PENEDERM INCORPORATED
TABLE OF CONTENTS
FORM 10-Q
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations -
Three months ended June 30, 1997 and 1996 and
six months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
PENEDERM INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1997 and December 31, 1996
(in thousands)
June 30, December 31,
1997 1996
----------- -------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 387 $ 3,062
Short-term marketable securities 8,624 2,259
Accounts receivable 1,679 276
Inventory 1,779 1,539
Prepaid expenses and other
current assets 724 649
-------- --------
Total current assets 13,193 7,785
Marketable securities 1,000 1,099
Property and equipment, at cost,
less accumulated depreciation
and amortization 257 277
Intangible and other assets 1,450 1,533
-------- --------
Total assets $15,900 $10,694
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 751 $ 1,196
Accrued liabilities 1,206 879
-------- --------
Total current liabilities 1,957 2,075
Long-term obligations 20 28
-------- --------
Total liabilities 1,977 2,103
SHAREHOLDERS' EQUITY
Common stock, no par value 56,155 46,984
Accumulated deficit (42,232) (38,393)
-------- --------
Total stockholders' equity 13,923 8,591
-------- --------
Total liabilities and
stockholders' equity $15,900 $10,694
======== ========
See accompanying notes.
PENEDERM INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
--------- ---------- --------- ----------
Revenues:
Product sales $ 1,643 $ 1,100 $ 4,244 $ 1,693
Licensing revenues 360 -- 660 207
-------- -------- -------- --------
Total revenues 2,003 1,100 4,904 1,900
-------- -------- -------- --------
Costs and expenses:
Cost of product sales 845 687 1,608 1,115
Research and development 1,259 1,259 2,482 3,121
Sales and marketing 1,769 425 3,932 726
General and administrative 603 697 931 1,582
-------- -------- -------- --------
Total costs and expenses 4,476 3,068 8,953 6,544
-------- -------- -------- --------
Loss from operations (2,473) (1,968) (4,049) (4,644)
Interest income, net 151 154 210 330
-------- -------- -------- --------
Net loss $(2,322) $(1,814) $(3,839) $(4,314)
======== ======== ======== ========
Net loss per share $ (0.29) $ (0.25) $ (0.49) $ (0.59)
======== ======== ======== ========
Number of shares used in
computing net loss per share 8,112 7,257 7,848 7,256
======== ======== ======== ========
See accompanying notes.
PENEDERM INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
1997 1996
-------- --------
Increase (decrease) in cash and cash
equivalents
Cash flows from operating activities:
Net loss $(3,839) $(4,314)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 159 130
Increase in accounts receivable (1,403) (106)
Increase in inventory (240) (100)
Increase in prepaid expenses and other
current assets (75) (77)
Decrease in accounts payable, accrued
liabilities and rent (118) (10)
Increase in other assets (2) --
------- -------
Net cash used in operating activities (5,518) (4,477)
------- -------
Cash flows from investing activities:
Purchases of available-for-sale securities (7,032) (6,908)
Maturities of available-for-sale securities 266 4,051
Sales of available-for-sale securities 500 260
Acquisition of intangible assets -- (100)
Acquisition of fixed assets (54) (86)
------- -------
Net cash used in investing activities (6,320) (2,783)
------- -------
Cash flows from financing activities:
Net proceeds from private placement stock
offering 8,975 --
Proceeds from issuance of common stock 196 114
Repayment of long-term debt (8) (24)
------- -------
Net cash provided by financing activities 9,163 90
------- -------
Net decrease in cash and cash equivalents (2,675) (7,170)
Cash and cash equivalents at beginning of
period 3,062 8,695
------- -------
Cash and cash equivalents at end of period $ 387 $1,525
======= =======
See accompanying notes.
PENEDERM INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Interim Unaudited Financial Information
The accompanying interim unaudited condensed
consolidated financial statements of the Company for
the three and six month periods ended June 30, 1997 and
1996, have been prepared in accordance with generally
accepted accounting principles for interim financial
statements and include all adjustments (consisting of
normal and recurring adjustments) that the Company
considers necessary for a fair presentation of the
operating results and cash flows for these periods. The
results of operations for the interim periods are not
necessarily indicative of the results to be expected
for an entire year. These financial statements should
be read in conjunction with the audited financial
statements and notes included as part of the Company's
Form 10-K for the year ended December 31, 1996.
In July 1997, the Company changed the state of its
incorporation from California to Delaware.
2. Net Loss Per Share
Net loss per share is computed using the weighted
average number of common shares outstanding during the
period. Common stock equivalents relating to stock
options are excluded from the computation as their
effect is anti-dilutive.
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (SFAS 128) which
is required to be adopted in periods ending after
December 15, 1997. SFAS 128 simplifies the calculation
of earnings per share in most situations, excluding
common stock equivalents in the computation of basic
earnings per share. SFAS 128 will have no impact on
the Company's computation of loss per share in the
periods ended June 30, 1997 and 1996 or in previously
disclosed periods as common stock equivalents have and
had been excluded due to their anti-dilutive effect.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Recent Events
In April 1997, Penederm announced it had entered into a
second agreement with SmithKline Beecham to co-develop
an undisclosed OTC product using Penederm's patented
TopiCare Delivery Compounds(R) with a proprietary
SmithKline Beecham formulation. Both companies will
contribute scientific and technical expertise to the
collaboration. SmithKline Beecham has the exclusive
option to market the finished product worldwide.
Penederm will receive milestone payments and royalties
on the sale of products resulting from the
collaboration, as well as revenues from the supply of
TopiCare Delivery Compounds.
In May 1997, Penederm announced it had received
regulatory approval from the Health Protection Branch
of Health Canada of its topical antifungal compound,
butenafine HCl 1% cream, as an over-the-counter (OTC)
tinea pedis (athlete's foot) medication. Schering-
Plough Healthcare Products, Inc. will market the
butenafine cream in Canada under its own brand names.
In June 1997, Penederm received a Phase I Small
Business Innovation Research (SBIR) grant from the
National Institutes of Health National Institute on
Aging to support research of Penederm's ST-630 compound
as a possible treatment for two widespread skin
disorders: acne and premature skin aging. ST-630 is a
fluorinated derivative of Vitamin D3 that Penederm
currently has in Phase II human clinical studies for
the treatment of psoriasis.
Overview
Penederm is a pharmaceutical company that specializes
in developing and marketing dermatology products.
Penederm recently launched Mentax(R), a once-a-day
prescription topical treatment for three skin fungal
conditions: tinea pedis (athlete's foot), tinea
corporis (ringworm) and tinea cruris (groin fungus).
Penederm also recently received FDA approval to begin
marketing its Avita(TM) prescription cream product for
the treatment of acne and contingent approval to begin
marketing its Avita gel product upon expiration of a
third party patent in January 1998. Penederm has
several other pharmaceutical products for psoriasis,
nail fungus and Mentax skin treatment line extensions
in Phase II human clinical trials. The Company also
sells its patented TopiCare Delivery Compounds
for use in cosmetics and personal care products, and
markets its own over-the-counter (OTC) skin care prod-
ucts through corporate partners.
The Company has several partnership arrangements with
various pharmaceutical companies, as follows:
COMPANY PRODUCT AREA TERRITORY
------- ------------ ---------
In-License and Co-
Development
Agreements:
- ------------------
Kaken Penederm in-licensed U.S. Canada, Mexico and
Pharmaceutical butenafine, the Latin America for skin
Company Ltd. active ingredient antifungal; U.S.,
(Kaken) incorporated in Canada, Europe, Mexico,
Mentax Latin America,
Australia & New Zealand
for nail antifungal.
The Merck KGaA Co-promote Akne- U.S.
Group/Center mycin(R) and
Laboratories Cloderm(TM)
SmithKline Beecham Undisclosed OTC SmithKline option to
(SmithKline) product market worldwide
Out-License
Agreements:
- ------------------
Schering-Plough Prescription & OTC U.S. and Canada
HealthCare Nail and co-promote
Products, Inc. prescription skin
(Schering-Plough) cream antifungal
UCB Group of Prescription Europe, Africa and
Belgium (UCB) antifungal products Middle East
Warner Wellcome OTC Dry Skin U.S. and Canada
Consumer Health
Products (Warner)
SmithKline Beecham OTC Consumer Europe & Eastern Europe
(SmithKline) Products
Pierre Fabre Inc. DuraScreen sunscreen U.S.
(Pierre Fabre)
The Company has been unprofitable since inception and
expects to incur significant additional operating
losses in the near future. For the period from
inception through June 30, 1997, the Company incurred a
cumulative net loss of $42,232,000. Penederm's sources
of working capital have been equity financings, product
sales to corporate partners, sales of Mentax, Avita and
over-the-counter products, product license fees, sales
of TopiCare Delivery Compounds and interest earned on
investments.
Results of Operations
Three Months Ended June 30, 1997 and 1996
Total revenues for the three months ended June 30,
1997 of $2,003,000 increased 82% from $1,100,000 in the
same period of 1996. This increase is due primarily to
the initial product stocking shipments of the Company's
recently launched Avita product and out-license
milestone payments from corporate partners. As
expected, revenues from the Company's Mentax product,
which was initially launched in January of 1997, were
modest in the second quarter.
The Company's cost of sales increased to $845,000
in the three months ended June 30, 1997 from $687,000
in the same period of 1996 primarily due to the 1997
launch of Avita. Gross margins improved in the second
quarter of 1997 compared to the same period of 1996 due
to the 1997 launch of Avita, the Company's second
pharmaceutical product, which contributes higher
margins than the Company's nonprescription products.
The Company's research and development expenses were
$1,259,000 in both the three months ended June 30, 1997
and 1996. Research and development expenses can
fluctuate based on the size and timing of the Company's
clinical trial programs. The Company was conducting a
large Phase III study in the second quarter of 1996
whereas several smaller Phase II studies were being
conducted for the same period in 1997. Sales and
marketing expenses increased 316% to $1,769,000 in the
three months ended June 31, 1997 from $425,000 in the
same period of 1996 due primarily to marketing and
other expenses related to the product launch of Mentax
in the first quarter of 1997 and preparation for the
marketing launch of Avita in the third quarter and
detailing support for Akne-mycin and Cloderm. General
and administrative expenses decreased 13% to $603,000
in the three months ended June 30, 1997 from $697,000
in the same period of 1996. The prior year period had
unusually high legal costs related to prosecuting
violations of certain of the Company's patents.
Net interest income was $151,000 in the three months
ended June 30, 1997 and $154,000 in the same period of
1996.
Six Months Ended June 30, 1997 and 1996
Total revenues for the six months ended June 30,
1997 of $4,904,000 increased from $1,900,000 in the
same period of 1996. This increase is due primarily to
the initial product stocking shipments of the Company's
recently launched Mentax and Avita and out-license
milestone payments from corporate partners.
The Company expects its future revenues in the
near term to be derived principally from the sale of
its recently approved pharmaceutical products, and for
the revenues derived from OTC and cosmetic products to
become less significant relative to total revenues.
The Company's cost of sales increased to
$1,608,000 in the six months ended June 30, 1997 from
$1,115,000 in the same period of 1996 primarily due to
the 1997 launch of Mentax sales. Gross margins
improved in the first six months of 1997 compared to
the same period of 1996 due to the 1997 launch of
Mentax and Avita, the Company's first pharmaceutical
products, which contribute higher margins than the
Company's nonprescription products.
The Company's research and development expenses
decreased 20% to $2,482,000 in the six months ended
June 30, 1997 from $3,121,000 in the same period of
1996 primarily due to the timing and size of human
clinical trials. The Company was conducting a large
Phase III study in the first quarter of 1996 whereas
several smaller Phase II studies were being conducted
for the same period in 1997. Sales and marketing
expenses increased 442% to $3,932,000 in the six months
ended June 30, 1997 from $726,000 in the same period of
1996 due primarily to marketing and other expenses
related to the product launch of Mentax in the first
quarter of 1997 and preparation for the marketing
launch of Avita in the third quarter and detailing
support for Akne-mycin and Cloderm. General and
administrative expenses decreased 41% to $931,000 in
the six months ended June 30, 1997 from $1,582,000 in
the same period of 1996. The prior year period had
unusually high legal costs related to prosecuting
violations of certain of the Company's patents. This
patent case was won by the Company resulting in the
recovery of a portion of the Company's legal fees in
the first quarter of 1997.
Net interest income decreased 36% to $210,000 in the
six months ended June 30, 1997 from $330,000 in the
same period of 1996. This decrease is primarily as a
result of lower average cash balances available for
investment in the six months of 1997.
The Company expects that annual revenues, and
costs and expenses will continue to increase in the
future, due principally to further
commercialization of its recently approved pharmaceu-
tical products. Sales and marketing expenses are
expected to increase significantly from the prior year
as these products are promoted in the marketplace.
The Company also expects some expansion of research
and development programs, increased patent and regula-
tory costs, expansion of regulatory, clinical and
quality assurance capabilities, and increased admin-
istrative support costs. Therefore, additional oper-
ating losses are expected in the near future.
In addition, sales of a product upon initial market
introduction generally include a significant amount of
initial orders for inventory by wholesalers and
distributors and are not necessarily indicative of
actual demand for that product by patients and
physicians. There can be no assurance that
distributors and wholesalers will be able to forecast
demand for product accurately. Fluctuations in
operating results will occur to the extent that sell
through of products does not meet distributors' or
wholesalers' expectations. The Company also expects
that future operating results may be subject to
quarterly variations that may impact cash flow from
operations. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of future
operating results.
Liquidity and Capital Resources
The Company's principal sources of capital to date
have been the proceeds from public and private
offerings of its equity securities, including a March
1997 private placement for which the net proceeds were
approximately $9,000,000. At June 30, 1997, the
Company had cash, cash equivalents and investments
totaling $10,011,000.
Cash expenditures related to operating activities, the
acquisition of fixed assets and repayment of long-term
obligations totaled $5,580,000 in the six months ended
June 30, 1997 and $4,587,000 for the same period in
1996. Operating activities were comprised of research
and development, clinical trials, product sales,
promotion and general administration activities. The
Company also made milestone payments of $100,000
related to the in-licensing of drug compounds in the
six months ended June 30, 1996. No similar milestone
payments were made in the first six months of 1997. The
Company expects that amounts expended historically are
not indicative of future expenditures by the Company,
which the Company believes will increase. The Company
expects to continue to incur substantial expenditures
related to the further research and development of its
technologies, development of its products, acquisition
of additional products and rights to drug compounds and
sales and marketing.
The Company believes that existing capital resources,
including the interest income earned on its invested
cash balances, together with the anticipated revenues
(consisting of product sales, license fees and
royalties), may satisfy the Company's working capital
and identified capital expenditure requirements at
least through June 30, 1998. However, the Company's
future capital requirements will depend on many
factors, including the progress of the Company's
collaborative and independent research and development
programs, payments received under collaborative
agreements with other companies, if any, the results
and costs of preclinical and clinical testing for the
Company's products, the costs associated with and the
timing of regulatory approvals, technological advances,
the status of competitive products, and the commercial
success of Penederm's licensing and marketing efforts.
There can be no assurance that additional funds, if
required, will be available to the Company on favorable
terms, if at all, to permit the Company to continue
with its current plan for operations.
______________________________________________
The statements in "Management's Discussion and
Analysis of Financial Condition and Results of
Operations" that relate to future plans, events or
performance, including statements relating to future
revenue and expense levels, are forward-looking
statements which involve risks and uncertainties
including, but not limited to, product development and
market acceptance risks, product manufacturing risks,
risks associated with the establishment and management
of a contract sales force, the impact of competitive
products and pricing, the results of current and future
licensing and other collaborative relationships, the
results of financing efforts, developments regarding
intellectual property rights and litigation, risks of
product nonapproval or delays or post-approval reviews
by the FDA or foreign regulatory authorities, and other
risks identified in the Company's Securities and
Exchange Commission filings. Actual results, events or
performance may differ materially. Readers are
cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these
forward-looking statements that may be needed to
reflect events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events.
PENEDERM INCORPORATED
Part II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders
The Company held its annual meeting of shareholders on June
16, 1997. At the meeting, the shareholders considered the
items described below:
Each of the nominees for director David E. Collins, Lloyd H.
Malchow, Robert F. Allnutt, William I. Bergmen, Mark J.
Gabrielson, Harvey S. Sadow, Ph.D., and Gerald D. Weinstein,
M.D., was elected by the affirmative vote of at least
6,227,126 shares (out of 6,460,834 shares represented at the
meeting).
The shareholders voted to approve an amendment to the
Penederm Incorporated Equity Incentive Plan to increase by
400,000 the number of shares reserved for issuance under the
plan. The amendment was approved by a vote of 3,458,222
shares for, 1,566,896 shares against and 17,220 shares
abstaining.
The shareholders voted to approve an amendment to the
Penederm Incorporated Employee Stock Purchase Plan to
increase by 50,000 the number of shares reserved for
issuance under the plan. The amendment was approved by a
vote of 4,417,761 shares for, 609,516 shares against and
15,061 shares abstaining.
The June 16, 1997 meeting of shareholders was adjourned
until July 11 at which the following resolution was approved
by shareholders:
The shareholders voted to approve a change in the Company's
state of incorporation from California to Delaware through
the merger of the Company into a newly formed Delaware
corporation that is a wholly-owned subsidiary of the
Company. This proposal was approved by a vote of 5,266,920
shares for, 844,645 against and 90,337 abstaining (out of
7,292,120 shares represented at the meeting).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger between Penederm
Incorporated, a California Corporation and
Penederm Incorporated, a Delaware Corporation
27 Financial Data Schedule
99.1(1) Equity Incentive Plan
99.2(1) Employee Stock Purchase Plan
_______________
(1) Incorporated by reference to the exhibits to Penederm
Registration Statement on Form S-8 (File No. 333-32689) filed on
August 1, 1997.
(b) Reports on Form 8-K
On August 1, 1997, Penederm filed a current report
on Form 8-K in connection with the reincorporation
of the Company in Delaware.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PENEDERM INCORPORATED
August 14, 1997 /s/Lloyd H. Malchow
Date Lloyd H. Malchow, President
and Chief Executive Officer
August 14, 1997 /s/Michael A. Bates
Date Michael A. Bates, Director of
Finance and Administration
INDEX TO EXHIBITS
Exhibit
No. Description
2.1 Agreement and Plan of Merger between Penederm
Incorporated, a California Corporation and
Penederm Incorporated, a Delaware Corporation
27 Financial Data Schedule
99.1(1) Equity Incentive Plan
99.2(1) Employee Stock Purchase Plan
_______________
(1) Incorporated by reference to the exhibits to Penederm
Registration Statement on Form S-8 (File No. 333-32689) filed on
August 1, 1997.
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BETWEEN
PENEDERM INCORPORATED,
a California corporation
and
PENEDERM INCORPORATED,
a Delaware corporation
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is
dated as of July 30, 1997 between Penederm Incorporated, a
California corporation ("Penederm California"), and Penederm
Incorporated, a Delaware corporation ("Penederm Delaware"), a
wholly owned subsidiary of Penederm California.
BACKGROUND
A. Penederm California is a corporation duly organized,
validly existing and in good standing under the laws of the State
of California and, on the date of this Agreement, has authority
to issue 40,000,000 shares consisting of 30,000,000 shares of
Common Stock, no par value, and 10,000,000 shares of Preferred
Stock, no par value, of which 8,134,660 shares of Common Stock
and no shares of Preferred Stock are issued and outstanding.
B. Penederm Delaware is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and, on the date of this Agreement, has authority to
issue 40,000,000 shares, consisting of 30,000,000 shares of
Common Stock, $0.01 par value, and 10,000,000 shares of Preferred
Stock, $0.01 par value, of which one share of Common Stock is
issued and outstanding and owned by Penederm California and no
shares of Preferred Stock are issued and outstanding.
C. The Board of Directors of each of Penederm California
and Penederm Delaware have determined that it is advisable and in
the best interests of each of such corporations that Penederm
California merge into Penederm Delaware upon the terms and
subject to the conditions set forth in this Agreement, for the
purpose of effecting the reincorporation of Penederm California
in the State of Delaware and have, by resolutions duly adopted,
approved this Agreement and directed that it be submitted to a
vote of their respective stockholders and executed by the
undersigned officers.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
When used in this Agreement (and in any Exhibit in which
such terms are not otherwise defined) the following terms shall
have the following meanings:
"California Common Stock" shall mean shares of Common
Stock, no par value, of Penederm California.
"California Preferred Stock" shall mean shares of Preferred
Stock, no par value, of Penederm California.
"Certificate of Merger" shall mean the Certificate of
Merger of Penederm California into Penederm Delaware to be filed
with the Secretary of State of the State of Delaware in
substantially the form attached hereto as Exhibit 2.1.
"Delaware Common Stock" shall mean shares of Common Stock,
$0.01 par value, of Penederm Delaware.
"Delaware Preferred Stock" shall mean shares of Preferred
Stock, $0.01 par value, of Penederm Delaware.
"Effective Time" shall mean the time when the Certificate
of Merger is filed with the Secretary of State of the State of
Delaware and the Merger becomes effective.
"Merger" shall mean the merger of Penederm California into
Penederm Delaware.
"Shareholders' Meeting" shall mean the 1997 annual meeting
of shareholders of Penederm California to approve and adopt this
Agreement, among other things.
"Surviving Corporation" shall mean Penederm Delaware from
and after the Effective Time.
ARTICLE II
MERGER
2.1 Merger. At the Effective Time, the Merger shall become
effective under Section 252 of the Delaware General Corporation
Law and Section 1108(d) of the California General Corporation
Law, and Penederm California shall merge into Penederm Delaware,
the separate existence of Penederm California shall cease and
Penederm Delaware shall continue in existence as the surviving
corporation under the Delaware General Corporation Law.
2.2 Filings. On or prior to the Closing Date, Penederm
California and Penederm Delaware shall cause:
(a) an executed counterpart of the Certificate of
Merger to be filed with the Secretary of State of California; and
(b) the Certificate of Merger to be filed with the
Secretary of State of Delaware. As soon as practicable after the
Effective Time, the Surviving Corporation shall cause the
Certificate of Merger to be filed with the County Recorder of the
county in which the registered office of Penederm Delaware in the
State of Delaware is located and shall cause such other local
filings to be made as are required under the laws of the State of
California.
2.3 Effects of the Merger. At the Effective Time:
(a) the separate existence of Penederm California
shall cease and Penederm California shall be merged into Penederm
Delaware;
(b) the Certificate of Incorporation of Penederm
Delaware shall continue as the Certificate of Incorporation of
the Surviving Corporation;
(c) the Bylaws of Penederm Delaware shall continue as
the Bylaws of the Surviving Corporation;
(d) each officer and director of Penederm California
in office immediately prior to the Effective Time shall serve in
the same capacity as an officer or director of the Surviving
Corporation immediately after the Effective Time;
(e) each share of California Common Stock outstanding
immediately prior to the Effective Time shall be converted into
one share of Delaware Common Stock pursuant to Article III;
(f) without further transfer, act, or deed, the
separate existence of Penederm California shall cease and the
Surviving Corporation shall possess all the rights, privileges,
powers and franchises, and shall be subject to all the
restrictions, disabilities and duties, of Penederm California;
and all property, real, personal and mixed, and all debts due to
Penederm California on whatever account, as well as stock
subscriptions and all other things belonging to Penederm
California shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and
every other interest of Penederm California shall be thereafter
as effectually the property of the Surviving Corporation as they
were of Penederm California, and the title to any real estate
vested by deed or otherwise in Penederm California shall not
revert or be in any way impaired by reason of the Merger; and all
rights of creditors of Penederm California and all liens upon any
property of Penederm California shall be preserved unimpaired and
all debts, liabilities and duties of Penederm California shall
attach to the Surviving Corporation and may be enforced against
it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it.
2.4 Further Assurances. Penederm California agrees that
if, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any further deeds,
assignments or assurances are necessary or desirable to vest,
perfect or confirm in the Surviving Corporation title to any
property or rights of Penederm California, the Surviving
Corporation and its officers and directors may execute and
deliver all such deeds, assignments and assurances and do all
other things necessary or desirable to vest, perfect or confirm
title to such property or rights in the Surviving Corporation and
otherwise to carry out the purposes of this Agreement, in the
name of Penederm California or otherwise.
ARTICLE III
CONVERSION OF STOCK
3.1 Conversion of Stock. At the Effective Time, the stock
of Penederm California shall be converted into stock of Penederm
Delaware, as follows:
(a) each share of California Common Stock issued and
outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into one share of Delaware Common
Stock; and
(b) each share of Delaware Common Stock issued and
outstanding immediately prior to the Effective Time shall be
canceled and retired and no stock shall be issued in the Merger
in respect thereof.
3.2 Stock Certificates. At and after the Effective Time,
all of the outstanding certificates which immediately prior to
the Effective Time represented shares of California Common Stock
shall be deemed for all purposes to evidence ownership of, and to
represent, shares of Delaware Common Stock into which the shares
of California Common Stock formerly represented by such
certificates have been converted as provided in this Agreement.
The registered owner on the books and records of Penederm
Delaware or its transfer agent of any outstanding stock
certificate shall, until such certificate shall have been
surrendered for transfer or otherwise accounted for to Penederm
Delaware or its transfer agents, have and be entitled to exercise
any voting and other rights with respect to, and to receive any
dividends and other distributions upon, the shares of Delaware
Common Stock evidenced by such outstanding certificate as
provided above.
3.3 Stock Options. Each right or option to purchase shares
of California Common Stock granted under the Penederm
Incorporated Equity Incentive Plan, the Penederm Incorporated
1994 Nonemployee Directors Stock Option Plan, the Penederm
Incorporated Employee Stock Purchase Plan, the Penederm
Incorporated Employee Stock Option Plan and the Penederm
Incorporated Consultant Stock Option Plan (collectively, the
"Plans") which is outstanding immediately prior to the Effective
Time, shall by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and become an
option to purchase the same number of shares of Delaware Common
Stock at the same option price per share, and upon the same terms
and subject to the same conditions as in effect at the Effective
Time. The same number of shares of Delaware Common Stock shall
be reserved for purposes of said Plans as is equal to the number
of shares of California Common Stock so reserved as of the
Effective Time. As of the Effective Time, Penederm Delaware
hereby assumes the Plans and all obligations of Penederm
California under the Plans including the outstanding options or
awards or portions thereof granted pursuant to the Plans.
3.4 Rights Agreement. Each right to purchase shares of
California Common Stock outstanding under the Rights Agreement,
dated November 20, 1996, between Penederm California and
ChaseMellon Shareholder Services, LLC (the "Rights Agreement")
shall become a right to purchase the same number of shares of
Delaware Common Stock at the same price and on the same terms and
conditions as set forth in the Rights Agreement and Penederm
Delaware shall assume all rights and obligations of Penederm
California under the Rights Agreement immediately as of the
Effective Time.
3.5 Validity of Delaware Common Stock. All shares of
Delaware Common Stock into which California Common Stock are to
be converted pursuant to the Merger shall not be subject to any
statutory or contractual preemptive rights, shall be validly
issued, fully paid and nonassessable and shall be issued in full
satisfaction of all rights pertaining to such California Common
Stock.
3.6 Rights of Former Holders. From and after the Effective
Time, no holder of certificates which evidenced California Common
Stock immediately prior to the Effective Time shall have any
rights with respect to the shares formerly evidenced by those
certificates, other than to receive the shares of Delaware Common
Stock into which such California Common Stock shall have been
converted pursuant to the Merger.
ARTICLE IV
GENERAL
4.1 Consents. Each of Penederm California and Penederm
Delaware shall use its best efforts to obtain the consent and
approval of each person (other than shareholders of Penederm
California in their capacities as such) whose consent or approval
shall be required in order to permit consummation of the Merger.
4.2 Governmental Authorizations. Each of Penederm
California and Penederm Delaware shall cooperate in filing any
necessary reports or other documents with any federal, state,
local or foreign authorities having jurisdiction with respect to
the Merger.
4.3 Waiver and Amendment. This Agreement may be amended by
action of the Board of Directors of each of Penederm California
and Penederm Delaware without action by the stockholders of the
parties, except that (a) any amendment to Section 3.1, (b) any
amendment changing the terms, rights, powers or preferences of
the Delaware Common Stock, or (c) any amendment altering any
terms of this Agreement if such alteration would adversely affect
the holders of California Common Stock or Delaware Common Stock
must be approved by a majority of the voting power of the
outstanding California Common Stock.
4.4 Termination. This Agreement may be terminated and the
Merger and other transactions provided for by this Agreement
abandoned at any time prior to the Effective Time, whether before
or after adoption and approval of this Agreement at the
Shareholders' Meeting, by action of the Board of Directors of
Penederm California if the Board determines that the consummation
of the transactions contemplated by this Agreement would not, for
any reason, be in the best interests of Penederm California and
its shareholders.
4.5 Entire Agreement. This Agreement (including any
exhibits), contains the entire agreement among the parties with
respect to the Merger and supersedes all prior and concurrent
arrangements, letters of intent or understandings relating to the
Merger.
4.6 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be an original, but all of
which when taken together shall constitute one and the same
agreement. This Agreement shall become effective when one or
more counterparts has been signed by each of the parties and
delivered to each of the other parties.
4.7 Headings. The article, section and paragraph headings
in this Agreement have been inserted for identification and
reference and shall not by themselves determine the meaning or
interpretation of any provision of this Agreement.
4.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware
and, so far as applicable, the merger provisions of the
California General Corporation Law.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the date first above written.
PENEDERM INCORPORATED,
a California corporation
By: /s/ John W Quigley
Title: Senior Vice President,
Research and Development
By: /s/ Richard Friedman
Title: Secretary
PENEDERM INCORPORATED,
a Delaware corporation
By: /s/ John W Quigley
Title: Senior Vice President,
Research and Development
By: /s/ Richard Friedman
Title: Secretary
EXHIBIT 2.1 TO THE AGREEMENT OF PLAN AND MERGER
CERTIFICATE OF MERGER
OF
PENEDERM INCORPORATED,
a California corporation
INTO
PENEDERM INCORPORATED,
a Delaware corporation
(UNDER SECTION 252 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
Penederm Incorporated, a Delaware corporation, hereby certifies
that:
(1) The name and state of incorporation of each of the
constituent corporations are:
(a) Penederm Incorporated, a Delaware
corporation ("Penederm Delaware"); and
(b) Penederm Incorporated, a California
corporation ("Penederm California").
(2) An Agreement of Merger has been approved, adopted,
certified, executed and acknowledged by Penederm California and
by Penederm Delaware in accordance with the provisions of
subsection (c) of Section 252 of the General Corporation Law of
the State of Delaware.
(3) The name of the surviving corporation is Penederm
Incorporated, a Delaware corporation, which will continue its
existence as the surviving corporation under its present name
upon the effective date of the merger.
(4) The certificate of incorporation of Penederm Delaware
shall be the certificate of incorporation of the surviving
corporation after the effectiveness of the merger.
(5) The executed Agreement of Merger is on file at the
principal place of business of the surviving corporation,
Penederm Delaware, located at 320 Lakeside Drive, Foster City,
California 94404.
(6) A copy of the Agreement of Merger will be furnished by
Penederm Delaware, on request and without cost, to any
stockholder of Penederm California or Penederm Delaware.
(7) The authorized capital stock of Penederm California is
30,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock.
IN WITNESS WHEREOF, Penederm Delaware has caused this
Certificate of Merger to be signed by John W. Quigley, its Senior
Vice President, Research and Development, on the 30th day of
July, 1997.
Penederm Incorporated,
a Delaware corporation
By: _/s/ John W. Quigley______________
John W. Quigley,
Senior Vice President, Research and
Development
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