<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE:)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
--------------
[ ] 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 0-19701
-------
ZYNAXIS, INC.
(Exact name of Registrant as specified in its charter)
------------------------------------------------------
Pennsylvania 23-2562913
------------- ----------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
371 Phoenixville Pike, Malvern, Pennsylvania 19355
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 889-2200
---------------
(Registrant's telephone number, including area code)
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
----- -----
Shares of Common Stock outstanding at July 31, 1996 were 10,340,860.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
Zynaxis, Inc. and subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 168,281 $ 411,706
Short-term securities - 97,437
Collaborative, contract and grant
revenue receivable (Note 6) 162,583 111,263
Restricted cash 23,735 23,735
Prepaid expenses 31,425 25,765
Other current assets 103,377 43,226
-------------- ----------
Total current assets 489,401 713,132
Property and equipment (Note 9):
Equipment 2,920,412 2,907,858
Leasehold improvements 3,039,017 3,028,323
-------------- ----------
5,959,429 5,936,181
Less accumulated depreciation
and amortization (3,645,957) (3,090,640)
-------------- ----------
Net property and equipment 2,313,472 2,845,541
Other assets:
Restricted cash 109,975 109,711
Other long-term assets 21,521 31,869
Note receivable 305,266 287,575
-------------- ----------
Total other assets 436,762 429,155
$ 3,239,635 $3,987,828
============== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
Zynaxis, Inc. and subsidiaries
Consolidated Balance Sheets
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------ ------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 709,412 $ 747,777
Accrued expenses 304,990 487,794
Notes payable to shareholders (Note 450,000 150,000
3)
Current maturities of long-term debt
(Note 4) 32,972 25,050
Current portion of other long-term
obligations 39,937 36,209
Deferred income 36,766 -
----------- -------------
Total current liabilities 1,574,077 1,446,830
Long-term debt (Note 4) 66,042 79,909
Other long-term obligations 108,202 103,494
Commitments and contingencies
(Note 2)
Stockholders' equity (Note 5):
Series A preferred stock, 8%
cumulative, 2,000,000 authorized
shares. 1,440,000 and 1,500,000
issued and outstanding at June 30,
1996 and December 31, 1995,
respectively (liquidation
preference
of $3,148,077 at June 30, 1996) 2,604,034 2,712,535
Common Stock, $.01 par value,
25,000,000 shares authorized and
10,240,860 and 9,460,676 issued
and outstanding at June, 30, 1996
and December 31, 1995,
respectively 102,409 94,607
Additional paid-in capital 45,830,022 45,071,223
Accumulated deficit (47,045,151) (45,520,770)
------------- -------------
1,491,314 2,357,595
$ 3,239,635 $ 3,987,828
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Zynaxis, Inc. and subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
1996 1995
---- ----
<S> <C> <C>
Revenues:
- - ---------
Collaborative, contract and grant
revenues (Note 6) $ 495,649 $ 22,810
Sales - 26,789
--------- -----------
495,649 49,599
Costs and expenses:
- - -------------------
Research and development 928,726 1,716,727
Marketing, general and administrative 400,019 453,170
Cost of sales - 7,196
--------- -----------
1,328,745 2,177,093
Operating loss (833,096) (2,127,494)
Other income (expense):
- - -----------------------
Interest income 13,659 15,081
Interest expense (6,986) (5,818)
Other 123,007 3,082
Gain on sale of diagnostic
technologies and assets (Note 8 ) - 1,101,262
--------- ----------
129,680 1,113,607
Net loss ($703,416) ($1,013,887)
========= ==========
Net loss per common share ($0.07) ($0.19)
========== ==========
Shares used in computing net loss per
common share 10,153,742 5,263,556
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Zynaxis, Inc. and subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
---- ----
<S> <C> <C>
Revenues:
- - ---------
Collaborative, contract and grant
revenues (Note 6) $1,038,693 $31,479
Sales - 141,189
------------ -----------
1,038,693 172,668
Costs and expenses:
- - -------------------
Research and development 1,871,613 2,970,066
Marketing, general and administrative 913,130 977,250
Restructuring charge (Note 7) - 347,436
Cost of sales - 40,261
------------ ----------
2,784,743 4,335,013
Operating loss (1,746,050) (4,162,345)
Other income (expense):
- - -----------------------
Interest income 29,737 30,975
Interest expense (13,823) (25,914)
Other 205,755 7,482
Gain on sale of diagnostic
technologies and assets (Note 8) - 1,101,262
------------ ----------
221,669 1,113,805
Net loss ($1,524,381) ($3,048,540)
============ ==========
Net loss per common share ($0.15) ($0.58)
============ ==========
Shares used in computing net loss per
common share 9,917,119 5,261,373
============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Zynaxis, Inc. and subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
---- ----
Cash flow from operating activities:
<S> <C> <C>
Net loss ($1,524,381) ($3,048,540)
Adjustments to reconcile net
loss to net cash used for
operating activities:
Gain on sale of diagnostic
technologies and assets - (1,101,262)
Depreciation and
amortization 540,009 586,502
Deferred compensation - 3,771
Issuance of Common Stock
to 401k plan 3,602 10,178
Decrease (increase) in
- - ----------------------
Restricted cash (262) 20,433
Prepaid expenses (5,660) (5,354)
Collaborative, contract and
grant revenue receivable (51,320) (16,189)
Other current assets (60,151) (18,769)
Other long term assets 10,351 15,430
Increase (decrease) in
- - ----------------------
Accounts payable (38,365) 155,629
Accrued expenses (182,803) (500)
Deferred income 36,767 -
Other long-term obligations (14,994) (14,993)
----------- -----------
Net cash used for
operating activites (1,287,207) (3,413,664)
Cash flow from investing activities:
Purchases of property
and equipment (23,248) (1,697)
Proceeds from sale of
diagnostic technologies and
assets - 1,100,000
Payment of merger-related fees
and expenses - (50,484)
Net sales short- term
securities 97,437 2,076,679
----------- -----------
Net cash from investing
activities 74,189 3,124,498
Cash flow from financing activities:
Proceeds from issuance of Common
Stock 500,000 2,173,258
Proceeds from issuance of
short-term promissory
notes to Shareholders 450,000 -
Proceeds from capital
lease financing 25,640 -
Proceeds from exercise of Common
Stock options 2,103 5,000
Principal payments on capital lease
obligations (2,204) (13,844)
Principal payments on
notes payable (5,946) (331,279)
----------- -----------
Net cash from financing
activities 969,593 1,833,135
Net (decrease) increase in
cash and cash equivalents (243,425) 1,543,969
Cash and cash equivalents,
beginning of period 411,706 90,280
Cash and cash equivalents,
end of period $ 168,281 $1,634,249
=========== ===========
</TABLE>
- - -------------------------------------------------------------------------------
Supplemental disclosure of
cash flow information:
- - ---------------------------
Cash paid for interest $5,658 $21,343
expense
- - -------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
6
<PAGE>
ZYNAXIS, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
Note 1- Basis of Presentation
- - -----------------------------
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to interim
periods. These financial statements do not include all disclosures required for
annual financial statements and should be read in conjunction with the more
complete disclosures contained in the audited financial statements of Zynaxis,
Inc. ("Zynaxis" or the "Company") incorporated by reference in the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 1995.
The statements reflect, in the opinion of management, all adjustments of a
normal and recurring nature necessary to present fairly the Company's
consolidated financial position at June 30, 1996 and December 31, 1995, the
consolidated results of operations for the three and six months ended June 30,
1996 and 1995, and the consolidated cash flows for the six months ended June 30,
1996 and 1995. The results of operations for the three and six months ended
June 30, 1996, and the cash flows for the six months ended June 30, 1996, are
not necessarily indicative of the results to be expected for the entire year.
Certain prior year amounts have been reclassified to conform to current year
classifications.
Note 2 - Background and Significant Uncertainties
- - ----------------------------------------------------
Zynaxis, Inc. was incorporated in Pennsylvania on March 5, 1987 and commenced
operations in July 1988. The Company initially focused on the development of
cell-mediated therapies and cellular diagnostic products including research
reagents for cell tracking. Between 1988 and 1991, the Company received funding
primarily through venture capital financing involving the issuance of
convertible preferred stock and convertible notes, all of which have since been
converted into Common Stock. In January 1992, the Company completed an initial
public offering of its Common Stock, receiving net proceeds of approximately
$23,300,000 through the sale of 2,875,000 shares of Common Stock. Between 1992
and 1994, the Company focused on development of products for site-directed drug
delivery using its proprietary Zyn-Linker molecules and on the development of
cellular diagnostic products including its Zymmune CD4/CD8 Cell Monitoring Kit.
During 1995 the Company modified its strategic direction, divesting its
diagnostic products, acquiring vaccine delivery technologies, and focusing its
resources on selected drug and vaccine delivery opportunities, which were
anticipated, in the opinion of the Board of Directors and management, to yield
an improved long-term return for both the Company and its shareholders compared
to the Company's previous strategy of funding both therapeutic and diagnostic
operations.
Four key events occurred in 1995 as a result of the Company's modified strategic
direction: (i) the sale of the Company's diagnostic operations, accompanied by a
significant reduction in work-force, (ii) the acquisition by merger of
Secretech, Inc. ("Secretech") and associated technologies for oral and mucosal
vaccine delivery, (iii) the completion of a private placement which raised net
proceeds of $2,700,000 to fund operations, and (iv) the completion of a
significant corporate collaborative agreement for the development of certain
technologies acquired through the merger with Secretech. These events are
described in detail within the Management's Discussion and Analysis of Financial
Condition and Results of
7
<PAGE>
Operations contained in the Company's Report on Form 10-K, as amended, for the
year ended December 31, 1995.
The Company's strategic goal is to become a profitable organization with
positive cash flow from operations by developing varied applications of its drug
and vaccine delivery platforms through significant cash-generating
collaborations with pharmaceutical and biotechnology firms. The Company expects
that these revenues will initially take the form of license payments, milestone
payments and research funding payments, but will ultimately take the form of
royalty income as products developed by collaborators using the Company's
technologies reach the market.
Other than the Company's Development and Licensing Agreement with ALK A/S
("ALK"), the Company has had limited success in executing such significant
collaborations. The Company believes that development of its delivery
technologies will ultimately result in favorable returns. Substantial
development remains to be completed prior to realization of any such returns.
The Company has sustained significant operating losses and expects such losses
to continue in the future as it continues to invest in product research and
development, preclinical research and, potentially, clinical trials. The
Company has not received significant revenues from the sale of any of its
products. For the period from its inception to June 30, 1996, the Company has
an accumulated deficit of $47,045,000.
The Company's financial condition continues to be critical. Since December 31,
1995, the Company has primarily funded operations through the issuance of short-
term promissory notes to certain holders of Series A Preferred Stock (the
"Preferred Shareholders"), and the completion of an additional private offering
which is described in detail in Notes 3 and 5 to these consolidated interim
financial statements. Operational cash flows have been received by providing
process chemistry services to the pharmaceutical, biotechnology and fine
chemical industries, and by availing itself of government funding of its Zyn-
Linker programs through Small Business Innovative Research ("SBIR") grants.
The Company is continuing efforts to raise cash to finance its ongoing
operations. The Company's recent efforts have primarily been focused on
attempting to sell the Cauldron Process Chemistry division ("Cauldron") and its
related assets for cash.
In July 1996, the Company signed a binding letter of intent to sell Cauldron to
Seloc AG ("Seloc"), a subsidiary of Schwarz Pharma. Cauldron was established by
the Company to utilize its process chemistry expertise in response to growing
demand for contract services. Cauldron provides collaborative consulting
services on all aspects of bulk pharmaceutical production and offers process
research, development and pilot scale-up facilities for the pharmaceutical,
biochemical industries and fine chemical industries. In conjunction with the
execution of the binding letter of intent, the Company received an exclusive
option payment of $100,000, and an upfront payment of $50,000 on a Seloc process
development contract.
The Company expects to receive a significant cash payment from Seloc upon
signing of a definitive agreement of sale. The closing of this transaction is
contingent upon the satisfaction of certain conditions principally related to
the restructuring of real estate leases related to the Cauldron facility. Final
settlement of this sale is expected in September 1996. Any cash inflows from
the sale of Cauldron will be used to first repay the Demand Promissory Notes
discussed above, reduce certain outstanding obligations of the Company and then
to fund continuing operations. The ability of the Company to survive as a going
concern beyond the third quarter of 1996 is contingent on the receipt of these
proceeds. There can be no assurance, however, that the Company will be able to
successfully resolve the conditions precedent to the agreement or conclude these
negotiations on a timely basis. If the Company is unable to conclude these
negotiations, additional funding will be required in order to continue
operations. There is no assurance that such additional funding will be
available. If no other funding is obtained by the Company, it may be required
to cease operations.
8
<PAGE>
As a result of its decision to sell Cauldron, the Company's future ability to
produce clinical-grade supplies of Zyn-Linker conjugates (the "Conjugates")
could be negatively impacted. The Company believes that it will be able to
contract directly with Seloc or other suppliers for the production of these
Conjugates, but there can be no assurance that such capacity will exist on terms
acceptable to the Company.
The Company's ultimate survival is dependent upon its ability to generate
significant and sustained revenues from corporate research and development
collaborations through up-front, milestone or other funding payments. It is
highly unlikely that the Company will be profitable and generating positive cash
flow from operations by the end of 1997. Accordingly, the Company is exploring
other opportunities to assure the viability of the technology and to protect
shareholder value. These options include additional significant private
placement of its equity securities, merger, acquisitions, joint ventures,
technology sales, and technology acquisitions, among others (collectively,
"Significant Strategic Transactions").
There can be no assurance that the Company will be able to complete any such
Significant Strategic Transaction. If such a Significant Strategic Transaction
is not completed before the end of 1997, the Company may be required to cease
operations. If the Significant Strategic Transaction is a private placement of
equity securities, the total amount raised could be limited by the market price
of the Company's Common Stock, as well as the number of shares actually
available for issuance. Any such private placement of equity securities could
result in significant dilution to the then existing shareholders.
Note 3- Notes Payable to Shareholders
- - -------------------------------------
On December 28, 1995, the Company issued a $150,000 Demand Promissory Note (the
" December 1995 Note") to one of its principal shareholders. A general partner
of the shareholder is a member of the Board of Directors. This December 1995
Note bore interest at the annual rate of 10% and was initially due on the
earlier of (i) a closing of a private offering of the Company's Common Stock in
an amount of at least $2,000,000 or (ii) March 31, 1996. In connection with
this transaction, the Company issued a warrant with a five year term to purchase
15,000 shares of the Company's Common Stock at an exercise price of $1.00 per
share. On February 29, 1996, the holder of the December 1995 Note converted the
outstanding principal balance and all accrued interest thereon to Common Stock
with transfer restrictions, as described in Note 5 to the consolidated interim
financial statements.
On May 3, 1996 the Company issued Demand Promissory Notes (the "May 1996 Notes")
aggregating $200,000 to two of its principal shareholders. A general partner
of one shareholder and the president of another shareholder are members of the
Board of Directors. These May 1996 Notes bear interest at the annual rate of 11
1/4% and are due on the earlier of (i) the receipt by the Company of proceeds
from the sale of Cauldron aggregating at least $1,000,000 or (ii) upon demand if
the closing on the sale of Cauldron does not occur by September 30, 1996. The
May 1996 Notes are convertible at the option of the holder into an aggregate of
200,000 shares of the Company's Common Stock at any time prior to repayment. In
connection with the issuance of the May 1996 Notes, the Company issued warrants
with a five year term to purchase 200,000 shares of the Company's Common Stock
at an exercise price of $1.00 per share.
On June 7, 1996 the Company issued a $250,000 Demand Promissory Note to another
of its principal shareholders. This note was canceled and reissued on July 17,
1996 due to a revision of the repayment terms (the "July 1996 Note"). This July
1996 Note bears interest at the annual rate of 11 1/4% and is due on the earlier
of (i) the receipt by the Company of proceeds from the sale of Cauldron
aggregating at least $1,000,000 or (ii) upon demand if the closing on the sale
of Cauldron does not occur by October 15, 1996. This July 1996 Note is
convertible at the option of the holder into an aggregate of 150,000 shares of
the Company's Common Stock at any time prior to repayment. In connection with
the issuance, the Company also issued a warrant with a five year term to
purchase 25,000 shares of the Company's Common Stock at an exercise price of
$1.00 per share.
9
<PAGE>
Note 4 Long-term debt
- - ----------------------
Long-term debt consists of a ten-year note to the then lessor of the Company's
office and research facility to finance certain leasehold and other
improvements. The note bears interest at 13% and is fully collateralized by a
$114,469 certificate of deposit. The amount of the collateral decreases each
year. The certificate of deposit is included within restricted cash in the
accompanying balance sheets.
Note 5- Stockholders' Equity
- - ----------------------------
Series A Convertible Preferred Stock
- - -------------------------------------
During the three months ended June 30, 1996, a holder of Series A Convertible
Preferred Stock converted 60,000 shares of Series A Convertible Preferred Stock
into 120,000 shares of Common Stock.
Common Stock
- - -------------
On February 29, 1996, the Company completed a private placement of Common Stock
with transfer restrictions, raising proceeds of $500,000. Additionally, a
$150,000 short-term promissory note payable held by a related party, plus
accrued interest of $2,582, was converted to Common Stock with transfer
restrictions on February 29, 1996.
Under terms of the above agreements, the Company issued an aggregate of 652,582
shares of Common Stock at a price of $1.00 per share. Additionally, the Company
issued warrants to purchase 195,775 shares of Common Stock at an exercise price
of $1.00 per share.
Stock Warrants
- - --------------
In connection with the issuances of the May 1996 Notes and the July 1996 Note
described in Note 3 above, the Company issued warrants to purchase an aggregate
of 225,000 shares of the Company's Common Stock. These warrants have a five
year term and have an exercise price of $1.00 per share.
Note 6 - Collaborative, Contract and Grant revenues
- - ---------------------------------------------------
Collaboration with ALK A/S
- - --------------------------
In October 1995, the Company announced a development and licensing agreement
with ALK, a leading European pharmaceutical company in the field of allergy
immunotherapy. The collaboration involves certain of the technologies acquired
in the merger with Secretech relating to bioactive substance delivery
technology.
Under the terms of the ALK development and licensing collaboration, the Company
has received payments aggregating $1,000,000. The Company received the second
installment of $250,000 in January 1996, the third installment of $250,000 in
April 1996, and the fourth and final installment payment of $250,000 in August
1996.
The Company also has agreed to provide ALK with research and development support
of the licensed technology for which it will receive additional revenues based
upon costs incurred. During the six months ended June 30, 1996, the Company
recorded $18,700 of such revenue.
The agreement can be unilaterally terminated by either party in certain
circumstances and with notification periods stated in the agreement.
10
<PAGE>
The Company will receive a royalty of 7% on net sales of products using the
Company's technology, increasing based upon certain sales criteria established
within the agreement. The Company could also receive additional milestone
payments of up to $2,000,000 based upon either FDA or certain other regulatory
approvals of additional products using the Company's vaccine delivery
technologies. There can be no assurance that ALK will ever obtain the
appropriate regulatory approvals, or will ever generate any sales using the
technology licensed from the Company.
Should the Company receive royalties under this agreement, it will be required
to pay approximately 3% of the net sales of the licensed product to the original
patent holder of the technology.
Contract Manufacturing
- - ----------------------
During the three and six months ended June 30, 1996, the Company, through its'
Cauldron Process Chemistry division recognized contract manufacturing revenues
of $135,400 and $287,300, respectively by providing process chemistry and pilot
manufacturing services to other biotechnology, pharmaceutical and chemical
organizations.
As discussed in Note 2 to the consolidated interim financial statements, the
Company has signed a binding letter of intent to sell Cauldron to Seloc.
Grant Revenue
- - -------------
For the three and six months ended June 30, 1996, the Company recognized $58,100
and $167,500, respectively, pursuant to a SBIR grant awarded by the National
Heart, Lung and Blood Institute. This grant is funding the preclinical
development of Zyn-Linker molecules linked with heparin and the investigation of
their ability to inhibit post-angioplasty restenosis and local thrombosis. This
grant has been extended for a second year; the Company could recognize up to an
additional $341,000 under the terms of this grant extension.
The Company has also received a Phase I SBIR grant for up to $100,000 to develop
Zyn-Linker molecules linked with Taxol and the investigation of their ability to
inhibit post-angioplasty restenosis and local thrombosis. The Company has
recorded $15,200 of revenue related to this grant in the three and six months
ended June 30, 1996.
Note 7 - Restructuring charge
- - -----------------------------
During the six months ended June 30, 1995, the Company recorded a restructuring
charge as a result of its decision to sell its diagnostic technologies and
assets and exit the diagnostic field. This $347,000 charge consisted of
severance and severance-related expenses resulting from the termination of
diagnostic employees, as well as amounts potentially due to certain distributors
of the Company's Zymmune Cell Monitoring System pursuant to the terms and
conditions of certain distribution agreements.
Note 8 - Gain on sale of diagnostic technologies and assets
- - -----------------------------------------------------------
Included in other income/(expense) for the three and six months ended June 30,
1995 is $1,101,300 received pursuant to the terms of an agreement with Phanos
Technologies, Inc. for the sale of the Company's cell tracking molecules for use
as research and diagnostic reagents, including certain Zyn-Linker patents owned
by the Company. The Company retains all rights to the therapeutic uses of Zyn-
Linkers.
11
<PAGE>
Note 9 - Subsequent Event
- - --------------------------
As discussed in Note 2 to the consolidated interim financial statements, in July
1996, the Company signed a binding letter of intent to sell the assets of
Cauldron to Seloc, a subsidiary of Schwarz Pharma. Revenues for Cauldron for
the three and six months ended June 30, 1996 were $135,400 and $287,300,
respectively. The transaction is to be completed during the latter part of 1996
and is not expected to have an unfavorable impact on the Company's operating
results.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction and overview
- - ---------------------------
This discussion should be read in conjunction with the information presented in
the Consolidated Financial Statements and the related Notes to the consolidated
interim financial statements.
The Company commenced operations in July 1988 and initially focused on the
development of cell-mediated therapies and cellular diagnostic products
including research reagents for cell tracking. Between 1988 and 1991, the
Company received funding primarily through venture capital financing involving
the issuance of convertible preferred stock and convertible notes, all of which
have since been converted into Common Stock. In January 1992, the Company
completed an initial public offering of its Common Stock, receiving net proceeds
of approximately $23,300,000 through the sale of 2,875,000 shares of Common
Stock. Between 1992 and 1994, the Company focused on development of products
for site-directed drug delivery using its proprietary Zyn-Linker molecules and
on development of cellular diagnostic products including its Zymmune CD4/CD8
Cell Monitoring Kit.
During 1995, the Company modified its strategic direction, divesting its
diagnostic products, acquiring vaccine delivery technologies, and focusing its
resources on selected drug and vaccine delivery opportunities, which were
anticipated, in the opinion of the Board of Directors and management, to yield
an improved long-term return for both the Company and its shareholders compared
to the Company's previous strategy of funding both therapeutic and diagnostic
operations.
Four key events occurred in 1995 as a result of the Company's modified strategic
direction: (i) the sale of the Company's diagnostic operations, accompanied by a
significant reduction in work-force, (ii) the acquisition by merger of
Secretech, Inc. ("Secretech") and associated technologies for oral and mucosal
vaccine delivery, (iii) the completion of a private placement which raised net
proceeds of $2,700,000 to fund operations, and (iv) the completion of a
significant corporate collaboration agreement for the development of certain
technologies acquired through the merger with Secretech. These events are
described in detail within Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Report on Form
10-K, as amended, for the year ended December 31, 1995.
The Company's strategic goal is to become a profitable organization with
positive cash flow from operations by developing varied applications of its drug
and vaccine delivery platforms through significant cash-generating
collaborations with pharmaceutical and biotechnology firms. The Company expects
that these revenues will initially take the form of license payments, milestone
payments and research funding payments, but will ultimately take the form of
royalty income as products developed by collaborators using the Company's
technologies reach the market.
Other than the Company's Development and Licensing Agreement with ALK A/S
("ALK"), the Company has had limited success in executing such significant
collaborations. While the Company believes that development of its delivery
technologies will ultimately result in favorable returns, substantial
development remains to be completed prior to realization of any such returns.
The Company has sustained significant operating losses and expects such losses
to continue in the future as it continues to invest in product research and
development, preclinical research and, potentially, clinical trials. The
Company has not received significant revenues from the sale of any of its
products. For the period from its inception to June 30, 1996, the Company has
an accumulated deficit of $47,045,000.
The Company's financial condition continues to be critical. The Company is
pursuing numerous opportunities and alternatives in order to assure the
viability of its technologies, to provide significant and
13
<PAGE>
sustained funding for these technologies and, ultimately, to improve shareholder
value. Since December 31, 1995, the Company has funded its recent operations
through the proceeds of a limited offering of its Common Stock, the proceeds
from the issuance of short-term promissory notes to certain of its shareholders,
and to a lesser extent, by providing process chemistry services to the
pharmaceutical, biotechnology and fine chemical industries, and by availing
itself of government funding of its Zyn-Linker programs through Small Business
Innovative Research ("SBIR") grants. These funding activities are described
below in "Liquidity, capital resources and plans to fund future operations."
The Company is subject to significant risks as described below in "Uncertainties
and Risks."
Liquidity, capital resources and plans to fund future operations
- - -----------------------------------------------------------------
At June 30, 1996, the Company had cash, cash equivalents and short term
securities of $168,300 and a working capital deficit of $1,084,700.
The Company's net cash used for operations was $1,287,200 and $3,413,700 for the
six months ended June 30, 1996 and 1995, respectively. The 62% decrease in the
use of cash for operations between the periods presented is primarily due to the
divestiture of the Company's diagnostic operations and the resulting reduction
in operating expenses, and the growth in collaborative, revenues and grant
revenues, combined with sublease revenues described below.
The Company has funded operations since December 31, 1995 primarily through the
issuance of short-term promissory notes to certain holders of Series A Preferred
Stock (the "Preferred Shareholders"), and the completion of an additional
private offering:
Issuance of Short-term Promissory Notes
---------------------------------------
The Company issued an aggregate of $450,000 of Demand Promissory Notes (the
"Notes") to three of its Preferred Shareholders in exchange for cash to fund
operations. These Notes bear interest at an annual rate of 11/1/4/% and are to
be repaid on the earlier of (a) the date the Company receives aggregate
proceeds of at least $1,000,000 from the sale of Cauldron Process Chemistry as
described below, or (b) selected dates in the third or fourth quarters of 1996.
As additional consideration the Company issued an aggregate of 225,000 warrants
to purchase Common Stock of the Company with an exercise price of $1.00 per
share. Should the Company be unable to successfully conclude negotiations on
the sale of its process chemistry operations, in the absence of any other
financing, it would be unable to repay these Notes.
Completion of Private Placement
-------------------------------
On February 29, 1996, the Company received cash proceeds of $500,000 in a
private placement of Common Stock to an institutional investor. Under the
terms of the purchase agreement, the Company issued 500,000 shares of
unregistered Common Stock at a price of $1.00 per share, and a warrant to
purchase 150,000 shares of Common Stock with transfer restrictions at an
exercise price of $1.00 per share. Additionally, on February 29, 1996, the
Company converted a $150,000 bridge loan from a Preferred Shareholder and
accrued interest thereon into 152,582 shares of Common Stock with transfer
restrictions and issued a warrant to purchase 45,775 shares of Common Stock at
an exercise price of $1.00 per share.
The Company is continuing efforts to raise cash to finance its ongoing
operations. The Company's efforts have primarily been focused on attempting to
sell the Cauldron Process Chemistry division ("Cauldron") and its related
assets for cash.
In July 1996, the Company signed a binding letter of intent to sell Cauldron to
Seloc AG ("Seloc"), a subsidiary of Schwarz Pharma. Cauldron was established by
the Company to utilize its process chemistry expertise in response to growing
demand for contract services. Cauldron provides collaborative consulting
14
<PAGE>
services on all aspects of bulk pharmaceutical production and offers process
research, development and pilot scale-up facilities for the pharmaceutical,
biochemical industries and fine chemical industries. In conjunction with the
execution of the binding letter of intent, the Company received an exclusive
option payment of $100,000, and an upfront payment of $50,000 on a Seloc process
development contract.
The Company expects to receive a significant cash payment from Seloc upon
signing of a definitive agreement of sale. The closing of this transaction is
contingent upon the satisfaction of certain conditions principally related to
the restructuring of real estate leases related to the Cauldron facility. Final
settlement of this sale is expected in September 1996. Any cash inflows from
the sale of Cauldron will be used to first repay the Demand Promissory Notes
discussed above, reduce certain outstanding obligations of the Company and then
to fund continuing operations. The ability of the Company to survive as a going
concern beyond the third quarter of 1996 is contingent on the receipt of these
proceeds. There can be no assurance, however, that the Company will be able to
successfully resolve the conditions precedent to the agreement or conclude these
negotiations on a timely basis. If the Company is unable to conclude these
negotiations, additional funding will be required in order to continue
operations. There is no assurance that such additional funding will be
available. If no other funding is obtained by the Company, it may be required
to cease operations.
As a result of its decision to sell Cauldron, the Company's future ability to
produce clinical-grade supplies of Zyn-Linker conjugates (the "Conjugates")
could be negatively impacted. The Company believes that it will be able to
contract directly with Seloc or other suppliers for the production of these
Conjugates, but there can be no assurance that such capacity will exist on terms
acceptable to the Company.
The Company's ultimate survival is dependent upon its ability to generate
significant and sustained revenues from corporate research and development
collaborations through up-front, milestone or other funding payments. It is
highly unlikely that the Company will be profitable and generating positive cash
flow from operations by the end of 1997. Accordingly, the Company is exploring
other opportunities to assure the viability of the technology and to protect
shareholder value. These options include additional significant private
placement of its equity securities, merger, acquisitions, joint ventures,
technology sales, and technology acquisitions, among others (collectively,
"Significant Strategic Transactions").
There can be no assurance that the Company will be able to complete any such
Significant Strategic Transaction. If such a Significant Strategic Transaction
is not completed before the end of 1997, the Company may be required to cease
operations. If the Significant Strategic Transaction is a private placement of
equity securities, the total amount raised could be limited by the market price
of the Company's Common Stock, as well as the number of shares actually
available for issuance. Any such private placement of equity securities could
result in significant dilution to the then existing shareholders.
Uncertainties and Risks
- - ------------------------
The Company continues to be subject to significant uncertainty and risk. The
Company's independent public accountants have included an explanatory paragraph
in their report covering the Company's financial statements for the fiscal year
ended December 31, 1995, expressing substantial doubt about the Company's
ability to continue as a going concern. These risks and uncertainties arise
from a number of factors, some of which are described below, including those
inherent in the biotechnology industry as well as those resulting from the
Company's poor financial condition, as previously discussed.
The Company is critically short of cash to fund its operations and has a severe
working capital deficit. Current cash resources, augmented by expected
collaborative and other revenues are only sufficient to fund operations into but
not beyond the third quarter of 1996. The Company has continued to explore
opportunities to complete additional equity financings, but to date in 1996 has
only been able to raise $500,000 of cash proceeds as described above. The
ability of the Company to operate as a going concern
15
<PAGE>
with its current portfolio of technologies under development for the remainder
of 1996 and into 1997 will primarily be determined by the amounts raised from
the Cauldron sale.
Even if the Company realizes significant cash inflows from the sale of Cauldron,
in order to fund its operations and technologies, the Company believes that its
must actively and aggressively explore opportunities to assure the viability of
the technology and to protect shareholder value. The range of possible
Significant Strategic Transactions is described above.
The Company currently has approximately 7,000,000 additional shares of Common
Stock authorized and available for issuance. Without shareholder approval of an
increase in authorized capital, the actual amount which could be raised in any
financing or used in any type of Significant Strategic Transaction, may be
limited, depending upon the actual terms of any such transaction.
Prior to December 20, 1995, the Company's Common Stock traded on the Nasdaq
National Market. The NASD By-Laws required the Company to maintain certain
quantitative standards for continued listing on the Nasdaq National Market.
These standards included, among other things, a minimum bid price of $1.00 per
share for the Common Stock, or, in the alternative, market value of public float
of $3,000,000 and $4,000,000 of net tangible assets. Additionally, an issuer
such as the Company which had sustained losses from continuing operations and/or
net losses in three of its last four most recent fiscal years was required to
have net tangible assets of at least $4,000,000. Due to the Company's inability
to consistently meet these standards, the Company's Common Stock was removed
from the Nasdaq National Market and is now traded on the Nasdaq SmallCap Market.
This could limit the Company's ability to raise additional capital and reduce
the liquidity of the Company's shareholders. Additionally, unlike the Nasdaq
National Market, the Nasdaq SmallCap Market does not entitle listing companies
to an automatic exemption from the majority of state securities registration and
reporting requirements.
If the Company is unable to raise significant additional funds, it will be
required to severely reduce or terminate operations. A severe reduction in
operations would ultimately limit the ability of the Company to perform under
its current collaborative agreements and would limit the advance of the
Company's technologies under development. Ultimately, the Company may need to
obtain funds through arrangements that require it to relinquish rights to
certain or all of its technologies or product candidates; it may still be
required to curtail or further divest research programs or totally cease
operations and liquidate remaining assets, if any. Should the Company determine
that it is no longer in the best interest of its shareholders to continue
operations, the ability of the Company to fund an orderly disposition of assets,
pay off its then outstanding liabilities and return any remaining cash to its
shareholders will be limited by the amount of working capital then on hand, if
any.
As a result of the 1995 change in strategic direction, the Company is focusing
virtually all of its resources on drug and vaccine delivery technologies.
Therapeutic and vaccine product development is subject to significant risks.
Product opportunities that the Company is presently pursuing will require
substantial additional research, development, clinical testing and regulatory
approvals prior to commercialization. These activities are time-consuming and
expensive. The ability of the Company to advance these technologies will be
highly dependent upon the Company's available cash resources and the ability of
the Company to obtain significant and sustained funding from collaborative
partners, investors or other sources. To date, the Company has had limited
success in obtaining substantial funding from collaborative partners. There is
no assurance that the Company will be successful in the future. Pharmaceutical
companies seeking collaborative arrangements in order to avail themselves of
products in the development stage have become increasingly selective and have
required substantial proof of principle, safety and efficacy before agreeing to
provide substantial collaborative funding. Significant cash expenditures are
required to obtain such evidence of principle, safety and efficacy.
Even if a product candidate appears promising at an early stage of development,
there is no assurance that it can be successfully commercialized due to a number
of factors. Such possibilities include that the product will prove to be
ineffective or unsafe during clinical trials, will fail to receive necessary
domestic
16
<PAGE>
or foreign regulatory approvals on a timely basis, will not be accepted
by patients or physicians, will be difficult to manufacture on a commercial
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of others.
The Company's success depends in part on its ability to obtain patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of others. The Company has filed applications for U.S. and foreign patents and
holds several issued U.S. patents and related know-how. The Company also has
exclusive licenses to certain oral vaccine delivery technologies from third
parties under various U.S. patent applications. There can be no assurance that
any of the Company's patent applications will be approved, that the Company will
develop additional proprietary technologies that are patented, that any patents
issued by the Company or its licensors will provide the Company with any
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on the ability of the Company
to operate in a particular field. Patent law relating to the scope of claims in
the biotechnology field is still evolving and the degree of future protection
for the Company's proprietary rights is uncertain. Furthermore, there can be
no assurance that others will not independently develop similar technologies, or
design around patents issued to the Company. The failure by the Company to
obtain appropriate patent protection may make certain of its products
commercially unattractive.
The Company's strategy for the research, development, manufacture and marketing
of therapeutic and vaccine products using its delivery technologies is to enter
into various arrangements with corporate partners, licensors, licensees and
others. The Company has no commercial-scale manufacturing or clinical trial
capabilities. Therefore, the successful commercialization of the Company's
therapeutic and vaccine technologies is dependent upon the Company's ability to
enter into such arrangements and the ability of these third parties to perform
their agreed-upon responsibilities. Although the Company believes that parties
to any such arrangements would have an economic motivation to succeed in
performing their contractual responsibilities, the actual performance under the
arrangements is outside of the control of the Company.
Research, preclinical development, clinical trials and manufacturing and
marketing of pharmaceutical products are subject to extensive, costly and
rigorous regulation by government authorities in the United States and other
countries. The process of obtaining required regulatory approval from the FDA
and other regulatory authorities often takes many years and can vary
substantially based upon the type, complexity, novelty and application of the
product. As with any investigational new drug or vaccine, additional government
regulations may be promulgated which could impose additional costly and time
consuming testing procedures necessary to obtain regulatory approval. There can
be no assurance that any products developed by the Company alone or, more than
likely, in collaboration with others will be determined to be safe and
efficacious in clinical trials or meet other applicable regulatory standards to
receive the necessary approvals for manufacture and marketing. Even if such
approvals are obtained, post-market evaluation of the products could result in
limitations of the approvals. Delays in obtaining U.S. or foreign approvals
could adversely affect the marketing of the Company's or co-developed products
of its collaborators and diminish any competitive advantage. Even if FDA and/or
foreign regulatory approvals are obtained, there can be no assurance that such
products will be accepted and prescribed by physicians, or will be accepted by
third party insurers or government health administration authorities as a
reimbursable expense. In addition, delays in regulatory approvals that may be
encountered by corporate collaborators or other licensees of the Company could
adversely affect the Company's ability to receive royalties under such
arrangements.
The Company operates in rapidly evolving fields. New developments are expected
to continue at a rapid pace in the biotechnology industry, large pharmaceutical
companies and academia. These institutions represent significant competition to
the Company; this competition is intense and is expected to increase. Most of
the competitors have substantially greater capital resources, research and
development staffs and facilities, and have substantially greater expertise in
conducting clinical trials, obtaining regulatory approvals, and manufacturing
and marketing products than the Company. There can be no assurance that
17
<PAGE>
developments by others will not render the Company's technologies and products
employing that technology obsolete or noncompetitive.
Because of its weakened financial condition, the Company has limited its funding
of its Zyn-Linker programs to the extent funded by collaborations or government
grants. In particular, the Company has had to delay safety and toxicology
testing for certain anti-tumor Zyn-Linkers. Limiting funding of programs
increases the risk to the Company that corporate alliances may not be finalized
or that competitors may render the Company's programs obsolete or
noncompetitive.
Results of Operations
- - ---------------------
Revenues totaled $495,700 and $1,038,700 in the three and six months ended June
30, 1996 as compared to $49,600 and $172,700 for the corresponding periods of
1995. Revenues by major source in each of these periods were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Collaborative revenue from ALK $250,000 $ - $ 518,700 $ -
Contract revenues 135,400 - 287,300 -
Government grant revenues 73,300 - 182,600 -
Other collaborative revenues 37,000 22,800 50,100 31,500
Research reagent sales - 8,100 - 76,500
Zymmune-related sales - 18,700 - 64,700
-------------------------------------------
$495,700 $49,600 $1,038,700 $172,700
===========================================
</TABLE>
Collaborative revenue from ALK is a result of a development and licensing
agreement entered into between ALK and the Company in September 1995. The
Company received the second $250,000 payment under the agreement in January 1996
and received the third $250,000 in April, 1996. Subsequent to the date of the
financial statements discussed herein, in August, 1996, the Company received the
fourth and final $250,000 payment from ALK. The Company has also recorded a
limited amount of revenue related to research conducted on behalf of ALK during
the six months ended June 30, 1996, and expects to record additional revenues as
ALK-funded research is performed.
Contract revenues commenced late in 1995 and have been generated by the
Company's Cauldron Process Chemistry division. As discussed above, the Company
is currently negotiating to sell this operation and expects such sale to be
completed late in 1996. After the sale of Cauldron, no additional contract
revenues will be generated.
Government grant revenues represent amounts earned pursuant to two SBIR grants
to develop the Company's Zyn-Linker/Heparin and Zyn-Linker/Taxol delivery
systems for the treatment of restenosis. At June 30, 1996, $341,000 and $84,900
remains to be billed under the terms of a Phase II SBIR grant to develop Zyn-
Linker/Heparin and a Phase I SBIR grant to develop Zyn-Linker/Taxol,
respectively.
Included in 1995 revenues are research reagent and Zymmune-related sales
generated by the Company's diagnostic operations, which were divested during
1995.
Research and development expenses totaled $928,700 and $1,871,600 in the three
and six months ended June 30, 1996, respectively. For the corresponding periods
in 1995, research and development expense totaled $1,716,700 and $2,970,100,
respectively. Included in research and development expenses for the three and
six months ended June 30, 1995 are $531,500 of research and development expenses
for Secretech, which the Company acquired on July 27, 1995. During the second
quarter of 1995 the Company provided working capital to Secretech to fund all of
Secretech's operations. Also included in
18
<PAGE>
research and development expenses in the three and six months ended June 30,
1995 are diagnostic-related expenses of $189,500 and $472,800. The Company
completed its divestiture of these operations in the fourth quarter of 1995.
Marketing, general and administrative costs were $400,000 and $913,130 in the
three and six months ended June 30, 1996, respectively, compared to $453,200 and
$977,300 in the three and six months ended June 30, 1995, respectively. Reduced
diagnostic marketing, travel and certain other administrative expenses have been
partially offset by increased patent-related and consulting costs associated
with the Company's expanded technology platforms resulting from the Secretech
acquisition in July 1995.
During the six months ended June 30, 1995, in connection with the decision to
divest its diagnostic operations, the Company recorded a restructuring charge of
$347,400 representing severance payments, inventory buy-back payments, and
certain other costs associated with and directly attributable to the decision to
terminate its diagnostic operations.
Net other income of $129,700 and $221,700 in the three and six months ended June
30, 1996, respectively, primarily represents income from the Company's
subleasing of certain excess space at its Malvern facility. Other income for
three and six months ended June 30, 1995 was $1,113,700 and $1,113,800,
respectively. Included in 1995 other income for the 1995 periods presented is a
one-time gain of $1,101,300 recorded in connection with the sale of its research
reagent business to Phanos Technologies, Inc.
19
<PAGE>
Part II, OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
--------
<S> <C>
</TABLE>
The following is a list of exhibits filed as part of this quarterly report on
Form 10-Q:
<TABLE>
<CAPTION>
<C> <S>
- - ----------------------------------------------
10.1 $100,000 Demand Promissory Note dated
May 3, 1996 issued by the Registrant to
Euclid Partners III, L.P.
- - ----------------------------------------------
10.2 Warrant dated May 3, 1996 issued by the
Registrant to Euclid Partners III, L.P.
- - ----------------------------------------------
10.3 Registration Rights Agreement dated May
3, 1996 between the Registrant and
Euclid Partners III, L.P.
- - ----------------------------------------------
10.4 $100,000 Demand Promissory Note dated
May 3, 1996 issued by the Registrant to
Plexus Ventures, Inc.
- - ----------------------------------------------
10.5 Warrant dated May 3, 1996 issued by the
Registrant to Plexus Ventures, Inc.
- - ----------------------------------------------
10.6 Registration Rights Agreement dated May
3, 1996 between the Registrant and
Plexus Ventures, Inc.
- - ----------------------------------------------
10.7 $250,000 Demand Promissory Note dated
July 17, 1996 issued by the Registrant
to S.R. One, Ltd.
- - ----------------------------------------------
10.8 Warrant dated June 7, 1996 issued by
the Registrant to S.R. One, Ltd.
- - ----------------------------------------------
10.9 Marketing Rights Agreement dated July
24, 1996 between the Registrant and
Phanos Technologies, Inc.
- - ----------------------------------------------
</TABLE>
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended June 30, 1996.
20
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
ZYNAXIS, INC.
-------------
(Registrant)
Date: August 9, 1996 By: /s/ Martyn Greenacre
---------------------- ------------------------
Martyn Greenacre
President and Chief Executive
Officer (Principal Executive Officer)
Date: August, 9, 1996 By: /s/ Francis Michael Conway
---------------------- ------------------------
Francis Michael Conway
Controller, Treasurer
and Secretary
(Principal Financial and
Accounting Officer)
21
<PAGE>
Exhibit Index
-------------
The page numbers listed refer to the page number where such exhibits are located
in this form 10-Q Report using the Sequential numbering system specified in
Rules 0-3 and 403.
<TABLE>
<CAPTION>
Exhibit Description Page
- - ------- ----------- ----
<S> <C> <C>
10.1 Promissory Note dated May 3, 1996 between the Registrant
and Euclid Partners III, L.P.
10.2 Warrant dated May 3, 1996 issued by the Registrant to
Euclid Partners III, L.P.
10.3 Registration Rights Agreement dated May 3, 1996 between
the Registrant and Euclid Partners III, L.P.
10.4 Promissory Note dated May 3, 1996 between the Registrant
and Plexus Ventures, Inc.
10.5 Warrant dated May 3, 1996 issued by the Registrant to
Plexus Ventures, Inc.
10.6 Registration Rights Agreement dated May 3, 1996 between
the Registrant and Plexus Ventures, Inc.
10.7 Promissory Note dated May 3, 1996 between the Registrant
and S.R.One, Ltd.
10.8 Warrant dated May 3, 1996 issued by the Registrant
to S.R.One, Ltd.
10.9 Marketing Rights Agreement dated July 24, 1996 between
the Registrant and Phanos Technologies, Inc.
</TABLE>
<PAGE>
Exhibit 10.1
Zynaxis, Inc.
371 Phoenixville Pike
Malvern, PA 19355
11/1/4/% Demand Promissory Note
-------------------------------
$ 100,000
Malvern, Pennsylvania
May 3, 1996
FOR VALUE RECEIVED, ZYNAXIS, INC., a Pennsylvania corporation ("Debtor"), hereby
promises to pay to Euclid Partners, III, L.P., the principal sum of One Hundred
Thousand ($ 100,000), and interest on the unpaid principal amount hereof at the
rate of 11/1/4/% per annum from the date hereof, on the earlier of (i) the
receipt of the Company of proceeds from the sale of its process chemical
operations aggregating at least $ 1,000,000 or (ii) upon demand if such Closing
has not occurred on or before September 30, 1996. The principal of this note
may, at the sole discretion of the noteholder, be converted into 100,000 shares
of Common Stock of the Company at the time of payment.
As additional consideration, the Company has issued a Warrant (the "Warrant") to
purchase 100,000 shares of Common Stock of the Company at an exercise price of
$1.00 per share. This Warrant is attached to this Demand Promissory Note.
All payments of principal (unless converted into shares of Common Stock of the
Company) of and interest on this Note shall be in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts and shall be payable at the principal office
of the holder or at such other address as the holder hereof shall notify debtor
in writing.
The principal of this Note may be prepaid at any time in whole or from time to
time in part by payment of the principal amount so to be prepaid, together with
interest thereon to the date of prepayment. Zynaxis also agrees to issue to
this noteholder warrants in the form attached.
This note shall be governed by and constructed in accordance with the laws of
the Commonwealth of Pennsylvania.
INTENDING TO BE LEGALLY BOUND HEREBY, Debtor has executed this Note as of the
day and year first above written.
ZYNAXIS, INC.
By: /s/ Martyn D. Greenacre
-----------------------
Martyn D. Greenacre
President
<PAGE>
- - --------------------------------------------------------------------------------
THE WARRANT REPRESENTED HEREBY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE WARRANT MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM.
THE WARRANT REPRESENTED HEREBY AND THE RIGHTS OF HOLDERS THEREOF ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND OTHER RESTRICTIONS, AS DESCRIBED IN SECTION
4 OF THIS WARRANT.
- - --------------------------------------------------------------------------------
Void after 5:00 p.m. (Eastern Time), on the last
day of the Warrant Term, as provided herein.
Warrant to Purchase
100,000 Shares of
Date: May 3, 1996. Common Stock
WARRANT
TO PURCHASE COMMON STOCK OF
ZYNAXIS, INC.
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Euclid Partners III, L.P.
(herein called "Warrant Holder") or registered assigns, is the holder of a
Warrant and is entitled to purchase, subject to the provisions of this Warrant,
from Zynaxis, Inc., a Pennsylvania corporation (the "Company"), at any time and
from time to time during the Warrant Term, 100,000 fully paid, validly issued
and nonassessable shares of Common Stock, par value $.01 per share, of the
Company ("Common Stock"), at the Warrant Price. The Warrant Price and number
and kind of securities issuable hereunder are subject to adjustments as provided
herein.
1. Definition of Principal Terms. For the purpose of this Warrant:
-----------------------------
(a) "Promissory Note" means the Promissory Note dated May 3, 1996,
issued by the Company to the Warrant Holder.
(b) "Warrant" means the Warrant to purchase Common Stock issued by the
Company in connection with and in consideration for the funding received
pursuant to the Promissory Note and any and all Warrants which are issued in
exchange or substitution for any outstanding Warrant pursuant to the terms of
that Warrant.
<PAGE>
(c) "Warrant Price" means the price per share at which shares of
Common Stock are purchasable hereunder, as such price may be adjusted from time
to time hereunder, and shall initially be equal to $1.00.
(d) "Warrant Shares" means shares of Common Stock purchased upon
exercise of the Warrants.
(e) "Warrant Term" means, except as provided in Section 6 hereof,
the period commencing on May 3, 1996 and ending at 5:00 p.m. (Eastern Time) on
May 2, 2001.
2. Exercise of Warrants. This Warrant may be exercised during the
--------------------
Warrant Term in whole or in part by the surrender of the Warrant, with the
purchase agreement attached hereto as Rider A properly completed and executed,
at the principal office of the Company at 371 Phoenixville Pike, Malvern,
Pennsylvania 19355 or such other location which shall at that time be the
principal office of the Company (the "Principal Office"), and upon payment to it
by wire transfer, certified check or bank draft to the order of the Company for
the purchase price for the Warrant Shares to be purchased upon such exercise.
The person entitled to the Warrant Shares so purchased shall be treated for all
purposes as the holder of such Warrant Shares as of the close of business on the
date of exercise and certificates for the Warrant Shares so purchased shall be
delivered to the person so entitled within a reasonable time, not exceeding
thirty (30) days, after such exercise. Unless this Warrant has expired, a new
Warrant of like tenor and for such number of shares of Common Stock as the
holder of this Warrant shall direct, representing in the aggregate the right to
purchase a number of shares of Common Stock with respect to which this Warrant
shall not have been exercised, shall also be issued to the holder of this
Warrant within such time.
3. Exchange. This Warrant is exchangeable from the date hereof
--------
until the expiration of the Warrant Term, upon the surrender thereof by the
holder thereof at the Principal Office of the Company, for new Warrants of like
tenor registered in such holder's name and representing in the aggregate the
right to purchase the number of shares of Common Stock purchasable under the
Warrant being exchanged, each of such new Warrants to represent the right to
subscribe for and purchase such number of shares of Common Stock as shall be
designated by said holder at the time of such surrender.
4. Restrictions on Transfer and Registration Rights. The
------------------------------------------------
transferability of this Warrant and the Warrant Shares are subject to the
restrictions on transfer set forth below:
(a) Notice of Transfer and Opinion of Counsel. The Warrant Holder,
-----------------------------------------
and any other holder of the Warrant by acceptance thereof, agrees that, prior to
any transfer of any Warrant, such holder will give written notice to the Company
of such holder's intention to effect such transfer and to comply in all other
respects with the provisions of this Section 4. Each such notice shall contain
(i) a statement setting forth
2
<PAGE>
the intention of such holder's prospective transferee with respect to its
retention or disposition of such Warrant, and (ii) unless waived by the Company,
an opinion of counsel for such holder (who may be the inside or staff counsel
employed by such holder), as to the necessity or non-necessity for registration
under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws in connection with such transfer and stating
the factual and statutory bases relied upon by counsel. The following provisions
shall then apply:
(A) If in the opinion of counsel for the Company the
proposed transfer of such Warrant may be effected without registration
or qualification under the Securities Act and any applicable state
securities laws, then the registered holder of such Warrant shall be
entitled to transfer such Warrant in accordance with the intended
method of disposition specified in the statement delivered by such
holder to the Company.
(B) If in the opinion of counsel for the Company the
proposed transfer of such Warrant may not be effected without
registration under the Securities Act or registration or qualification
under any applicable state securities laws, the registered holder of
such Warrant shall not be entitled to transfer such Warrant until the
requisite registration or qualification is effective.
(b) Transfer. Subject to the restrictions on transfer set forth
--------
above, this Warrant is transferable, in whole, at the Principal Office of the
Company by the registered holder thereof, in person or by duly authorized
attorney, upon presentation of the Warrant, properly endorsed, for transfer.
Each holder of this Warrant, by holding it, agrees that the Warrant, when
endorsed in blank, may be deemed negotiable, and that the holder thereof, when
the Warrant shall have been so endorsed, may be treated by the Company and all
other persons dealing with the Warrant as the absolute owner thereof for any
purpose and as the person entitled to exercise the rights represented by the
Warrant, or to the transfer on the books of the Company, any notice to the
contrary notwithstanding.
(c) Registration Restrictions. This Warrant and the Warrant
-------------------------
Shares have not been registered under the Securities Act, by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to the exemption provided in Section 4(2) thereof, and
have not been registered under state securities laws by reason of their issuance
in a transaction exempt from such registration requirements. This Warrant and
the Warrant Shares may not be sold, transferred or otherwise disposed of unless
registered under the Securities Act and applicable state securities laws or
exempted from registration. Shares of Common Stock issuable upon exercise of
this Warrant will bear the following restrictive legend:
3
<PAGE>
The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of 1933,
as amended. The shares may not be sold or transferred in the absence of
such registration or an exemption therefrom.
The shares represented by this certificate and the rights of holders
thereof are subject to certain restrictions on transfer and other
restrictions, and the holder of the shares represented by this
certificate (including any holders) are bound by the terms of the
original Warrant (copies of which may be obtained from the Company).
All restrictions contained herein shall be binding on any transferee of this
Warrant and the Company may require any such transferee to execute an instrument
agreeing in writing to be so bound by these restrictions as a condition to
transfer.
The Company shall be entitled to give stop transfer instructions to the transfer
agent with respect to Warrant Shares in order to enforce the forgoing
instructions.
5. Certain Covenants of the Company. The Company covenants and agrees
--------------------------------
that all shares which may be issued upon the exercise of this Warrant will, upon
issuance, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof; and without
limiting the generality of the foregoing, the Company covenants and agrees that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the then effective purchase price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by the Warrant.
6. Automatic Termination of Warrant Term. The Warrant Term shall
-------------------------------------
terminate automatically sixty (60) days after the Common Stock of the Company
has traded at an average closing price per share as reported on the Nasdaq Stock
Market or the Nasdaq SmallCap Market of The Nasdaq Stock Market, Inc. or at an
average closing bid price per share as quoted on the OTC Bulletin Board, as the
case may be, of three dollars ($3) or greater for any thirty (30) consecutive
trading days during the Warrant Term.
7. Adjustments of Warrant Price. In the event that the Company shall
----------------------------
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or otherwise
than by payment of a dividend in Common Stock or in any right to acquire Common
Stock), or in
4
<PAGE>
the event the outstanding shares of Common Stock shall be combined or
consolidated, by reverse stock split, reclassification or otherwise, into a
lesser number of shares of Common Stock, then the Warrant Price shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate, to avoid dilution of the exercise rights
hereunder.
8. Adjustments for Reclassification and Reorganization. In case of any
---------------------------------------------------
reclassification or change of outstanding securities issuable upon exercise of
the Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination) or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is the surviving corporation and which does not result in any
reclassification or change, other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination of outstanding securities issuable upon the exercise
of the Warrant), or in case of any sale or transfer to another corporation of
the property of the Company as an entirety or substantially as an entirety, the
Company, or such successor or purchasing corporation, as the case may be, shall
without payment of any additional consideration therefor, execute new warrants
providing that the holder of the Warrant shall have the right to exercise such
new warrant (upon terms not less favorable to the holders than those then
applicable to the Warrant) and to receive upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of the Warrant, the
kind and amount of shares of stock, other securities, money or property
receivable upon such reclassification, change, consolidation, merger, sale or
transfer by the holder of one share of Common Stock issuable upon exercise of
the Warrant had the Warrant been exercised immediately prior to such
reclassification, change, consolidation, merger, sale or transfer. Such new
warrants shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in Section 7 hereof and this
Section 8. The provisions of this Section 8 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
9. Notices. Whenever the Warrant Price shall be adjusted pursuant to
-------
Section 7 hereof, or there shall be a reclassification, reorganization or other
event specified in Section 8 hereof, the Company shall promptly prepare a
certificate signed by its President or a Vice President and by its Treasurer,
setting forth in reasonable detail, as the case may be, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, the Warrant Price after giving effect to such adjustment, and
information regarding the execution of new warrants, and shall promptly cause
copies of such certificate to be mailed (by first class and postage prepaid) to
the registered holders of the Warrant.
In the event the Company shall take any action which pursuant to
Section 7 may result in an adjustment of the Warrant Price, or pursuant to
Section 8 may result in the execution of new warrants, the Company will give to
the registered holders of the Warrant at their last addresses known to the
Company written notice of such action
5
<PAGE>
ten (10) days in advance of its effective date in order to afford to such
holders of the Warrant an opportunity to exercise the Warrant and to purchase
shares of Common Stock of the Company prior to such action becoming effective.
10. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any purchase hereunder.
11. Loss, Theft, Destruction or Mutilation. Upon receipt by the
--------------------------------------
Company of reasonable evidence satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of the Warrant and (in the case of loss,
theft or destruction) of reasonable indemnity and (in case of mutilation) upon
surrender and cancellation thereof , the Company will execute and deliver, in
lieu thereof, new warrant of like tenor.
12. Headings. The description headings of the several sections of
--------
this Warrant are inserted for convenience only and do not constitute a part of
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Warrant.
ZYNAXIS, INC.
By: /s/ Katharine A. Muirhead
----------------------------------
Katharine A. Muirhead, Ph.D.
Sr. Vice President New Business
and Technology Development
Attest: /s/ Francis M. Conway
---------------------
6
<PAGE>
RIDER A
-------
PURCHASE AGREEMENT
------------------
Date: ___________________
TO:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase shares of Common Stock covered by such
Warrant, and makes payment herewith in full thereof at the price per share
provided by this Warrant.
Signature: __________________________________
Address: __________________________________
__________________________________
* * *
For Value Received,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Common Stock covered
by such Warrant to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- - ----------------- ------- --------------
and appoints _______________________________ Attorney to make such transfer of
the books of Zynaxis, Inc. maintained for such purpose, with full power of
substitution in the premises.
Dated: Signature: ___________________________
Witness: ___________________________
7
<PAGE>
Exhibit 10.3
- - --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
- - --------------------------------------------------------------------------------
This is a REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of May 3,
1996 by and among ZYNAXIS, INC., a Pennsylvania corporation with headquarters
located at 371 Phoenixville Pike, Malvern, Pennsylvania, 19355 (the "Company"),
and EUCLID PARTNERS III, L.P., a Delaware limited partnership with headquarters
at 50 Rockefeller Plaza - 10th Floor, Suite 1022, New York, New York, 10020
("Euclid").
Background
----------
In connection with the issuance by the Company of a DEMAND PROMISSORY NOTE (the
"Note") and a WARRANT (the "Warrant") on the date hereof to Euclid, the Company
and Euclid have agreed to enter into this Agreement relating to registration of
the shares of the Company's Common Stock issuable upon exercise of the Warrant
(the "Warrant Shares").
NOW THEREFORE, in consideration of the premises and mutual covenants contained
herein, and other good and valuable consideration which is specified within the
Note and the Warrant, the receipt and sufficiency of which are hereby
acknowledged, the Company and Euclid agree as follows:
Section 1:
----------
Registration on Form S-3
------------------------
1.1 Prior to November 28, 1996, unless not permitted under the then applicable
rules and regulations of the Securities and Exchange Commission (the "SEC"), the
Company will commence preparation of and will file a registration statement on
Form S-3 (the "Registration Statement") with the SEC under the Securities Act of
1933, as amended, (the "Securities Act") to register the Warrant Shares. The
Company will use its best efforts to have the Registration Statement declared
effective and keep the Registration Statement effective until the earlier of (1)
the fifth anniversary of the date of this Agreement, subject to such periods of
time when the Company must suspend the use of the prospectus forming a part of
the Registration Statement until such time as an amendment is filed and declared
effective or an appropriate report is filed by the Company with the SEC, or (2)
the date on which the Warrant Shares may be sold without restriction under the
Securities Act.
<PAGE>
Section 2:
----------
About Registration
------------------
2.1 The Company shall pay all Registration Expenses (as defined below) in
connection with any registration, qualification or compliance hereunder, and
Euclid or a permitted transferee under Section 4.1 hereof (the "Holder") shall
pay all Selling Expenses (as defined below) and other expenses that are not
Registration Expenses relating to the Warrant Shares to be registered on behalf
of such Holder in accordance with this Section 2 (the "Registrable Securities").
"Registration Expenses" means all expenses, except for Selling Expenses,
incurred by the Company in complying with the registration provisions of this
Agreement, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses and the expense of any special
audits incident to or required by any such registration. "Selling Expenses"
means all selling commissions, underwriting fees and stock transfer taxes
applicable to the Registrable Securities and all fees and disbursements of
counsel for the Holder.
2.2 In the case of any registration effected by the Company pursuant to these
registration provisions, the Company will use its best efforts to: (i) prepare
and file with the SEC such amendments and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be deemed necessary to comply with the provisions of the Securities Act
with respect to the disposition of the Registrable Securities; (ii) furnish such
number of prospectuses and other documents incident thereto, including any
amendment of or supplement to the prospectus, as the Holder from time to time
may reasonably request; (iii) cause all such Registrable Securities registered
as described herein to be listed on each securities exchange and quoted on each
quotation service on which similar securities issued by the Company are then
listed or quoted; (iv) provide a transfer agent and registrar for all
Registrable Securities registered pursuant to the Registration Statement and a
CUSIP number for all such Registrable Securities; (v) comply with all applicable
rules and regulations of the SEC; and (vi) file the documents required of the
Company and otherwise use its best efforts to maintain requisite blue sky
clearance in all jurisdictions for which the Holder requests in writing such
registration or qualification, provided however that the Company shall not be
required to qualify to do business or consent to service of process in any state
in which it is not now so qualified or has not so consented.
2.3 Each Holder of Registrable Securities shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
described herein. Such Holder shall represent that such information is true and
complete.
2.4 If any Holder shall propose to sell any Registrable Securities pursuant to
a Registration Statement, it shall notify the Company of its intent to do so at
least three full
2
<PAGE>
business days prior to such sale, and the provision of such notice to the
Company shall be deemed to establish an agreement by such Holder to comply with
the registration provisions contained herein. Such notice shall be deemed to
constitute a representation that any information previously supplied by such
Holder is accurate as of the date of such notice. At any time within such three
business day period, the Company may refuse to permit the Holder to resell any
Registrable Securities pursuant to the Registration Statement; provided that in
order to exercise this right, the Company must deliver a certificate in writing
to the Holder to the effect that a delay in such sale is necessary because, in
the good judgment of the Company, a sale pursuant to a Registration Statement in
its then-current form could require the public disclosure of information that
would not otherwise be required to be disclosed (which disclosure would be
burdensome or could have a material adverse effect on the Company) or that would
in other respects constitute a violation of the federal securities law. In such
an event, the Company shall use its best efforts to amend the Registration
Statement if necessary and take all other actions necessary to allow such sale
under the federal securities laws, and shall notify the Holder promptly after it
has determined that such circumstances no longer exist. Notwithstanding the
foregoing, the Company shall not under any circumstances be entitled to exercise
its right to withdraw a Registration Statement more than two times in any twelve
(12) month period, and the period during which such Registration Statement may
be withdrawn shall not exceed thirty (30) days. Each Holder hereby covenants and
agrees that it will not sell any Registrable Securities pursuant to a
Registration Statement during the periods a Registration Statement is withdrawn
as set forth in this Section 2.4.
2.5 When a Holder who is entitled to sell, gives notice of its intent to sell
pursuant to a Registration Statement and complies with the provisions of this
Section, the Company shall furnish to such Holder a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such shares, such prospectus
shall not include an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or incomplete in the light of the circumstances then
existing.
Section 3:
Indemnification and Contribution.
--------------------------------
3.1 The Company agrees to indemnify and hold harmless each Holder and its
directors and officers from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which such Holder
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon, any claim by a third party asserting
any untrue statement of a material fact in or omission of a material fact from a
Registration Statement, on the effective date thereof, or arise out of any
failure by the Company to fulfill any undertaking included in such Registration
Statement, and the Company will, as incurred, reimburse such Holder for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any
3
<PAGE>
such action, proceeding or claim; provided, however, that the Company shall
-------- -------
not be liable in any such case to the extent that such loss, claim, damages or
liability arises out of, or is based upon (i) an untrue statement made in such
Registration Statement in reliance upon and in conformity with information
furnished to the Company by or on behalf of such Holder for use in preparation
of such Registration Statement or (ii) any untrue statement in any prospectus
that is corrected in any subsequent prospectus that was delivered to the Holder
prior to the pertinent sale or sales by the Holder.
3.2 Each Holder agrees to indemnify and hold harmless the Company and its
directors and officers from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which the Company
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon any claim by a third party asserting
(i) an untrue statement of a material fact in or omission of a material fact
from a Registration Statement in reliance upon and in conformity with
information furnished to the Company by or on behalf of such Holder for use in
preparation of such Registration Statement, provided that no Holder shall be
liable in any such case for any untrue statement included in any prospectus
which statement has been corrected in writing by such Holder and delivered to
the Company before the sale from which such loss occurred and each Holder will,
as incurred, reimburse the Company for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim.
3.3 Promptly after receipt by any indemnified person of a notice of a claim or
the beginning of any action in respect of which indemnity is to be sought
against an indemnifying person pursuant to this Section 3, such indemnified
person shall notify the indemnifying person in writing of such claim or of the
commencement of such action, and, subject to the provisions hereinafter stated,
in case any such action shall be brought against an indemnified person and the
indemnifying person shall have been notified thereof, the indemnifying person
shall be entitled to participate therein, and, to the extent that it shall wish,
to assume the defense thereof, with counsel reasonably satisfactory to the
indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided that if there exists or shall
exist a conflict of interest that would make it inappropriate in the reasonable
judgment of the indemnified person for the same counsel to represent both the
indemnified person and such indemnifying person or any affiliate or associate
thereof, the indemnified person shall be entitled to retain its own counsel at
the expense of such indemnifying person.
3.4 If the indemnification provided for in this Section 3 is unavailable to or
insufficient to hold harmless an indemnified party under Section 3.1 or Section
3.2 above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or
4
<PAGE>
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (or actions in respect thereof) based upon such party's relative
fault, as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or a Holder on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Holder agree that it would not be
just and equitable if contribution pursuant to this Section 3.4 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 3.4.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this Section 3.4 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 3.4, no Holder shall be required to contribute any amount in excess of
the amount by which the net amount received by the Holder from the sale of the
Registrable Securities to which such loss relates exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
3.5 The obligations of the Company and the Holder under this Section 3 shall be
in addition to any liability which the Company and the Holder may otherwise have
and shall extend, upon the same terms and conditions, to each person, if any,
who controls the Company or any Holder within the meaning of the Securities Act.
Section 4:
Transfer of Registration Rights.
-------------------------------
4.1 The right to sell Registrable Securities pursuant to a Registration
Statement described herein may not be assigned or transferred by Euclid, except
to an Affiliate. For the purpose of this Section 4, "Affiliate" shall mean any
entity which controls, is controlled by or is under common control with Euclid.
In the event that it is necessary, in order to permit a Holder to sell
Registrable Securities pursuant to a Registration Statement, to amend such
Registration Statement to name such Holder, such Holder shall, upon written
notice to the Company, be entitled to have the Company make such amendments as
soon as reasonably practicable. Notwithstanding the above provisions relating
to Registration Expenses, in the event that such an amendment is requested, the
Holder shall, at the request of the Company, be obligated to reimburse the
Company for reasonable Registration Expenses incurred by it in connection with
such amendment.
5
<PAGE>
4.2 Euclid hereby agrees that, if a transfer or assignment is necessary
pursuant to Section 4.1, that, assignment of the right to sell Registrable
Securities pursuant to a Registration Statement will be contingent upon the
Affiliate accepting assignment of this Agreement.
IN WITNESS WHEREOF, the Company and Euclid have caused this Agreement to be duly
executed as of the date first written above.
ZYNAXIS, INC.
By: /s/ Francis M. Conway
---------------------
Francis M. Conway
Controller, Treasurer and Secretary
EUCLID PARTNERS III, L.P.
Euclid Associates III, L.P.
General Partner
50 Rockefeller Plaza
New York, NY 10020
By: /s/ Milton J. Pappas
--------------------
Milton J. Pappas
6
<PAGE>
Exhibit 10.4
Zynaxis, Inc.
371 Phoenixville Pike
Malvern, PA 19355
11/1/4/% Demand Promissory Note
-------------------------------
$100,000
Malvern, Pennsylvania
May 3, 1996
FOR VALUE RECEIVED, ZYNAXIS, INC., a Pennsylvania corporation ("Debtor"), hereby
promises to pay to Plexus Ventures, Inc., the principal sum of One Hundred
Thousand ($100,000), and interest on the unpaid principal amount hereof at the
rate of 11/1/4/% per annum from the date hereof, on the earlier of (i) the
receipt of the Company of proceeds from the sale of its process chemical
operations aggregating at least $ 1,000,000 or (ii) upon demand if such Closing
has not occurred on or before September 30, 1996. The principal of this note
may, at the sole discretion of the noteholder, be converted into 100,000 shares
of Common Stock of the Company at the time of payment.
As additional consideration, the Company has issued a Warrant (the "Warrant") to
purchase 100,000 shares of Common Stock of the Company at an exercise price of
$1.00 per share. This Warrant is attached to this Demand Promissory Note.
All payments of principal (unless converted into shares of Common Stock of the
Company) of and interest on this Note shall be in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts and shall be payable at the principal office
of the holder or at such other address as the holder hereof shall notify debtor
in writing.
The principal of this Note may be prepaid at any time in whole or from time to
time in part by payment of the principal amount so to be prepaid, together with
interest thereon to the date of prepayment. Zynaxis also agrees to issue to
this noteholder warrants in the form attached.
This note shall be governed by and constructed in accordance with the laws of
the Commonwealth of Pennsylvania.
INTENDING TO BE LEGALLY BOUND HEREBY, Debtor has executed this Note as of the
day and year first above written.
ZYNAXIS, INC.
By: /s/ Martyn D. Greenacre
------------------------
Martyn D. Greenacre
President
<PAGE>
Exhibit 10.5
THE WARRANT REPRESENTED HEREBY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE WARRANT MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM.
THE WARRANT REPRESENTED HEREBY AND THE RIGHTS OF HOLDERS THEREOF ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND OTHER RESTRICTIONS, AS DESCRIBED IN SECTION
4 OF THIS WARRANT.
Void after 5:00 p.m. (Eastern Time), on the last
day of the Warrant Term, as provided herein.
Warrant to Purchase
50,000 Shares of
Date: May 3, 1996. Common Stock
WARRANT
TO PURCHASE COMMON STOCK OF
ZYNAXIS, INC.
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Plexus Ventures, Inc. (herein
called "Warrant Holder") or registered assigns, is the holder of a Warrant and
is entitled to purchase, subject to the provisions of this Warrant, from
Zynaxis, Inc., a Pennsylvania corporation (the "Company"), at any time and from
time to time during the Warrant Term, 50,000 fully paid, validly issued and
nonassessable shares of Common Stock, par value $.01 per share, of the Company
("Common Stock"), at the Warrant Price. The Warrant Price and number and kind
of securities issuable hereunder are subject to adjustments as provided herein.
1. Definition of Principal Terms. For the purpose of this
-----------------------------
Warrant:
(a) "Promissory Note" means the Promissory Note dated May 3,
1996, issued by the Company to the Warrant Holder.
(b) "Warrant" means the Warrant to purchase Common Stock
issued by the Company in connection with and in consideration for the funding
received pursuant to the Promissory Note and any and all Warrants which are
issued in exchange or substitution for any outstanding Warrant pursuant to the
terms of that Warrant.
<PAGE>
(c) "Warrant Price" means the price per share at which shares
of Common Stock are purchasable hereunder, as such price may be adjusted from
time to time hereunder, and shall initially be equal to $1.00.
(d) "Warrant Shares" means shares of Common Stock purchased
upon exercise of the Warrants.
(e) "Warrant Term" means, except as provided in Section 6
hereof, the period commencing on May 3, 1996 and ending at 5:00 p.m. (Eastern
Time) on May 2, 2001.
2. Exercise of Warrants. This Warrant may be exercised during the
--------------------
Warrant Term in whole or in part by the surrender of the Warrant, with the
purchase agreement attached hereto as Rider A properly completed and executed,
at the principal office of the Company at 371 Phoenixville Pike, Malvern,
Pennsylvania 19355 or such other location which shall at that time be the
principal office of the Company (the "Principal Office"), and upon payment to it
by wire transfer, certified check or bank draft to the order of the Company for
the purchase price for the Warrant Shares to be purchased upon such exercise.
The person entitled to the Warrant Shares so purchased shall be treated for all
purposes as the holder of such Warrant Shares as of the close of business on the
date of exercise and certificates for the Warrant Shares so purchased shall be
delivered to the person so entitled within a reasonable time, not exceeding
thirty (30) days, after such exercise. Unless this Warrant has expired, a new
Warrant of like tenor and for such number of shares of Common Stock as the
holder of this Warrant shall direct, representing in the aggregate the right to
purchase a number of shares of Common Stock with respect to which this Warrant
shall not have been exercised, shall also be issued to the holder of this
Warrant within such time.
3. Exchange. This Warrant is exchangeable from the date hereof until
--------
the expiration of the Warrant Term, upon the surrender thereof by the holder
thereof at the Principal Office of the Company, for new Warrants of like tenor
registered in such holder's name and representing in the aggregate the right to
purchase the number of shares of Common Stock purchasable under the Warrant
being exchanged, each of such new Warrants to represent the right to subscribe
for and purchase such number of shares of Common Stock as shall be designated by
said holder at the time of such surrender.
4. Restrictions on Transfer and Registration Rights. The
------------------------------------------------
transferability of this Warrant and the Warrant Shares are subject to the
restrictions on transfer set forth below:
(a) Notice of Transfer and Opinion of Counsel. The Warrant Holder,
-----------------------------------------
and any other holder of the Warrant by acceptance thereof, agrees that, prior to
any transfer of any Warrant, such holder will give written notice to the Company
of such holder's intention to effect such transfer and to comply in all other
respects with the provisions of this Section 4. Each such notice shall contain
(i) a statement setting forth
2
<PAGE>
the intention of such holder's prospective transferee with respect to its
retention or disposition of such Warrant, and (ii) unless waived by the Company,
an opinion of counsel for such holder (who may be the inside or staff counsel
employed by such holder), as to the necessity or non-necessity for registration
under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws in connection with such transfer and stating
the factual and statutory bases relied upon by counsel. The following provisions
shall then apply:
(A) If in the opinion of counsel for the Company the
proposed transfer of such Warrant may be effected without registration
or qualification under the Securities Act and any applicable state
securities laws, then the registered holder of such Warrant shall be
entitled to transfer such Warrant in accordance with the intended
method of disposition specified in the statement delivered by such
holder to the Company.
(B) If in the opinion of counsel for the Company the
proposed transfer of such Warrant may not be effected without
registration under the Securities Act or registration or qualification
under any applicable state securities laws, the registered holder of
such Warrant shall not be entitled to transfer such Warrant until the
requisite registration or qualification is effective.
(b) Transfer. Subject to the restrictions on transfer set forth
--------
above, this Warrant is transferable, in whole, at the Principal Office of the
Company by the registered holder thereof, in person or by duly authorized
attorney, upon presentation of the Warrant, properly endorsed, for transfer.
Each holder of this Warrant, by holding it, agrees that the Warrant, when
endorsed in blank, may be deemed negotiable, and that the holder thereof, when
the Warrant shall have been so endorsed, may be treated by the Company and all
other persons dealing with the Warrant as the absolute owner thereof for any
purpose and as the person entitled to exercise the rights represented by the
Warrant, or to the transfer on the books of the Company, any notice to the
contrary notwithstanding.
(c) Registration Restrictions. This Warrant and the Warrant
-------------------------
Shares have not been registered under the Securities Act, by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to the exemption provided in Section 4(2) thereof, and
have not been registered under state securities laws by reason of their issuance
in a transaction exempt from such registration requirements. This Warrant and
the Warrant Shares may not be sold, transferred or otherwise disposed of unless
registered under the Securities Act and applicable state securities laws or
exempted from registration. Shares of Common Stock issuable upon exercise of
this Warrant will bear the following restrictive legend:
The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
3
<PAGE>
1933,as amended. The shares may not be sold or transferred in the absence
of such registration or an exemption therefrom.
The shares represented by this certificate and the rights of holders
thereof are subject to certain restrictions on transfer and other
restrictions, and the holder of the shares represented by this
certificate (including any holders) are bound by the terms of the
original Warrant (copies of which may be obtained from the Company).
All restrictions contained herein shall be binding on any transferee of this
Warrant and the Company may require any such transferee to execute an instrument
agreeing in writing to be so bound by these restrictions as a condition to
transfer.
The Company shall be entitled to give stop transfer instructions to the transfer
agent with respect to Warrant Shares in order to enforce the forgoing
instructions.
5. Certain Covenants of the Company. The Company covenants and agrees
--------------------------------
that all shares which may be issued upon the exercise of this Warrant will, upon
issuance, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof; and without
limiting the generality of the foregoing, the Company covenants and agrees that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the then effective purchase price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by the Warrant.
6. Automatic Termination of Warrant Term. The Warrant Term shall
-------------------------------------
terminate automatically sixty (60) days after the Common Stock of the Company
has traded at an average closing price per share as reported on the Nasdaq Stock
Market or the Nasdaq SmallCap Market of The Nasdaq Stock Market, Inc. or at an
average closing bid price per share as quoted on the OTC Bulletin Board, as the
case may be, of three dollars ($3) or greater for any thirty (30) consecutive
trading days during the Warrant Term.
7. Adjustments of Warrant Price. In the event that the Company shall
----------------------------
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or otherwise
than by payment of a dividend in Common Stock or in any right to acquire Common
Stock), or in the event the outstanding shares of Common Stock shall be combined
or consolidated, by reverse stock split, reclassification or otherwise, into a
lesser number of shares of
4
<PAGE>
Common Stock, then the Warrant Price shall, concurrently with the effectiveness
of such event, be proportionately decreased or increased, as appropriate, to
avoid dilution of the exercise rights hereunder.
8. Adjustments for Reclassification and Reorganization. In case of any
---------------------------------------------------
reclassification or change of outstanding securities issuable upon exercise of
the Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination) or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is the surviving corporation and which does not result in any
reclassification or change, other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination of outstanding securities issuable upon the exercise
of the Warrant), or in case of any sale or transfer to another corporation of
the property of the Company as an entirety or substantially as an entirety, the
Company, or such successor or purchasing corporation, as the case may be, shall
without payment of any additional consideration therefor, execute new warrants
providing that the holder of the Warrant shall have the right to exercise such
new warrant (upon terms not less favorable to the holders than those then
applicable to the Warrant) and to receive upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of the Warrant, the
kind and amount of shares of stock, other securities, money or property
receivable upon such reclassification, change, consolidation, merger, sale or
transfer by the holder of one share of Common Stock issuable upon exercise of
the Warrant had the Warrant been exercised immediately prior to such
reclassification, change, consolidation, merger, sale or transfer. Such new
warrants shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in Section 7 hereof and this
Section 8. The provisions of this Section 8 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
9. Notices. Whenever the Warrant Price shall be adjusted pursuant to
-------
Section 7 hereof, or there shall be a reclassification, reorganization or other
event specified in Section 8 hereof, the Company shall promptly prepare a
certificate signed by its President or a Vice President and by its Treasurer,
setting forth in reasonable detail, as the case may be, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, the Warrant Price after giving effect to such adjustment, and
information regarding the execution of new warrants, and shall promptly cause
copies of such certificate to be mailed (by first class and postage prepaid) to
the registered holders of the Warrant.
In the event the Company shall take any action which pursuant to
Section 7 may result in an adjustment of the Warrant Price, or pursuant to
Section 8 may result in the execution of new warrants, the Company will give to
the registered holders of the Warrant at their last addresses known to the
Company written notice of such action ten (10) days in advance of its effective
date in order to afford to such holders of the
5
<PAGE>
Warrant an opportunity to exercise the Warrant and to purchase shares of Common
Stock of the Company prior to such action becoming effective.
10. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any purchase hereunder.
11. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company
--------------------------------------
of reasonable evidence satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of the Warrant and (in the case of loss, theft
or destruction) of reasonable indemnity and (in case of mutilation) upon
surrender and cancellation thereof , the Company will execute and deliver, in
lieu thereof, new warrant of like tenor.
12. Headings. The description headings of the several sections of
--------
this Warrant are inserted for convenience only and do not constitute a part of
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Warrant.
ZYNAXIS, INC.
By:/s/ Katharine A. Muirhead
----------------------------------
Katharine A. Muirhead, Ph.D.
Sr. Vice President New Business
and Technology Development
Attest: /s/ Francis M. Conway
---------------------
6
<PAGE>
RIDER A
-------
PURCHASE AGREEMENT
------------------
Date: _____________________
TO:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase shares of Common Stock covered by such
Warrant, and makes payment herewith in full thereof at the price per share
provided by this Warrant.
Signature: ________________________
Address: ________________________
________________________
* * *
For Value Received,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Common Stock covered
by such Warrant to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- - ----------------- ------- --------------
and appoints _______________________________ Attorney to make such transfer of
the books of Zynaxis, Inc. maintained for such purpose, with full power of
substitution in the premises.
Dated: Signature: ___________________________
Witness: ___________________________
7
<PAGE>
EXHIBIT 10.6
=============================
REGISTRATION RIGHTS AGREEMENT
=============================
This is a REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of May 3,
1996 by and among ZYNAXIS, INC., a Pennsylvania corporation with headquarters
located at 371 Phoenixville Pike, Malvern, Pennsylvania, 19355 (the "Company"),
and PLEXUS VENTURES, INC., a Pennsylvania corporation with headquarters at 1787
Sentry Parkway West, Building 18, Suite 301, Blue Bell, PA 19422 ("Plexus").
Background
----------
In connection with the issuance by the Company of a PROMISSORY NOTE AND SECURITY
AGREEMENT (the "Note") and a WARRANT (the "Warrant") on the date hereof to
Plexus, the Company and Plexus have agreed to enter into this agreement relating
to Registration of the shares of the Company's Common Stock issuable upon
exercise of the Warrant (the "Warrant Shares").
NOW THEREFORE, in consideration of the premises and mutual covenants contained
herein, and other good and valuable consideration which is specified within the
Note and the Warrant, the receipt and sufficiency of which are hereby
acknowledged, the Company and Plexus agree as follows:
Section 1:
----------
Registration on Form S-3
------------------------
1.1 Prior to November 28, 1996, unless not permitted under the then applicable
rules and regulations of the Securities and Exchange Commission (the "SEC"), the
Company will commence preparation of and will file a registration statement on
Form S-3 (the "Registration Statement") with the SEC under the Securities Act of
1933, as amended (the "Securities Act") to register the Warrant Shares. The
Company will use its best efforts to have the Registration Statement declared
effective and keep the Registration Statement effective until the earlier of
(1) the fifth anniversary of the date of this Agreement, subject to such
periods of time when the Company must suspend the use of the prospectus forming
a part of the Registration Statement until such time as an amendment is filed
and declared effective or an appropriate report is filed by the Company with the
SEC, or (2) the date on which the Warrant Shares may be sold without restriction
under the Securities Act.
<PAGE>
Section 2:
----------
About Registration
------------------
2.1 The Company shall pay all Registration Expenses (as defined below) in
connection with any registration, qualification or compliance hereunder, and
Plexus or a permitted transferee under Section 4.1 hereof (the "Holder") shall
pay all Selling Expenses (as defined below) and other expenses that are not
Registration Expenses relating to the Warrant Shares to be registered on behalf
of such Holder in accordance with this Section 2 (the "Registrable Securities").
"Registration Expenses" means all expenses, except for Selling Expenses,
incurred by the Company in complying with the registration provisions of this
Agreement, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses and the expense of any special
audits incident to or required by any such registration. "Selling Expenses"
means all selling commissions, underwriting fees and stock transfer taxes
applicable to the Registrable Securities and all fees and disbursements of
counsel for the Holder.
2.2 In the case of any registration effected by the Company pursuant to these
registration provisions, the Company will use its best efforts to: (i) prepare
and file with the SEC such amendments and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be deemed necessary to comply with the provisions of the Securities Act
with respect to the disposition of the Registrable Securities; (ii) furnish such
number of prospectuses and other documents incident thereto, including any
amendment of or supplement to the prospectus, as the Holder from time to time
may reasonably request; (iii) cause all such Registrable Securities registered
as described herein to be listed on each securities exchange and quoted on each
quotation service on which similar securities issued by the Company are then
listed or quoted; (iv) provide a transfer agent and registrar for all
Registrable Securities registered pursuant to the Registration Statement and a
CUSIP number for all such Registrable Securities; (v) comply with all applicable
rules and regulations of the SEC; and (vi) file the documents required of the
Company and otherwise use its best efforts to maintain requisite blue sky
clearance in all jurisdictions for which the Holder requests in writing such
registration or qualification, provided however that the Company shall not be
required to qualify to do business or consent to service of process in any state
in which it is not now so qualified or has not so consented
2.3 Each Holder of Registrable Securities shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
described herein. Such Holder shall represent that such information is true and
complete.
2.4 If any Holder shall propose to sell any Registrable Securities pursuant to a
Registration Statement, it shall notify the Company of its intent to do so at
least three full
2
<PAGE>
business days prior to such sale, and the provision of such notice to the
Company shall be deemed to establish an agreement by such Holder to comply with
the registration provisions contained herein. Such notice shall be deemed to
constitute a representation that any information previously supplied by such
Holder is accurate as of the date of such notice. At any time within such three
business day period, the Company may refuse to permit the Holder to resell any
Registrable Securities pursuant to the Registration Statement; provided that in
order to exercise this right, the Company must deliver a certificate in writing
to the Holder to the effect that a delay in such sale is necessary because, in
the good judgment of the Company, a sale pursuant to a Registration Statement in
its then-current form could require the public disclosure of information that
would not otherwise be required to be disclosed (which disclosure would be
burdensome or could have a material adverse effect on the Company) or that would
in other respects constitute a violation of the federal securities law. In such
an event, the Company shall use its best efforts to amend the Registration
Statement if necessary and take all other actions necessary to allow such sale
under the federal securities laws, and shall notify the Holder promptly after it
has determined that such circumstances no longer exist. Notwithstanding the
foregoing, the Company shall not under any circumstances be entitled to exercise
its right to withdraw a Registration Statement more than two times in any twelve
(12) month period, and the period during which such Registration Statement may
be withdrawn shall not exceed thirty (30) days. Each Holder hereby covenants and
agrees that it will not sell any Registrable Securities pursuant to a
Registration Statement during the periods a Registration Statement is withdrawn
as set forth in this Section 2.4.
2.5 When a Holder is entitled to sell, gives notice of its intent to sell
pursuant to a Registration Statement and complies with the provisions of this
Section, the Company shall furnish to such Holder a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such shares, such prospectus
shall not include an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or incomplete in the light of the circumstances then
existing.
Section 3:
Indemnification and Contribution.
--------------------------------
3.1 The Company agrees to indemnify and hold harmless each Holder and its
directors and officers from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which such Holder
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon, any claim by a third party asserting
any untrue statement of a material fact in or omission of a material fact from a
Registration Statement, on the effective date thereof, or arise out of any
failure by the Company to fulfill any undertaking included in such Registration
Statement, and the Company will, as incurred, reimburse such Holder for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any
3
<PAGE>
such action, proceeding or claim; provided, however, that the Company shall not
-------- -------
be liable in any such case to the extent that such loss, claim, damages or
liability arises out of, or is based upon (i) an untrue statement made in such
Registration Statement in reliance upon and in conformity with information
furnished to the Company by or on behalf of such Holder for use in preparation
of such Registration Statement or (ii) any untrue statement in any prospectus
that is corrected in any subsequent prospectus that was delivered to the Holder
prior to the pertinent sale or sales by the Holder.
3.2 Each Holder agrees to indemnify and hold harmless the Company and its
directors and officers from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which the Company
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon any claim by a third party asserting
(i) an untrue statement of a material fact in or omission of a material fact
from a Registration Statement in reliance upon and in conformity with
information furnished to the Company by or on behalf of such Holder for use in
preparation of such Registration Statement, provided that no Holder shall be
liable in any such case for any untrue statement included in any prospectus
which statement has been corrected in writing by such Holder and delivered to
the Company before the sale from which such loss occurred and each Holder will,
as incurred, reimburse the Company for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim.
3.3 Promptly after receipt by any indemnified person of a notice of a claim or
the beginning of any action in respect of which indemnity is to be sought
against an indemnifying person pursuant to this Section 3, such indemnified
person shall notify the indemnifying person in writing of such claim or of the
commencement of such action, and, subject to the provisions hereinafter stated,
in case any such action shall be brought against an indemnified person and the
indemnifying person shall have been notified thereof, the indemnifying person
shall be entitled to participate therein, and, to the extent that it shall wish,
to assume the defense thereof, with counsel reasonably satisfactory to the
indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided that if there exists or shall
exist a conflict of interest that would make it inappropriate in the reasonable
judgment of the indemnified person for the same counsel to represent both the
indemnified person and such indemnifying person or any affiliate or associate
thereof, the indemnified person shall be entitled to retain its own counsel at
the expense of such indemnifying person.
3.4 If the indemnification provided for in this Section 3 is unavailable to or
insufficient to hold harmless an indemnified party under Section 3.1 or Section
3.2 above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or
4
<PAGE>
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) based upon such party's relative
fault, as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or a Holder on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Holder agree that it would not be
just and equitable if contribution pursuant to this Section 3.4 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 3.4.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this Section 3.4 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 3.4, no Holder shall be required to contribute any amount in excess of
the amount by which the net amount received by the Holder from the sale of the
Registrable Securities to which such loss relates exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
3.5 The obligations of the Company and the Holder under this Section 3 shall be
in addition to any liability which the Company and the Holder may otherwise have
and shall extend, upon the same terms and conditions, to each person, if any,
who controls the Company or any Holder within the meaning of the Securities Act.
Section 4:
Transfer of Registration Rights.
-------------------------------
4.1 The right to sell Registrable Securities pursuant to a Registration
Statement described herein may not be assigned or transferred by Plexus, except
to an Affiliate. For the purpose of this Section 4, "Affiliate" shall mean any
entity which controls, is controlled by or is under common control with Plexus.
In the event that it is necessary, in order to permit a Holder to sell
Registrable Securities pursuant to a Registration Statement, to amend such
Registration Statement to name such Holder, such Holder shall, upon written
notice to the Company, be entitled to have the Company make such amendments as
soon as reasonably practicable. Notwithstanding the above provisions relating
to Registration Expenses, in the event that such an amendment is requested, the
Holder shall, at the request of the Company, be obligated to reimburse the
Company for reasonable Registration Expenses incurred by it in connection with
such amendment.
5
<PAGE>
4.2 Plexus hereby agrees that, if a transfer or assignment is necessary pursuant
to section 4.1, that, assignment of the right to sell Registrable Securities
pursuant to a Registration Statement will be contingent upon the Affiliate
accepting assignment of this Agreement.
IN WITNESS WHEREOF, the Company and Plexus have caused this Agreement to be duly
executed as of the date first written above.
ZYNAXIS, INC.
By: /s/ Francis M. Conway
---------------------
Francis M. Conway
Controller, Treasurer and Secretary
PLEXUS VENTURES, INC.
By: /s/ John F. Chappell
---------------------------
John F. Chappell
President
6
<PAGE>
Exhibit 10.7
ZYNAXIS INC.
371 PHOENIXVILLE PIKE
MALVERN, PENNSYLVANIA, 19355
11/1/4/% Demand Promissory Note
$250,000 July 17, 1996
FOR VALUE RECEIVED, ZYNAXIS, INC., a Pennsylvania corporation ("Zynaxis"),
hereby promises to pay to S.R. One Ltd.("S.R. One"), the principal sum of Two
Hundred and Fifty thousand ($250,000) plus interest on the unpaid principal
amount hereof at the rate of 11/1/4/% per annum, on the earlier (i) the receipt
by the Company of proceeds from the sale of its Cauldron Process Chemistry
Division aggregating at least $1,000,000 or (ii) upon demand if such closing has
not occurred on or before October 15, 1996.
This Demand Promissory Note is being substituted for and supercedes the Demand
Promissory Note dated June 7, 1996.
The Principal of this note may, at any time prior to repayment and at the sole
discretion of S.R. One be converted into 150,000 shares of Common Stock of
Zynaxis.
As additional consideration, Zynaxis has issued a Warrant (the "Warrant") to
purchase 25,000 shares of Common Stock of Zynaxis at an exercise price of $1.00
per share. This Warrant is attached to this Demand Promissory Note.
The entire principal of this Demand Promissory Note may be prepaid at any time
by Zynaxis.
This Demand Promissory Note shall be governed by and constructed in accordance
with the laws of the Commonwealth of Pennsylvania.
INTENDING TO BE LEGALLY BOUND HEREBY, Zynaxis has executed this Note as of the
day and year first above written.
ZYNAXIS, INC.
By: /s/ Martyn D. Greenacre
-----------------------
Martyn D. Greenacre
Chief Executive Officer
<PAGE>
Exhibit 10.8
- - --------------------------------------------------------------------------------
THE WARRANT REPRESENTED HEREBY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE WARRANT MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM.
THE WARRANT REPRESENTED HEREBY AND THE RIGHTS OF HOLDERS THEREOF ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND OTHER RESTRICTIONS, AS DESCRIBED IN SECTION
4 OF THIS WARRANT.
- - --------------------------------------------------------------------------------
Void after 5:00 p.m. (Eastern Time), on the last
day of the Warrant Term, as provided herein.
Warrant to Purchase
50,000 Shares of
Date: June 7, 1996. Common Stock
WARRANT
TO PURCHASE COMMON STOCK OF
ZYNAXIS, INC.
THIS CERTIFIES THAT, FOR VALUE RECEIVED, S.R. One, Ltd. (herein called
"Warrant Holder") or registered assigns, is the holder of a Warrant and is
entitled to purchase, subject to the provisions of this Warrant, from Zynaxis,
Inc., a Pennsylvania corporation (the "Company"), at any time and from time to
time during the Warrant Term, 50,000 fully paid, validly issued and
nonassessable shares of Common Stock, par value $.01 per share, of the Company
("Common Stock"), at the Warrant Price. The Warrant Price and number and kind
of securities issuable hereunder are subject to adjustments as provided herein.
1. Definition of Principal Terms. For the purpose of this Warrant:
-----------------------------
(a) "Promissory Note" means the Promissory Note dated June 7,
1996, issued by the Company to the Warrant Holder.
(b) "Warrant" means the Warrant to purchase Common Stock issued
by the Company in connection with and in consideration for the funding received
pursuant to the Promissory Note and any and all Warrants which are issued in
exchange or substitution for any outstanding Warrant pursuant to the terms of
that Warrant.
<PAGE>
(c) "Warrant Price" means the price per share at which shares of
Common Stock are purchasable hereunder, as such price may be adjusted from time
to time hereunder, and shall initially be equal to $1.00.
(d) "Warrant Shares" means shares of Common Stock purchased upon
exercise of the Warrants.
(e) "Warrant Term" means, except as provided in Section 6
hereof, the period commencing on June 7, 1996 and ending at 5:00 p.m. (Eastern
Time) on June 6, 2001.
2. Exercise of Warrants. This Warrant may be exercised during the
--------------------
Warrant Term in whole or in part by the surrender of the Warrant, with the
purchase agreement attached hereto as Rider A properly completed and executed,
at the principal office of the Company at 371 Phoenixville Pike, Malvern,
Pennsylvania 19355 or such other location which shall at that time be the
principal office of the Company (the "Principal Office"), and upon payment to it
by wire transfer, certified check or bank draft to the order of the Company for
the purchase price for the Warrant Shares to be purchased upon such exercise.
The person entitled to the Warrant Shares so purchased shall be treated for all
purposes as the holder of such Warrant Shares as of the close of business on the
date of exercise and certificates for the Warrant Shares so purchased shall be
delivered to the person so entitled within a reasonable time, not exceeding
thirty (30) days, after such exercise. Unless this Warrant has expired, a new
Warrant of like tenor and for such number of shares of Common Stock as the
holder of this Warrant shall direct, representing in the aggregate the right to
purchase a number of shares of Common Stock with respect to which this Warrant
shall not have been exercised, shall also be issued to the holder of this
Warrant within such time.
3. Exchange. This Warrant is exchangeable from the date hereof until
--------
the expiration of the Warrant Term, upon the surrender thereof by the holder
thereof at the Principal Office of the Company, for new Warrants of like tenor
registered in such holder's name and representing in the aggregate the right to
purchase the number of shares of Common Stock purchasable under the Warrant
being exchanged, each of such new Warrants to represent the right to subscribe
for and purchase such number of shares of Common Stock as shall be designated by
said holder at the time of such surrender.
4. Restrictions on Transfer and Registration Rights. The
------------------------------------------------
transferability of this Warrant and the Warrant Shares are subject to the
restrictions on transfer set forth below:
(a) Notice of Transfer and Opinion of Counsel. The Warrant
-----------------------------------------
Holder, and any other holder of the Warrant by acceptance thereof, agrees that,
prior to any transfer of any Warrant, such holder will give written notice to
the Company of such holder's intention to effect such transfer and to comply in
all other respects with the provisions of this Section 4. Each such notice shall
contain (i) a statement setting forth
2
<PAGE>
the intention of such holder's prospective transferee with respect to its
retention or disposition of such Warrant, and (ii) unless waived by the Company,
an opinion of counsel for such holder (who may be the inside or staff counsel
employed by such holder), as to the necessity or non-necessity for registration
under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws in connection with such transfer and stating
the factual and statutory bases relied upon by counsel. The following provisions
shall then apply:
(A) If in the opinion of counsel for the Company the
proposed transfer of such Warrant may be effected without registration
or qualification under the Securities Act and any applicable state
securities laws, then the registered holder of such Warrant shall be
entitled to transfer such Warrant in accordance with the intended
method of disposition specified in the statement delivered by such
holder to the Company.
(B) If in the opinion of counsel for the Company the
proposed transfer of such Warrant may not be effected without
registration under the Securities Act or registration or qualification
under any applicable state securities laws, the registered holder of
such Warrant shall not be entitled to transfer such Warrant until the
requisite registration or qualification is effective.
(b) Transfer. Subject to the restrictions on transfer set forth
--------
above, this Warrant is transferable, in whole, at the Principal Office of the
Company by the registered holder thereof, in person or by duly authorized
attorney, upon presentation of the Warrant, properly endorsed, for transfer.
Each holder of this Warrant, by holding it, agrees that the Warrant, when
endorsed in blank, may be deemed negotiable, and that the holder thereof, when
the Warrant shall have been so endorsed, may be treated by the Company and all
other persons dealing with the Warrant as the absolute owner thereof for any
purpose and as the person entitled to exercise the rights represented by the
Warrant, or to the transfer on the books of the Company, any notice to the
contrary notwithstanding.
(c) Registration Restrictions. This Warrant and the Warrant
-------------------------
Shares have not been registered under the Securities Act, by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to the exemption provided in Section 4(2) thereof, and
have not been registered under state securities laws by reason of their issuance
in a transaction exempt from such registration requirements. This Warrant and
the Warrant Shares may not be sold, transferred or otherwise disposed of unless
registered under the Securities Act and applicable state securities laws or
exempted from registration. Shares of Common Stock issuable upon exercise of
this Warrant will bear the following restrictive legend:
The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
3
<PAGE>
1933, as amended. The shares may not be sold or transferred in the
absence of such registration or an exemption therefrom.
The shares represented by this certificate and the rights of holders
thereof are subject to certain restrictions on transfer and other
restrictions, and the holder of the shares represented by this
certificate (including any holders) are bound by the terms of the
original Warrant (copies of which may be obtained from the Company).
All restrictions contained herein shall be binding on any transferee of this
Warrant and the Company may require any such transferee to execute an instrument
agreeing in writing to be so bound by these restrictions as a condition to
transfer.
The Company shall be entitled to give stop transfer instructions to the transfer
agent with respect to Warrant Shares in order to enforce the forgoing
instructions.
5. Certain Covenants of the Company. The Company covenants and
--------------------------------
agrees that all shares which may be issued upon the exercise of this Warrant
will, upon issuance, be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof;
and without limiting the generality of the foregoing, the Company covenants and
agrees that it will from time to time take all such action as may be requisite
to assure that the par value per share of the Common Stock is at all times equal
to or less than the then effective purchase price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of issue upon exercise of the purchase rights evidenced by this Warrant,
a sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by the Warrant.
6. Automatic Termination of Warrant Term. The Warrant Term shall
-------------------------------------
terminate automatically sixty (60) days after the Common Stock of the Company
has traded at an average closing price per share as reported on the Nasdaq Stock
Market or the Nasdaq SmallCap Market of The Nasdaq Stock Market, Inc. or at an
average closing bid price per share as quoted on the OTC Bulletin Board, as the
case may be, of three dollars ($3) or greater for any thirty (30) consecutive
trading days during the Warrant Term.
7. Adjustments of Warrant Price. In the event that the Company shall
----------------------------
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or otherwise
than by payment of a dividend in Common Stock or in any right to acquire Common
Stock), or in the event the outstanding shares of Common Stock shall be combined
or consolidated, by reverse stock split, reclassification or otherwise, into a
lesser number of shares of
4
<PAGE>
Common Stock, then the Warrant Price shall, concurrently with the effectiveness
of such event, be proportionately decreased or increased, as appropriate, to
avoid dilution of the exercise rights hereunder.
8. Adjustments for Reclassification and Reorganization. In case of
---------------------------------------------------
any reclassification or change of outstanding securities issuable upon exercise
of the Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination) or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is the surviving corporation and which does not result in any
reclassification or change, other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination of outstanding securities issuable upon the exercise
of the Warrant), or in case of any sale or transfer to another corporation of
the property of the Company as an entirety or substantially as an entirety, the
Company, or such successor or purchasing corporation, as the case may be, shall
without payment of any additional consideration therefor, execute new warrants
providing that the holder of the Warrant shall have the right to exercise such
new warrant (upon terms not less favorable to the holders than those then
applicable to the Warrant) and to receive upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of the Warrant, the
kind and amount of shares of stock, other securities, money or property
receivable upon such reclassification, change, consolidation, merger, sale or
transfer by the holder of one share of Common Stock issuable upon exercise of
the Warrant had the Warrant been exercised immediately prior to such
reclassification, change, consolidation, merger, sale or transfer. Such new
warrants shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in Section 7 hereof and this
Section 8. The provisions of this Section 8 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
9. Notices. Whenever the Warrant Price shall be adjusted pursuant to
-------
Section 7 hereof, or there shall be a reclassification, reorganization or other
event specified in Section 8 hereof, the Company shall promptly prepare a
certificate signed by its President or a Vice President and by its Treasurer,
setting forth in reasonable detail, as the case may be, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, the Warrant Price after giving effect to such adjustment, and
information regarding the execution of new warrants, and shall promptly cause
copies of such certificate to be mailed (by first class and postage prepaid) to
the registered holders of the Warrant.
In the event the Company shall take any action which pursuant to
Section 7 may result in an adjustment of the Warrant Price, or pursuant to
Section 8 may result in the execution of new warrants, the Company will give to
the registered holders of the Warrant at their last addresses known to the
Company written notice of such action ten (10) days in advance of its effective
date in order to afford to such holders of the
5
<PAGE>
Warrant an opportunity to exercise the Warrant and to purchase shares of Common
Stock of the Company prior to such action becoming effective.
10. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any purchase hereunder.
11. Loss, Theft, Destruction or Mutilation. Upon receipt by the
--------------------------------------
Company of reasonable evidence satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of the Warrant and (in the case of loss,
theft or destruction) of reasonable indemnity and (in case of mutilation) upon
surrender and cancellation thereof, the Company will execute and deliver, in
lieu thereof, new warrant of like tenor.
12. Headings. The description headings of the several sections of
--------
this Warrant are inserted for convenience only and do not constitute a part of
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Warrant.
ZYNAXIS, INC.
By: /s/ Katharine A. Muirhead
-------------------------
Katharine A. Muirhead, Ph.D.
Sr. Vice President New Business
and Technology Development
Attest: /s/ Francis M. Conway
---------------------
6
<PAGE>
RIDER A
-------
PURCHASE AGREEMENT
------------------
Date: ___________________
TO:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase shares of Common Stock covered by such
Warrant, and makes payment herewith in full thereof at the price per share
provided by this Warrant.
Signature: ________________________
Address: ________________________
________________________
* * *
For Value Received,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Common Stock covered
by such Warrant to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- - ----------------- ------- --------------
and appoints _______________________________ Attorney to make such transfer of
the books of Zynaxis, Inc. maintained for such purpose, with full power of
substitution in the premises.
Dated: Signature: ___________________________
Witness: ___________________________
7
<PAGE>
MARKETING RIGHTS AGREEMENT
This Marketing Rights Agreement (the Agreement) made as of July 24,
1996, between Zynaxis, Inc., a Pennsylvania corporation, having a principal
place of business at 371 Phoenixville Pike, Malvern, Pennsylvania 19355
(hereinafter referred to as "Zynaxis") and Phanos Technologies, Inc., a
California corporation with offices at 9348 Civic Center Drive, Suite 250
Beverly Hills, California 90210 (hereinafter referred to as "Phanos").
WITNESSETH
WHEREAS, Zynaxis holds exclusive rights under certain patents and
patent applications (identified in Appendix I attached hereto) and know-how
relating to therapeutic agents which improve the therapeutic performance of a
given Compound by inclusion of a variety of structures which include lipophilic
hydrocarbon chains that can insert into the membrane of a cell ("Zyn-Linker
Technology"); and
WHEREAS, Phanos has conceived of and holds intellectual property right
to specific methods of use of the Zyn-Linker Technology in the form of a Zyn-
Linker conjugated to an agent effective for the treatment of H. pylori
infections in the gastrointestinal tract of humans ("Developed Technology"); and
WHEREAS, Zynaxis desires to establish relationships with Collaboration
Partners to further develop the Zyn-Linker Technology to produce Products
incorporating the Developed Technology, and to gain regulatory approval for such
Products; and
WHEREAS, Phanos has the means to demonstrate that Developed Technology
is capable of utilization in Products to prospective Collaboration Partners on
behalf of Zynaxis; and
WHEREAS, Phanos wishes to obtain marketing rights from Zynaxis to
market the Developed Technology in an effort to establish Collaboration
Agreements between Zynaxis and Collaboration Partners found by Phanos;
NOW, THEREFORE, in consideration of the covenants and obligations
expressed herein and intending to be legally bound, the parties hereto agree as
follows:
1. DEFINITIONS
1.01 "Affiliate" shall mean any corporation, firm, partnership or other
entity, whether de jure or de facto, which directly or indirectly owns, is owned
by or is under common ownership with a party to this Agreement to the extent of
at least
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Phanos/Zynaxis Marketing Rights Agreement 08/05/96
fifty percent (50%) of the equity (or such lesser percentage which is the
maximum allowed to be owned by a foreign corporation in a particular
jurisdiction) having the power to vote on or direct the affairs of the entity
and any person, firm, partnership, corporation or other entity actually
controlled by, controlling or under common control with a party to this
Agreement.
1.02 "CFR" shall mean the United States Code of Federal Regulations.
1.03 "Collaboration Agreements" shall mean those agreements between
Zynaxis and Collaboration Partners relating to the commercial development and
clinical investigation of Developed Technology or the production, use or sale of
Products.
1.04 "Collaboration Partners" shall mean those individuals, corporations,
partnerships or entities, and their Affiliates whom Zynaxis has reasonably
determined to be capable of performing the commercial development and clinical
investigation of Products.
1.05 "Developed Technology" shall mean the Zyn-Linker Technology in
the form of a Zyn-Linker conjugated to an agent effective for the treatment of
H. pylori infections in the gastrointestinal tract of humans. This definition
includes any improvements in the Developed Technology made or conceived by
Phanos in accordance with this Agreement.
1.06 "FDA" shall mean the United States Food and Drug Administration.
1.07 "IND" shall mean a Notice of Claimed Investigational New Drug
Exemption.
1.08 "NDA" shall mean any and all pending or approved applications
(New Drug Applications) submitted to FDA under Section 505 or 512 of the FD&C
ACT and applicable regulations related to Product including without limitation,
full NDAs, Supplemental NDAs (SNDAs), "paper" NDAs and abbreviated NDAs (ANDAs).
1.09 "Net Sales" shall mean the receipts from sales of Product to Third
Parties contemplated under this Agreement and defined in agreements produced
under this Agreement.
1.10 A "Product" shall mean a therapeutic agent containing a Zyn-Linker
conjugated to an agent effective for the treatment of H. pylori infections in
the gastrointestinal tract of humans as developed under a Collaboration
Agreement between Zynaxis and a Collaboration Partner.
1.11 A "Quarter" shall mean a period of the calendar year ending on
March 31, June 30, September 30, or December 31.
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Phanos/Zynaxis Marketing Rights Agreement 08/05/96
1.12 "Revenues" shall mean those sums received by Zynaxis from
Collaboration Partners under Collaboration Agreements, including milestone
payments, option payments, and initial payments, but excluding i) sums received
by Zynaxis as compensation for work performed by Zynaxis for the Collaboration
Partner on a work-for-hire basis and ii) Royalties received by Zynaxis from
Collaboration Partners from the sale of Product(s).
1.13 "Royalty" shall be those sums owed Zynaxis from the sale of Products,
calculated as a percentage of Net Sales of Products sold under a Collaboration
Agreement. The Royalty rates due Zynaxis shall be determined in each such
Collaboration Agreement.
1.14 "Third Party" shall mean any party other than a party to this
Agreement or an Affiliate thereof.
2. GRANT
2.01 Zynaxis hereby grants to Phanos the exclusive right to act as the
agent of Zynaxis for the purpose of finding Collaboration Partner(s) for
Developed Products, subject to the terms and conditions of this Agreement
(hereinafter referred to as the "Rights").
2.02 Zynaxis grants to Phanos the right to further develop Developed
Technology as necessary for Phanos to act as Zynaxis's agent under this
Agreement. Any such further developments produced by Phanos shall be
immediately communicated to Zynaxis and all such further developments shall be
owned by Zynaxis, and shall automatically be included within the scope of the
Rights granted herein by Zynaxis to Phanos.
2.03 Notwithstanding the grants set forth in paragraph 2.02 above, any
patent rights arising in connection with the inventions regarding the method of
use of a Zyn-Linker conjugated to an agent effective for the treatment of H.
pylori infections in the gastrointestinal tract of humans shall be assigned to
Phanos.
2.04 Phanos grants to Zynaxis a worldwide exclusive right to any Phanos
patents and/or patent applications required by Zynaxis to perform its
obligations under this Marketing Rights Agreement, particularly Section 3.03,
and under any Collaboration Agreement established pursuant to this Marketing
Rights Agreement.
3. OBLIGATIONS OF THE PARTIES
3.01 Phanos agrees to use commercially reasonable efforts, at its expense,
to further develop the Developed Technology to a point such that Phanos can
present the Developed Technology to potential Collaboration Partners for
Zynaxis.
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Phanos/Zynaxis Marketing Rights Agreement 08/05/96
3.02 Phanos agrees to use commercially reasonable efforts to present
the Developed Technology to potential Collaboration Partners for Zynaxis.
Phanos shall consult Zynaxis regarding the substance of all negotiations to
obtain such Collaboration Partners.
3.03 Zynaxis agrees to enter into Collaboration Agreements with those
potential Collaboration Partners discovered by Phanos which Zynaxis reasonably
believes will be effective in developing commercially viable Products on terms
and conditions deemed reasonable by Zynaxis.
3.04 Zynaxis agrees that in the event that Zynaxis, its assigns and/or its
successors in interest decide to abandon any of the particular patents and/or
patent applications that protect the Developed Technology, Phanos shall have the
right to request that Zynaxis continue, at Phanos expense, to maintain and/or
prosecute said patents and/or patent applications. In the event that Zynaxis,
its assigns and/or its successors in interest decide to abandon all patents
and/or patent applications that protect the Developed Technology, then in that
event Zynaxis agrees that Phanos shall be so notified and given the opportunity
to acquire patent rights sufficient to protect the Developed Technology.
3.05 Zynaxis agrees that in the event that Zynaxis, its assigns and/or its
successors in interest decide to sell all of the patents and/or patent
applications that protect the Developed Technology, Phanos shall be notified of
the intent to sell and given the opportunity to acquire patent rights sufficient
to protect the Developed Technology. Notwithstanding the foregoing, in the event
that Zynaxis sells all or substantially all of its assets and providing that the
purchasers of those assets assume the obligations set forth in this Agreement,
the obligations set forth herein shall not apply.
3.06 Zynaxis agrees that in the event that Zynaxis, its assigns and/or its
successors in interest decide to sell any of the particular patents and/or
patent applications that protect the Developed Technology and the purchaser does
not wish to assume the obligations set forth in this Agreement, Phanos shall be
offered the right to obtain an exclusive license under the broad claims of such
patents and/or patent applications to practice any specific claims relating to
the Developed Technology, said license being on commercial terms no less
favorable than those contained herein.
3.07 For and in consideration of the efforts expended by Phanos under
sections 3.01 and 3.02 of this Agreement, Zynaxis shall make Payments to Phanos
according to the following schedule:
Zynaxis shall pay to Phanos fifty percent (50%) of all Revenues received from
Collaboration Partners, including milestone payments, license fees and options
fees,
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Phanos/Zynaxis Marketing Rights Agreement 08/05/96
but excluding i) Royalties received from the sale of Products and ii) sums
received by Zynaxis as compensation for work performed by Zynaxis for the
Collaboration Partner on a work-for-hire basis. Not withstanding the above,
Zynaxis shall pay to Phanos fifty percent (50%) of all Royalties received from
sale of Products in the nation of Japan. Zynaxis shall pay to Phanos a portion
of all Royalties received from sale of Products outside the nation of Japan, in
accordance with the following schedule:
Royalty rate received by Zynaxis Phanos's share of Zynaxis's Royalty
-------------------------------- -----------------------------------
Greater than 12.5% 50%
10.0 to 12.5% 40%
7.5 to 9.9 % 30%
Less than 7.5% 20%
4. COMMERCIALIZATION
4.01 Phanos will exercise commercially reasonable efforts and diligence in
marketing the Developed Technology to potential Collaboration Partners,
including any further development of Developed Technology desirable to fulfill
Phanos's commercialization obligation. All such activity shall be undertaken at
Phanos's expense. At Phanos's request and expense, Zynaxis shall supply to
Phanos reasonable technical assistance in undertaking such efforts.
4.02 During the term of this Agreement, each party shall promptly upon
request provide to the other party technical assistance within such requested
party's area of expertise concerning the development, production and/or
commercialization of Developed Technology and Products. Provision of such
technical assistance shall include, but not be limited to, visits by the
requested party's personnel to the requesting party and visits by the requesting
party's personnel to the other party, at times and for periods of time upon
which the parties will mutually agree.
5. COSTS
5.01 Phanos shall be solely responsible for any and all costs in
connection with its acting as the agent of Zynaxis, including, but not limited
to, expenses incurred in further developing Developed Technology and acting as
Zynaxis's agent in finding potential Collaboration Partners.
5.02 Zynaxis shall be responsible for all costs, including legal fees,
associated with preparing Collaboration Agreements with Collaboration Partners.
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Phanos/Zynaxis Marketing Rights Agreement 08/05/96
6. RIGHTS TO AND EXCHANGE OF CONFIDENTIAL INFORMATION
6.01 Phanos shall provide Zynaxis access to, and on its request copies of,
any and all information and data generated by Phanos in connection with this
Agreement, including, without limitation, all information and data filed by
Phanos with the FDA pursuant to 21 CFR relating to the Zyn-Linker Technology,
and Zynaxis shall have the unrestricted right to utilize such information and
data or any portion thereof for any purpose whatsoever in its sole discretion,
subject only to the terms of this Article 6.
6.02 During the term of this Agreement, each party shall promptly inform
the other party of any information that it obtains or develops regarding the
utility and safety of Product(s) and shall promptly report to the other party
any confirmed information of serious or unexpected reactions or side effects
related to the utilization or medical administration of Product(s). Phanos and
Zynaxis shall comply with adverse drug experience reporting requirements of FD&C
Act and regulations thereunder and shall adhere to standard operating procedures
for reporting adverse drug experiences as shall be developed by the parties,
provided, however, that for the United States reporting requirements, such
procedures shall be in a form acceptable to Zynaxis.
6.03 During the term of this Agreement and for ten (10) years thereafter,
irrespective of any termination earlier than the expiration of the term of this
Agreement, Zynaxis and Phanos shall not reveal or disclose to Third Parties any
confidential information received from the other party under this Agreement
without first obtaining the written consent of the disclosing party, except as
to data and information generated under Section 6.01, or as may be required for
purposes of investigating, manufacturing and marketing Product(s) pursuant to
the terms of an appropriate confidentiality agreement, or for securing essential
or desirable authorizations, privileges or rights from governmental agencies, or
as required to be disclosed to a governmental agency or as necessary to file or
prosecute patent applications concerning Zyn-Linker Technology or to carry out
any litigation concerning Zyn-Linker Technology. This confidentiality
obligation shall not apply to such information which is or becomes a matter of
public knowledge, or is already in the possession of the receiving party, or is
disclosed to the receiving party by a Third Party having the right to do so, or
is subsequently and independently developed by employees of the receiving party
or Affiliates thereof who had no knowledge of the confidential information
disclosed. The parties shall take reasonable measures to assure that no
unauthorized use or disclosure is made by others to whom access to such
information is granted.
6.04 The provisions of this Article 6 shall supersede and replace in all
respects any prior confidentiality obligations between the parties hereto with
respect to Zyn-Linker Technology.
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Phanos/Zynaxis Marketing Rights Agreement 08/05/96
7. STATEMENTS AND REMITTANCES
7.01 Either party, or its authorized representative, shall have the right,
at its expense, to examine records, to the extent reasonably necessary, to
verify the accuracy of the required Payments under Section 3.07. Such
examinations shall occur at such place or places where such records are
customarily kept. Such examinations shall take place during regular business
hours during the life of this Agreement and for one (1) year after its
termination; provided, however, that such examinations shall not take place more
often than one (1) time per calendar year and shall not cover such records for
more than the preceding five (5) years. In the event such an examination
discloses an under-reporting error of five percent (5%) or more from what had
been represented, all costs of the examination incurred by the examining party
shall be promptly reimbursed by the party examined. Any amounts due by either
party to correct an under-reporting or overpayment disclosed upon examination
shall be paid promptly or may be set-off against any amounts owed under this
Agreement.
7.02 Within thirty (30) days after the close of each calendar quarter,
Zynaxis shall deliver to Phanos a true accounting of all Net Sales of Product(s)
sold by Zynaxis during such quarter and a true accounting of all Revenues
received from Collaboration Partners during such quarter, and shall at the same
time pay all Payments due by cash, certified check or bank wire transfer, as
designated by Phanos. Within thirty (30) days after receipt of a true
accounting of all Net Sales of Products sold by a Collaboration Partner during
each calendar quarter, Zynaxis shall provide Phanos with a copy of the aforesaid
true accounting, and shall at the same time pay all Payments due by cash,
certified check or bank wire transfer, as designated by Phanos.
7.03 All Payments due under this Agreement shall be payable in U.S.
dollars.
8. TERM AND TERMINATION
8.01 This Agreement shall be valid for the longer of i) a period of two
years from the date listed above or ii) the period of six months after the term
of any Collaboration Agreement established hereunder. This Agreement may be
extended for one year terms by the mutual written consent of the Parties, three
(3) months prior to the termination thereof.
8.02 In the event of a disagreement which cannot be resolved by
negotiation, either party may request arbitration. Arbitration shall be the
exclusive means of resolving disputes under this Agreement which cannot be
resolved by mutual negotiation. Any arbitration shall be conducted at a
location mutually acceptable to the parties. The arbitration shall be conducted
by the AAA under its
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Phenos/Zynaxis Marketing Rights Agreement 08/05/96
rules in effect at the time the arbitration is requested. The loser of the
arbitration shall pay the cost of the arbitration but not the legal costs
incurred by the other party. The arbitrators may apportion the costs as they
deem fair and equitable. If one of the parties is found in default of its
obligations under this Agreement, the other party shall have the right to
terminate this Agreement by giving sixty (60) days written notice to the party
in default.
9. RIGHTS AND DUTIES UPON TERMINATION
9.01 Upon termination of the Agreement for any reason, all rights and
duties of the parties toward each other shall cease, except for those rights and
duties incurred under Sections 2.03, 2.04, 3.04, 3.05, 3.06, 3.07, 6, 7, 9, 10,
11, and 17 of this Agreement which shall survive for the longer of i) the term
specified herein or ii) the term of any Collaboration Agreement established
hereunder.
10. WARRANTIES AND REPRESENTATIONS
10.01 Phanos and Zynaxis each warrants that it has the right to enter into
this Agreement and to perform all of its obligations hereunder and that the
execution of this Agreement and the performance by it of its obligations
hereunder will not result in any breach or violation or default under any
material indenture, lease, license, mortgage, loan, or any other agreement,
instrument or understanding, law, governmental rule or regulation, court order
or decree of any kind, to which it is a party or to which it or any of its
property is or may be subject.
10.02 Phanos warrants that it has the expertise and capability to carry
out and perform all of its obligations hereunder.
10.03 Zynaxis disclaims any warranty that the Zyn-Linker Technology, or
the use thereof, or Products manufactured or used, will be free from claims of
any infringement of the trademarks, patents or Copyrights of any Third Party,
but Zynaxis knows of the existence of no such claims. Zynaxis makes no
representations or warranties, other than those expressly set forth in this
Agreement, and disclaims all other representations or warranties of any nature,
express or implied, including any IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
10.04 Phanos disclaims any warranty that the Developed Technology can be
patented, or that the use thereof, or Products manufactured or used, will be
free from claims of any infringement of the trademarks, patents or Copyrights of
any Third Party, but Phanos knows of the existence of no such claims. Phanos
makes no representations or warranties, other than those expressly set forth in
this Agreement, and disclaims all other representations or warranties of any
nature,
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Phanos/Zynaxis Marketing Rights Agreement 08/05/96
express or implied, including any IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
10.05 Nothing in this Agreement shall be construed as a warranty that the
patents relating to the Zyn-Linker Technology owned by Zynaxis are valid or
enforceable or that their exercise does not infringe any patent rights of Third
Parties. Zynaxis hereby represents that it has no present knowledge from which
it can be inferred that such patents are invalid or that their exercise would
infringe patent rights of Third Parties. A holding of invalidity or
unenforceability of any such patent, from which no further appeal is or can be
taken, shall not affect any obligation already accrued hereunder.
10.06 Each party warrants that it is not presently debarred, suspended, or
otherwise excluded by the U.S. Government from receiving Federal Contracts or
disqualified by FDA from performing its obligations under this Agreement.
11. LIABILITY
11.01 Phanos and Zynaxis (as the case may be) each shall hold the other,
and their respective Affiliates, directors, officers, employees and agents,
harmless from any loss, judgment, damages or expense, including, without
limitation, court costs and reasonable attorneys' fees, by reason of litigation
or otherwise for claims arising out of any breach by Phanos or Zynaxis, or any
of their respective Affiliates, directors, officers, employees or agents, (as
the case may be) of any of the warranties or the representations by, or
obligations of, Phanos or Zynaxis (as the case may be) set forth in this
Agreement.
11.02 Phanos shall hold Zynaxis and its Affiliates, directors, officers,
employees, and agents, harmless from any court costs and reasonable attorneys'
fees by reason of third party litigation or otherwise for claims arising out of
any defect or misrepresentation of any Product manufactured, produced, marketed,
distributed, sold, processed or supplied by Phanos. This Agreement by Phanos to
hold Zynaxis harmless shall not apply to the extent that any such loss arises
out of the negligent or willful act of Zynaxis or its Affiliates, directors,
officers, employees or agents, or the failure of Zynaxis or its Affiliates to
inform Phanos of serious and unexpected adverse drug experiences.
12. FORCE MAJEURE
12.01 If the performance of any part of this Agreement by either party, or
of any obligation under this Agreement, is prevented, restricted, interfered
with or delayed by reason of any cause beyond the reasonable control of the
party liable to perform unless conclusive evidence to the contrary is provided,
the party so affected shall, upon giving written notice to the other party, be
excused from such performance to the extent of such prevention, restriction,
interference or delay
9
<PAGE>
Phanos/Zynaxis Marketing Rights Agreement 08/05/96
provided that the affected party shall use its reasonable best efforts to avoid
or remove such causes of non-performance and shall continue performance with the
utmost dispatch whenever such causes are removed. When such circumstances arise,
the parties shall discuss what, if any, modification of the terms of this
Agreement may be required in order to arrive at an equitable solution.
13. GOVERNING LAW
13.01 This Agreement shall be deemed to have been made in the Commonwealth
of Pennsylvania and its form, execution, validity, construction and effect shall
be determined in accordance with the laws of the Commonwealth of Pennsylvania.
14. SEPARABILITY
14.01 In the event any portion of this Agreement shall be held illegal,
void or ineffective, the remaining portions hereof shall remain in full force
and effect.
14.02 If any of the terms or provisions of this Agreement are in conflict
with any applicable statute or rule of law, then such terms or provisions shall
be deemed inoperative to the extent that they may conflict therewith and shall
be deemed to be modified to conform with such statute or rule of law.
14.03 In the event that the terms and conditions of this Agreement are
materially altered as a result of paragraphs 14.01 or 14.02, the parties will
renegotiate the terms and conditions of that altered portion of this Agreement
to resolve any inequities.
15. AMENDMENT
15.01 No terms or provisions of this Agreement shall be varied or modified
by any prior or subsequent statement, conduct or act of either of the parties,
except that the parties may amend this Agreement by written instruments
specifically referring to and executed in the same manner as this Agreement.
16. NOTICES
16.01 Any notice required or permitted under this Agreement shall be sent
by registered or certified air mail, postage pre-paid, international cable,
facsimile transmission or telex to the last provided addresses of the parties.
10
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Phanos/Zynaxis Marketing Rights Agreement 08/05/96
16.02 Any notice required or permitted to be given concerning this
Agreement shall be effective upon receipt, or refusal thereof, by the party to
whom it is addressed.
17. ASSIGNMENT
17.01 This Agreement and the Rights herein granted shall be binding upon
and inure to the benefit of the successors in interest of the respective
parties. Neither this Agreement nor any interest hereunder shall be assignable
by either party without the written consent of the other which consent may be
withheld within the sole discretion of such party, provided, however, that
either party may assign this Agreement to any Affiliate or to any corporation
with which it may merge or consolidate, or to which it may transfer all or
substantially all of its assets to which this Agreement relates, without
obtaining the consent of the other party.
11
<PAGE>
Phanos/Zynaxis Marketing Rights Agreement 08/05/96
IN WITNESS WHEREOF, the parties, through their authorized officers or
representatives, have caused this Agreement to be executed effective as of the
date first above written.
PHANOS TECHNOLOGIES, INC.
By: /s/ Shotaro Kawano
------------------
Shotaro Kawano
Title: President and Chief Executive Officer
Date: July 24, 1996
---------------
ZYNAXIS, INC.
By: /s/ Martyn D. Greenacre
-----------------------
Marty D. Greenacre
Title: President and Chief Executive Officer
Date: July 24, 1996
-------------
12
<PAGE>
Phanos/Zynaxis Marketing Rights Agreement 08/05/96
Appendix I
1. Patent application: U.S. Application Number 07/884,432
Inventors: Gregory A. Kopia et al.
Title: "Compounds, Compositions and Methods for Binding Bio-
affecting Substances to Surface Membranes of Bio-Particles"
2. Any continuations, continuations-in-part and/or divisionals of U.S.
Application Number 07/884,432.
3. Any foreign counterparts of U.S. Application Number 07/884,432 and any of
its continuations, continuations-in-part and divisionals.
N/Dosswap/Ksd/Kminprog/Zynphafl.Doc
13
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