company
and its shareholders, officers, directors, employees, agents and representatives
against any damages, claims, losses, liabilities and expenses (including
reasonable counsel fees and other expenses) which may be suffered or incurred by
it as a result of any breach of any representation, warranty, or covenant made
by the Investors in this Agreement, provided that a claim is asserted within the
time provided in Section 8.1.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing of the occurrence of the facts and
circumstances giving rise to such claim. The failure of any person to deliver
the notice required by this Section 8.2(c) shall not in any way affect the
indemnifying party's indemnification obligation hereunder except and only to the
extent that the indemnifying party is actually prejudiced thereby. In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and expenses of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel or pay its own expenses. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred the fees and expenses of
the counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceedings (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment and the indemnifying party shall obtain a full release of
the indemnified party.
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Securities Purchase Agreement 12
<PAGE> 16
ARTICLE IX. MISCELLANEOUS
9.1 NOTICES.
All notices, requests, consents and other communications hereunder shall
be in writing, shall be addressed to the receiving party's address set forth
below or to such other address as a party may designate by notice hereunder, and
shall be either (i) delivered by hand, (ii) made by telecopy or facsimile
transmission, (iii) sent by overnight courier, or (iv) sent by registered mail,
return receipt requested, postage prepaid.
If to the
BVF Investors: c/o BVF Partners, L.P.
One Sansome Street, 39th Floor
San Francisco, CA 94104
Attn: Mr. Mark Lampert
Fax: (415) 288-2394
With a copy to: Sidley & Austin
875 Third Avenue
New York, NY 10022
Attn: Paul K. Risko, Esq.
Fax: (212) 906-2021
If to Alfred J. Roach: c/o American Biogenetic Sciences, Inc.
1375 Akron Street
Copiague, New York 11726
Attn: Chief Executive Officer
Fax:(516) 789-1661
With a copy to Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, Massachusetts 02111
Attn: David H. Murphree, Esq.
Fax:(617) 856-8201
If to the Company: American Biogenetic Sciences, Inc.
1375 Akron Street
Copiague, New York 11726
Attn: Chief Executive Officer
Fax: (516) 789-1661
With a copy to Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, Massachusetts 02111
Attn: David H. Murphree, Esq.
Fax: (617) 856-8201
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Securities Purchase Agreement 13
<PAGE> 17
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telecopy or facsimile transmission, one (1) day after the time
that receipt thereof has been acknowledged by electronic confirmation or
otherwise, (iii) if sent by overnight courier, on the next business day
following the day such notice is delivered to the courier service, or (iv) if
sent by registered mail, on the 5th business day following the day such mailing
is made.
9.2 ENTIRE AGREEMENT.
This Agreement, including exhibits, or other documents referred to
herein, embodies the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings relating to the subject matter hereof.
No statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Agreement shall affect, or be used to interpret,
change or restrict, the express terms and provisions of this Agreement.
9.3 AMENDMENTS.
On or prior to the Closing Date, the terms and provisions of the
Agreement may be modified, amended or waived, or consent for the departure
therefrom granted, only by written agreement of the Company, the BVF Investors
and Alfred J. Roach. After the Closing Date, the terms and provisions of the
Agreement may be modified, amended or waived, or consent for the departure
therefrom granted, only by written agreement of the Company and Investors
holding Preferred Shares, Warrants or Common Stock issued pursuant to this
Agreement, upon conversion of the Preferred Shares or exercise of the Warrants
equal to 50% or more of the Common Stock issuable upon conversion of the
Preferred Shares and upon exercise of the Warrants, on a fully converted, fully
exercised basis.. No such waiver or consent, in either case, shall be deemed to
be or shall constitute a waiver or consent with respect to any other terms or
provisions of this Agreement, whether or not similar. Each such waiver or
consent, in either case, shall be effective only in the specific instance and
for the purpose for which it was given, and shall not constitute a continuing
waiver or consent.
9.4 ASSIGNMENT.
Neither this Agreement nor any or all of the rights and obligations of a
party hereunder shall be assigned, delegated, sold, transferred or otherwise
disposed of by operation of law or otherwise, to any third person without the
prior written consent of the other party, and any attempted assignment,
delegation, sale, transfer, or other disposition, by operation of law or
otherwise, of this Agreement or of any rights or obligations hereunder contrary
to this Section 9.4 shall be void and without force or effect. Each party shall
be responsible for the compliance by its Affiliates with the terms and
conditions of this Agreement.
9.5 BENEFIT.
All statements, representations, warranties, covenants and agreements in
this Agreement shall be binding on the parties hereto and shall inure to the
benefit of the respective successors and permitted assigns of each party hereto.
Nothing in this Agreement shall be construed to
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Securities Purchase Agreement 14
<PAGE> 18
create any rights or obligations except among the parties hereto, and no person
or entity shall be regarded as a third-party beneficiary of this Agreement.
9.6 GOVERNING LAW.
This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
New York.
9.7 SEVERABILITY.
In the event that any court of competent jurisdiction shall determine
that any provision, or any portion thereof, contained in this Agreement shall be
unreasonable or unenforceable in any respect, then such provision shall be
deemed limited to the extent that such court deems it reasonable and
enforceable, and as so limited shall remain in full force and effect. In the
event that such court shall deem any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall be interpreted
as if such provision were so excluded and shall nevertheless remain in full
force and effect.
9.8 HEADINGS AND CAPTIONS.
The headings and captions of the various subdivisions of this Agreement
are for convenience of reference only and shall in no way modify, or affect the
meaning or construction of any of the terms or provisions hereof.
9.9 NO WAIVER OF RIGHTS, POWERS AND REMEDIES.
No failure or delay by a party hereto in exercising any right, power or
remedy under this Agreement, and no course of dealing between the parties
hereto, shall operate as a waiver of any such right, power or remedy of the
party. No single or partial exercise of any right, power or remedy under this
Agreement by a party hereto, nor any abandonment or discontinuance of steps to
enforce any such right, power or remedy, shall preclude such party from any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The election of any remedy by a party hereto shall not
constitute a waiver of the right of such party to pursue other available
remedies. No notice to or demand on a party not expressly required under this
Agreement shall entitle the party receiving such notice or demand to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any other or
further action in any circumstances without such notice or demand.
9.10 EXPENSES.
Except as provided in Section 8.2, each of the parties shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated; provided, that, the Company shall pay such fees and
expenses (including attorney's fees) of the BVF Investors up to $5,000.
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Securities Purchase Agreement 15
<PAGE> 19
9.11 BROKERS.
Each of the parties hereto represents and warrants to the other that no
broker, finder or financial consultant has acted on its behalf in connection
with this Agreement or the transactions contemplated hereby in such a way as to
create any liability on the other. Each of the parties hereto agrees to
indemnify and save the other harmless from any claim or demand for commission or
other compensation by any other broker, finder, financial consultant or similar
agent claiming to have been employed by or on behalf of such party and to bear
the cost of legal expenses incurred in defending against any such claim.
9.12 CONFIDENTIALITY.
The Investors acknowledge and agree that any information or data they
have acquired from the Company, which is clearly designated in writing as
confidential and is not otherwise properly in the public domain, was received in
confidence. Each of the Investors agrees not to divulge, communicate or
disclose, except as may be required by law or upon the advice of its accountants
or for the performance of this Agreement, or use to the detriment of the Company
or for the benefit of any other person or persons, or misuse in any way, any
confidential information of the Company.
9.13 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, and by
different parties hereto on separate counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
9.14 FURTHER ASSURANCES.
In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, the Company and the
Investors will take such further action as the other party may reasonably
request, all at the sole cost and expense of the requesting party (unless the
requesting party is entitled to indemnification therefor under Article VIII).
[REMAINDER OF PAGE IS INTENTIONALLY BLANK]
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Securities Purchase Agreement 16
<PAGE> 20
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement this 3rd day of February, 2000.
AMERICAN BIOGENETIC SCIENCES, INC.
By: /s/ Josef C. Schoell
---------------------------------------------
Name: Josef C. Schoell
Title: Vice President Finance
INVESTORS:
/s/ Alfred J. Roach
-------------------------------------------------
Alfred J. Roach
BIOTECHNOLOGY VALUE FUND, L.P.
By: BVF PARTNERS L.P., its General Partner
By: BVF, INC., its General Partner
By:
-------------------------------------
Mark N. Lampert
President
BIOTECHNOLOGY VALUE FUND II, L.P.
By: BVF PARTNERS L.P., its General Partner
By: BVF, INC., its General Partner
By:
-------------------------------------
Mark N. Lampert
President
INVESTMENT 10 L.L.C.
By: BVF PARTNERS, L.P., its Investment Advisor
By: BVF, INC., its General Partner
By:
-------------------------------------
Mark N. Lampert
President
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Securities Purchase Agreement 1
<PAGE> 21
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement as of this 3rd day of February, 2000.
AMERICAN BIOGENETIC SCIENCES, INC.
By:
---------------------------------------------
Name:
Title:
INVESTORS:
-------------------------------------------------
Alfred J. Roach
BIOTECHNOLOGY VALUE FUND, L.P.
By: BVF PARTNERS L.P., its General Partner
By: BVF, INC., its General Partner
By: /s/ Mark N. Lampert
-------------------------------------
Mark N. Lampert
President
BIOTECHNOLOGY VALUE FUND II, L.P.
By: BVF PARTNERS L.P., its General Partner
By: BVF, INC., its General Partner
By: /s/ Mark N. Lampert
-------------------------------------
Mark N. Lampert
President
INVESTMENT 10 L.L.C.
By: BVF PARTNERS, L.P., its Investment Advisor
By: BVF, INC., its General Partner
By: /s/ Mark N. Lampert
-------------------------------------
Mark N. Lampert
President
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Securities Purchase Agreement 1
<PAGE> 1
Exhibit 4.4(b)
AMERICAN BIOGENETIC SCIENCES, INC.
REGISTRATION AGREEMENT
THIS AGREEMENT, is made as of March 3, 2000, among AMERICAN BIOGENETIC
SCIENCES, a Delaware corporation (the "Company") and the investors listed on
Exhibit A attached hereto (collectively referred to as the "Investor").
The parties to this Agreement are parties to a Securities Purchase
Agreement, dated as of February 3, 2000 (the "Purchase Agreement"). In order to
induce the Investor to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the Closing under the Purchase
Agreement. Unless otherwise provided in this Agreement, capitalized terms used
herein shall have the meanings set forth in paragraph 5 hereof.
The parties hereto agree as follows:
1. REGISTRATION AFTER CLOSING.
(a) Within 60 days after the Closing, the Company shall file a
registration statement on the appropriate form, under the Securities Act
covering the Registrable Securities, including a prospectus for the purpose of
offering for resale the Registrable Securities (the "Registration Statement").
The Company shall use its best efforts to cause the Registration Statement to be
declared effective by the Securities and Exchange Commission within 120 days
after the Closing.
(b) The Company shall use its best efforts to cause the Registration
Statement to remain effective until the first to occur of (i) two years
(excluding any period during which the Registration Statement is suspended
pursuant to Section 2(d)) after the date it is declared effective, (ii) the date
on which all Registrable Securities are sold; and (iii) the date that such share
cease to be treated as Registrable Securities because they are eligible be sold
without delay under Rule 144 under the Securities Act.
2. REGISTRATION PROCEDURES.
(a) The Company shall:
(1) notify each holder of Registrable Securities of the filing
of the Registration Statement with the Securities and Exchange Commission and of
the effectiveness of the Registration Statement;
(2) prepare and file with the Securities and Exchange
Commission such amendments and supplements to the Registration Statement and the
prospectus used in
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Registration Agreement -1-
<PAGE> 2
connection therewith as may be necessary to keep the Registration Statement
effective for the period set forth in Section 1(b) hereof;
(3) comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by the Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in the Registration Statement;
(4) furnish to each seller of Registrable Securities such
number of copies of the Registration Statement, each amendment and supplement
thereto, the prospectus included in the Registration Statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(5) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company shall not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(6) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in the Registration Statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, subject to the right of the Company to suspend sales under
Section 2(d) below, at the request of any such seller, the Company shall prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus shall not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(7) use its reasonable efforts to cause all such Registrable
Securities to be listed on the securities exchange on which similar securities
issued by the Company are then listed;
(8) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of the Registration
Statement;
(9) if the Registrable Securities are to be sold in a firm
commitment underwritten offering, enter into a customary underwriting agreement
and take all such other actions as the holders of a majority of the Registrable
Securities being sold or the underwriters reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities;
(10) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to the Registration
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Registration Agreement -2-
<PAGE> 3
Statement, and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement; PROVIDED, HOWEVER, that
any information that is determined in good faith by the Company to be of a
confidential nature at the time of delivery of such information shall be kept
confidential by such persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities; (ii) disclosure of such information, in the
opinion of counsel to such person, is required by law; (iii) such information
becomes generally available to the public other than as a result of a disclosure
or failure to safeguard by such person; or (iv) such information becomes
available to such person from a source other than the Company and such source is
not known by such person to be bound by a confidentiality agreement with the
Company;
(11) in the event of the issuance of any stop order suspending
the effectiveness of the Registration Statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in the Registration Statement for sale in any
jurisdiction, the Company shall use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(12) the Company may require each seller of the Registrable
Securities to furnish to the Company such information regarding the distribution
of such Registrable Securities as is required by law to be disclosed in the
Registration Statement, and the Company may exclude from such registration the
Registrable Securities of any such holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request;
(b) The holders of any Registrable Securities covenant and agree
that (i) they will not sell any Registrable Securities under the Registration
Statement until they have received copies of the prospectus as then amended or
supplemented as contemplated in Section 4(b) and notice from the Company that
the Registration Statement and any post-effective amendments thereto have become
effective and (ii) each such holder and its officers, directors or Affiliates,
if any, will comply with the prospectus delivery requirements of the Securities
Act as applicable to them in connection with sales of Registrable Securities
pursuant to the Registration Statement.
(c) Each holder of Registrable Securities agrees by its acquisition
of such Registrable Securities that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Subsections 2(a)(6) or
2(a)(11), such holder will forthwith discontinue disposition of such Registrable
Securities until such holder's receipt of the copies of the supplemented
prospectus and/or amended Registration Statement contemplated by Subsection
2(a)(4), or until it is advised in writing by the Company that the use of the
applicable prospectus may be resumed, and, in either case, has received copies
of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such prospectus or Registration Statement.
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Registration Agreement -3-
<PAGE> 4
(d) If a event occurs which would otherwise require the filing of an
amendment to the Registration Statement or a prospectus supplement under
Subsection 2(a) (6) above so as permit the proposed sale without a violation of
securities laws, if the in the good faith judgment of the Board of Directors of
the Company, after consultation with counsel, such disclosure would materially
adversely affect a pending or scheduled public offering, or an acquisition,
merger, or similar transaction, or negotiations of either of the foregoing, or
would require the disclosure of another material development prior to the time
it would otherwise be required to be disclosed in a manner adverse to the best
interests of the Company, then it may decline to permit the resale of any
Registrable Securities pursuant to the Registration Statement for up to a
maximum of ninety (90) days, provided that it may not exercise this right more
than twice in any twelve (12) month period. Each Investor hereby covenants and
agrees that it will not sell any Shares pursuant to the Registration Statement
during the periods sales in reliance upon the Registration Statement are
prohibited as set forth in this Section 2(d).
3. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and Securities and Exchange Commission and National Association of Securities
Dealers, Inc. filing fees and expenses, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, the expense of any audit of financial data
required to be included in the Registration Statement, and fees and
disbursements of counsel for the Company and fees and disbursements of not more
than one counsel to the holders of Registrable Securities up to a maximum of
$5,000 and fees and disbursements of all independent certified public
accountants, and other persons retained by the Company (all such expenses being
herein called "Registration Expenses"), shall be borne by the Company; PROVIDED,
HOWEVER, that the Company shall have no obligation to pay or otherwise bear any
portion of (i) the underwriter's commissions or discounts or transfer taxes
attributable to the Registrable Securities being offered and sold by the holders
of such Registrable Securities, or (ii) the fees and expenses of advisors,
professionals or agents for the holders of Registrable Securities in connection
with the registration of Registrable Securities (other than as above provided),
or (iii) the fees and expenses of any counsel or accounting firm retained by the
underwriters in connection with an underwritten offering of the Registrable
Securities and the costs of any determination (but not filing) by the
underwriters of the eligibility of the Registrable Securities for investment
under the applicable state securities law.
(b) To the extent Registration Expenses are not required to be paid
by the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
shall be borne pro rata by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
4. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless, to the extent
permitted by law, each holder of Registrable Securities, its officers and
directors and each person
- --------------------------------------------------------------------------------
Registration Agreement -4-
<PAGE> 5
who controls such holder (within the meaning of the Securities Act or the
Exchange Act) (each, an "Indemnitee") against any loss, claim, damage, liability
or expense, as incurred, to which such Indemnitee may be subject under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld), insofar as such
loss, claim, damage, liability or expense (or action in respect thereof) arises
out of or is based (i) upon any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereto (including any information deemed to be part
thereof pursuant to Rule 430A of the Securities Act) or supplement thereto or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (ii), in
whole or in part upon any failure of the Company or any controlling person to
the Company to perform its obligations hereunder, in each case except insofar as
the same are caused by or contained in any information furnished to the Company
by such holder expressly for use therein or by such holder's failure to deliver
a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with copies of
the same. In connection with an underwritten offering, the Company shall
indemnify such underwriters, their officers and directors and each person who
controls such underwriters (within the meaning of the Securities Act or the
Exchange Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) In connection with the Registration Statement in which a holder
of Registrable Securities is participating, each such holder shall furnish to
the Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any the Registration Statement or prospectus
and, to the extent permitted by law, shall indemnify the Company, its directors,
officers, agents and employees and each person who controls the Company (within
the meaning of the Securities Act) and the directors, officers, agents and
employees of such controlling persons against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact contained in the Registration Statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished by such holder; provided that the obligation to indemnify
shall be individual, not joint and several, for each holder and shall be limited
to the amount of proceeds received by such holder from the sale of Registrable
Securities pursuant to the Registration Statement.
(c) Any person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any such person's right to indemnification hereunder to the
extent such failure has not prejudiced the indemnifying party) and (ii) unless
in such indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent
- --------------------------------------------------------------------------------
Registration Agreement -5-
<PAGE> 6
(but such consent shall not be unreasonably withheld). An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses for more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim or related
claims.
(d) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and shall survive the transfer of securities. The
parties also agree to make such provisions as are reasonably requested by any
indemnified party in the event that indemnification hereunder is unavailable for
any reason.
5. DEFINITIONS.
(a) "REGISTRABLE SECURITIES" means (i) any Class A Common Stock, par
value $.001 per share ("Common Stock"), of the Company (x) to be issued upon the
conversion of the Series A Convertible Preferred Stock, $.001 par value per
share ("Preferred Stock"), of the Company acquired by the Investor pursuant to
the Purchase Agreement or (y)otherwise issued pursuant to Section 1.3(b) of the
Purchase Agreement, (ii) any Common Stock issued upon exercise of the Warrants
acquired by the Investor pursuant to the Purchase Agreement; and (iii) any
Common Stock issued or issuable with respect to the securities referred to in
clauses (i) and (ii) by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when they have been distributed to the
public pursuant to an offering registered under the Securities Act or sold to
the public through a broker or dealer or to a market maker in compliance with
Rule 144 under the Securities Act (or any similar rule then in force) or
repurchased by the Company or any Subsidiary, or when they are eligible to be
sold in compliance with Rule 144 under the Securities Act. For purposes of this
Agreement, a person shall be deemed to be a holder of Registrable Securities,
and the Registrable Securities shall be deemed to be in existence, whenever such
person has the right to acquire directly or indirectly such Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise), whether or not such acquisition has actually been
effected, and such person shall be entitled to exercise the rights of a holder
of Registrable Securities hereunder.
(b) Unless otherwise stated, other capitalized terms contained
herein have the meanings set forth in the Purchase Agreement.
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company shall not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the holders of Registrable Securities in
this Agreement.
(b) NO ADVERSE ACTION. The Company shall not take any action, or
permit any change to occur, with respect to its securities which would adversely
affect the ability
- --------------------------------------------------------------------------------
Registration Agreement -6-
<PAGE> 7
of the holders of Registrable Securities to include such Registrable Securities
in the registration undertaken pursuant to this Agreement.
(c) REMEDIES. Any person having rights under any provision of this
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and Investors.
(e) SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities who is an
affiliate of the Investor.
(f) INCORPORATION OF PURCHASE AGREEMENT PROVISIONS. The paragraphs
of Article IX of the Purchase Agreement are hereby incorporated in this
Agreement by reference and made a part hereof; except that the provisions of
such paragraphs shall refer to this Agreement rather than the Purchase Agreement
and shall continue to apply hereto regardless of whether the Purchase Agreement
is any longer in effect.
(g) NON-TRANSFERABILITY. The Investors' rights and obligations under
this Agreement shall not be transferable to an other party under any
circumstances, whether by operation of law or otherwise (other than to an entity
into which an Investor has been merged or which has acquired substantially all
of the assets of the Investor); provided that the Investor shall have the right
to transfer its rights and obligations hereunder to its affiliates (as such term
is defined in Rule 144 under the Securities Act) in connection with a permitted
transfer of Registrable Securities to such affiliates, so long as such
affiliates agree in writing to be bound by the terms of this Agreement.
- --------------------------------------------------------------------------------
Registration Agreement -7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Registration Agreement
as of the date first written above.
AMERICAN BIOGENETIC SCIENCES, INC.
By: /s/ Josef C. Schoell
---------------------------------------------
Name: Josef C. Schoell
Title: V. P. Finance
INVESTORS:
/s/ Alfred J. Roach
-------------------------------------------------
Alfred J. Roach
BIOTECHNOLOGY VALUE FUND, L.P.
By: BVF PARTNERS L.P., its General Partner
By: BVF, INC., its General Partner
By:
----------------------------------
Mark N. Lampert
President
BIOTECHNOLOGY VALUE FUND II, L.P.
By: BVF PARTNERS L.P., its General Partner
By: BVF, INC., its General Partner
By:
----------------------------------
Mark N. Lampert
President
INVESTMENT 10 L.L.C.
By: BVF PARTNERS, L.P., its Investment Advisor
By: BVF, INC., its General Partner
By:
----------------------------------
Mark N. Lampert
President
- --------------------------------------------------------------------------------
Registration Agreement -8-
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Registration Agreement
as of the date first written above.
AMERICAN BIOGENETIC SCIENCES, INC.
By: /s/
---------------------------------------------
Name:
Title:
INVESTORS:
-------------------------------------------------
Alfred J. Roach
BIOTECHNOLOGY VALUE FUND, L.P.
By: BVF PARTNERS L.P., its General Partner
By: BVF, INC., its General Partner
By: /s/ Mark N. Lampert
----------------------------------
Mark N. Lampert
President
BIOTECHNOLOGY VALUE FUND II, L.P.
By: BVF PARTNERS L.P., its General Partner
By: BVF, INC., its General Partner
By: /s/ Mark N. Lampert
----------------------------------
Mark N. Lampert
President
INVESTMENT 10 L.L.C.
By: BVF PARTNERS, L.P., its Investment Advisor
By: BVF, INC., its General Partner
By: /s/ Mark N. Lampert
----------------------------------
Mark N. Lampert
President
- --------------------------------------------------------------------------------
Registration Agreement -8-
<PAGE> 1
Exhibit 10.2(c)
1996 STOCK OPTION PLAN
OF
AMERICAN BIOGENETIC SCIENCES, INC.
(AS AMENDED EFFECTIVE JUNE 15, 1999)
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) and to consultants who are not employees of American
Biogenetic Sciences, Inc., a Delaware corporation (the "Company"), and its
present and future subsidiary corporations, as defined in Paragraph 19
("Subsidiaries"), and to offer an additional inducement in obtaining the
services of such employees and consultants. The Plan provides for the grant of
"incentive stock options" ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options which do not qualify as ISOs ("NQSOs"), but the Company makes no
representation or warranty, express or implied, as to the qualification of any
option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12, the aggregate number of shares of Class A Common Stock, $.001 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 4,000,000. Such shares of Common Stock may, in the
discretion of the Board of Directors of the Company (the "Board of Directors"),
consist either in whole or in part of authorized but unissued shares of Common
Stock or shares of Common Stock held in the treasury of the Company. Subject to
the provisions of Paragraph 13, any shares of Common Stock subject to an option
which for any reason expires, is canceled or is terminated unexercised or which
ceases for any reason to be exercisable shall again become available for the
granting of options under the Plan. The Company shall at all times during the
term of the Plan reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board of Directors or, to the extent the Board of Directors may determine, a
committee of the Board of Directors (the "Committee") consisting of not less
than two directors, each of whom shall be a "non-employee director" within the
meaning of Rule 16b-3 (or any successor rule or regulation) promulgated under
the Securities Exchange Act of 1934, as amended (as the same may be in effect
and interpreted from time to time, "Rule 16b-3"). A majority of the members of
the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee. All references in the Plan to determinations or actions of the
Committee shall be deemed to include determinations and actions by the Committee
or the Board of Directors.
Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion, to determine the employees and the
consultants who shall be granted options; the times when options shall be
granted; whether an option granted to an employee shall be an ISO or a NQSO; the
number of shares of Common Stock to be subject to each option; the term of each
option, the date each option shall become exercisable; whether an option shall
be exercisable in whole, in part or in installments and, if in installments, the
number of shares of Common Stock to be subject to each installment, whether the
installments shall be cumulative, the date each installment shall become
exercisable and the term of each installment; whether to accelerate the date of
exercise of any option or installment; whether shares of Common Stock may be
issued upon the exercise of an option as partly paid and, if so, the dates when
future installments of the exercise price shall become due and the amounts of
such installments; the exercise price of each option; the form of payment of the
<PAGE> 2
exercise price; the fair market value of a share of Common Stock; whether to
restrict the sale or other disposition of the shares of Common Stock acquired
upon the exercise of an option and, if so, whether to waive any such
restriction; whether to subject the exercise of all or any portion of an option
to the fulfillment of contingencies as specified in the contract referred to in
Paragraph 11 (the "Contract"), including without limitation, contingencies
relating to entering into a covenant not to compete with the Company, any of its
Subsidiaries or a Parent (as defined in Paragraph 19), to financial objectives
for the Company, any of its Subsidiaries or a Parent, a division of any of the
foregoing, a product line or other category, and/or the period of continued
employment of the optionee with the Company, any of its Subsidiaries or a
Parent, and to determine whether such contingencies have been met; the amount,
if any, necessary to satisfy the Company's obligation to withhold taxes or other
amounts; whether an optionee is Disabled (as defined in Paragraph 19); to
construe the respective Contracts and the Plan; with the consent of the
optionee, to cancel or modify an option, PROVIDED such modified provision would
be permitted to be included in an option on the date of modification, and
FURTHER, PROVIDED, that, in the case of a modification (within the meaning of
Section 424(h) of the Code) of an ISO, such option as modified would be
permitted to be granted on the date of such modification under the terms of the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; and to make all other determinations necessary or advisable for
administering the Plan. Any controversy or claim arising out of or relating to
the Plan, any option granted under the Plan or any Contract shall be determined
unilaterally by the Committee in its sole discretion. The determinations of the
Committee on the matters referred to in this Paragraph 3 shall be conclusive and
binding on the parties. No member or former member of the Committee shall be
liable for any action, failure to act or determination made in good faith with
respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to employees
(including officers and directors who are employees) of, and to consultants to,
the Company or any of its Subsidiaries. Such options granted shall cover such
number of shares of Common Stock as the Committee may determine in its sole
discretion; PROVIDED, HOWEVER, that the maximum number of shares subject to
options that may be granted to any employee during any calendar year under the
Plan (the "162(m) Maximum") shall not exceed 500,000 shares; and FURTHER,
PROVIDED, that the aggregate market value (determined at the time the option is
granted in accordance with Paragraph 5) of the shares of Common Stock for which
any eligible employee may be granted ISOs under the Plan or any other plan of
the Company, or of a Parent or a Subsidiary of the Company, which are
exercisable for the first time by such optionee during any calendar year shall
not exceed $100,000. Such limitation shall be applied by taking ISOs into
account in the order in which they were granted. Any option (or the portion
thereof) granted in excess of such amount shall be treated as an NQSO.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee in its sole discretion,
PROVIDED, HOWEVER, the exercise price of an ISO shall not be less than the fair
market value of the Common Stock subject to such option on the date of grant;
and FURTHER, PROVIDED, that if, at the time an ISO is granted, the optionee owns
(or is deemed to own under Section 424(d) of the Code) stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, of any of its Subsidiaries or of a Parent, the exercise price of such
ISO shall not be less than 110% of the fair market value of the Common Stock
subject to such ISO on the date of grant.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of Common
Stock on such day as reported by such exchange or on a composite tape reflecting
transactions on such exchange, (b) if the principal market for the Common Stock
is not a national securities exchange and the
-2-
<PAGE> 3
Common Stock is quoted on The Nasdaq Stock Market ("Nasdaq"), (i) if closing bid
and asked price information is available with respect to the Common Stock, the
average of the closing bid and asked prices per share of Common Stock on such
day on Nasdaq, or (ii) if such information is not available, the average of the
highest bid and lowest asked prices per share of Common Stock on such day on
Nasdaq, or (c) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on Nasdaq, the average of
the highest bid and lowest asked prices per share of Common Stock on such day as
reported on the OTC Bulletin Board Service or by National Quotation Bureau,
Incorporated or a comparable service; PROVIDED, HOWEVER, that if clauses (a),
(b) and (c) of this Paragraph are all inapplicable, or if no trades have been
made or no quotes are available for such day, the fair market value of the
Common Stock shall be determined by the Board by any method consistent with
applicable regulations adopted by the Treasury Department relating to stock
options.
6. TERM. The term of each option granted pursuant to the Plan shall
be such term as is established by the Committee, in its sole discretion;
PROVIDED, HOWEVER, that the term of each ISO granted pursuant to the Plan shall
be for a period not exceeding 10 years from the date of grant thereof; and
FURTHER, PROVIDED, that if, at the time an ISO is granted, the optionee owns (or
is deemed to own under Section 424(d) of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
of any of its Subsidiaries or of a Parent, the term of the ISO shall be for a
period not exceeding five years from the date of grant. Options shall be subject
to earlier termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract permits installment
payments) (a) in cash or by certified check or (b) if the applicable Contract
permits, with previously acquired shares of Common Stock having an aggregate
fair market value on the date of exercise (determined in accordance with
Paragraph 5) equal to the aggregate exercise price of all options being
exercised, or with any combination of cash, certified check or shares of Common
Stock.
The Committee may, in its sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of the optionee's irrevocable instructions to a
broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for such
shares; PROVIDED, HOWEVER, that until such stock certificate is issued, any
optionee using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose relationship with the
Company, its Subsidiaries and Parent as an employee or consultant has terminated
for any reason (other than his death or Disability) may exercise such option, to
the extent exercisable on the date of such termination, at any time within three
months
-3-
<PAGE> 4
after the date of termination, but not thereafter and in no event after the date
the option would otherwise have expired; PROVIDED, HOWEVER, that if such
relationship is terminated either (a) for cause, or (b) without the consent of
the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 31st day
of such leave.
Notwithstanding the foregoing, except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not be
affected by any change in the status of the optionee so long as the optionee
continues to be an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent (regardless of having changed from one to the other or
having been transferred from one corporation to another).
Nothing in the Plan or in any option granted under the Plan shall
confer on any optionee any right to continue in the employ of, or as a
consultant to, the Company, its Parent or any of its Subsidiaries, or interfere
in any way with any right of the Company, its Parent or any of its Subsidiaries
to terminate the optionee's relationship at any time for any reason whatsoever
without liability to the Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee of; or a consultant to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of Disability, his option may be exercised, to the extent
exercisable on the date of his death, by his Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or a consultant to,
the Company, its Parent or any Subsidiary has terminated by reason of Disability
may exercise his option, to the extent exercisable upon the effective date of
such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the
exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there be an exemption from registration
under the Securities Act for the issuance of the shares of Common Stock upon
such exercise. Nothing herein shall be construed as requiring the Company to
register shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
-4-
<PAGE> 5
The Committee may require, in its sole discretion, as a condition to
the exercise of any option that the optionee execute and deliver to the Company
his representations and warranties, in form, substance and scope satisfactory to
the Committee, which the Committee determines are necessary or convenient to
facilitate the perfection of an exemption from the registration requirements of
the Securities Act or other legal requirement, including without limitation that
(a) the shares of Common Stock to be issued upon the exercise of the option are
being acquired by the optionee for his own account, for investment only and not
with a view to the resale or distribution thereof; and (b) any subsequent resale
or distribution of shares of Common Stock by such optionee will be made only
pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its
sole discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the granting
of an option or the issue of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any
other provision of the Plan, in the event of a stock dividend, split-up,
combination, reclassification, recapitalization, spin-off, merger in which the
Company is the surviving corporation, or exchange of shares or the like which
results in a change in the number or kind of those shares of Common Stock which
are outstanding immediately prior to such event, the aggregate number and kind
of shares subject to the Plan, the aggregate number and kind of shares subject
to each outstanding option and the exercise price thereof, and the 162(m)
Maximum shall be appropriately adjusted by the Board of Directors, whose
determination shall be conclusive and binding on all parties. Such adjustment
may provide for the elimination of fractional shares which might otherwise be
subject to options without payment thereto.
In the event of (a) the liquidation or dissolution of the Company,
or (b) a merger in which the Company is not the surviving corporation or a
consolidation, any outstanding options shall terminate upon the earliest of any
such event, unless other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors on March 29, 1996. No option may be granted under the
Plan after March 28, 2006 The Board of Directors, without further approval of
the Company's stockholders, may at any time suspend or terminate the Plan, in
whole or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with, conform to or adopt the provisions of Rule 16b-3, Section 162(m) of the
Code or any change in applicable law, regulations, rulings or interpretations of
administrative agencies; provided, however, that no amendment shall be effective
without the requisite prior or subsequent stockholder
-5-
<PAGE> 6
approval which would (a) except as contemplated in Paragraph 12, increase the
maximum number of shares of Common Stock for which options may be granted under
the Plan or the 162(m) Maximum, (b) materially increase the benefits accruing to
participants under the Plan or (c) change the eligibility requirements to
receive options hereunder. No termination, suspension or amendment of the Plan
shall, without the consent of the holder of an existing and outstanding option
affected thereby, adversely affect his rights under such option. The power of
the Committee to construe and administer any options granted under the Plan
prior to the termination or suspension of the Plan nevertheless shall continue
after such termination or during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
15. WITHHOLDING TAXES. The Company shall withhold cash in an amount
equal to the amount determined necessary to satisfy the Company's obligation to
withhold Federal, state and local income taxes or other amounts incurred by
reason of the grant or exercise of an option or the disposition of the
underlying shares of Common Stock except to the extent that, with the specific
authorization of the Committee, in the Contract or otherwise, the optionee is
permitted to pay such amounts by (a) the delivery or withholding of shares of
Common Stock having an aggregate fair market value on the exercise date
(determined in accordance with Paragraph 5) or (b) any combination of cash and
such shares. Alternatively, the Company may require the holder to pay to the
Company such amount, in cash, promptly upon demand. The Company shall not be
required to issue any shares of Common Stock pursuant to any such option until
all required payments have been made.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws, (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock, or (c) permit the Company to determine the
occurrence of a "disqualifying disposition," as described in Section 421(b) of
the Code, of the shares of Common Stock issued or transferred upon the exercise
of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for such corporate purposes as the
Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a
-6-
<PAGE> 7
Constituent Corporation (as defined in Paragraph 19) or assume the prior options
of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms shall
be defined as set forth below:
(a) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, any of
its Subsidiaries or a Parent in a transaction to which Section 424(a) of the
Code applies (or would apply if the option assumed or substituted were an ISO),
or any Parent or any Subsidiary of such corporation.
(b) Disability. The term "Disability" shall mean a permanent
and total disability within the meaning of Section 22(e)(3) of the Code.
(c) Legal Representative. The term "Legal Representative"
shall mean the executor, administrator or other person who at the time is
entitled by law to exercise the rights of a deceased or incapacitated optionee
with respect to an option granted under the Plan.
(d) Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 424(e) of the Code.
(e) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be
granted hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions.
Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan or any Contract shall not affect
the validity, legality or enforceability of any other provision, all of which
shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person or by proxy at the next duly held
meeting of the Company's stockholders at which a quorum is present. No options
granted hereunder may be exercised prior to such approval; PROVIDED, HOWEVER,
that the date of grant of any option shall be determined as if the Plan had not
been subject to such approval. Notwithstanding the foregoing, if the Plan is not
approved by a vote of the stockholders of the Company on or before March 28,
1997, the Plan and any options granted hereunder shall terminate.
-7-
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 22, 2000 included in this Form 10-K, into American Biogenetic
Sciences, Inc.'s previously filed Registration Statements on Form S-8 (File Nos.
33-35992, 33-39683, 33-51240, 33-65416, 333-09473, 333-59351 and 333-93071), and
previously filed Registration Statements on Form S-3 (File Nos. 333-13615,
333-13619, 333-13623, 333- 14447, 333-59345, 333-60117 and 333-69735).
/s/ Arthur Andersen LLP
Melville, New York
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS TWELVE MONTHS YEAR-TO-DATE SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM AMERICAN BIOGENETIC SCIENCES, INC. 1999 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 93,000
<SECURITIES> 0
<RECEIVABLES> 211,000
<ALLOWANCES> 0
<INVENTORY> 511,000
<CURRENT-ASSETS> 76,000
<PP&E> 2,316,000
<DEPRECIATION> 1,840,000
<TOTAL-ASSETS> 3,938,000
<CURRENT-LIABILITIES> 2,327,000
<BONDS> 0
0
0
<COMMON> 40,000
<OTHER-SE> 1,538,000
<TOTAL-LIABILITY-AND-EQUITY> 3,938,000
<SALES> 1,361,000
<TOTAL-REVENUES> 1,443,000
<CGS> 598,000
<TOTAL-COSTS> 598,000
<OTHER-EXPENSES> 1,725,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,000
<INCOME-PRETAX> (5,351,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,351,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,351,000)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
