<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1998
REGISTRATION NO. 333-33219
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 8
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OPHIDIAN PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
WISCONSIN 8731 39-1661164
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------
5445 EAST CHERYL PARKWAY
MADISON, WISCONSIN 53711
608/271-0878
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
DOUGLAS C. STAFFORD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5445 EAST CHERYL PARKWAY
MADISON, WISCONSIN 53711
608/271-0878
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
MICHAEL E. SKINDRUD, ESQ. LAWRENCE B. FISHER, ESQ.
LAFOLLETTE & SINYKIN ORRICK, HERRINGTON & SUTCLIFFE LLP
ONE EAST MAIN STREET 666 FIFTH AVENUE
MADISON, WISCONSIN 53703 NEW YORK, NEW YORK 10103
608/257-3911 212/506-5000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TO BE PRICE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Units.................................................... 1,840,000 $6.10 $11,224,000 $ 3,412.09
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, .0025 par value(2)........................ 1,840,000 6.00 11,040,000 --
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock Warrants ("Warrants")(3)................... 1,840,000 0.10 184,000 --
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Warrants(4)....... 1,840,000 7.32 13,468,800 4,094.51
- ---------------------------------------------------------------------------------------------------------------------------------
Representative's warrants(5)............................. 160,000 0.0001 16 --
- ---------------------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of Representative's
warrants(5)............................................. 160,000 7.32 1,171,200 356.04
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Warrants issuable upon exercise
of Representative's warrants(5)......................... 160,000 8.78 1,404,800 427.06
- ---------------------------------------------------------------------------------------------------------------------------------
Totals................................................... -- -- $38,492,816 $ 8,289.70
- ---------------------------------------------------------------------------------------------------------------------------------
Amount previously paid(6)................................ -- -- -- $12,687.11
- ---------------------------------------------------------------------------------------------------------------------------------
Amount owed.............................................. -- -- -- --
=================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457 of the 1933 Securities Act, as amended (the
"Securities Act").
(2) Includes 240,000 Shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments in connection with the
Registrant's sale of the securities, if any.
(3) Includes 240,000 Warrants that the Underwriters have the option to purchase
to cover over-allotments in connection with the Registrant's sale of the
securities, if any.
(4) Includes 240,000 Shares of Common Stock issuable upon exercise of Warrants
that the Underwriters have the option to purchase to cover over-allotments
in connection with the Registrant's sale of the securities, if any.
(5) In connection with the Registrant's sale of the securities, the Registrant
is granting to the Representatives of the several Underwriters (the
"Representatives") warrants to purchase 160,000 Units, each Unit consisting
of one share of Common Stock and one Warrant (the "Representatives'
Warrants").
(6) Previously paid on August 8, 1997.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 18, 1998
OPHIDIAN
PHARMACEUTICALS, INC.
1,600,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
Ophidian Pharmaceuticals, Inc. ("Ophidian" or the "Company") hereby offers
(the "Offering") 1,600,000 Units (the "Units"), each Unit consisting of one
share of common stock, $.0025 par value (the "Shares" or "Common Stock") and one
redeemable common stock purchase warrant (the "Warrants"). The Units, Shares and
Warrants are sometimes hereinafter collectively referred to as the "Securities."
The Shares and Warrants comprising the Units are detachable and will trade
separately 90 days after issuance, subject to earlier separability in the
discretion of Dirks & Company, Inc. and Security Capital Trading Inc., the
representatives of the several Underwriters (the "Representatives"), and the
Company, based upon factors that include the stability and trading volume of the
Units. Each Warrant entitles the registered holder thereof to purchase one Share
of Common Stock at an exercise price of $ per Share [120% of the initial
public offering price per Unit.], subject to adjustment, at any time during the
period commencing on , 1999 [12 months from the date of the
Prospectus] until , 2003 [five years after the date of the
Prospectus]. Commencing , 2000 [24 months from the date of the
Prospectus], the Warrants are subject to redemption by the Company, in whole but
not in part, at $.10 per Warrant on 30 days' prior written notice provided that
the average closing bid price of the Common Stock as reported on the Nasdaq
SmallCap Market ("Nasdaq SmallCap") equals or exceeds $ per share [240% of
the initial public offering price per Unit] for any 20 trading days within a
period of 30 consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. See "Description of
Securities -- Warrants."
Prior to the Offering, there has been no public market for the Units, the
Common Stock or the Warrants, and there can be no assurance that such a market
will develop after completion of the Offering, or if developed, that it will be
sustained. For information regarding the factors considered in determining the
initial public offering price of the Units and the terms of the Warrants, see
"Risk Factors" and "Underwriting." The Company intends to apply to include the
Units, Shares and Warrants on Nasdaq SmallCap under the symbols OPHDU, OPHD and
OPHDW, respectively. The Company and the Representatives may jointly determine,
based upon market conditions including trading volume of the Units, to delist
the Units upon expiration of a 30-day period commencing on the date of this
Prospectus and subsequent to the separation of the Units into Shares and
Warrants which will trade separately thereafter.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO THE PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Per Unit.................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $
=======================================================================================================================
</TABLE>
(1) Does not include additional compensation to the Representatives in the form
of a non-accountable expense allowance. In addition, see "Underwriting" for
information concerning indemnification and contribution arrangements with
the Underwriters and other compensation payable to the Representatives.
(2) Before deducting estimated expenses of $600,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representatives.
(3) The Company has granted to the Representatives an option, exercisable within
45 days after the date of this Prospectus, to purchase up to an aggregate of
240,000 additional Units upon the same terms and conditions as set forth
above, solely to cover over-allotments, if any (the "Over-Allotment
Option"). If such Over-Allotment Option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of the Securities offered hereby will be made against payment therefor
at the offices of Dirks & Company, Inc., New York, New York on or about
, 1998.
DIRKS & COMPANY, INC. SECURITY CAPITAL TRADING INC.
The date of this Prospectus is , 1998
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE UNITS, COMMON
STOCK OR THE WARRANTS, INCLUDING PURCHASES OF THE UNITS, COMMON STOCK AND/OR
WARRANTS TO STABILIZE THEIR RESPECTIVE MARKET PRICES, PURCHASES OF THE UNITS,
COMMON STOCK AND/OR WARRANTS TO COVER SOME OR ALL OF A SHORT POSITION MAINTAINED
BY THE UNDERWRITERS IN THE UNITS, COMMON STOCK AND/OR WARRANTS, RESPECTIVELY,
AND THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS ANNUAL REPORTS CONTAINING
FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND
QUARTERLY REPORTS CONTAINING UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE
FIRST THREE QUARTERS OF EACH FISCAL YEAR.
2
<PAGE> 4
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements. Such forward-looking
statements include, but are not limited to, the Company's expectations regarding
its future financial condition and operating results, product development,
business and growth strategy, market conditions and competitive environment. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus. The following
summary is qualified in its entirety by the more detailed information and the
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus (i) assumes the
Underwriter's Over-Allotment Option is not exercised, and (ii) assumes the
Warrants and the warrants to purchase 160,000 Units issued to the
Representatives in connection with this Offering (the "Representatives'
Warrants") are not exercised.
THE COMPANY
Ophidian Pharmaceuticals, Inc. ("Ophidian" or the "Company"), a development
stage company, is engaged in the research and development of pharmaceuticals
with an emphasis on products for infectious diseases. Under a collaboration with
Eli Lilly and Company ("Lilly"), the Company is developing a product for the
treatment of Clostridium difficile-associated disease ("CDAD"). CDAD is a
bacterial infection that has become a common side effect of antibiotic therapy.
The CDAD product is a result of the Company's strategy to design new drugs for
infectious diseases by targeting molecules involved in the host-pathogen
interaction.
Ophidian signed a collaborative development and license agreement and a
stock purchase agreement with Lilly in June 1996 ("Lilly Agreements"). Under the
Lilly Agreements, Ophidian has received $4.4 million in equity investments and
development milestone payments. Lilly will pay the Company an additional $8.0
million if certain CDAD product development objectives are met and Lilly chooses
to proceed with development. The Lilly Agreements provide for Lilly to fund and
conduct clinical testing, registration and marketing of the CDAD product
worldwide and Ophidian to manufacture bulk drug for clinical and commercial use.
The CDAD product is a passive antibody formulation that neutralizes
disease-causing toxins secreted by C. difficile during infection of the human
intestinal tract. These toxins are responsible for the development of diarrhea,
inflammation and symptoms of colitis caused by the C. difficile organism. CDAD
is a common side effect of treatment with certain broad spectrum antibiotics.
Based on surveys and research, the Company estimates that CDAD arises in
approximately one percent of all hospitalized patients. An Investigational New
Drug application ("IND") was filed with the United States Food and Drug
Administration ("FDA") for initial human clinical testing of the CDAD drug in
November of 1997. The Company anticipates that several years of clinical testing
will be required prior to FDA marketing approval.
The Company is also developing a drug to prevent disease caused by
enterohemorrhagic Escherichia coli, ("EHEC"), including E. coli O157:H7.
Ophidian has received research funding of $816,000 from the U.S. National
Institutes of Health ("NIH") for this program. The public health problem of EHEC
became widely recognized following outbreaks in the U.S. and Japan that
afflicted thousands of persons as a result of contaminated food products,
including ground beef. The Company has shown in animals that the injection of
its passive antibodies that neutralize EHEC toxins can block progression of
lethal disease symptoms. The Company is conducting pre-clinical development of
its EHEC passive antibodies as a potential human therapeutic.
Ophidian has devised a drug formulation and manufacturing technology for
the production of avian polyclonal antibodies for passive immune therapy. The
Company believes avian antibodies will be generally safe when administered
orally because they are derived from hen eggs that are common in the human diet.
Ophidian intends to manufacture and sell bulk drugs based on its avian antibody
technology to its commercial partners for final formulation and marketing of
drug products.
Broad-spectrum antibiotics are the most commonly used drugs to treat
infectious diseases, with worldwide sales of approximately $20 billion annually.
However, increased microbial resistance to antibiotics
3
<PAGE> 5
and the emergence of new infectious agents have created a significant need for
new approaches for the treatment of infectious diseases. In addition,
broad-spectrum antibiotics can be detrimental to the patient because beneficial
microbes are often killed along with the disease-causing pathogen. The Company's
research strategy is to develop infectious disease drugs that target molecules
involved in specific host-pathogen interactions. In contrast to typical
antibiotics, the Company's products are designed to leave beneficial microbes
undisturbed, support the action of the host's immune system, and reduce the
potential for the development of microbial resistance. The Company has 57 United
States or foreign patents, issued or pending, from its research and development
programs and has acquired rights to several external patents to supplement its
technology.
The Company's business strategy is to create commercial opportunities from
its technologies by manufacturing proprietary antibody pharmaceuticals,
establishing royalty-bearing licenses for the sale of its proprietary products
with marketing partners, licensing technology to pharmaceutical firms, and
forming sponsored research agreements.
Ophidian was incorporated in the State of Wisconsin in November 1989 and
commenced business operations in August 1990. The Company's principal offices
and laboratories are located at 5445 East Cheryl Parkway, Madison, Wisconsin,
53711, and its telephone number is (608) 271-0878.
4
<PAGE> 6
THE OFFERING
Securities offered........... 1,600,000 Units, each unit consisting of one
share of Common Stock and one Warrant. The
Shares of Common Stock and Warrants will be
detachable 90 days after issuance, subject to
earlier separability in the discretion of the
Representatives and the Company.
Terms of Warrants............ Each Warrant entitles the registered holder
thereof to purchase, at any time commencing
, 1999 [12 months from the
date of the Prospectus], until
, 2003 [five years after
the date of the Prospectus], one Share of
Common Stock at a price of $ per Share
[120% of the initial public offering price per
Unit]. Commencing , 2000
[24 months from the date of the Prospectus],
the Warrants are subject to redemption by the
Company, in whole, but not in part, at $.10 per
Warrant provided that the average closing bid
price of the Common Stock as reported on Nasdaq
SmallCap equals or exceeds $ per share
[240% of the initial public offering price per
Unit] for any 20 trading days within a period
of 30 consecutive trading days ending on the
fifth trading day prior to the date of the
notice of redemption. See "Description of
Securities."
Common Stock Outstanding
Prior to the Offering(1)... 7,289,930 shares
Securities to be Outstanding
After
the Offering(1).......... 8,889,930 shares of Common Stock and 1,600,000
Warrants.
Use of Proceeds.............. For technology development/new product discovery,
product development expenses, capital
expenditures, working capital and general
corporate purposes. See "Use of Proceeds."
Risk Factors and Dilution.... An investment in the securities offered hereby
involves a high degree of risk and immediate
and substantial dilution to the purchasers in
this Offering. See "Risk Factors" and
"Dilution."
Proposed Nasdaq SmallCap
Symbols:
Units.................... OPHDU
Common Stock............ OPHD
Warrants................ OPHDW
- ---------------
(1) Excludes (i) 646,608 shares of Common Stock issuable upon the exercise of
outstanding stock options as of February 28, 1998, under the 1990 Incentive
Stock Option Plan and the 1992 Employee Stock Option Plan (collectively, the
"1990/1992 Stock Option Plans") at a weighted average exercise price of
$2.74 per share, leaving a balance of 5,296 shares of Common Stock reserved
for future grants of options under the 1990/1992 Stock Options Plans, (ii)
Fitchburg Research Park Associates' warrant to purchase up to 114,290 shares
at an exercise price of $.0025 per share, (iii) a consultant's option to
purchase 100,000 shares at an exercise price of $4.50 per share, and (iv)
options to purchase a maximum of 90,000 shares of Common Stock to be granted
to six employees and three outside directors.
5
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues......................... $1,746,596 $1,017,627 $ 386,979 $ 321,444 $ 671,881 $ 393,361 $ 115,185
Operating expenses:
Research and development........ 842,000 1,156,428 1,215,366 1,339,048 2,432,102 428,998 666,632
General and administrative...... 404,709 753,549 916,294 1,119,409 1,005,797 256,151 355,100
---------- ---------- ----------- ----------- ----------- --------- ----------
Total operating expenses........ 1,246,709 1,909,977 2,131,660 2,458,457 3,437,899 685,149 1,021,732
---------- ---------- ----------- ----------- ----------- --------- ----------
Income (loss) from operations... 499,887 (892,350) (1,744,681) (2,137,013) (2,766,018) (291,788) (906,547)
Investment income, net........... 106,576 191,040 144,750 50,761 281,483 75,864 46,102
Interest expense................. -- (4,082) (4,624) (3,320) (2,800) (718) (724)
Other............................ -- 97 668 -- -- -- --
---------- ---------- ----------- ----------- ----------- --------- ----------
Net earnings (loss)............. $ 606,463 $ (705,295) $(1,603,887) $(2,089,572) $(2,487,335) $(216,642) $ (861,169)
========== ========== =========== =========== =========== ========= ==========
Net earnings (loss) per
share(1)......................
Basic......................... $0.11 $(0.12) $(0.26) $(0.34) $(0.34) $(0.03) $(0.12)
Diluted....................... $0.11 $(0.12) $(0.26) $(0.34) $(0.34) $(0.03) $(0.12)
Shares used to compute net
earnings (loss) per
share(1)......................
Basic......................... 5,334,283 6,086,065 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464
Diluted....................... 5,674,121 6,086,065 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464
<CAPTION>
INCEPTION
(NOV. 11, 1989) TO
DECEMBER 31, 1997
-------------------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues......................... $ 4,388,327
Operating expenses:
Research and development........ 8,306,647
General and administrative...... 5,070,359
-----------
Total operating expenses........ 13,377,006
-----------
Income (loss) from operations... (8,988,679)
Investment income, net........... 865,822
Interest expense................. (38,710)
Other............................ 765
-----------
Net earnings (loss)............. $(8,160,802)
===========
Net earnings (loss) per
share(1)......................
Basic.........................
Diluted.......................
Shares used to compute net
earnings (loss) per
share(1)......................
Basic.........................
Diluted.......................
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
SEPTEMBER 30, -------------------------
----------------------------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(2)
---------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $5,100,728 $ 2,507,268 $ 1,319,826 $ 3,328,103 $3,812,539 $ 2,725,172 $10,763,172
Total assets..................... 5,856,184 4,917,996 3,408,129 5,247,761 5,975,606 5,116,176 13,154,176
Deficit accumulated during
development stage.............. (413,544) (1,118,839) (2,722,726) (4,812,298) (7,299,633) (8,160,802) (8,160,802)
Total shareholders' equity....... 5,500,501 4,680,233 3,156,544 4,743,260 5,397,956 4,544,458 12,582,458
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements "Net Loss Per Share" for a
description of the shares used in calculating net earnings (loss) per share.
(2) As adjusted to give effect to the estimated net proceeds from the sale of
1,600,000 Units offered by the Company at an assumed initial public offering
price of $6.10 per Unit. See "Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Securities offered hereby. Prospective
investors should be in a position to risk the loss of their entire investment.
This Prospectus contains forward-looking statements. Such forward-looking
statements include, but are not limited to, the Company's expectations regarding
its future financial condition and operating results, product development,
business and growth strategy, market conditions and competitive environment. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
in the following risk factors and elsewhere in this Prospectus.
DEVELOPMENT STAGE COMPANY; LIMITED OPERATING HISTORY; NO PRODUCT REVENUES AND NO
ASSURANCE OF PROFITABILITY
The Company is in the development stage and is subject to all business
risks associated with a new enterprise, including uncertainties regarding
product development, constraints on the Company's financial and personnel
resources, and dependence on and need for third party relationships. At December
31, 1997, the Company had an accumulated deficit of $8,160,802. For the three
months ended December 31, 1997, the Company had a net loss of $861,169. The
Company anticipates that it will continue to incur substantial additional
operating losses for at least the next several years and expects cumulative
losses to increase as the Company's research and development efforts expand. The
Company has a limited history of operations consisting primarily of development
of its products and contract research. While the Company has generated revenues
primarily from contract fees and research grants of $4,388,327 since its
inception through December 31, 1997, it has not generated any revenue to date
from pharmaceutical product sales, and there can be no assurance as to when or
whether it will be able to develop such sources of revenue or that its
operations will become profitable, even if it is able to commercialize any
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS
The Company's operations to date have consumed substantial and increasing
amounts of cash. The negative cash flow from operations is expected to continue
and to accelerate in the foreseeable future. The Company will require
substantial funds of its own, or from third parties, to conduct research and
development, pre-clinical and clinical testing and to manufacture (or have
manufactured) and market (or have marketed) its product candidates. The Company
estimates that its current cash resources and the net proceeds of the Offering
will be sufficient to meet its operating and capital requirements for at least
the 12 months following the date of this Prospectus. However, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of pre-clinical and clinical testing,
relationships with possible strategic partners, changes in the focus and
direction of the Company's research and development programs, competitive and
technological advances, the FDA regulatory process and other factors. The net
proceeds of this Offering are not expected to be sufficient to fund the
Company's operations through the commercialization of one or more products
yielding sufficient revenues to support the Company's operations. Therefore, the
Company will need to raise additional funds. The Company expects to secure long-
term debt financing of up to approximately $7.5 million to complete construction
of its manufacturing facility. The Company may seek to satisfy its future
funding requirements through public or private offerings of securities, with
collaborative or other arrangements with major pharmaceutical companies, debt
arrangements or from other sources. Additional financing may not be available
when needed or on terms acceptable to the Company. If adequate financing is not
available, the Company may not be able to continue as a going concern, or may be
required to delay, scale back or eliminate certain of its research and
development programs, to relinquish rights to certain of its technologies or
products or technologies that the Company would otherwise seek to develop
itself. To the extent the Company raises additional capital by issuing equity
securities, ownership dilution to the investors in this Offering will result.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
7
<PAGE> 9
DEPENDENCE ON ELI LILLY AND COMPANY
The Company and Lilly have entered into agreements setting forth a
collaboration for the development and marketing of Ophidian's CDAD therapeutic
antitoxin and Lilly's purchase of Ophidian's Common Stock. If the product is
developed successfully and approved for commercial sale, Ophidian would be
responsible for the manufacturing of bulk drug and Lilly would be responsible
for sales, marketing and distribution. There can be no assurance that Lilly will
pursue the development of the CDAD therapeutic antitoxin or that Lilly will
satisfy its obligations under the terms of the Lilly Agreements. Lilly may
terminate the Lilly Agreements if it concludes that further efforts under these
agreements are no longer commercially reasonable. No assurance can be given that
the collaboration with Lilly will result in the successful commercialization of
the Company's CDAD antitoxin or that any future milestone payments or fees will
be received by the Company. Lilly owns 9.6% of the Company's Common Stock
outstanding before the Offering and will own 7.9% after the Offering.
DEPENDENCE ON AND NEED FOR OTHER THIRD PARTY RELATIONSHIPS
The Company's business strategy is to utilize the expertise and resources
of third parties in a number of areas, including the conduct of pre-clinical and
clinical trials for the Company's development products, and for the regulatory
approvals, marketing and in certain cases the manufacture of such products. This
strategy of reliance on third party relationships creates risks to the Company
by placing critical aspects of the Company's business in the hands of third
parties who the Company may not be able to control as effectively as its own
operations. Moreover, in reliance on these relationships, the Company has not
developed its own resources to the extent these activities have been contracted
to third parties. If these third parties do not perform in a timely and
satisfactory manner, the Company may incur additional costs and lose time in the
conduct of its development and clinical programs as it seeks alternate sources
of such products and services, if available. The effect of such costs and delays
may have a material adverse effect on the Company. See "Business -- Business
Strategy."
The Company may seek additional third party relationships in certain areas,
particularly in situations in which the Company believes that the clinical
testing, marketing, manufacturing and other resources of a pharmaceutical
company collaborator will enable the Company to develop particular products or
geographic markets which are otherwise beyond the Company's resources and/or
capabilities. There is no assurance that the Company will be able to obtain any
such collaboration, or any other research and development, manufacturing, or
clinical trial agreement. The inability of the Company to obtain and maintain
satisfactory relationships with third parties may have a material adverse effect
on the Company.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT OR COMMERCIALIZATION
The Company's research and development programs are at various stages of
development. Substantial additional research and development will be necessary
in order for the Company to obtain regulatory approval for its product
candidates, and there can be no assurance that the Company's research and
development will lead to development of products that are shown to be safe and
effective in clinical trials, or that are commercially viable. In addition to
further research and development, the Company's product candidates will require
clinical testing, regulatory approval, and development of marketing and
distribution channels, all of which are expected to require substantial
additional investment prior to commercialization. There can be no assurance that
the Company's products will be successfully developed, prove to be safe and
efficacious in clinical trials, meet applicable regulatory standards, be capable
of being produced in commercial quantities at acceptable costs, be eligible for
third party reimbursement from governmental or private insurers, be successfully
marketed or achieve market acceptance. Further, the Company's products may prove
to have undesirable or unintended side effects that may prevent or limit their
commercial use. See "Business -- Government Regulation."
NO CURRENT MARKETING, SALES OR MANUFACTURING CAPABILITY
The Company currently has no marketing and sales resources or personnel. In
the event the Company successfully completes the regulatory process for the
introduction of any of its passive antibodies for the
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treatment of gastrointestinal infections or other products, the Company will
need to establish distribution, marketing and sales resources in order to
commercialize such products. For the CDAD product, however, the Lilly Agreements
provide that Lilly will carry out marketing and sales activities. Depending upon
the product, the Company may seek to develop its own distribution, marketing and
sales resources, or may seek to enter a collaborative agreement with a major
pharmaceutical company or biotechnology company for such purposes. There is no
assurance that the Company will be successful in either situation. The inability
of the Company to successfully distribute, market and sell products will
adversely affect the commercial value of such products and may adversely affect
the financial position of the Company.
The Company does not have a manufacturing facility, and thus currently
lacks the resources or capability to manufacture itself any of its product
candidates on a clinical or commercial scale. At the present time, the Company
believes that there are a number of facilities with FDA approval that have the
capability of manufacturing the Company's products. However, the process for
manufacturing and formulating the Company's products is complex and subject to
uncertainties. The Company intends to construct its own facility capable of
meeting requirements for development and commercial quantities of bulk
biological products. The Company is currently, and may continue to be, dependent
on third parties for manufacturing clinical and commercial scale quantities of
its products. There can be no assurance that the Company will be able to
maintain existing agreements for the manufacturing of clinical quantities of
products, that it will be able to enter into additional agreements with other
third parties for commercial scale manufacturing, or that contract manufacturers
will be able to adequately produce the Company's products in commercial
quantities in a cost-effective manner. Interruptions or difficulties in clinical
or commercial production of the Company's products may require the Company to
incur substantial costs to address the situation, which could have a material
adverse effect on the Company. See "Business."
The Company has undertaken steps to build its own manufacturing facility to
produce bulk biological products. The Company is engaged in the design of a
facility and is seeking to acquire land. The Company expects that completion of
this facility will enable it to meet its production obligations under the Lilly
Agreements and that the facility will serve in the production of other Company
products. Failure to provide suitable manufacturing facilities either Company
owned or belonging to suitable third party manufacturers could delay development
of the CDAD product.
The Company and each contract manufacturer must adhere to current Good
Manufacturing Practice ("GMP") regulations strictly enforced by the FDA on an
ongoing basis through its facilities inspection program. Such manufacturing
facilities must pass a pre-approval plant inspection before the FDA will approve
a Biologic License Application ("BLA") or a Product License Application ("PLA")
and Establishment License Application ("ELA"). Certain material manufacturing
changes that occur after approval are also subject to FDA review and clearance
or approval. There can be no assurance that the FDA or other regulatory agencies
will approve the process or the facilities by which any of the Company's
products may be manufactured. The Company's dependence on third parties for the
manufacture of products may adversely affect the Company's ability to develop
and deliver products on a timely and competitive basis. See "Risk Factors -- No
Assurance of FDA Approval; Government Regulation" and "Business -- Government
Regulation."
RISK OF RAW MATERIALS
The Company uses live animals, principally laying hens, for the research,
development and production of many of its products. While the health of animals
used for producing raw materials for the Company's products is monitored and
documented by the Company, there can be no assurance that some unforeseen animal
disease or environmental factor will not at some time in the future injure the
animals, jeopardizing the Company's research, development or production
operations.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies and to preserve its trade
secrets. It is the policy of the Company to file patent applications in the
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United States and selected foreign jurisdictions. The Company currently holds 10
issued United States or foreign patents and has 47 United States or foreign
patent applications. No assurance can be given that the Company's patent
applications will be approved or that any issued patents will provide
competitive advantages for the Company's technologies or will not be challenged
or circumvented by competitors. With respect to already issued patents and any
patents which may issue from the Company's applications, there can be no
assurance that claims allowed will be sufficient to protect the Company's
technologies. Patent applications in the United States are maintained in secrecy
until a patent issues, and the Company cannot be certain that others have not
filed patent applications for technology covered by the Company's pending
applications or that the Company was the first to file patent applications for
such technology. Competitors may have filed applications for, or may have
received patents and may obtain additional patents and proprietary rights
relating to, compounds or processes that may block the Company's patent rights
or compete without infringing the patent rights of the Company. In addition,
there can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection or commercial advantage to the Company.
The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, through confidentiality agreements with employees,
consultants, collaborative partners and others. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any such breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. Although
potential collaborative partners and the Company's research partners and
consultants are not given access to proprietary trade secrets and know-how of
the Company until they have executed confidentiality agreements, these
agreements may be breached by the other party or may otherwise be of limited
effectiveness or enforceability.
The ability to develop the Company's technologies and to commercialize
products using such technologies will depend on avoiding the infringement of the
patents of others. Although the Company is not aware of any claim of patent
infringement against it, claims concerning patents and proprietary technologies
determined adversely to the Company could have a material adverse effect on the
Company. In addition, litigation may also be necessary to enforce any patents
issued or licensed to the Company or to determine the scope and validity of
third-party proprietary rights. There can be no assurance that the Company's
issued or licensed patents would be held valid by a court of competent
jurisdiction. Whether or not the outcome of litigation is favorable to the
Company, the cost of such litigation and the diversion of the Company's
resources during such litigation could have a material adverse effect on the
Company.
The Company could incur substantial costs in defending itself in suits that
may be brought against the Company claiming infringement of the patent rights of
others or in asserting the Company's patent rights in a suit against another
party. The Company may also be required to participate in interference
proceedings declared by the United States Patent and Trademark Office for the
purpose of determining the priority of inventions in connection with the patent
applications of the Company or other parties. Adverse determination in
litigation or interference proceedings could require the Company to seek
licenses (which may not be available on commercially reasonable terms) or
subject the Company to significant liabilities to third parties, and could
therefore have material adverse effect on the Company. See "Business -- Patents
and Proprietary Technology."
NO ASSURANCE OF FDA APPROVAL; GOVERNMENT REGULATION
The Company's products in development have not been proven in formal
clinical tests, and there can be no assurance that such products are, or will
be, safe or effective in human use. All new drugs and biologics, including the
Company's product candidates, are subject to extensive and rigorous regulation
by the federal government, principally the FDA under the Federal Food, Drug and
Cosmetic Act and other laws including, in the case of biologics, the Public
Health Services Act, and by state and local governments. Such regulations
govern, among other things, the development, testing, manufacture, labeling,
storage, premarket clearance or approval, advertising, promotion, sale and
distribution of such products. If drug products are marketed abroad, they also
are subject to extensive regulation by foreign governments. Failure to comply
with the FDA or other applicable regulatory requirements may subject the Company
to administrative or judicially imposed sanctions
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such as civil penalties, criminal prosecution, injunctions, product seizure or
detention, product recalls, total or partial suspension of production, and FDA
refusal to approve pending products and other applications.
The Company has not received regulatory approval in the United States or
any foreign jurisdiction for the commercial sale of any of its products. The
process of obtaining FDA and other required regulatory approvals, including
foreign approvals, often takes many years and can vary substantially based upon
the type, complexity and novelty of the products involved and the indications
being studied. Furthermore, such approval process is extremely expensive and
uncertain. There can be no assurance that the Company's product candidates will
be cleared for marketing by the FDA. There can be no assurance that the Company
will have sufficient resources to complete the required regulatory review
process, or that the Company could overcome the inability to obtain, or delays
in obtaining, such approvals. The failure of the Company to receive FDA approval
for its product candidates would preclude the Company from marketing and selling
its products in the United States. Therefore, the failure to receive such FDA
approval would have a material adverse effect on the Company. Even if regulatory
approval of a product is granted, there can be no assurance that the Company
will be able to obtain the labeling claims necessary or desirable for the
promotion of those products. FDA regulations prohibit the marketing or promotion
of a drug for unapproved indications. Furthermore, regulatory marketing approval
may entail ongoing requirements for postmarketing studies.
If regulatory approval is obtained, the Company will be subject to ongoing
FDA obligations and continued regulatory review. In particular, the Company or
its third party manufacturers will be required to adhere to regulations setting
forth GMPs, which require that the Company or third party manufacturers
manufacture products and maintain records in a prescribed manner with respect to
manufacturing, testing and quality control activities. Further, the Company or
its third party manufacturer must pass a preapproval inspection of its
manufacturing facilities by the FDA before obtaining marketing approval. Failure
to comply with applicable regulatory requirements may result in penalties such
as restrictions on a product's marketing or withdrawal of the product from the
market. In addition, identification of certain side effects after a drug is on
the market or the occurrence of manufacturing problems could cause subsequent
withdrawal of approval, reformulation of the drug, additional pre-clinical
testing or clinical trials and changes in labeling of the product.
Prior to the submission to the FDA of a new drug application, drugs
developed by the Company must undergo rigorous pre-clinical and clinical testing
which may take several years and the expenditure of substantial resources.
Before commencing clinical trials in humans, the Company must submit to the FDA
and receive clearance of an Investigational New Drug application ("IND"). There
can be no assurance that submission of an IND for future clinical testing of any
product under development or other future products of the Company would result
in FDA permission to commence clinical trials or that the Company will be able
to obtain the necessary approvals for future clinical testing in any foreign
jurisdiction. Success in pre-clinical studies or early stage clinical trials
does not assure success in later stage clinical trials. Data obtained from pre-
clinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. Further, there can be
no assurance that if such testing of products under development is completed,
any such drug compounds will be accepted for formal review by the FDA or any
foreign regulatory body, or approved by the FDA for marketing in the United
States or by any such foreign regulatory bodies for marketing in foreign
jurisdictions. Future federal, state, local or foreign legislation or
administrative acts could also prevent or delay regulatory approval of the
Company's products. See "Business -- Government Regulation."
DEPENDENCE ON QUALIFIED PERSONNEL
Because of the specialized nature of the Company's business, the Company is
highly dependent upon its ability to attract and retain qualified scientific,
technical and managerial personnel and to maintain relationships with leading
research institutions and consultants. The loss of the Company's Chief Executive
Officer, Dr. Douglas C. Stafford, or other senior management, would be highly
detrimental to the Company. The Company has established employment agreements
with Dr. Stafford, Dr. Firca and Dr. Hoffmann setting forth a term of employment
for the next three years. See "Management." The Company maintains key person
insurance for $500,000 on the life of each of Dr. Stafford and Dr. Firca. The
proceeds of such insurance may
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not be sufficient to compensate the Company for the loss of the services of such
individuals and is not applicable in the case of resignation. There is intense
competition for qualified personnel in the biotechnology field, including
competition from companies with substantially greater resources than the
Company. There can be no assurance that the Company will be able to continue to
attract and retain qualified personnel necessary for the development of its
business, either as employees or as consultants. The loss of the services of
existing personnel as well as the failure to recruit additional key scientific
and technical personnel in a timely manner could have a material adverse effect
on the Company.
RELATIONSHIPS OF SCIENTIFIC ADVISORS WITH OTHER ENTITIES
The members of the Company's Scientific Advisory Board are often employed
on a full-time basis by academic or research institutions. Scientific Advisory
Board Members serve as consultants to the Company, and in some cases as
consultants to other companies. Accordingly, Scientific Advisory Board members
are able to devote only a portion of their time to the Company's business and
research activities. In addition, except for work performed specifically for and
at the direction of the Company, the inventions or processes discovered by the
Company's Scientific Advisory Board members and other consultants will not
become the intellectual property of the Company, but will be the intellectual
property of their institutions. If the Company desires access to inventions
which are not its property, it will be necessary for the Company to obtain
licenses to such inventions from the owners. In addition, invention assignment
agreements executed by Scientific Advisory Board members and consultants in
connection with their relationships with the Company may be subject to the
rights of their primary employers or other third parties with whom such
individuals have consulting relationships. See "Business -- Advisory Board."
COMPETITION
There are many companies, including the well-known pharmaceutical companies
such as SmithKline Beecham Corporation, Bristol-Meyers Squibb Company, Abbott
Laboratories and other smaller biotechnology firms, as well as academic and
other research institutions, that are engaged in the discovery, development,
marketing and sale of products for the treatment of infectious diseases. The
Company expects to encounter significant competition for its product candidates
from traditional and new treatment methods.
Most of the Company's competitors and potential competitors have
substantially greater capital, research and development capabilities and human
resources than the Company. Furthermore, many of these competitors have
significantly greater experience than the Company in undertaking pre-clinical
testing and clinical trials of new biotechnology products and obtaining FDA and
other regulatory approvals. If the Company is permitted to commence commercial
sales of any product, it will also be competing with companies that have greater
resources and experience in manufacturing, marketing and sales. The Company's
competitors may succeed in developing products that are more effective, less
costly, or have a better side effect profile than any that may be developed by
the Company, and such competitors may also prove to be more successful than the
Company in manufacturing, marketing and sales. If the Company is able to
successfully commercialize a product, subsequent competitive developments could
render such product noncompetitive or obsolete. See "Business -- Competition."
TECHNOLOGICAL CHANGES AND UNCERTAINTY
The Company's research and development strategy is based upon advances in
recent years in the scientific understanding of infectious diseases. The
Company's strategy focuses on techniques to exploit new infectious disease
targets for new drug development. This area is the subject of extensive research
efforts and rapid scientific progress. New developments are expected to continue
at a rapid pace in industry and academia in both the specific areas of interest
to the Company and in other areas directed at the prevention or treatment of
infectious diseases. There can be no assurance that research and discoveries by
others will not render some or all of the Company's proposed products
noncompetitive or obsolete. In addition, the Company's business strategy is
subject to the risks inherent in the development of new therapeutic products.
There can be no assurance that unforeseen problems will not develop, that the
Company will be able to address successfully technological challenges it
encounters in its research and development programs or that commercially
feasible products will ultimately be developed by the Company. See
"Business -- Competition."
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UNCERTAIN AVAILABILITY OF HEALTH CARE REIMBURSEMENT; HEALTH CARE REFORM
The Company's ability to commercialize its product candidates may depend in
part on the extent to which reimbursement for the costs of such product will be
available from government health administration authorities, private health
insurers and others. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. There can be no assurance of the
availability of adequate third-party insurance reimbursement coverage that
enables the Company to establish and maintain price levels sufficient for
realization of an appropriate return on its investment in developing drug
products. Government and other third-party payors are increasingly attempting to
contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products approved for marketing by the FDA and
by refusing, in some cases, to provide any coverage for uses of approved
products for disease indications for which the FDA has not granted marketing
approval. If adequate coverage and reimbursement levels are not provided by
government and third-party payors for uses of the Company's product candidates,
the market acceptance of these products would be adversely affected.
Health care reform proposals have been introduced in Congress and in
various state legislatures. It is currently uncertain whether any health care
reform legislation will be enacted at the federal level, or what actions
governmental and private payors may take in response to the suggested reforms.
The Company cannot predict when any proposed reforms will be implemented, if
ever, or the effect of any implemented reforms on the Company's business. There
can be no assurance that any implemented reforms will not have a material
adverse effect on the Company. Such reforms, if enacted, may affect the
availability of third-party reimbursement for products developed by the Company
as well as the price levels at which the Company is able to sell such products.
In addition, if the Company is able to commercialize products in overseas
markets, the Company's ability to achieve success in such markets may depend, in
part, on the health care financing and reimbursement policies of such countries.
RISK OF PRODUCT LIABILITY; UNCERTAINTY OF AVAILABILITY OF PRODUCT LIABILITY
INSURANCE
The Company's business exposes it to potential product liability risks
which are inherent in the manufacturing, clinical testing, marketing and use of
human therapeutic products. The Company currently carries no product liability
insurance. The Company plans to obtain product liability insurance covering the
clinical trials and the commercial sale of its products prior to their clinical
and commercial introduction respectively, however, there can be no assurance
that the Company will be able to obtain or maintain such insurance on acceptable
terms or that any insurance obtained will provide adequate coverage against
potential liabilities. Claims or losses in excess of any liability insurance
coverage obtained by the Company could have a material adverse effect on the
Company.
CONCENTRATION OF OWNERSHIP
Upon consummation of this Offering, the directors and officers of the
Company (and certain members of their families) will beneficially own 4,026,531
shares of the Company's Common Stock or approximately 43.5% of the outstanding
shares of the Company's Common Stock following the completion of this Offering.
Accordingly, the Company's officers and directors and their affiliates may be
able to influence the outcome of shareholder votes, including votes concerning
the election of directors, adoption of amendments to the Company's Articles of
Incorporation and Bylaws and approval of mergers and other significant
transactions. See "Principal Shareholders."
IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION
Purchasers of Securities in this Offering will experience immediate and
substantial dilution in the net tangible book value of the Shares of Common
Stock and Warrants purchased by them in this Offering. The immediate dilution to
purchasers of the Securities offered hereby is $4.83 per Unit (or approximately
79%), assuming an initial public offering price of $6.10 per Unit. Additional
dilution to future net tangible book value per Share may occur upon the exercise
of the Warrants, the Representatives' Warrants, options that are outstanding or
to be issued under the Company's option plans, and options that are outstanding
to a consultant of the Company. The founding shareholders of the Company
acquired their shares of Common Stock for
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consideration other than cash or for consideration substantially less than the
public offering price of the Units offered hereby. See "Capitalization,"
"Dilution" and "Certain Transactions."
LACK OF EXPERIENCE OF REPRESENTATIVES
Dirks & Company, Inc., one of the Representatives, commenced operations in
July 1997, and Securities Capital Trading Inc., the other Representative,
commenced operations in June 1995. Neither of the Representatives has co-managed
or participated as an underwriter in any public offering of securities.
Accordingly, neither of the Representatives has any experience as a co-manager
or underwriter of public offering of securities. In addition, each of the
Representatives is a relatively small firm and no assurance can be given that
either Representative will be able to participate as a market maker of the
Securities. No assurance can be given that any broker-dealer will be a market
maker in any of the Securities. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of Common Stock (including shares issued upon the exercise of
outstanding options) in the public market after this Offering could materially
and adversely affect the market price of the Securities. Such sales also might
make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon the completion of this Offering, the Company will have
8,889,930 shares of Common Stock outstanding. Of these securities, 1,600,000
Shares of Common Stock and Warrants to purchase 1,600,000 Shares of Common Stock
contained in the Units will be freely tradable (unless held by affiliates of the
Company) without restriction under the Securities Act commencing 90 days after
issuance, subject to earlier separability of the Units in the discretion of the
Representatives and the Company. The remaining 7,289,930 shares will be
restricted securities within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). The Company has obtained lock-up agreements from
its directors and executive officers and will use its best efforts to obtain
lock-up agreements from its shareholders, under which they have and will agree,
as the case may be, not to, directly or indirectly, offer, sell, issue, agree or
offer to sell, transfer, assign, distribute, grant an option for the purchase or
sale of, pledge, hypothecate or otherwise encumber or dispose of any beneficial
interest in any shares owned by them for a period of nine months after the date
of this Prospectus without the prior written consent of the Representatives. The
Representatives may, in their sole discretion and at any time without notice,
release all or any portion of the shares subject to such lock-up agreements.
Upon expiration of the nine month lock-up agreements, the shares of Common Stock
held by existing shareholders will be eligible for public resale, subject to
volume limitations pursuant to Rule 144. In addition, 12 months after the
completion of this Offering, 160,000 shares of Common Stock issuable upon
exercise of the Representatives' Warrants and 160,000 shares of Common Stock
issuable upon exercise of the Warrants issuable upon exercise of
Representatives' Warrants will be available for sale. The number of shares sold
in the public market could increase if Lilly's registration rights are exercised
and such sales may have an adverse effect on the market price of the Common
Stock. See "Description of Securities -- Registration Rights" and "Shares
Eligible for Future Sale."
NO ASSURANCE OF NASDAQ SMALLCAP MARKET LISTING; RISK OF LOW-PRICED SECURITIES;
RISK OF APPLICATION OF PENNY STOCK RULES
The Board of Governors of the National Association of Securities Dealers,
Inc. has established certain standards for the initial listing and continued
listing of a security on Nasdaq SmallCap. The standards for initial listing
require, among other things, that an issuer have net tangible assets of
$4,000,000; that the minimum bid price for the listed securities be $4.00 per
share; that the minimum market value of the public float (the shares held by
non-insiders) be at least $5,000,000; and that there be at least three market
makers for the issuer's securities. The maintenance standards require, among
other things, that an issuer have net tangible assets of at least $2,000,000;
that the minimum bid price for the listed securities be $1.00 per share; that
the minimum market value of the public float be at least $1,000,000; and that
there be at least two market makers for the issuer's securities. A deficiency in
either the market value of the public float or the bid price maintenance
standard will be deemed to exist if the issuer fails the individual stated
requirement for ten consecutive trading days. There can be no assurance that the
Company will continue to satisfy the requirements for maintaining a Nasdaq
SmallCap listing. If the Company's securities were to be excluded from the
Nasdaq SmallCap, it would adversely affect the prices of such securities and the
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ability of holders to sell them, and the Company would be required to comply
with the initial listing requirement to be relisted on Nasdaq SmallCap.
If the Company is unable to satisfy maintenance requirements and the price
per share were to drop below $5.00, then unless the Company satisfied certain
net asset tests, the Company's Securities would become subject to certain penny
stock rules promulgated by the Securities and Exchange Commission (the
"Commission"). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If the Securities become subject to the penny stock rules,
investors in the Offering may find it more difficult to sell their Securities.
ANTI-TAKEOVER EFFECT OF WISCONSIN LAW
Wisconsin statutory law contains provisions that could discourage potential
acquisition proposals and might delay or prevent a change in control of the
Company. Such provisions could result in the Company being less attractive to a
potential acquirer and could result in the shareholders receiving less for their
Common Stock than otherwise might be available in the event of a takeover
attempt. See "Description of Securities -- Certain Provisions of Wisconsin Law."
POTENTIAL LIABILITY OF SHAREHOLDERS
Wisconsin Statutes Section 180.0622(2)(b) provides that the shareholders of
a Wisconsin corporation are personally liable "to an amount equal to the par
value of shares owned by them respectively" for debts or other amounts owing to
employees for services performed for the corporation, but not exceeding six
months' service in any one case. A Wisconsin trial court interpreted this
statute to impose personal liability on shareholders extending up to the
consideration paid for their stock (rather than the stock's lower stated par
value). While the trial court's decision was affirmed by the Wisconsin Supreme
Court, such affirmation technically provides no precedential value due to an
equal division of the Court. However, under the principle of the trial court's
decision, investors in this Offering would have potential liability, in the
event of the Company's insolvency or inability to pay its debts, for unpaid
compensation to Company employees (not exceeding six months' service) in an
amount up to the purchase price paid for every Unit acquired hereby ($6.10 per
Unit).
ABSENCE OF DIVIDENDS
The Company has never declared or paid dividends on its Common Stock and
does not intend to pay any dividends in the foreseeable future. See "Dividend
Policy."
ARBITRARY DETERMINATION OF OFFERING PRICE; NO PUBLIC MARKET FOR THE SECURITIES
The initial public offering price of the Units and the exercise price and
terms of the Warrants have been determined arbitrarily by negotiations between
the Company and the Representatives. Factors considered in such negotiations, in
addition to prevailing market conditions, included the history and prospects for
the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure, the current
market for initial public offerings, and certain other factors as were deemed
relevant. Therefore, the public offering price of the Units and the exercise
prices and terms of the Warrants do not necessarily bear any relationship to
established valuation criteria and therefore may not be indicative of prices
that may prevail at any time or from time to time in the public market for the
securities of the Company. Prior to this Offering, there has been no public
market for the Securities, and there can be no assurance that an active trading
market will develop in any of the Securities after the Offering, or, if
developed, be sustained. See "Underwriting."
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<PAGE> 17
PRICE VOLATILITY
The securities markets have from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market prices of the common stock of many
publicly traded pharmaceutical or biotechnology companies have in the past been,
and can in the future be expected to be, especially volatile. Announcements of
technological innovations or new products by the Company or its competitors,
developments or disputes concerning patents or proprietary rights, publicity
regarding actual or potential clinical trial results relating to products under
development by the Company or its competitors, regulatory developments in both
the United States and foreign countries, delays in the Company's testing and
development schedules, public concern as to the safety of drug products and
economic and other external factors, as well as period-to-period fluctuations in
the Company's financial results, may have a significant impact on the market
prices of the Securities. The realization of any of the risks described in these
"Risk Factors" could have a significant and adverse impact on such market
prices.
POTENTIAL ADVERSE EFFECT OF REPRESENTATIVE'S WARRANTS
At the consummation of the Offering, the Company will sell to the
Representatives for nominal consideration the Representatives' Warrants to
purchase up to 160,000 Units. The Representatives' Warrants will be exercisable
for a period of four years commencing one year after the effective date of this
Offering, at an exercise price of $ per Unit [120% of the initial public
offering price per Unit]. The Warrants obtained upon exercise of the
Representatives' Warrants will be exercisable for a period of four years
commencing one year after the effective date of this Offering, at an exercise
price of $ per Share [120% of the exercise price of the Warrants]. For the
term of the Representatives' Warrants, the holders thereof will have, at nominal
cost, the opportunity to profit from a rise in the market price of the
Securities without assuming the risk of ownership, with a resulting dilution in
the interest of other security holders. As long as the Representatives' Warrants
remain unexercised, the Company's ability to obtain additional capital might be
adversely affected. Moreover, the Representatives may be expected to exercise
the Representatives' Warrants at a time when the Company would, in all
likelihood, be able to obtain any needed capital through a new offering of its
securities on terms more favorable than those provided by the Representatives'
Warrants. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
Commencing 24 months after the date of this Prospectus, the Warrants are
subject to redemption at $.10 per Warrant on 30 days prior written notice to the
Warrant holders if the average closing bid price of the Common Stock as reported
on the Nasdaq SmallCap equals or exceeds $ per share [240% of the initial
public offering price per Unit] for any 20 trading days within a period 30
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption. If the Warrants are redeemed, holders of the Warrants
will lose their rights to exercise the Warrants upon expiration of the 30 day
notice of redemption period. Upon receipt of a notice of redemption, holders
would be required to (i) exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for them to do so, (ii) sell the Warrants at
the current market price, if any, when they might otherwise wish to hold the
Warrants or (iii) accept the redemption price which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities -- Warrants."
POTENTIAL ADVERSE EFFECT OF SUBSTANTIAL SHARES OF COMMON STOCK RESERVED
The Company has reserved Shares of Common Stock for issuance as follows:
(i) 1,600,000 Shares for issuance upon exercise of the 1,600,000 Warrants; (ii)
160,000 Shares for issuance upon exercise of the Representatives' Warrants;
(iii) 160,000 Shares for issuance upon exercise of the Warrants issuable upon
exercise of the Representatives' Warrants; (iv) 646,608 shares for issuance upon
exercise of stock options granted under the Company's 1990/1992 Stock Option
Plans; (v) 5,296 shares of Common Stock reserved for future grants of options
under the 1990/1992 Stock Option Plans; (vi) 114,290 shares for issuance upon
exercise by Fitchburg Research Park Associates of its warrants; and (vii)
100,000 shares for issuance upon exercise of the stock option held by a
consultant to the Company. The existence of the Warrants, the Representatives'
Warrants and any other options or warrants may adversely affect the Company's
ability to consummate future equity financings. Further, the holders of such
warrants and options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company.
16
<PAGE> 18
REPRESENTATIVES' INFLUENCE ON THE MARKET
A significant amount of the Securities offered hereby may be sold to
customers of the Representatives. Such customers subsequently may engage in
transactions for the sale or purchase of such Securities through or with the
Representatives. If either or both of the Representatives participate in the
market, the Representatives may exert a dominating influence on the market, if
one develops, for the Securities described in this Prospectus. Such
market-making activity may be discontinued at any time. The price and liquidity
of the Common Stock and the Warrants may be significantly affected by the
degree, if any, of the Representatives' participation in the market.
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the Shares of Common Stock issuable
upon exercise of the Warrants and such Shares have been registered, qualified or
deemed to be exempt under the securities or "blue sky" laws of the state of
residence of the exercising holder of the Warrants. Although the Company has
undertaken to use its best efforts to have all of the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there is no assurance that it will be able to do so.
The value of the Warrants may be greatly reduced if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or exempt from qualification
in the states in which the holders of the Warrants reside. Until completion of
this Offering, the Common Stock and the Warrants may only be purchased together
on the basis of one Share of Common Stock and one Warrant, but the Warrants will
be separately tradable 90 days after issuance subject to earlier separability in
the discretion of the Representatives and the Company. Although the Securities
will not knowingly be sold to purchasers in jurisdictions in which the
Securities are not registered or otherwise qualified for sale, investors may
purchase the Warrants in the secondary market or move to a jurisdiction in which
the Shares underlying the Warrants are not registered or qualified during the
period that the Warrants are exercisable. As a result, the Company will be
unable to issue Shares to those persons desiring to exercise their Warrants
unless and until the Shares are qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in such
jurisdictions, and holders of the Warrants would have no choice but to attempt
to sell the Warrants in a jurisdiction where such sale is permissible or allow
them to expire unexercised. See "Description of Securities -- Warrants."
MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS
Although the Company intends to apply the net proceeds of this Offering in
the manner described under "Use of Proceeds," it has broad discretion within
such proposed uses as to the precise allocation of the net proceeds, the timing
of expenditures and all other aspects of the use thereof. The Company reserves
the right to reallocate the net proceeds of this Offering among the various
categories set forth under "Use of Proceeds" as it, in its sole discretion,
deems necessary or advisable. Accordingly, the Company's Board of Directors will
have discretion with respect to the allocation of such net proceeds. See "Use of
Proceeds."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Under the Wisconsin Business Corporation Law, directors and officers of the
Company are entitled to mandatory indemnification from the Company against
certain liabilities and expenses (a) to the extent such officers or directors
are successful in the defense of a proceeding and (b) in proceedings in which
the director or officer is not successful in the defense thereof, unless it is
determined the director or officer breached or failed to perform his or her
duties to the Company and such breach or failure constituted: (i) a willful
failure to deal fairly with the Company or its shareholders in connection with a
matter in which the director or officer had a material conflict of interest;
(ii) a violation of criminal law, unless the director or officer had reasonable
cause to believe his or her conduct was lawful or had no reasonable cause to
believe his or her conduct was unlawful; (iii) a transaction from which the
director or officer derived an improper personal profit; or (iv) willful
misconduct. The Company's Amended and Restated Bylaws provide that the Company
may purchase and maintain insurance on behalf of an individual who is a director
or officer of the Company against liability asserted against or incurred by such
individual in his or her capacity as a director or officer regardless of whether
the Company is required or authorized to indemnify or allow expenses to the
individual against the same liability under the bylaws.
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,600,000 Units
offered hereby (after deducting underwriting discounts and other estimated
offering expenses) are estimated to be approximately $8,038,000 (or $9,333,000
if the Over-Allotment Option is exercised in full).
The Company currently intends to use the net proceeds from this Offering
approximately as follows:
<TABLE>
<CAPTION>
NET PROCEEDS PERCENT OF TOTAL
------------ ----------------
<S> <C> <C>
Technology development/new product discovery............ $2,500,000 31%
Product development expenses............................ 3,000,000 37%
Capital expenditures.................................... 2,500,000 31%
Working capital and general corporate purposes.......... 38,000 1%
---------- ---
Total......................................... $8,038,000 100%
========== ===
</TABLE>
Technology Development/New Product Discovery. The Company intends to spend
a portion of the proceeds of this Offering in the development of certain
technologies related to the discovery of new drug targets and new drug products
in the area of infectious diseases and other disease areas where the Company
believes business opportunities exist. Such expenses would likely include the
hiring of additional scientific staff, enlargement of facilities and the
establishment of contractual relationships with academic or commercial entities.
Product Development Expenses. The Company intends to continue investing in
the further development of its passive antibody and other infectious disease
therapeutic products. Where appropriate, resources may be applied to laboratory
studies, manufacturing methods development, product manufacturing, formal pre-
clinical or clinical studies to support product licensure. With respect to the
Company's CDAD therapeutic antitoxin product, these funds will supplement funds
paid to the Company pursuant to the Lilly Agreements for the pre-clinical and
clinical studies.
Capital Expenditures. The Company expects to spend a portion of the net
proceeds of this Offering to make capital investments in laboratories and
related facilities, including the establishment of manufacturing facilities and
purchase of equipment for the pilot production of its passive antibody products.
The initial phase of this capital investment includes acquisition of land and
the design of a pilot manufacturing facility. The Company expects to begin
construction of this facility within twelve months from the date of this
Offering. The Company also expects to secure long-term debt financing of up to
approximately $7.5 million to complete construction of its manufacturing
facility.
Working Capital and General Corporate Purposes. The remaining available
funds will be added to the Company's working capital to be used for general
corporate purposes, including the hiring of research, management, regulatory,
manufacturing and business development personnel; rent and other overhead costs
for facilities; equipment and machinery needed for research, manufacturing and
administrative functions; and the costs for patenting, licensing or acquiring
technologies.
The Company intends to proceed with the expenditures to advance the
development of its infectious disease technologies and products. This
development is anticipated to include prototype optimization, pre-clinical
development, clinical prototype manufacturing, and human clinical evaluations.
The Company also anticipates investigating new therapeutic and diagnostic
technologies and exploring additional commercial opportunities.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the progress of the Company's
research and development programs, the results of clinical studies, the timing
of regulatory approvals, technological advances, and determinations as to
commercial potential and the status of competitive products. The Company may
also, to the extent its product development activities proceed more quickly than
expected, expand its research and development facilities or allocate a portion
of the proceeds to the construction or acquisition and staffing of manufacturing
facilities for the production of any developed products. In addition, if the
Company deems it desirable to acquire assets or
18
<PAGE> 20
technologies to further its development objectives, the Company may reapportion
proceeds of this offering to such acquisition or development. Expenditures will
also be dependent upon the establishment of collaborative arrangements with
other companies, the availability of financing, and other factors. See "Risk
Factors -- Management's Broad Discretion in Use of Proceeds."
Subject to the variables set forth above, the Company anticipates that the
net proceeds of this Offering, together with its available cash, should be
sufficient to finance its operational and working capital requirements for at
least the 12 months following the date of this Prospectus. However, there can be
no assurance that the net proceeds of this Offering will satisfy the Company's
requirements for any particular period of time. The Company anticipates that
additional funding will be required after the use of proceeds of the Offering.
The Company may seek to raise additional capital from future offerings of
equity, corporate partnerships or debt financings. No assurance can be given
that such additional financing will be available when needed on terms acceptable
to the Company, if at all. See "Risk Factors -- Need for Substantial Additional
Funds."
Pending application of the net proceeds of the Offering, the Company
intends to invest such net proceeds in interest-bearing investment grade
financial securities.
DIVIDEND POLICY
The Company has never declared nor paid dividends on its Common Stock and
does not intend to pay any dividends for the foreseeable future.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis, and (ii) as adjusted to give effect to
the estimated net proceeds from the sale of the Units offered hereby at an
assumed initial public offering price of $6.10 per Unit and the initial
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the Company's financial statements and related notes thereto
and selected financial data appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------
ACTUAL AS ADJUSTED
----------- --------------
<S> <C> <C>
Capital lease obligations, less current portion............. $ 14,463 $ 14,463
Shareholders' equity
Common stock, $0.0025 par value per share, 22,400,000
shares authorized, 7,288,566 shares issued and
outstanding, actual; 8,888,566 shares issued and
outstanding, as adjusted(1)............................ 18,221 22,221
Additional paid-in capital.................................. 12,687,266 20,721,266
Deficit accumulated during the development stage............ (8,160,802) (8,160,802)
Net unrealized loss on available securities for sale........ (227) (227)
----------- -----------
Total shareholders' equity........................ 4,544,458 12,582,458
----------- -----------
Total capitalization.............................. $ 4,558,921 $12,596,921
=========== ===========
</TABLE>
- ---------------
(1) Excludes (i) 646,608 shares of Common Stock issuable upon the exercise of
outstanding stock options as of February 28, 1998, under the 1990 Incentive
Stock Option Plan and the 1992 Employee Stock Option Plan (collectively, the
"1990/1992 Stock Option Plans") at a weighted average exercise price of
$2.74 per share, leaving a balance of 5,296 shares of Common Stock reserved
for future grants of options under the 1990/1992 Stock Option Plans, (ii)
Fitchburg Research Park Associates' warrant to purchase up to 114,290 shares
at an exercise price of $.0025 per share, (iii) a consultant's option to
purchase 100,000 shares at an exercise price of $4.50 per share, (iv)
options to purchase a maximum of 90,000 shares of Common Stock to be granted
to six employees and three outside directors, and (v) 1,364 shares of Common
Stock which have been issued to consultants since December 31, 1997.
20
<PAGE> 22
DILUTION
At December 31, 1997, the net tangible book value of the Company was
$3,243,857 or approximately $0.45 per share of Common Stock. Net tangible book
value per share is determined by dividing the net tangible book value (tangible
assets less liabilities) of the Company by 7,288,566 shares of Common Stock
outstanding at such date. Net tangible book value dilution per share represents
the difference between the amount per Share paid by purchasers of Units of this
Offering and the net tangible book value per share of Common Stock immediately
after the completion of this Offering. After giving effect to the sale of Units
offered hereby at an assumed initial public offering price of $6.10 per Unit
(after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company), the pro forma net tangible book value of the
Company at December 31, 1997 would have been $11,281,857 or approximately $1.27
per share of Common Stock. This represents an immediate increase in the net
tangible book value of $0.82 per share of Common Stock to existing shareholders
and an immediate dilution in net tangible book value of $4.83 per share of
Common Stock (or approximately 79%) to new investors purchasing Shares of Common
Stock in this Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Unit.............. $6.10
Net tangible book value per share at December 31, 1997...... 0.45
Increase per share attributable to this Offering............ 0.82
----
Pro forma net tangible book value per share after this
Offering.................................................. 1.27
-----
Dilution per share to new investors......................... $4.83
=====
</TABLE>
The computations in the table set forth above assumes that the
Over-Allotment Option is not exercised. If the Over-Allotment Option is
exercised in full, the pro forma net tangible book value at December 31, 1997
would have been $12,576,857 or $1.38 per share of Common Stock, resulting in
dilution to new investors of $4.72 per share of Common Stock.
The following table summarizes at December 31, 1997, the total number of
shares of Common Stock purchased from the Company, the total consideration paid,
and the average price per share paid by (i) existing shareholders of Common
Stock at December 31, 1997, and (ii) new investors in the Offering, assuming the
sale of Units offered hereby at an assumed initial public offering price of
$6.10 per Unit. The calculations are based upon total consideration given by new
investors and existing shareholders before any deduction of underwriting
discounts and Offering expenses payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).... 7,288,566 82% $12,813,341 57% $1.76
New investors(2)............ 1,600,000 18% 9,760,000 43% $6.10
--------- --- ----------- ---
Total............. 8,888,566 100% $22,573,341 100%
========= === =========== ===
</TABLE>
- ---------------
(1) Excludes (i) 646,608 shares of Common Stock issuable upon the exercise of
outstanding stock options as of February 28, 1998, under the 1990 Incentive
Stock Option Plan and the 1992 Employee Stock Option Plan (collectively, the
"1990/1992 Stock Option Plans") at a weighted average exercise price of
$2.74 per share, leaving a balance of 5,296 shares of Common Stock reserved
for future grants of options under the 1990/1992 Stock Option Plans, (ii)
Fitchburg Research Park Associates' warrant to purchase up to 114,290 shares
at an exercise price of $.0025 per share, (iii) a consultant's option to
purchase 100,000 shares at an exercise price of $4.50 per share, (iv)
options to purchase a maximum of 90,000 shares of Common Stock to be granted
to six employees and three outside directors, and (v) 1,364 shares of Common
Stock which have been issued to consultants since December 31, 1997.
(2) Reflects the assumed initial public offering price of the Units.
21
<PAGE> 23
SELECTED FINANCIAL DATA
The following financial data as of September 30, 1996 and 1997 and for each
of the three years in the period ended September 30, 1997 are derived from the
financial statements of the Company included elsewhere in this prospectus which
have been audited by Ernst & Young LLP, independent auditors. The selected
financial data set forth below, as of September 30, 1993, 1994 and 1995 and the
years ended September 30, 1993 and 1994 are derived from financial statements
audited by Ernst & Young LLP, not included in this Prospectus. The data should
be read in conjunction with the consolidated financial statements, related
notes, and other financial information included herein. The selected financial
data for December 31, 1997 and for the three months ended December 31, 1996 and
1997 are derived from the Company's unaudited financial statements included
elsewhere in this Prospectus and include, in the opinion of the Company, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the Company's financial position at that date and results of
operations for those periods. Operating results for the three months ended
December 31, 1997 are not necessarily indicative of the results for any future
period.
<TABLE>
<CAPTION>
INCEPTION
THREE MONTHS ENDED (NOVEMBER 11,
YEARS ENDED SEPTEMBER 30, DECEMBER 31, 1989) TO
----------------------------------------------------------------- ---------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1996 1997 1997
---------- ---------- ----------- ----------- ----------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Revenues............. $1,746,596 $1,017,627 $ 386,979 $ 321,444 $ 671,881 $ 393,361 $ 115,185 $ 4,388,327
Operating Expenses
Research and
development...... 842,000 1,156,428 1,215,366 1,339,048 2,432,102 428,998 666,632 8,306,647
General and
administrative... 404,709 753,549 916,294 1,119,409 1,005,797 256,151 355,100 5,070,359
---------- ---------- ----------- ----------- ----------- --------- ---------- -----------
Total operating
expenses......... 1,246,709 1,909,977 2,131,660 2,458,457 3,437,899 685,149 1,021,732 13,377,006
---------- ---------- ----------- ----------- ----------- --------- ---------- -----------
Income (loss) from
operations....... 499,887 (892,350) (1,744,681) (2,137,013) (2,766,018) (291,788) (906,547) (8,988,679)
Investment income,
net................ 106,576 191,040 144,750 50,761 281,483 75,864 46,102 865,822
Interest expense..... -- (4,082) (4,624) (3,320) (2,800) (718) (724) (38,710)
Other................ -- 97 668 -- -- -- -- 765
---------- ---------- ----------- ----------- ----------- --------- ---------- -----------
Net earnings
(loss)........... $ 606,463 $ (705,295) $(1,603,887) $(2,089,572) $(2,487,335) $(216,642) $ (861,169) $(8,160,802)
========== ========== =========== =========== =========== ========= ========== ===========
Net earnings (loss)
per share(1)
Basic.............. $ 0.11 $ (0.12) $ (0.26) $ (0.34) $ (0.34) $ (0.03) $ (0.12)
Diluted............ $ 0.11 $ (0.12) $ (0.26) $ (0.34) $ (0.34) $ (0.03) $ (0.12)
Shares used to
compute net
earnings (loss) per
share(1)
Basic.............. 5,334,283 6,086,065 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464
Diluted............ 5,674,121 6,086,065 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, 1997
---------------------------------------------------------------- ----------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(2)
---------- ---------- ----------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.......... $5,443,235 $1,521,295 $ 887,577 $ 3,276,339 $3,547,036 $ 2,435,401 $10,473,401
Working capital............... 5,100,728 2,507,268 1,319,826 3,328,103 3,812,539 2,725,172 10,763,172
Total assets.................. 5,856,184 4,917,996 3,408,129 5,247,761 5,975,606 5,116,176 13,154,176
Long-term obligations......... -- 68,046 50,856 33,914 17,956 14,463 14,463
Deficit accumulated during
development stage........... (413,544) (1,118,839) (2,722,726) (4,812,298) (7,299,633) (8,160,802) (8,160,802)
Total shareholders' equity.... 5,500,501 4,680,233 3,156,544 4,743,260 5,397,956 4,544,458 12,582,458
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for a description of the shares
used in calculating net earnings (loss) per share.
(2) As adjusted to give effect to the estimated net proceeds from the sale of
1,600,000 Units offered by the Company at an assumed initial public offering
price of $6.10 per Unit. See "Use of Proceeds."
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and the related notes thereto included elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors."
OVERVIEW
Ophidian is a development stage corporation focused on the research,
development and commercialization of therapeutic products for human and animal
use. The Company's business has been directed to numerous areas of disease but
has focused principally on products for infectious disease prevention and
treatment. The Company has not received any revenues from the sale of FDA
licensed products to date and does not expect to receive any such revenues
during the next two fiscal years. Except for the fiscal year ended September 30,
1993 ("Fiscal 1993"), the Company has been unprofitable every year since
inception. The Company expects to incur additional losses over the next several
years. At December 31, 1997, the Company had an accumulated deficit of
$8,160,802 and for the three months ended December 31, 1997 incurred a net loss
of $861,169.
The Company intends to continue investing in the further research and
development of its technologies and products in infectious disease and other
therapeutic areas. Depending on a variety of factors, including collaborative
arrangements, availability of personnel and financial resources, the Company
will engage in the development of its products and establish capabilities to
support regulatory submissions. The Company will need to make additional capital
investments in research and development laboratories and manufacturing
facilities, including the construction of facilities for the large-scale
production of avian antibodies and supporting testing laboratories. Investments
in manufacturing and associated capabilities would be required to be made before
any regulatory agency would grant approval to market products, however, there
can be no assurance that such approval will be granted. It is expected that the
Company will need to hire additional personnel to support increased research and
development, manufacturing, quality systems, and general business requirements.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 Compared to Three Months Ended December
31, 1996
Revenues. Revenues decreased $278,176 to $115,185 for the three months
ended December 31, 1997 as compared to $393,361 for the three months ended
December 31, 1996. Revenues in the three months ended December 31, 1996 were
greater due primarily to the one-time receipt of payments from Lilly in
connection with the achievement of certain product development milestones.
Research and Development Expenses. Research and development expenses
increased $237,634 to $666,632 for the three months ended December 31, 1997 as
compared to $428,998 for the three months ended December 31, 1996. The increase
in expenses in the three months ended December 31, 1997 resulted primarily from
additional personnel expenses and costs associated with preclinical development
of the CDAD therapeutic antitoxin.
General and Administrative Expenses. General and administrative expenses
increased $98,949 to $355,100 for the three months ended December 31, 1997 as
compared to $256,151 for the three months ended December 31, 1996. The increase
in expenses in the three months ended December 31, 1997 resulted primarily from
increased salary expenses and personnel recruiting expenses to support business
development and financial functions.
Interest Income and Expenses. Interest income decreased $29,762 to $46,102
for the three months ended December 31, 1997 as compared to $75,864 for the
three months ended December 31, 1996. The decrease in interest in the three
months ended December 31, 1997 resulted from lower average cash deposits.
Interest
23
<PAGE> 25
expenses increased $6 to $724 for the three months ended December 31, 1997 as
compared to $718 for the three months ended December 31, 1996.
Net Loss. Net losses increased $644,527 to $861,169 for the three months
ended December 31, 1997 as compared to $216,642 for the three months ended
December 31, 1996. The increased loss in the three months ended December 31,
1997 resulted from lower revenues due to a one-time payment and increased
research and development and general and administrative expenses.
Fiscal Year Ended September 30, 1997 Compared with Fiscal Year Ended September
30, 1996
Revenues. Revenues increased $350,437 or 109% to $671,881 in Fiscal 1997
compared to $321,444 in the fiscal year ended September 30, 1996 ("Fiscal
1996"). Increased revenues resulted from payments received from Lilly under the
Lilly Agreements of $300,000 and payments of $354,266 received from the NIH
under a Phase II Small Business Innovation Research ("SBIR") grant for
Ophidian's EHEC program. Revenues in Fiscal 1996 included $100,000 in payments
from Lilly and $200,493 from the NIH.
Research and Development Expenses. Research and development expenses
increased $1,093,054 or 82% to $2,432,102 in Fiscal 1997 compared with
$1,339,048 in Fiscal 1996. The increase in expenses resulted from process
development and manufacture of bulk drug to support pre-clinical and clinical
development of Ophidian's CDAD therapeutic antitoxin and additional personnel,
consultants and related expenses in connection with the Company's Host Response
Program. See "Business -- Ophidian's Discovery Technologies."
General and Administrative Expenses. General and administrative expenses
decreased $113,612 or 10% to $1,005,797 in Fiscal 1997 compared with $1,119,409
in Fiscal 1996. The decrease resulted primarily from a decrease in consulting
expenses and legal expenses.
Investment Income and Expenses. Investment income increased $230,722 or
455% to $281,483 in Fiscal 1997 compared with $50,761 for Fiscal 1996. The
increase in interest income was due to the deposit of funds received by the
Company from its private placement stock offering which raised net proceeds of
$2,629,957 and sales of stock to Lilly in June and November, 1996, totaling
$3,999,997. Interest expenses for Fiscal 1997 were $2,800 compared with $3,320
in Fiscal 1996.
Net Loss. Net losses increased $397,763 or 19% to $2,487,335 for Fiscal
1997 compared with $2,089,572 for Fiscal 1996. The increased loss during Fiscal
1997 resulted from increased research and development, business development, and
general operating activities.
Fiscal Year Ended September 30, 1996 Compared with Fiscal Year Ended September
30, 1995.
Revenues. Revenues decreased $65,535 or 17% to $321,444 in Fiscal 1996
compared with $386,979 for the fiscal year ended September 30, 1995 ("Fiscal
1995"). Revenues in 1996 consisted of $220,492 from a Phase II SBIR grant from
the NIH to support the Company's EHEC program and $100,000 from Lilly under the
Lilly Agreements. Revenues in Fiscal 1995 consisted of $181,707 from contracts
from the Department of Defense for the Company's antitoxin and vaccine programs
and the NIH for the Company's EHEC and other passive antibody programs, $200,000
received from Wyeth-Ayerst Laboratories ("Wyeth") in connection with a
collaborative product development and license agreement related to Ophidian
antivenom technology and miscellaneous biologic reagent sales.
Research and Development Expenses. Research and development expenses
increased by $123,682 or 10% to $1,339,048 in Fiscal 1996 compared with
$1,215,366 in Fiscal 1995. Research and development expenses in both fiscal
years included personnel, supplies, and allocated overhead in support of the
Company's avian antibody programs and other infections disease laboratory
activities. The increased costs in Fiscal 1996 were associated primarily with
pilot manufacturing in support of pre-clinical and clinical development of the
Company's CDAD therapeutic antitoxin.
General and Administrative Expenses. General and administrative expenses
increased $203,115 or 22% to $1,119,409 in Fiscal 1996 compared with $916,294 in
Fiscal 1995, reflecting increased personnel and
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overhead costs to support expanded technology development programs, business
development activities and technology licensing.
Investment Income and Expenses. Investment income decreased $93,989 or 65%
to $50,761 in Fiscal 1996 compared with $144,750 in Fiscal 1995. Income was
earned on deposits in a cash management account. The decrease in investment
income in Fiscal 1996 was due to lower average monthly cash balances during the
year as compared with Fiscal 1995. Interest expenses decreased $1,304 or 28% to
$3,320 in Fiscal 1996 compared with $4,624 in Fiscal 1995, and are related to
capital leases of office equipment.
Net Loss. Net losses increased $485,685 or 30% to $2,089,572 in Fiscal 1996
compared with $1,603,887 in Fiscal 1995. The increase in net losses in Fiscal
1996 was due primarily to increased expenses and reduced investment income.
Fiscal Year Ended September 30, 1995 Compared with Fiscal Year Ended September
30, 1994.
Revenue. Revenues decreased $630,648 or 62% to $386,979 in Fiscal 1995
compared with $1,017,627 in the fiscal year ended September 30, 1994 ("Fiscal
1994"). Revenues in 1995 consisted of $186,283 from research grants and
contracts from the Department of Defense for the Company's antitoxin and vaccine
programs and the NIH for the Company's EHEC and other passive antibody programs,
$200,000 from Wyeth in connection with a collaborative product development and
license agreement, and miscellaneous biologic reagent sales. Revenues in Fiscal
1994 included $657,553 received from Wyeth, $357,024 from the Department of
Defense and the NIH for the Company's antitoxin, vaccine and passive antibody
programs, and $3,050 in miscellaneous revenues.
Research and Development Expenses. Research and development expenses
increased $58,938 or 5% to $1,215,366 in Fiscal 1995 compared with $1,156,428 in
Fiscal 1994. Research and development activities in both years included
collaborative research, federal research contracts, and the Company's infectious
disease research and development programs. Increased expenses in Fiscal 1995
reflected normal annual increases in personnel and overhead costs.
General and Administrative Expenses. General and administrative expenses
increased $162,745 or 22% to $916,294 in Fiscal 1995 compared with $753,549 in
Fiscal 1994. The increase in Fiscal 1995 resulted primarily from additional
personnel and consulting costs to support development of the Company's passive
antibodies programs.
Investment Income and Expense. Net investment income decreased $46,290 or
24% to $144,750 in Fiscal 1995 compared with $191,040 in Fiscal 1994. Interest
income in Fiscal 1994 was greater due to higher average balances in the
Company's cash management account. Interest expenses increased $542 or 13% to
$4,624 in Fiscal 1995 compared with $4,082 in Fiscal 1994.
Net Loss. Net losses increased $898,592 or 127% to $1,603,887 in Fiscal
1995 compared with $705,295 in Fiscal 1994. The increased loss in Fiscal 1995
was due primarily to increased operating expenses and reduced revenues resulting
from discontinuation of the agreement with Wyeth.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
the sale of equity and revenues consisting of payments received under
collaborative agreements and federal research grants. As of December 31, 1997,
the Company had received $12,813,341 in proceeds from the sale of equity. The
Company's principal sales of equity have occurred through private placement
stock offering activities and sales to Lilly.
In January 1990, the Company sold 800,000 shares of Common Stock to
Fitchburg Research Park Associates ("FRPA") at $.0625 per share, resulting in
net proceeds to the Company of $50,000.
In December 1992, the Company sold 933,120 shares of Common Stock and
warrants in a private placement offering at $2.00 per unit consisting of one
share of Common Stock and a warrant to purchase one-half additional share at an
exercise price of $2.25 per share, resulting in net proceeds to the Company of
$1,828,364. In March 1993, warrants to exercise 447,120 shares of common stock
sold pursuant to this offering were exercised at an exercise price of $2.25 per
share, resulting in net proceeds to the Company of $1,006,020.
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The Company sold 579,482 shares of Common Stock in a private placement
offering at $4.50 per share, which was completed in June, 1993 resulting in net
proceeds to the Company of $2,579,661.
In September 1993, Fitchburg Research Park Associates exercised its warrant
(issued October, 1990) to purchase 125,000 shares of Common Stock at $2.00 per
share, resulting in net proceeds to the Company of $250,000.
The Company sold 485,805 shares of Common Stock in a private placement
offering at $5.50 per share, which was completed in October 1996 resulting in
net proceeds to the Company of $2,629,957.
In June 1996, the Company and Lilly entered into the Lilly Agreements,
according to which the Company sold to Lilly 153,846 shares of Common Stock at
$6.50 per share and in October 1996 sold 545,454 shares of Common Stock at $5.50
per share, resulting in aggregate net proceeds of $3,999,997.
Net cash used in operating activities was $2,468,689 in Fiscal 1997 as
compared with net cash used in operating activities of $1,581,943 in Fiscal
1996. The increase in cash used in operations is primarily the result of
increased research and development funding activities and general and
administrative expenses. Net cash used in investing activities was $77,494 in
Fiscal 1997, as compared with net cash provided of $458,610 in Fiscal 1996. The
net decrease in cash used in investing activities was attributable to a net
decrease of $121,821 in the proceeds received from available-for-sale securities
combined with an increase in capital expenditures of $67,379 and patent costs of
$346,904. Net cash provided by financing activities was $2,816,880 in Fiscal
1997, as compared with net cash provided by financing activities in Fiscal 1996
of $3,512,095. The decrease in cash provided by financing activities is
primarily attributable to proceeds from the sale of equity. Fiscal 1996 included
a private placement offering which was completed in October 1996 resulting in
net proceeds of $2,629,957 and an equity sale to Lilly of $999,999. Fiscal 1997
proceeds included a second equity sale to Lilly of $2,999,997. At September 30,
1997 the Company had cash and cash equivalents of $3,547,036.
Net cash used in operating activities was $1,581,943 for Fiscal 1996, as
compared with net cash used in operating activities of $1,440,141 for Fiscal
1995. The increase in cash used in operating activities is primarily
attributable to increased research and development funding activities and
increased general and administrative expenses. Net cash provided by investing
activities was $458,610 for Fiscal 1996 as compared to $822,549 for Fiscal 1995.
The decrease is principally attributable to a decrease in net proceeds received
from available for sale investment activities. Net cash provided by financing
activities was $3,512,095 for Fiscal 1996 as compared with cash used in
financing activities of $16,126 for Fiscal 1995. The change is primarily
attributable to the receipt of $999,999 in proceeds from the sale of equity to
Lilly and $2,517,367 of net proceeds in a private placement offering received in
Fiscal 1996 while there were no equity sales in Fiscal 1995.
The Company has established and intends to renew annually a bank
line-of-credit in the principal amount of $500,000 secured against cash
investments. The Company has not borrowed against this line-of-credit and has no
current plans to do so.
Through December 31, 1997, the Company had invested approximately $767,903
(including capital lease obligations) in equipment and leasehold improvements.
The present value of obligations under capital leases at December 31, 1997 was
$29,663. Minimum annual principal payments due under capital leases total
$16,450 in Fiscal 1998 and decline each year thereafter until expiration in the
year 2003. The Company made principal payments under capital lease obligations
of $17,703, $15,783 and $16,126 in Fiscal 1997, 1996 and 1995, respectively. The
Company invested $145,216 in Fiscal 1996, $492,120 in Fiscal 1997 and $108,705
in the three months ended December 31, 1997 for patents based on the Company's
research and development activities.
The Company believes that the anticipated net proceeds from this Offering,
together with its existing capital resources, interest income and future
revenues, if any, due under collaborative agreements, will be sufficient to
satisfy its funding requirements for at least the 12 months following the date
of this Prospectus. The Company expects to secure long-term debt financing of up
to approximately $7.5 million to complete construction of its manufacturing
facility. These funding requirements include continued expenditures for research
and development programs, as well as expenditures related to expanded laboratory
and general corporate facilities and the establishment of pilot manufacturing
facilities.
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Furthermore, the Company anticipates that the following material changes
resulting from its collaboration with Lilly will occur in the next twelve
months: hiring of additional manufacturing personnel, purchase of capital
equipment and increased operating expenses in connection with bulk product
manufacturing.
NET OPERATING LOSSES
The Company has not generated taxable income to date. At September 30,
1997, the net operating losses available to offset future taxable income for
federal income tax purposes were approximately $7,604,000. These carryforwards
expire beginning in 2007 if not utilized. At September 30, 1997, the Company has
research and other federal tax credit carryforwards of approximately $423,000
and Wisconsin carryforwards of approximately $192,000. The Company has recorded
a full valuation allowance against any deferred tax assets established for the
carryforwards.
The Company anticipates that its expenses incurred in bulk manufacturing of
the CDAD product will increase and will contribute to future increases in net
operating losses. These future increases in operating losses will result from
the hiring of additional manufacturing and quality control personnel and the
operation of a facility.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes the standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) as part of a full set of financial statements. This
statement requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. Since this statement applies only to the presentation
of comprehensive income, it will not have any impact on the Company's results of
operations, financial position or cash flows.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The statement defines operating segments as components of an
enterprise for which separate financial information is available and evaluated
regularly as a means for assessing segment performance and allocating resources
to segments. A measure of profit or loss, total assets and other related
information are required to be disclosed for each operating segment. In
addition, this statement requires the annual disclosure of information
concerning revenues derived from the enterprise's products or services,
countries in which it earns revenue or holds assets, and major customers. The
statement is also effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 131 will not affect the company's results of operations
or financial position, but may affect the disclosure of segment information in
the future.
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BUSINESS
SUMMARY
Ophidian, a development stage company, is engaged in the research and
development of pharmaceuticals with an emphasis on products for infectious
diseases. Under a collaboration with Lilly, the Company is developing a product
for the treatment of CDAD. CDAD is a bacterial infection that has become a
common side effect of antibiotic therapy. The CDAD product is a result of the
Company's strategy to design new drugs for infectious diseases by targeting
molecules involved in the host-pathogen interaction.
Ophidian signed a collaborative development and license agreement and a
stock purchase agreement with Lilly in June, 1996. Under the Lilly Agreements,
Ophidian has received $4.4 million in equity investments and development
milestone payments. Lilly will pay the Company an additional $8.0 million if
certain CDAD product development objectives are met and Lilly chooses to proceed
with development. The Lilly Agreements provide for Lilly to fund and conduct
clinical testing, registration and marketing of the CDAD product worldwide and
Ophidian to manufacture bulk drug for clinical and commercial use. The CDAD
product is a passive antibody formulation that neutralizes disease-causing
toxins secreted by C. difficile during infection of the human intestinal tract.
These toxins are responsible for the development of diarrhea, inflammation and
symptoms of colitis caused by the C. difficile organism. CDAD is a common side
effect of treatment with certain broad spectrum antibiotics. Based on surveys
and research, the Company estimates that CDAD arises in approximately one
percent of all hospitalized patients. An IND for initial human clinical testing
of the CDAD drug was filed in November 1997.
The Company is also developing a drug to prevent disease caused by EHEC,
including E. coli O157:H7. Ophidian has received research funding of $816,000
from the NIH for this program. The public health problem of EHEC became widely
recognized following outbreaks in the U.S. and Japan that afflicted thousands of
persons as a result of contaminated food products, including ground beef. The
Company has shown in animals that the injection of its passive antibodies that
neutralize EHEC toxins can block progression of lethal disease symptoms. The
Company is conducting pre-clinical development of its EHEC passive antibodies as
a potential human therapeutic.
Broad-spectrum antibiotics are the most commonly used drugs to treat
infectious diseases, with worldwide sales of approximately $20 billion annually.
However, increased microbial resistance to antibiotics and the emergence of new
infectious agents have created a significant need for new approaches for the
treatment of infectious diseases. In addition, broadspectrum antibiotics can be
detrimental to the patient because beneficial microbes are often killed along
with the disease-causing pathogen. The Company's research strategy is to develop
infectious disease drugs that target molecules involved in specific
host-pathogen interactions. In contrast to typical antibiotics, the Company's
products are designed to leave beneficial microbes undisturbed, support the
action of the host's immune system, and reduce the potential for the development
of microbial resistance. The Company has 57 patents, issued or pending, from its
research and development programs and has acquired rights to several external
patents to supplement its technology.
Ophidian has devised a drug formulation and manufacturing technology for
the production of avian polyclonal antibodies for passive immune therapy. The
Company believes avian antibodies will be generally safe when administered
orally because they are derived from hen eggs that are common in the human diet.
Ophidian intends to manufacture and sell bulk drugs based on its avian antibody
technology to its commercial partners for final formulation and marketing of
drug products.
The Company's business strategy is to create commercial opportunities from
its technologies by manufacturing proprietary antibody pharmaceuticals,
establishing royalty-bearing licenses for the sale of its proprietary products
with marketing partners, licensing technology to pharmaceutical firms, and
forming sponsored research agreements.
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INFECTIOUS DISEASES
Infectious diseases remain the world's leading cause of premature death.
Between 1980 and 1992, the death rate due to infectious diseases rose 58% in the
United States, making infectious diseases the third leading cause of death in
this country behind heart disease and cancer. In 1995, it was reported that in
the United States, approximately 25% of physician visits were attributable to
infectious diseases and their indirect costs were estimated at more than $120
billion. Despite the use of antibiotics and other drugs, infectious disease
prevention and treatment remains a major medical challenge throughout the world.
It has been estimated that 4 billion cases of infectious diarrhea occurred in
1995. Tuberculosis continues to be epidemic worldwide, with 1995 estimates of
over 1.9 billion carriers and 8.9 million new cases per year. Other familiar
bacterial (whooping cough, respiratory infections, meningococcal meningitis) and
viral (hepatitis, measles) diseases continue to be among the ten most common
infections worldwide. In addition, hospital acquired (nosocomial) infections,
such as CDAD, add significant costs to the treatment of patients hospitalized
for many other diseases. The Company estimates that CDAD alone is responsible
for over $1 billion in hospital charges annually in the U.S.
The emergence of infectious agents as health care problems, such as EHEC,
provides new challenges and opportunities for antimicrobial drugs.
Cryptosporidiosis, toxic shock syndrome, Legionnaires' disease, Ebola
hemorrhagic fever, hemolytic uremic syndrome, AIDS, gastric ulcers, and Lyme
disease are among the diseases that have emerged in the past two decades. The
emergence of new pathogens has resulted from: the capacity of microbes to change
and adapt in ways that make them more virulent or resistant to drugs and
vaccines; an increased population of persons, such as children in daycare
centers, the elderly or institutionalized patients, that may be more susceptible
to infection; and increased international travel and trade that allow infections
to spread rapidly and widely. These factors are promoting new or previously
unrecognized infectious agents to emerge as human pathogens and known pathogens
to reemerge in regions where they were once thought to be under control.
In addition to these infectious agents, other microbes are causing disease
based on their ability to resist conventional antibiotic therapy. Among these,
vancomycin-resistant enterococci, penicillin-resistant pneumococci,
multi-resistant S. aureus, and multi-resistant tuberculosis have become
significant clinical problems. While new antibiotics that attack a broad
spectrum of pathogens may help to overcome the present crisis of pathogen
resistance, microbes will likely evolve new mechanisms of resistance. With the
rise in antibiotic resistance, emergence of new pathogens, and harmful side
effects associated with the widespread use of broad spectrum antibiotics, new
medical strategies are needed to control infectious diseases.
Antibiotics are the mainstay of infectious disease medicine. Traditional
antibiotics are chemicals that interfere with essential metabolic processes or
structural components of the microbe, resulting in microbial killing or
inhibition of microbial multiplication. These chemicals are nonspecific in that
both the undesirable pathogen and desirable members of the microbial flora
normally living in the host are destroyed. The beneficial microbes compete with,
and are an important barrier to, infectious pathogens. Loss of this barrier,
especially in patients that are immunocompromised, can lead to further disease
complications and can predispose the patient to infections by other pathogens.
Ophidian is pursuing an alternative medical approach-to develop drugs that are
active against only a single pathogen or limited spectrum of organisms.
In certain clinical scenarios broad-spectrum antibiotics may be incapable
of preventing host injury once infection is diagnosed. In diseases such as CDAD,
hemolytic uremic syndrome caused by EHEC, and sepsis, antibiotics are unable to
prevent the widespread organ damage caused by toxins released from the offending
bacterium. In other scenarios, the host's efforts to wall off, kill or
neutralize pathogens, may proceed rapidly, causing fibrosis (scarring) and other
complications. These aspects of infectious disease require drug strategies
(i.e., disease specific) that involve the interaction of the host and pathogen.
Ophidian focuses on the discovery and development of new antimicrobial
drugs that avoid resistance and damage to the normal flora or that treat
infection-related host injury. This is accomplished by targeting molecules
involved in the interaction of the host and pathogen. Ophidian has selected
certain virulence factors, such as bacterial toxins, as drug targets because
they are specific to a pathogen and likely to remain essential to pathogenesis.
The Company uses this specificity to design drugs that do not disrupt the normal
microbial
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ecology of the host and are less susceptible to resistance development. The
Company's lead products are also designed to prevent host injury from
inflammatory or other undesirable defense reactions brought on by infection.
THE COMPANY'S PRODUCTS
Therapeutic Antitoxin for Clostridium difficile-Associated Disease (CDAD).
Since June 1996, Ophidian and Lilly have collaborated on the development of the
Company's passive antibodies to treat or prevent CDAD. Ophidian and Lilly have
completed pre-clinical studies and filed an IND in November of 1997.
CDAD afflicts, in the Company's estimation, one percent of all hospital
admissions in the U.S. and as many as one million patients annually worldwide.
The management of diarrheal disease characteristic of CDAD is a growing burden
to hospitals and is especially problematic on medical and surgical wards. Most
patients develop a self-limiting diarrhea, but some progress to pseudomembranous
colitis, toxic megacolon, peritonitis, and/or death.
An epidemic of CDAD is attributed to the widespread use of broad-spectrum
antibiotics that alter the intestinal flora and predispose a patient to C.
difficile infection, either by allowing resident organisms to proliferate or by
exposing the host to nosocomial infection. The costs of CDAD can easily amount
to thousands of dollars per patient due to nursing care, barrier precautions,
diagnostic tests, and medical treatment. In an intensive care unit, the costs
are compounded by the battery of diagnostics and empirical antibiotic therapies
that are ordered when a patient becomes febrile.
Vancomycin has been a drug of choice for treating CDAD, but its use is
being restricted due to selection for vancomycin-resistant enterococci. In 1995,
the Centers for Disease Control and Prevention ("CDC") reported a twenty-fold
increase in the incidence of vancomycin-resistant enterococci ("VRE").
Epidemiologists suspect the widespread use of vancomycin is selecting for VRE.
Certain strains of VRE are now resistant to all proven antibiotic therapies.
Vancomycin resistance can be transferred genetically from enterococci to
Staphylococcus aureus. Methicillin-resistant Staphylococcus aureus is an
organism that is currently susceptible only to vancomycin. Enterococcus and S.
aureus are two of the most prevalent pathogens causing sepsis and other serious
nosocomial infections. As a result, it has been recommended that hospitals
restrict vancomycin use as a primary therapy for CDAD treatment. As an
alternative antibiotic, metronidazole is used for CDAD control. Metronidazole is
as effective as vancomycin in terms of relapse rates and response time for mild
and moderate CDAD; however, metronidazole's toxicity and efficacy in severe
cases of colitis are a concern. The American College of Gastroenterology issued
guidelines recommending that physicians switch from metronidazole to vancomycin
therapy if symptoms do not abate.
Ophidian is proposing to treat or prevent CDAD by using specific passive
antibodies. The medical advantages of the Company's CDAD product could include
more rapid recovery, fewer relapses, and reduction of resistance development in
intestinal bacteria. Ophidian has shown in animals that its orally delivered
antibodies neutralize C. difficile toxins without disrupting the intestinal
function. C. difficile causes disease by producing two potent toxins, known as
toxins A and B, that are released by the bacteria and cause severe damage to the
gut lining and underlying tissue. By attacking the toxins specifically, the
pathogenic mechanism of the organism is blocked; its ability to thrive in the
gut is diminished; and, the normal microbial ecology is allowed to recover.
Because the toxin neutralizing passive antibodies are polyclonal and react to
multiple toxin epitopes, the Company believes that the emergence of resistant C.
difficile strains is unlikely.
The Company has demonstrated the effectiveness of its passive antibodies in
the hamster model of CDAD. This animal model offers clear end-points, is
reproducible, and has been highly predictive of antibiotic performance in human
disease. Prophylactic or therapeutic administration of Ophidian's antibodies
prevents tissue destruction, diarrhea, and death in the animal model.
Importantly, relapse does not occur after termination of Ophidian's antibody
therapy, whereas the animals relapse and die within five to seven days after
metronidazole or vancomycin treatment is ended.
The Company believes efficacy trials for its CDAD passive antibodies can
proceed more rapidly than for many other drugs since CDAD is prevalent and
easily and accurately diagnosed. In addition, the normally
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acute course of CDAD allows the effectiveness of drugs to be evaluated in days
to weeks. Ophidian's antibodies are isolated from hen eggs that are a normal
dietary component. Therefore, the Company believes they will be safe when used
as an orally delivered therapeutic. Ophidian has produced avian antibodies
through the use of various contract manufacturers and intends to apply a portion
of the proceeds for this offering to establish its own manufacturing capability.
The Company can provide no assurance that the FDA will determine that Ophidian's
antibodies are safe or effective or that their manufacture will meet FDA
requirements.
The Company has more than 15 United States or foreign patents, issued or
pending, relating to the compositions, methods and uses of its avian antibodies
for CDAD.
Antitoxin for Enterohemorrhagic Escherichia coli (EHEC). Ophidian is
developing an EHEC passive antibody formulation funded by an $816,000 grant from
the NIH. The Company is currently conducting pre-clinical studies in animal
disease models.
EHEC, such as serotype O157:H7, have emerged as serious food-borne
pathogens. EHEC gained wide-spread notoriety in the U.S. after a major outbreak
in the Pacific Northwest in which over 700 people fell ill due to undercooked
ground beef, which contained E. coli 0157:H7. Worldwide, E. coli O157:H7 and
other EHEC are becoming increasingly evident as a human health problem.
Estimates from the CDC indicate that over 20,000 E. coli O157:H7 infections
occur annually in the U.S., resulting in 400-500 deaths. Although O157:H7 is the
predominant E. coli serotype causing illness in North America, several other
serotypes produce toxins and have been associated with major outbreaks in
Europe, Mexico, China, Argentina, and Thailand.
EHEC cause a spectrum of illness ranging from mild, uncomplicated diarrhea
to severe bloody diarrhea and about 10% of patients progress to renal disease
known as hemolytic uremic syndrome (HUS). Disease symptoms are caused by toxins
(known as vero- or Shiga-like toxins) released by ingested bacteria that destroy
the intestinal lining, causing bloody diarrhea and allowing the further
dissemination of toxin into the bloodstream. It is believed that, within two to
four days after the onset of bloody diarrhea, systemic toxin may incite
microthrombi which can progress to kidney (or other organ) failure and death.
The Company believes the injection of its EHEC toxin-neutralizing
antibodies will halt systemic disease when delivered within two to four days
following onset of bloody diarrhea. Typically, patients do not seek medical
attention until the onset of bloody diarrhea, when toxins have likely begun
entering the bloodstream. Conventional antibiotic treatment may increase the
patient risk due to increased toxin release from the bacterium. Ophidian's
passive antibodies are designed to neutralize toxins that enter circulation
following EHEC infection. These polyclonal antibodies are directed to
recombinant verotoxins developed by Ophidian. The antibody formulation
neutralizes both major verotoxin types produced by organisms of the O157:H7
serotype as well as structural variants produced by other serotypes such as
O91:H21.
Ophidian's antibodies can be protective against lethality in a rodent model
of EHEC infection when administered up to 36 hours following EHEC inoculation.
These results demonstrate a window for therapeutic intervention in animal EHEC
disease. Without treatment, animals inoculated orally with viable EHEC bacteria
will develop disease symptoms within 48 hours and will die due to kidney and
other complications after four to five days.
The Company's funding from the NIH will support research and development of
the EHEC project at Ophidian until March 1998. Ophidian will seek to establish a
partnership with a biotechnology firm or regional public health agencies to
participate in the clinical development and, if approved, marketing of the
product. The Company has filed two patent applications relating to compositions
of and methods for producing EHEC antibodies and their therapeutic use.
Vaccines and Antitoxins for Biological Agents. From 1991 to 1996, Ophidian
received over $600,000 in contracts from the U.S. Department of Defense for the
research and development of antitoxins and vaccines to a number of biologic
agents. These programs applied the Company's technology in recombinant microbial
antigens (particular bacterial toxins), capabilities in the cloning and
expression of Clostridium genes, and avian passive antibody formulation. The
Company has shown in various animal models, including primates,
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that its vaccines and passive antibodies are safe and effective against specific
toxins. Furthermore, the Company believes that the clinical development
requirements for these products could be abbreviated because appropriate animal
models exist as surrogates to human testing and it is impractical to conduct
efficacy trials by exposing humans to biological toxins. The Company currently
has four United States or foreign patents, issued or pending, relating to
antitoxins and vaccines to biologic agents.
Diagnostic Products. Ophidian has developed reagents (polyclonal
antibodies, recombinant microbial proteins, and peptides) in the course of its
drug development that have application in clinical diagnostic testing. The
Company's technology facilitates the manufacture of these reagents on a
commercial scale using methods developed in its therapeutic programs, such as
CDAD. The Company believes that these reagents could be sold to clinical
diagnostic firms as components in their instrumented assay systems or test kits.
The Company believes that it could receive bulk reagent supply revenues and/or
royalties from final product sales. In addition, the development of rapid and
accurate infectious disease diagnostics based on Ophidian's reagents could
assist in the clinical development of Ophidian's therapeutic candidates by
providing improved diagnosis and therapy decisions. The Company has United
States or foreign patents, issued or pending, relating to diagnostic
applications of its CDAD and EHEC programs.
Additional Therapeutic Products for Infectious Disease. Ophidian intends to
pursue the development of additional products resulting from its programs in
target discovery and drug design for passive antibody products. The Company is
applying its technologies for products to treat or prevent acute
gastrointestinal infections or microbial toxin-mediated diseases. In addition,
the Company is developing drug candidates for chronic diseases, such as chronic
inflammatory bowel disorders, where responses to infectious agents are
implicated in the disease process. The Company is also identifying small
molecule compounds that react with microbial virulence factors for diseases
where passive immunization or vaccination is unsuited. The Company has 10 United
States or foreign patents, issued or pending, relating to its small molecule
drug discovery programs.
OPHIDIAN'S DISCOVERY TECHNOLOGIES
The Company's technology focuses on the interaction of the infectious agent
with the host to discover new targets for therapeutic intervention. The Company
identifies and evaluates drug targets by using molecular genetics, protein
biochemistry and animal disease models and designs drug candidates to react with
these targets that interfere with the disease process. Ophidian's study of human
cellular regulation pathways is directed to the discovery of new infectious
disease drugs and is also relevant to non-infectious diseases.
Ophidian uses antibodies to bind and neutralize virulence factors of
pathogenic bacteria, such as C. difficile and E. coli toxins. For targets in the
intestinal tract, Ophidian has shown that avian antibodies can be formulated in
a solid oral dosage form. Oral delivery of pathogen-specific antibodies is
intended to block the infection process while leaving the normal, beneficial
bacterial flora undisturbed.
Microbial Virulence Factors Program. The Company's strategy to target
microbial virulence factors in drug design is exemplified by its CDAD and EHEC
programs where both diseases are caused by toxin-producing bacteria. Ophidian
has established expertise in the laboratory analysis of toxin molecules and
animal models of disease. Microbial toxins provide ready targets for
intervention with vaccines and passive antibodies. For example, existing
vaccines for tetanus and diphtheria stimulate antibodies that neutralize
microbial toxins responsible for virulence. Many other common pathogens,
including Clostridium, E. coli, Staphylococcus, Streptococcus, Shigella and
Vibrio, produce toxins or enzymes that are either the direct cause of disease or
are important in the disease process.
Molecules related to other disease-causing microbes can be identified by
understanding the mechanism of interaction between disease-causing microbes and
the susceptible host. The Company has analyzed therapeutic targets from
organisms including C. difficile, enterohemorrhagic E. coli, enteroadherent E.
coli, C. botulinum, gram negative endotoxin from various gram negative
organisms, and staphylococcal enterotoxins. The Company has over 20 United
States or foreign patents, issued or pending, relating to compositions or
therapeutic use of microbial targets from these organisms.
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Ophidian's study of microbial virulence factors includes the following
steps.
1. Selection of Virulence Factor Target. Potential drug targets are
evaluated in laboratory studies whereby antibodies or small molecules are
designed to interfere with virulence factors. Targets are selected if the
disease process can be impeded and an appropriate drug form can be designed
(i.e., a suitable drug for intestinal use).
2. Production of Target for Drug Development. Certain virulence factors,
such as toxins, can be extracted only in small quantities from laboratory
cultures of the pathogenic organism. Even if available, naturally-occurring
toxins can be hazardous to manipulate and unsuitable for pharmaceutical
research. Ophidian develops recombinant forms of virulence factors that can be
expressed with appropriate chemical conformation, purified and handled safely
using proprietary techniques of molecular cloning and expression.
3. Drug Design. The Company's principal approach to drug design is the
application of immunochemical techniques. Ophidian maps the regions of the
protein that are optimally susceptible to drug targeting using antibodies as
probes. From this analysis, passive antibodies or vaccines can be developed.
Alternatively, the target can be used to screen chemical libraries to identify
small molecule drug candidates.
4. Develop Process Reagents. When the optimal drug form is passive
antibodies or vaccines, the recombinant production system is scaled to yield
larger quantities of the target molecule.
5. Animal Models of Disease. Ophidian tests the effectiveness of antibody
or other drug formulations using animal (usually rodent) models of disease.
Treatment regimens and dosing are evaluated to arrive at a drug composition
yielding the desired therapeutic effect.
Host Response Program. The Company has initiated a program to identify host
functions that are involved in infectious disease pathogenesis. The Company is
targeting the "transforming growth factor beta" (TGF-SS) pathway for new drug
discovery because this pathway is used by several infectious agents to suppress
the immune response of the host. Pathogens, including viruses, bacteria, fungi
and multicellular parasites, can exploit many host cell functions, including
signal transduction pathways, cytoskeletal rearrangements and vacuolar
trafficking. In turn, the host cell environment can induce specific patterns of
gene expression in a pathogen. The TGF-SS cytokine is known to regulate cell
growth, fibrogenesis and the immune response in numerous diseases.
The Company's strategy is to study molecules involved in the TGF-SS signal
transduction pathway to increase the number of targets for drug intervention.
Cells respond through cell surface receptors for TGF-SS that activate signal
transduction proteins inside the cells called SMADS. Upon activation, SMADS
enter the cell nucleus and participate in the regulation of TGF-SS-responsive
genes. The Company believes that targeting molecules involved in TGF-SS signal
transduction, such as SMADS, may provide a means to modulate specific TGF-SS
responses during infectious and other disease processes.
The Company is developing specific assays for high throughput screens for
new small molecule activators and inhibitors of the pathway. The Company has
acquired intellectual property for various uses of SMADS and established an
academic collaboration to evaluate the biological actions of such novel
compounds affecting SMADS. The Company intends to test such leads in animal
models of infectious disease-induced immunosuppression and fibrosis as well as
for other indications. As other targets and pathways are validated through
genetic manipulation in animal models of disease, the Company and its
collaborators intend to develop appropriate biological assays for future small
molecule drug discovery efforts.
Drugs and drug targets discovered in this program may have other medical
applications. The range of disease applications that could result from the study
of TGF-SS targets expands well beyond Ophidian's interest in infectious
diseases. The Company expects to outlicense those applications that are outside
its business interest or establish sponsored research agreements with firms
wanting access to Ophidian's signal transduction targets for drug discovery or
diagnosis. Possible disease applications of Ophidian's technology are summarized
below.
Cancer. Drugs that affect SMADS may compensate for disease-causing
mutations in SMAD genes or in the genes of receptors and other proteins that
exert their effects through SMADS. Mutations in the TGF-SS
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receptor and SMAD genes on the TGF-SS pathway have been detected in colon and
other cancers. Mutations in the type II TGF-SS receptor are detected in
approximately 20% of sporadic colorectal cancers. Mutations in the TGF-SS
pathway SMAD4 protein are found in human pancreatic cancer and 90% of human
pancreatic cancers exhibit chromosome loss for the chromosomal region that
includes SMAD4. In addition, defects detected in prostate cancer include loss of
TGF-SS receptors.
Fibrotic diseases. Fibrotic diseases occur when the body's response to
tissue injury results in an overproduction of extracellular matrix deposition.
New drugs that target TGF-SS could be used to temper the body's response to
tissue injury so that tissue regeneration can occur in a more orderly fashion,
without the potentially life threatening complications engendered by extensive
fibrosis. Overproduction of TGF-SS is a major cause of fibrotic diseases
affecting the kidney, lung, liver, bone marrow, and heart. Fibrosis of the
kidney contributes to end stage renal disease, which in 1993 affected over
250,000 people and led to over $11 billion in healthcare expenses in 1994.
Interference with TGF-SS by binding proteins has had positive therapeutic
effects in animal models for glomerulonephritis. Chronic liver disease, which is
often caused by viral infections, is also associated with fibrosis that
progresses to cirrhosis. Interfering with TGF-SS allows wounds to heal without
scarring.
Other diseases. The pathogenicity of over-exuberant repair reactions may
also pertain to the reported actions of TGF-SS in osteoarthritis in which low
level expression can heal cartilage damage but high level expression mimics the
changes found in the diseased joints. In addition, there are implications
involving the TGF-SS pathway which the Company may explore in conditions ranging
from immunosuppression, myelodysplastic syndromes, bone loss, neural
degeneration, and Alzheimer's disease.
OPHIDIAN'S MANUFACTURING TECHNOLOGY
Ophidian has developed a manufacturing technology which harvests polyclonal
antibodies from the egg yolks of hyperimmunized laying hens. In contrast to
large mammals, laying hens provide a practical animal production source for the
development and optimization of new antibody products. Similar experimentation
in large mammals is burdened by expense, time, material, and potential animal
losses. The production capacity of hens and the efficiency of extracting
antibodies from eggs provides an efficient source of antibodies that the Company
considers advantageous for large-scale production.
Ophidian believes the use of avian antibodies as a drug form is attractive
because of the following features:
- Hens generate large quantities of antibody relative to their body mass.
- Hens can typically be immunized safely with higher doses of immunogen on
a body weight basis than large mammals, resulting in high specific
antibody output.
- The costs of purchasing, housing, and maintaining production hens can be
less than for horses or other large mammals.
- Egg yolks containing IgY can be separated using high-throughput food
industry automation.
- Antibodies can be recovered using bulk fractionation without the use of
volatile solvents.
- Antibody preparations can be filter-sterilized, lyophilized, tableted and
reconstituted without appreciable loss of structural integrity and can be
enterically coated for oral delivery.
The Company has developed process protocols to facilitate work flow,
maximize egg production, and maximize IgY output. The Company has developed
process and logistical controls that it believes will meet Good Manufacturing
Practices requirements of the FDA. Ophidian has carried out various stages of
the IgY manufacturing process under contracts with manufacturing firms. Ophidian
is developing its own manufacturing capability to produce pharmaceutical grade
IgY in larger scale and intends to apply a portion of the proceeds of this
Offering to acquire a manufacturing facility and pay expenses associated with
its validation and operation.
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OPHIDIAN'S BUSINESS STRATEGY
The Company's strategy is to commercialize technologies and products from
its research and development programs. The Company intends to manufacture and
sell its bulk pharmaceuticals, receive royalties from the sale of its product
through marketing partners, receive license fees from the use of its
technologies and establish sponsored research agreements encompassing Ophidian
technologies. The Company intends to achieve its objectives as follows.
- Develop portfolio of infectious disease drugs. The Company has applied
its resources to a portfolio of products to diversify the risks inherent
in pharmaceutical product development. The establishment of a product
portfolio is also intended to leverage the Company's proprietary
discovery and manufacturing technologies and know-how in the field of
infectious disease.
- Develop new technologies for drug discovery and formulation. Ophidian's
research strategy is to discover new drug targets through examination of
and research involving molecules involved in the host-pathogen
interaction. The Company's initial programs on bacterial toxins as drug
targets has expanded to the study of host factors involved in the
infectious disease process.
- Develop business and enhance research through collaborations. The
Company's business strategy is to leverage the resources gained from each
collaboration to expand its technology and operations base. The Company
also intends to rely on commercial partners for the marketing, sales and
distribution of its products. In addition, collaborations with academic
centers can supplement the scientific resources available within Ophidian
and broaden access to rapidly emerging drug discovery technologies.
- Establish manufacturing capability to facilitate new product development
and retain a greater portion of product value. The Company intends to
establish a manufacturing business to maximize the commercial opportunity
of its core technologies. The Company intends to develop multiple
products based on its avian antibody manufacturing technology to leverage
its know-how and facilities investment. The Company also believes that
controlling its own manufacturing facility will accelerate the
development and licensure of future products.
COLLABORATIVE AGREEMENTS
In June, 1996, the Company and Lilly entered into a collaborative agreement
for the research, development, manufacture and sale of Ophidian's product for
the treatment of CDAD ("Development Agreement"). In connection with the
Development Agreement the parties also entered into a Stock Purchase Agreement
that set forth terms for the purchase of Ophidian common stock by Lilly. To
date, the Company has received $400,000 in development payments, $1.0 million
from the sale of stock to Lilly at signing of the Lilly Agreements, and $3.0
million from the sale of stock to Lilly upon achievement of the first
development milestone under the Lilly Agreements. Lilly has agreed to provide
the Company an additional $8.0 million through a cash payment and stock purchase
upon the completion of certain project milestones and Lilly's decision to
proceed with clinical development. Under the Development Agreement, Lilly also
agreed to fully fund pre-clinical and clinical development, formulation
development, and the submission of regulatory documents required for marketing
approval. Ophidian agreed to manufacture bulk drug substance for pre-clinical
and clinical development. The Company granted Lilly an exclusive worldwide right
to market, sell and distribute the CDAD product and exclusive worldwide license
to Ophidian's intellectual property as it applies to the CDAD product. Under the
Development Agreement, the Company is responsible for the production of bulk
drug substance and Lilly for drug product. The parties have agreed to a revenue
sharing plan as compensation for their respective manufacturing and marketing
activities. The Company is required to establish a manufacturing capability
sufficient to produce clinical and commercial quantities of bulk drug substance
for the CDAD product. Should Ophidian fail to meet its manufacturing
obligations, Lilly may assume bulk drug substance manufacturing rights subject
to certain payments to Ophidian. Under the terms of the Development Agreement,
Lilly may, at any time, terminate the agreement. Upon such termination, all
licenses to Ophidian technology would expire and Ophidian would retain ownership
of all information generated during the collaboration.
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In June, 1997, the Company entered into an agreement with Dr. Allen
Laughon, and other researchers, (the "Laughon Agreement") wherein the Company
was granted an exclusive license to compositions and methods for the binding of
certain molecules (i.e., SMADs) involved in the regulation of the TGF-b pathway
as set forth in a U.S. patent application. The Laughon Agreement also grants to
the Company an exclusive license to any products or other subject matter whose
discovery emanates from the licensed invention. The Company may maintain the
license upon the yearly payment of $10,000. The Laughon Agreement also requires
the Company to make cash payments upon the achievement of certain development
milestones for product candidates. In connection with the Laughon Agreement, the
Company has other agreements with Dr. Laughon and the University of
Wisconsin-Madison whereby the Company is funding ongoing SMAD research by Dr.
Laughon in his University laboratory. The Company will have certain patent
rights to inventions resulting from such research.
In September, 1991, the Company entered an agreement with Promega
Corporation ("Promega"), Madison, Wisconsin, ("Promega Agreement") to provide
marketing of the Company's technologies outside its core markets ("Core Markets"
are defined as therapeutic and diagnostic products and their accessory or
component parts, for human or animal use). Under the Promega Agreement, the
Company granted Promega an exclusive and confidential first right, for a period
of 10 years, to review any technology developed by the Company incidental to its
Core Markets. The Promega Agreement will terminate upon its tenth anniversary or
on the date when Promega owns less than one percent of the Company's common
stock. In connection with the Promega Agreement, Promega acquired shares of the
Company for an aggregate purchase price of $546,920. To date, no licenses have
been negotiated under the Promega Agreement.
The Company has formed collaborations with various academic or commercial
institutions for the evaluation of technology of either party. These agreements
may provide that ownership of the Company's inventions is retained by the
Company and ownership of the outside party's technology is retained by the
outside party. Should inventions arise during the course of a collaboration
which are invented by both the Company and the outside party, the parties agree
to negotiate in good faith the commercial use by the Company of such joint
inventions.
The Company has entered into license agreements with academic and
government agencies for the use of technologies involved in recombinant DNA
research. Maintenance of these licenses generally require annual payments and
certain royalties are payable upon the commercialization of products that employ
the technology. In aggregate, the Company pays approximately $22,000 annually to
these licensors.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies and to preserve its trade
secrets. It is the policy of the Company to file patent applications in the
United States and/or foreign jurisdictions. The Company currently holds 10
issued United States or foreign patents and has 47 United States or foreign
patent applications pending. No assurance can be given that the Company's patent
applications will be approved or that any issued patents will provide
competitive advantages for the Company's technologies or development of products
or will not be challenged or circumvented by competitors. With respect to
already issued patents and any patents which may be issued from the Company's
applications, there can be no assurance that claims allowed will be sufficient
to protect the Company's technologies. Patent applications in the United States
are maintained in secrecy until a patent issues, and the Company cannot be
certain that others have not filed patent applications for technology covered by
the Company's pending applications for, or may have received patents and may
obtain additional patents and proprietary rights relating to, compounds or
processes that may block the Company's patent rights or compete without
infringing the patent rights of the Company. In addition, there can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company.
The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, through confidentiality agreements with employees,
consultants, collaborative partners and others. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies
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for any such breach or that the Company's trade secrets will not otherwise
become known or be independently developed by competitors. Although potential
collaborative partners and the Company's research partners and consultants are
not given access to proprietary trade secrets and know-how of the Company until
they have executed confidentiality agreements, these agreements may be breached
by the other party thereto or may otherwise be of limited effectiveness or
enforceability.
The ability to develop the Company's technologies and to commercialize
products using such technologies will depend on not infringing the patents of
others. Although the Company is not aware of any claim of patent infringement
against it, claims concerning patents and proprietary technologies determined
adversely to the Company could have a material adverse effect on the Company. In
addition, litigation may also be necessary to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third-party
proprietary rights. There can be no assurance that the Company's issued or
licensed patents would be held valid by a court of competent jurisdiction.
Whether or not the outcome of litigation is favorable to the Company, the cost
of such litigation and the diversion of the Company's resources during such
litigation could have a material adverse effect on the Company.
Under the Lilly Agreements, Ophidian granted to Lilly an exclusive
worldwide license with certain rights to sublicense under Ophidian's patents for
the manufacture, sale, and use of drug product employing avian antibodies useful
in the treatment of CDAD. Under the Agreements, Lilly has granted to Ophidian a
non-exclusive license to certain process technology. Should Lilly terminate the
Agreement out of a desire to end the collaboration, all licenses granted to
Lilly would be canceled and the non-exclusive license granted to Ophidian would
remain in force.
All pending patent applications referred to herein are derived from work of
the Company's employees, collaborators and consultants. The Company holds
exclusive worldwide rights to all inventions and patent applications made by its
employees pursuant to written employment agreements.
In addition to the patent applications described herein, the Company
intends to aggressively pursue patent protection for any new technologies that
it may develop or consider essential for its future business development and
intends to safeguard its remaining proprietary technology as trade secrets
through non-disclosure agreements with its employees and third parties.
The pharmaceutical industry has experienced extensive litigation regarding
patent and other intellectual property rights. Accordingly, the Company could
incur substantial costs in defending itself in suits that may be brought against
the Company claiming infringement of the patent rights of others or in asserting
the Company's patent rights in a suit against another party. The Company may
also be required to participate in interference proceedings declared by the
United States Patent and Trademark Office for the purpose of determining the
priority of inventions in connection with the patent applications of the Company
or other parties. Adverse determinations in litigation or interference
proceedings could require the Company to seek licenses (which may not be
available on commercially reasonable terms) or subject the Company to
significant liabilities to third parties, and could therefore have a material
adverse effect on the Company.
COMPETITION
The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Several other
companies have developed or are developing novel technologies for the prevention
and treatment of infectious diseases, and those competing technologies may prove
superior, either generally or in particular market segments, in terms of factors
such as cost, consumer satisfaction or drug safety or efficacy profiles. The
Company's principal competitors in the area of infectious disease drug research
and development include companies, such as SmithKline Beecham Corporation,
Bristol-Myers Squibb Company, Abbott Laboratories as well as numerous
biotechnology firms, all of which have substantially greater financial,
technological, marketing, personnel, and research and development resources than
the Company. In addition, the Company may face competition from pharmaceutical
and biotechnology companies that may develop or acquire infectious disease
technologies. Companies that complete clinical trials, obtain regulatory
approvals and commence commercial sales before their competitors may achieve a
significant competitive advantage. A number of companies are developing new
products for the treatment of
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the same disease being targeted by the Company. In some instances, the Company's
competitors already have products in clinical trials. In addition, certain
pharmaceutical companies are currently marketing drugs for the treatment of the
same diseases targeted by the Company.
The Company believes that its competitive success will be based partly on
its ability to attract and retain scientific personnel, establish specialized
research and development capabilities, gain access to manufacturing, marketing
and distribution resources, secure licenses to external technologies, and obtain
sufficient development capital. The Company intends to obtain many of these
capabilities from pharmaceutical or biotechnology companies through
collaborative or license arrangements. However, there is intense competition
among early stage biotechnology firms to establish such arrangements. The
Company's development products may not be of suitable potential market size or
provide a compelling return on investment to attract other firms to commit
resources to a collaboration. Even if collaborations can be established, there
can be no assurance that the Company will secure financial terms that meet the
Company's commercial objectives.
MANUFACTURING
To be successful, the Company's products must be manufactured in commercial
quantities under appropriate controls as required by the FDA, and at an
acceptable cost. The Company has not yet manufactured any of its passive
antibodies for treatment of gastrointestinal infections in commercial quantities
and currently does not have the facilities to manufacture these products at
commercial scale. To proceed with product development, the Company will rely on
contract manufacturers to perform certain manufacturing processes. There can be
no assurance that the Company will be able to enter into any such manufacturing
arrangements on acceptable terms, if at all. If the Company is not able to enter
into commercial manufacturing agreements, it could encounter delays in
introducing its products.
Manufacturers of products utilizing Ophidian's avian technology will be
subject to applicable GMP requirements prescribed by the FDA or other rules and
regulations prescribed by foreign regulatory authorities. There can be no
assurance that the Company will be able to enter into manufacturing agreements
either domestically or abroad with companies whose facilities and procedures
comply with GMP or applicable foreign standards. Should such agreements be
entered into, the Company will be dependent on such manufacturers for continued
compliance with GMP and applicable foreign standards. Failure by a manufacturer
to maintain GMP or applicable foreign standards could result in significant time
delays or the inability of the Company to commercialize products and could have
a material adverse effect on the Company. There also can be no assurance that
any products utilizing the avian antibodies can be manufactured at a cost or in
quantities required to make them commercially viable. The Company's inability to
contract on acceptable terms and with qualified suppliers for the manufacture of
any products or delays or difficulties in its relationships with manufacturers,
would have a material adverse effect on the Company.
Contract manufacturers must adhere to GMP regulations strictly enforced by
the FDA on an ongoing basis through its facilities inspection program. Contract
manufacturing facilities must pass a pre-approval plan inspection before FDA
approval of any product. Certain material manufacturing changes that occur after
other regulatory agencies will approve the process or facilities by which any of
the Company's products may be manufactured. The Company's dependence on third
parties for the manufacture of products utilizing may adversely affect the
Company's ability to develop and deliver such products on a timely and
competitive basis.
The Company anticipates that it will construct pilot and commercial
facilities for the processing of bulk avian antibodies in the near future.
Facility construction will require the commitment of substantial funds
(including long-term debt financing of up to approximately $7.5 million), the
hiring and retention of significant additional personnel and compliance with
extensive regulations applicable to such a facility. While current Company
management has experience in the design, construction and operation of
bioprocessing facilities, there can be no assurance that the Company will be
able to manufacture products in commercial quantities and meet regulatory
requirements. See "Use of Proceeds -- Capital Expenditures."
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GOVERNMENT REGULATION
The Company is subject to regulation under various federal laws regarding
pharmaceutical products and also various federal and state laws regarding, among
other things, occupational safety, environmental protection, hazardous substance
control and product advertising and promotion. In connection with its research
and development activities, the Company is subject to federal, state and local
laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials and wastes. The Company believes that it has complied with
these laws and regulations in all material respects and it has not been required
to take any action to correct any material noncompliance.
FDA Approval Process. In the United States, pharmaceutical products are
subject to rigorous regulation by the FDA. If a company fails to comply with
applicable requirements, it may be subject to administrative or judicially
imposed sanctions such as civil penalties, criminal prosecution of the company
or its officers and employees, injunctions, product seizure or detention,
product recalls, total or partial suspension of production and FDA refusal to
approve pending new drug applications, premarket approval applications, or
supplements to approved applications.
Prior to commencement of clinical studies involving human beings,
pre-clinical testing of new pharmaceutical products is generally conducted on
animals in the laboratory to evaluate the potential efficacy and the safety of
the product. The results of these studies are submitted to the FDA as a part of
an IND application, which must become effective before clinical testing in
humans can begin. Typically, clinical evaluation involves a time consuming and
costly three-phase process. In Phase I, clinical trials are conducted with a
small number of subjects to determine the early safety profile, the pattern of
drug distribution and metabolism. In Phase II, clinical trials are conducted
with groups of patients afflicted with a specific disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase
III, large-scale, multi-center, comparative trials are conducted with patients
afflicted with a target disease in order to provide enough data to demonstrate
the efficacy and safety required by the FDA. The FDA closely monitors the
progress of each of the three phases of clinical testing and may, at its
discretion, re-evaluate, alter, suspend or terminate the testing based upon the
data which have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient.
The results of the pre-clinical and clinical testing on a nonbiologic drug
and certain diagnostic drugs are submitted to the FDA in the form of an NDA for
approval prior to commencement of commercial sales. In responding to an NDA, the
FDA may grant marketing approval, request additional information or deny the
application if the FDA determines that the application does not satisfy its
regulatory approval criteria. There can be no assurance that approvals will be
granted on a timely basis, if at all. An IND application for the CDAD product
was filed in November 1997. The Company anticipates that several years of
clinical testing will be required prior to FDA marketing approval. Failure to
receive approval for any of its products could have a material adverse effect on
the Company.
Other Regulations. Even if required FDA approval has been obtained with
respect to a product, foreign regulatory approval of a product must also be
obtained prior to marketing the product internationally. Foreign approval
procedures vary from country to country and the time required for approval may
delay or prevent marketing. In certain instances the Company or its
collaborative partners may seek approval to market and sell certain of its
products outside of the U.S. before submitting an application for U.S. approval
to the FDA. The regulatory procedures for approval of new pharmaceutical
products vary significantly among foreign countries. The clinical testing
requirements and the time required to obtain foreign regulatory approvals may
differ from that required for FDA approval. Although there is now a centralized
European Union ("EU") approval mechanism in place, each EU country may
nonetheless impose its own procedures and requirements, many of which are time
consuming and expensive, and some EU countries require price approval as part of
the regulatory process. Thus, there can be substantial delays in obtaining
required approval from both the FDA and foreign regulatory authorities after the
relevant applications are filed, and approval in any single country may not be a
meaningful indication that the product will thereafter be approved in another
country.
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To date, no product candidate being developed by the Company has been
submitted for approval or has been approved by the FDA or any other regulatory
authority for marketing, and there can be no assurance that any such product
will ever be approved for marketing, or that the Company will be able to obtain
the labeling claims desired for its products. The Company is and will continue
to be dependent on collaborators, third party laboratories, contract
manufacturers and medical institutions for the conduct of pre-clinical and
clinical testing of its products. If any of these parties should fail to meet
their obligations or comply with applicable regulations, the development
progress of the Company's products could be delayed.
Finally, the Company is also subject to regulation by the Environmental
Protection Agency, the Occupational Safety and Health Administration, the
Wisconsin Department of Natural Resources, and the Wisconsin Department of
Health and Social Services, regarding, among other things, employee safety,
toxic substances, and hazardous waste handling and disposal. The Company may
also be subject to regulation by other state and federal agencies.
PRODUCT LIABILITY
The Company's business involves exposure to potential product liability
risks that are inherent in the production and manufacture of pharmaceutical
products. Any such claims could have a material adverse effect on the Company.
The Company does not currently have any product liability insurance. Although
the Company intends to acquire product liability insurance, there can be no
assurance that it will be able to obtain or maintain such insurance on
acceptable terms, that the Company will be able to secure increased coverage as
the commercialization of products proceeds or that any insurance will provide
adequate protection against potential liabilities.
ADVISORY BOARD
The Company has assembled an Advisory Board composed of leaders in various
disciplines relating to Ophidian's scientific or business interests. These
individuals are appointed by the Board of Directors and provide critical review
and advice pertaining to the Company's research, development, and business
development activities and strategies at the request of management or the Board
of Directors. The Company intends to increase the number of members on the
Advisory Board in recognition of the increasing need for expert consultation as
Ophidian's business is developing. Members of the Advisory Board are compensated
on a case-by-case basis based on their commitment of time and other factors.
Compensation through stock options or stock purchases may be provided.
The current members of the Advisory Board are:
Dr. Dennis G. Maki. Dr. Maki is a Professor of Medicine and head of the
section of infectious diseases at the University of Wisconsin-Madison Medical
School. He has also served as Director of, and is currently an Attending
Physician for, the Center for Trauma and Life Support at the University of
Wisconsin Hospitals and Clinics. Dr. Maki earned his M.D. from the University of
Wisconsin Medical School. Following his Internship and Assistant Residency with
Harvard Medical Unit, Boston City Hospital, he served as Epidemic Intelligence
Service Officer, Hospital Infectious Section, U.S. Center for Disease Control in
Atlanta, Georgia. He holds Professional Certifications with the American Board
of Medical Examiners, the American Board of Internal Medicine (Infectious
Diseases and Critical Care Medicine), and the Advanced Trauma Life
Support-American College of Surgeons. Dr. Maki is recognized worldwide as a
leading authority on the prevention and control of hospital-acquired infections.
Dr. Robin D.G. Cooper. Dr. Cooper worked for over 30 years at Eli Lilly and
Company engaged in the development of infectious disease drugs. His
responsibilities included participation in numerous management groups focused on
new drug development and strategic planning. His laboratory research has lead to
over 40 patents and numerous scientific publications. Dr. Cooper received a
B.Sc. degree from the Imperial College, a Ph.D. from the Imperial College and
Queen Mary College, and a D.Sc. from London University.
Dr. Joan Massague. Dr. Massague is an Investigator with the HHMI. He is
also Chairman of the Cell Biology Program at Memorial Sloan-Kettering Cancer
Center, and Professor of Cell Biology at Cornell University Graduate School of
Medical Sciences. Before assuming his present positions, he was Professor of
Biochemistry at the University of Massachusetts Medical School. Dr. Massague has
served on numerous
40
<PAGE> 42
advisory boards for the National Institutes of Health, National Institute of
Diabetes, Digestive and Kidney Diseases, Damon Runyon-Walter Winchell Cancer
Fund and the National Cancer Institute. Dr. Massague has published numerous
scientific articles on the signal transduction mechanisms of TGF-b.
EMPLOYEES
The Company has 33 full-time employees. Of these, eleven hold Ph.D. degrees
with substantial post-graduate experience in biological science disciplines. In
addition, the Company's officers, directors and consultants possess substantial
expertise in biologic product development, manufacturing, and marketing. The
Company expects to add significantly to its present personnel. These additional
employees will be involved in research and development, administration, and
product manufacturing.
FACILITIES
On January 1, 1993, the Company entered into a lease with Promega
Corporation for a facility located at 5445 East Cheryl Parkway, Madison,
Wisconsin. Mr. Linton is Ophidian's Chairman of the Board of Directors and a
shareholder as well as the Chairman, President, and a shareholder of Promega
Corporation. This facility provides the Company with approximately 10,000 square
feet of laboratory and office space, and has the potential to house additional
staff and research operations. Currently, a majority of the Company's activities
are carried out at this facility, which has been leased through December 31,
1998, with an option to extend the lease through December 31, 2003. For the
twelve month period beginning January 1, 1997, the lease provides for monthly
rental payments of $19,612, which are adjusted annually by a preset amount to
reflect inflationary trends.
The Company has made significant leasehold improvements and capital
purchases, to date costing approximately $767,903. The Company's facilities
contain a fully-functioning immunochemistry and infectious research laboratory,
four bio-containment suites, a networked computer system, and furnished office
space. These improvements, however, do not allow for finished pharmaceutical
manufacturing under GMP guidelines pursuant to applicable federal regulations.
The Company will continue to invest in the necessary plant and equipment for
in-house manufacturing for certain products and to use qualified pharmaceutical
contract manufacturers based upon the demand for bulk drug products and the most
efficient use of its capital.
The current facility is capable of supporting continued product research,
development, and prototype product testing, along with all aspects of
administrative support. To accommodate expected expansion of the Company's
manufacturing operations, it is anticipated that additional facilities will be
secured, either purchased or subject to appropriate lease arrangements or debt
financing.
The Company also leases approximately 20,000 square feet of animal care
facilities located in Waterloo, Wisconsin. This facility is currently capable of
housing laying hens used for avian antibody research and production. Ophidian
pays a fixed monthly fee for the care and housing of these animals, and Ophidian
may terminate the animal care agreement at any time without financial penalty.
Ophidian also maintains research animals at the University of Wisconsin-Madison
under a fee-for-services arrangement.
RAW MATERIALS
The Company's raw materials (such as laying hens and laboratory chemicals)
and other supply items to be used in its research and manufacturing processes
are available from many different suppliers and are generally immediately
available in sufficient quantities. The Company does not anticipate any
significant problems in the availability of, or significant price increases for,
required raw materials or other production items in the foreseeable future.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company or any
of its property is currently subject.
41
<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Douglas C. Stafford(1)................ 42 President, Chief Executive Officer,
Director, Treasurer
Mr. William A. Linton(1)(2)............... 50 Chairman of the Board, Director
Dr. Joseph R. Firca....................... 53 Vice President, Research and Development
Dr. F. Michael Hoffmann................... 46 Vice President, Genetic Technology Programs
Donald L. Nevins.......................... 59 Vice President, Finance, Chief Financial
Officer
Dr. Margaret B. van Boldrik(1)(2)......... 42 Director, Vice President, Secretary
Mr. Rex J. Bates(3)....................... 74 Director
Dr. W. Leigh Thompson(3).................. 59 Director
Dr. Peter Model(3)........................ 64 Director
</TABLE>
- ---------------
(1) Member of Executive Search and Review Committee
(2) Member of Stock Option Committee
(3) Member of Audit Committee
Dr. Douglas C. Stafford, has served as President and Chief Executive
Officer of the Company since January, 1995. Dr. Stafford served as the Company's
President and Chief Operating Officer from August, 1990 to January, 1995. In
May, 1997, Dr. Stafford joined the Company's Board of Directors. Prior to
joining the Company, Dr. Stafford was employed by Baxter Healthcare Corporation,
a publicly held healthcare products company, from 1985 to 1990. He held various
senior management positions, including Director of Immunodiagnostics Development
and Manufacturing at the Pandex Division of Baxter Healthcare Corporation, a
company developing products for the diagnosis of infectious diseases. His
experience also includes senior management positions in biologic product
development, quality assurance, project management, process development, and
manufacturing operations at Pandex and in other assignments within the Baxter
organization where he was involved in corporate and divisional technology and
manufacturing, strategic planning and business development. Prior to Baxter, Dr.
Stafford was employed at Sensor Diagnostics, Inc., a privately held medical
diagnostics company, from 1984 to 1985 and held a faculty position at the
University of Detroit from 1983 to 1984. Dr. Stafford holds B.S. and M.S.
degrees in Biology from the University of Detroit, a Ph.D. in Immunology from
Tufts University, and a M.S. in Management from Lesley College.
Mr. William Linton, has served as Chairman of the Board of Directors and a
member of the Board of Directors of the Company since its inception in November,
1989. Mr. Linton founded Promega Corporation, a privately held developer and
manufacturer of biomedical research products, in 1978, continuously serving as
President and Chief Executive Officer and Chairman of the Board of Directors. He
is also a Director of Promega's two joint ventures in the People's Republic of
China: Sino-American Biotechnology Company and Shanghai-Promega Biochemicals
Company LTD. Mr. Linton has extensive experience in biotechnology product
development and in structuring both U.S. and international marketing and
strategic business partnerships. Since 1996, Mr. Linton has served as the
President of the Fitchburg Center Corporation, a privately held real estate
development company, and on the Board of Directors of Wisconsin Manufacturers
and Commerce, a trade association since January, 1996. Mr. Linton holds a B.S.
degree in Biology from the University of California-Berkeley and conducted
graduate studies at the University of Wisconsin-Madison.
Dr. Joseph Firca, has served as the Company's Vice President, Research and
Development since July, 1992. Prior to joining the Company, Dr. Firca was Vice
President, Advanced Technologies, at the Pandex Division of Baxter Healthcare
Corporation, a publicly held healthcare products company, responsible for
infectious disease, blood screening systems technology, immunoassay product
development, and advanced technology development from May, 1985 to January,
1992. Previously he held several scientific management positions at Abbott
Laboratories from 1976 to 1985. Dr. Firca received a B.S. degree in biology from
Xavier University, a M.S. from Duquesne University, and a Ph.D. in Microbiology
from the University of Cincinnati.
42
<PAGE> 44
In addition, Dr. Firca conducted post-doctoral research at the Argonne National
Laboratory and was a Visiting Associate at the California Institute of
Technology.
Dr. F. Michael Hoffmann, has served the Company as Vice President of
Genetic Technology Programs since August, 1997. He was employed by the Company
from November, 1996 to July, 1997 as Principal Scientist in Business
Development. From July, 1994, Dr. Hoffmann has been a Professor of Oncology and
Medical Genetics at the McArdle Laboratory for Cancer Research at the University
of Wisconsin-Madison and has been granted a leave of absence from the
University. He held the positions of Associate and Assistant Professor at the
University of Wisconsin-Madison from July, 1984 to July, 1994. He conducted
post-doctoral research at Harvard University and the Massachusetts Institute of
Technology from January, 1979 to June, 1984. He holds a Ph.D. degree in
biochemistry from Cornell University and a B.S. degree in chemistry from
Rensselaer Polytechnic Institute.
Mr. Donald L. Nevins joined the Company as Vice President, Finance, Chief
Financial Officer in November 1997. From 1993 to 1997, Mr. Nevins operated his
own consulting firm, CPR Electronics, Inc. which provided financial and
strategic services to development-stage companies. He has been President, CEO,
and a director of CPR Electronics Inc., a company he formed for investment and
consulting purposes in 1993 which became inactive in September 1997. He was
president, CEO, and a director of LouveRail Enterprises, Inc. in 1996 and Vice
President-Finance and CFO of Personnel Data Systems from 1995 to 1996. From 1988
to 1992, he was chief financial officer of C & D Technologies, Inc., a
publicly-held battery and electronic company. From 1986 to 1988, he was senior
vice president of finance and a director of Protein Sciences Corp., a private
biopharmaceutical company. From 1976 to 1986, he held a series of positions with
Uniroyal Inc. including chief financial officer of two major groups (Chemical
and Engineered Products). From 1974 to 1976, Mr. Nevins was assistant controller
of Combustion Engineering, Inc. and chief financial officer of its Brazilian
subsidiary. From 1967 to 1972, he held a series of financial staff positions
with Commercial Union Companies, Inc.; from 1972 to 1974 with Northwest
Industries, Inc.; from 1964 to 1967 with Carborundum Company. From 1960 to 1964,
Mr. Nevins was a certified public accountant at Price Waterhouse & Co. Mr.
Nevins received his B.B.A. from the University of Pittsburgh and a M.B.A. from
the State University of New York.
Dr. Margaret B. van Boldrik, has served as a Director of the Company since
its inception in November, 1989. Dr. van Boldrik has also served as Vice
President of the Company since January, 1990 and as Secretary of the Company
since November, 1989. Prior to joining the Company, Dr. van Boldrik was Director
of the University of Wisconsin Biotechnology Center's Technology Transfer Office
where she managed broad-based programs for the commercial development of
University-affiliated technologies from 1987 to 1990. Dr. van Boldrik holds a
B.S. in Biochemistry from the University of California at Davis, and a Ph.D. in
Biochemistry from Tufts University.
Mr. Rex J. Bates, has served as a Director of the Company since March,
1992. He has also served as a Director of Ventana Medical Systems, Inc., a
publicly held medical diagnostic instrument company, since April, 1996. From
August, 1991 to May, 1995, Mr. Bates served on the Board of Directors of
Twentieth Century Industries, a publicly held insurance holding company, and was
a member of its compensation committee. Mr. Bates worked at State Farm Mutual
Automobile Insurance Company from May, 1972 to March, 1991 serving as
Vice-Chairman of the Board of Directors and as Chief Investment Officer. In
March of 1991, Mr. Bates retired from State Farm. Mr. Bates was a member of the
investment advisory firm of Stein, Roe & Farnham in Chicago from August, 1949 to
May, 1972. Mr. Bates received an S.B. and an M.B.A. from the University of
Chicago.
Dr. W. Leigh Thompson, has served as a Director of the Company since
December, 1995. Dr. Thompson founded Profound Quality Resources, Inc., a private
healthcare consulting firm, in 1995 to provide consulting services to health
institutions and manufacturers worldwide. Dr. Thompson served as an Assistant
Professor of Medicine and of Pharmacology and Experimental Therapeutics at Johns
Hopkins University from 1970 to 1974 where he founded and led the Medical
Critical Care Unit, and as a Professor of Medicine at Case Western Reserve from
1974 to 1982, where he founded programs in clinical pharmacology and critical
care medicine. He worked at Eli Lilly and Company, holding several executive
positions including Executive Vice
43
<PAGE> 45
President of Lilly Research Laboratories and Chief Scientific Officer from 1982
to 1985. He holds a Ph.D. from the Medical University of South Carolina and an
M.D. from Johns Hopkins University.
Dr. Peter Model, has served as a Director of the Company since December,
1996. Dr. Model is a senior faculty member conducting research in the areas of
biochemistry and genetics at the Rockefeller University, where he has been
employed since 1967. He serves on the editorial boards of the Journal of
Virology and Virology and is a member of various scientific advisory committees.
Dr. Model received his B.S. from Stanford University and his Ph.D. in
Biochemistry from Columbia University.
BOARD OF DIRECTORS COMMITTEES AND OTHER INFORMATION
The Company's directors are elected annually and hold office until the next
annual meeting of shareholders of the Company and until their respective
successors have been qualified and elected. Officers are elected by, and serve
at the discretion of, the Board of Directors.
In July, 1997, the Board of Directors appointed an Audit Committee that
reviews the scope and results of the Company's financial statements conducted by
the Company's independent accountants, the scope of other services provided by
the Company's independent accountants, proposed changes in the Company's
financial and accounting standards and principles, and the Company's policies
and procedures with respect to its internal accounting, auditing and financial
controls, and makes recommendations to the Board of Directors on the engagement
of the independent accountants, as well as other matters which may come before
it or as directed by the Board of Directors.
A subcommittee of the Board of Directors administers the Company's stock
option plans. The Board of Directors has also established an Executive Search
and Review Committee charged with identifying executive staff requirements,
recruiting, and evaluating performance and compensation of the Company's
executive officers. Although no other committees currently exist, management
expects the Board will in the future set up such finance, compensation, and
other standing and ad hoc committees, made up of Board members, officers,
consultants and others, as it deems necessary and appropriate for the efficient
operation of the Company.
DIRECTOR COMPENSATION
Non-employee Directors of the Company are paid $1,000 per meeting of the
Board of Directors which is payable in cash or in shares of the Company. Drs.
van Boldrik and Thompson do not receive compensation as Directors of the Company
but receive compensation as consultants. See "Management -- Consultant
Compensation."
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into agreements with all its employees, including
Drs. Stafford, Firca and Hoffmann, who are corporate officers, concerning
ownership of intellectual property. These agreements prohibit competition with
the Company during, and for a term of one year after termination of, employment
with the Company. They obligate each employee to keep confidential the trade
secrets and other proprietary information of the Company, and employees are
required to disclose and assign to the Company all of their discoveries and
inventions and any and all patent rights therein.
Effective June 1, 1997, the Company entered into an employment agreement
with Dr. Douglas Stafford, President and Chief Executive Officer of the Company,
for a three-year term. Pursuant to such agreement, Dr. Stafford receives an
annual base salary of $180,000 subject to annual review and increase by mutual
agreement.
Effective June 1, 1997, the Company entered into an employment agreement
with Dr. Joseph Firca, Vice President, Research and Development of the Company,
for a three-year term. Pursuant to such agreement, Dr. Firca receives an annual
base salary of $140,000 subject to annual review and increase by mutual
agreement.
Effective August 1, 1997, the Company entered into an employment agreement
with Dr. F. Michael Hoffmann, Vice President, Genetic Technology Programs of the
Company, for a three-year term. Pursuant to
44
<PAGE> 46
such agreement, Dr. Hoffmann receives an annual base salary of $125,000 subject
to annual review and increase by mutual agreement.
Effective November 6, 1997, the Company entered into an employment
agreement with Donald L. Nevins, Vice President, Finance, Chief Financial
Officer. Mr. Nevins assumed his duties with the Company December 1, 1997. Mr.
Nevins receives an annual base salary of $110,000, subject to annual review and
increases by mutual agreement.
Scientists and consultants retained by the Company will generally be
contractually obligated to disclose and assign to the Company certain ideas and
inventions developed in the performance of duties for the Company and will be
prohibited from disclosing any confidential Company information to anyone
outside the Company at any time. The terms of their agreements may depend upon
the outcome of negotiations and the level of protection provided by other
circumstances.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during Fiscal 1997,
1996 and 1995 by the Company's President and Chief Executive Officer and all
other corporate officers earning in excess of $100,000 annually.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
--------------------------- COMMON STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
--------------------------- ---- -------- ------- ------------------
<S> <C> <C> <C> <C>
Dr. Douglas C. Stafford....................... 1997 $154,162 $10,000 30,000
President, CEO 1996 $146,028 $30,000 --
1995 $130,460 $ -- --
Dr. Joseph R. Firca(1)........................ 1997 $132,909 $15,000 20,000
Vice President, Research and Development 1996 $125,668 $15,000 --
1995 $114,960 $ -- --
Dr. F. Michael Hoffmann(2).................... 1997 $ 86,250 -- 100,000
1996 $ -- $ -- --
1995 $ -- $ -- --
</TABLE>
- ---------------
(1) Does not include certain relocation expenses to be paid by the Company in
the future to Dr. Firca.
(2) Dr. Hoffmann became a Vice President of the Company as of August 1, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning grants of options to
purchase the Company's Common Stock made to each of the Named Executive Officers
during the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OPTION TERM(3)
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR(1) $/SH.(2) DATE 5% 10%
---- ------------------ ---------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Douglas C. Stafford.... 30,000(4) 15.6% $5.50 7/30/07 $128,100 $ 301,800
Dr. Joseph R. Firca........ 20,000(5) 10.4% $5.50 7/30/07 $ 85,400 $ 201,200
Dr. F. Michael Hoffmann.... 100,000(6) 52.0% $5.50 7/30/07 $427,000 $1,006,000
</TABLE>
- ---------------
(1) Based on an aggregate of 192,325 options granted to employees of the Company
in Fiscal 1997.
(2) The exercise price per share of options granted represented the fair value
of the underlying shares of Common Stock on the dates the options were
granted as determined by the Board of Directors. The Company's Common Stock
was not traded publicly at the time of the option grants to the Named
Executive Officers.
45
<PAGE> 47
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
(4) The options vest at a rate of 20% per year over five years from July 30,
1997.
(5) The options vest at a rate of 20% per year over five years from July 13,
1997.
(6) The options vest at a rate of 20% per year over five years from November 1,
1996.
None of the named Executive Officers exercised options to purchase Common
Stock during the fiscal year ended September 30, 1997. The following table sets
forth certain information regarding the value of exercised and unexercised stock
options held by each of the named Executive Officers as of September 30, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SEPTEMBER 30, 1997 AT SEPTEMBER 30, 1997(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dr. Douglas C. Stafford...................... 187,200 30,000 $1,033,345 $18,000
Dr. Joseph R. Firca.......................... 100,000 20,000 $ 410,000 $12,000
Dr. F. Michael Hoffmann...................... -- 100,000 -- $60,000
</TABLE>
- ---------------
(1) The value of the options is based upon the difference between the exercise
price and the assumed value of $6.10 per share based on the estimated
initial public offering price of the Unit set forth on the cover of this
Prospectus.
CONSULTANT COMPENSATION
In June, 1996, the Company granted a consultant, G. Steven Burrill, the
option to purchase 100,000 shares of the Company at a price of $4.50 per share
exercisable until May, 2004.
Dr. van Boldrik receives consulting fees for services which do not include
her services as a Director. Dr. van Boldrik receives a consulting fee of $5,000
per quarter plus health insurance benefits, subject to annual review. For Fiscal
1997, Dr. van Boldrik received $20,000.
The Company paid Dr. Sean Carroll a monthly consulting fee of $3,333, which
ended January, 1998 for consulting services which did not include his services
as a director. Dr. Carroll's consulting agreement expired in January, 1998 and
is not subject to renewal. For Fiscal 1997, Dr. Carroll received $40,000.
Dr. Thompson receives $2,400 per day for his services as a consultant and
Director payable in cash or shares, in any event not to exceed 10,000 shares in
aggregate. For Fiscal 1997, Dr. Thompson received $9,600. Each of the
consultants provides services regarding business development, technology
assessment or research strategies.
STOCK OPTION PLANS
The Company currently has a 1990 Incentive Stock Option Plan and a 1992
Employee Stock Option Plan ("1990/1992 Stock Option Plans") in force for its
employees, advisors and directors. The 1990/1992 Stock Option Plans provide for
the grant of options to purchase shares, in the case of the 1990 Incentive Stock
Option Plan, at not less than fair market value as of the date options are
granted, and in the case of the 1992 Employee Stock Option Plan at a value
determined by the Stock Option Committee. The 1990/1992 Stock Option Plans are
administered by a committee ("Stock Option Committee") made up of at least three
members of the Company's Board of Directors, and is currently made up of Dr.
Carroll, Dr. van Boldrik and Mr. Linton. To facilitate the operation of the
1990/1992 Stock Option Plans, the Company initially reserved 457,160 authorized
but unissued shares for the 1990/1992 Stock Option Plans. On December 1, 1992,
by a
46
<PAGE> 48
vote of shareholders, the number of shares available for employee stock options
was increased by 200,000 shares, for a total of 657,160.
The Company's Board of Directors has approved and will seek shareholder
approval for a new incentive stock option plan (the "1997 Incentive Stock Option
Plan") which will provide for the issuance of options to purchase 975,000 shares
of the Company reduced by the number of shares subject to options granted under
the 1990/1992 Stock Option Plans which may be granted to eligible employees,
advisors and Directors.
As of December 31, 1997, the Company has entered into stock option
agreements granting Dr. Stafford options to purchase up to 137,200 shares at an
exercise price of $.0625 per share which options vested in stages ending August
1, 1994, and may only be exercised prior to July 31, 2000, and to purchase
50,000 shares at an exercise price of $2.00 per share, which options vested in
stages ending October 25, 1995, and may only be exercised prior to October 24,
2001, and to purchase 30,000 shares at an exercise price of $5.50 per share,
which options vest in stages ending July 29, 2002 and may only be exercised
prior to July 30, 2007. The Company has entered into an agreement granting Dr.
Firca the option to purchase 100,000 shares at an exercise price of $2.00 per
share, which option vested in stages ending July 13, 1997, and may only be
exercised prior to July 13, 2002, and to purchase 20,000 shares at an exercise
price of $5.50 per share, which options vest in stages ending July 13, 2002 and
may only be exercised prior to July 30, 2007. The Company has entered into an
agreement granting Dr. Hoffmann the option to purchase 100,000 shares at an
exercise price of $5.50 per share, which options vest in stages ending November
1, 2001 and may only be exercised prior to July 30, 2007. After the effective
date of the Prospectus, the Company intends to grant Mr. Nevins an option to
purchase 50,000 shares at the initial public offering price per Unit, which
option will vest in stages over a five year period. The Company has entered into
an agreement granting Mr. Bates the option to purchase 25,000 shares at an
exercise price of $2.00 per share, which options were immediately vested, and
may only be exercised prior to July 31, 2006. He was also granted the option to
purchase 5,000 shares at an exercise price of $4.50 per share which options were
vested on January 12, 1997 after one year of service with the Company, and may
only be exercised prior to January 12, 2006. A third Stock Option Agreement was
entered into between the Company and Mr. Bates according to which he was granted
the option to purchase 5,000 shares at an exercise price of $5.50 which option
vested upon one year of service following January 10, 1997, and may only be
exercised prior to January 10, 2007. The Company has entered into an agreement
granting Dr. Model the option to purchase 5,350 shares at an exercise price of
$5.50 per share which option vests upon one year of service following January
10, 1997 and may be exercised only prior to January 10, 2007. The Company has
entered into an agreement granting Dr. Thompson the option to purchase 5,323
shares at an exercise price of $4.50 per share which option vested upon one year
of service following January 12, 1996 and may be exercised by January 12, 2006,
and a second agreement with Dr. Thompson granting him the option to purchase
5,000 shares at an exercise price of $5.50 per share which vested upon one year
of service from January 10, 1997 and may be exercised by January 10, 2007. The
Company has entered into similar agreements with 23 Company employees who are
not executive officers pursuant to the 1990/1992 Stock Option Plans granting
options to purchase an aggregate of 112,975 shares of common stock at a weighted
average exercise price of $3.65 per share. The options granted pursuant to the
1990/1992 Stock Option Plans are nontransferable, but may be exercised by the
personal representative of a holder thereof in the event of death.
401(K) RETIREMENT PLAN
Effective October 1, 1993, the Company established a profit sharing plan
and trust to provide retirement benefits for eligible employees. The Ophidian
Pharmaceuticals, Inc. 401(k) Plan (the "401(k) Plan") is intended to be
tax-qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended. Participants may direct a portion of their compensation, the lesser of
15% or $9,500 (the maximum limit set by law for 1997), to be contributed to
their accounts under the 401(k) Plan. The Company has arranged for the firm of
Robert W. Baird and Company to provide investment services to employees for
their funds contributed to the 401(k) Plan. The Company may, but is not required
to, match a participant's pre-tax contributions to the 401(k) Plan. In addition,
the Company may make discretionary contributions to the 401(k) Plan on an annual
basis. To date, the Company has not made any contributions under the 401(k) Plan
in addition to participants' own contributions. Participants are always vested
fully in their pre-tax contributions to the 401(k) Plan.
47
<PAGE> 49
Generally, amounts contributed to the 401(k) Plan (and any earnings or
interest) may not be distributed until the participant's death, disability,
retirement or termination of employment. There may be certain tax penalties
levied for lump-sum withdrawals made prior to age 59 1/2, unless the sum is
rolled over into another qualified plan or individual retirement account. In
addition, funds may be made available in the form of a loan or hardship
distribution to a participant in the event of an immediate and heavy financial
necessity.
48
<PAGE> 50
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of the Company's
Common Stock as of February 28, 1998 by (a) each person known by the Company to
be the beneficial owner of more than 5% of the Company's Common Stock, (b) the
directors of the Company, (c) the executive officers of the Company, and (d) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE PERCENTAGE
BENEFICIALLY OWNED BEFORE OWNED AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) THE OFFERING THE OFFERING
- ------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Dr. Margaret B. van Boldrik(2)............................. 2,920,000 40.1% 32.8%
Dr. Sean B. Carroll(2)..................................... 2,920,000 40.1 32.8
Eli Lilly and Company...................................... 699,300 9.6 7.9
Lilly Corporate Center, Indianapolis, IN 46285
Mr. William A. Linton(3)................................... 513,020 7.0 5.8
Dr. Douglas C. Stafford(4)................................. 187,200 2.6 2.1
Dr. Peter Model(5)......................................... 190,532 2.6 2.1
Dr. Joseph R. Firca(6)..................................... 100,000 1.4 1.1
Mr. Donald L. Nevins....................................... -- -- --
Mr. Rex J. Bates(7)........................................ 84,728 1.2 *
Dr. F. Michael Hoffmann(8)................................. 20,000 * *
Dr. W. Leigh Thompson(9)................................... 11,051 * *
All Directors and Officers as a Group (8
persons)(10)(11)......................................... 4,026,531 52.6 43.5
</TABLE>
- ---------------
* Less than 1%.
(1) Includes ownership of shares of Common Stock plus options exercisable
within 60 days of February 28, 1998. Shares of Common Stock subject to
outstanding options are deemed outstanding for purposes of computing the
percentage of ownership of the person holding such options but are not
deemed outstanding for computing the percentage ownership for any other
persons.
(2) Includes 1,390,000 shares owned by Dr. van Boldrik, and 1,350,000 owned by
Dr. Carroll, who are married to one another, and also includes 90,000
shares held by the Jan Patrick Carroll Trust and 90,000 shares held by the
Willem Erin van Boldrik Trust, each controlled by Dr. van Boldrik and Dr.
Carroll as Trustees for the benefit of their children.
(3) Includes 262,520 shares owned by Promega Corporation of which Mr. Linton is
Chairman, President and Chief Executive Officer and may be deemed to have
voting and investment power over the shares.
(4) Includes options to purchase 137,200 shares currently vested in the 1990
Stock Option Plan at an exercise price of $0.0625 which expire in July,
2000 and options to purchase 50,000 shares currently vested the 1990 Stock
Option Plan at an exercise price of $2.00 which expire in October, 2001.
(5) Includes 185,000 shares held by the Model Charitable Lead Trust and Peter
Model Trust II both of which are controlled by Dr. Model as sole trustee
and options to purchase 5,350 shares currently vested in the 1992 Stock
Option Plan at an exercise price of $5.50 per share which expire January,
2007.
(6) Includes options to purchase 100,000 shares currently vested in the 1990
Stock Option Plan at an exercise price of $2.00 which expire in July, 2002.
(7) Includes options to purchase 25,000 shares currently vested in the 1992
Stock Option Plan at an exercise price of $2.00 which expire in July, 2006,
options to purchase 5,000 shares currently vested in the 1992 Stock Option
Plan at an exercise price of $4.50 which expire in January, 2006 and
options to purchase 5,000 shares currently vested in the 1992 Stock Option
Plan at an exercise price of $5.50 per share which expire January, 2007.
(8) Includes options to purchase 20,000 shares currently vested in the 1992
Stock Option Plan at an exercise price of $5.50 per share which expire
July, 2007.
(9) Includes options to purchase 5,323 shares currently vested in the 1992
Stock Option Plan at an exercise price of $4.50 per share which expire in
January, 2006 and options to purchase 5,000 shares currently vested in the
1992 Stock Option Plan at an exercise price of $5.50 per share which expire
January, 2007.
(10) Address is 5445 East Cheryl Parkway, Madison, Wisconsin 53711.
(11) Includes 357,873 shares of Common Stock issuable upon exercise of
outstanding options which will vest within 60 days of February 28, 1998 of
which 137,200 have an exercise price of $0.0625, 175,000 have an exercise
price of $2.00, 10,323 have an exercise price of $4.50 and 35,350 at an
exercise price of $5.50 per share.
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<PAGE> 51
CERTAIN TRANSACTIONS
Dr. Sean B. Carroll, a founder of the Company currently owns 1,350,000
shares. In exchange for those shares, Dr. Carroll contributed in 1990 all of his
rights to his invention entitled "Antivenoms and Methods for Making Antivenoms"
which is the basis for the Company's avian technology, as well as a subsequent
assignment in the same year of his rights to any patent applications filed in
connection with the Company's passive antibody technology. The Company
determined that the transfer of Dr. Carroll's technology rights was adequate
consideration for the issuance of these shares of Company Stock.
Dr. van Boldrik, Vice President, Secretary, a Director and Founder of the
Company, currently owns 1,390,000 shares. In exchange for those shares, Dr. van
Boldrik contributed in 1990 all of her rights in the invention entitled
"Antivenoms and Methods for Making Antivenoms," as well as a subsequent
assignment in the same year of her rights to any patent application filed in
connection with the Company's passive antibody technology. The Company
determined that the transfer of Dr. van Boldrik's technology rights was adequate
consideration for the issuance of these shares of Company Stock.
Fitchburg Research Park Associates Limited Partnership ("FRPA"), a
Wisconsin limited partnership of which William A. Linton, Chairman of the Board
and a Director, is the sole general partner and holds a 50% ownership interest,
received 800,000 shares when the Company first issued shares January 17, 1990.
In exchange for those shares, FRPA contributed $50,000 for an effective price of
$0.0625 per share. FRPA has distributed its shares from the partnership.
Under the terms of a Stock Warrant granted to FRPA (the "FRPA Warrant") by
the Company on January 17, 1990, designed to protect FRPA against dilution of
its holdings in the Company due to the issuance of shares to employees of the
Company pursuant to the Company's Stock Option Plans, FRPA is entitled to
purchase one share for every four shares issued to employees pursuant to the
Plans. FRPA may purchase a maximum of 114,290 shares under the FRPA Warrant; the
exercise price thereunder is $.0025 per share.
On October 1, 1990, the Company obtained a line of credit from FRPA in the
original principal amount of $250,000 (the "FRPA Line of Credit"). The FRPA Line
of Credit was repaid in full on October 21, 1991, and the line of credit is no
longer in effect. As additional consideration for the line of credit, the
Company granted to FRPA an option to purchase 125,000 shares at a price of $2.00
per share. The option was exercised fully on October 1, 1993 through the payment
of $250,000 for 125,000 shares.
In September, 1991, Promega agreed to purchase shares of the Company
conditioned upon its receipt of an exclusive and confidential first right, for a
period of 10 years, to review any technology developed by the Company that is
incidental to the human and animal therapeutic and diagnostic markets.
"Incidental" refers to those markets that are not human or animal therapeutics
or diagnostics. Promega serves various incidental markets, such as, research
products or food testing. The arrangement was established so that the Company's
core business interests would not be encumbered by the agreement with Promega
and a market could be established in incidental markets. Promega has 60 days
after disclosure of a technology to review the technology and notify the Company
in writing of its interest in developing the technology. The parties will then
negotiate in good faith for up to 60 days thereafter regarding terms on which
Promega might obtain the right to use the technology. If Promega and the Company
fail to enter into an agreement within 60 days after notice of Promega's
interest in the technology, the Company may attempt to license or assign the
rights to the product to a third party, subject to Promega's right to first
refuse the price and terms offered by a third party, exercisable within 15 days
after notice thereof to Promega. The agreement with Promega will terminate at
any time that Promega's ownership of the Company falls below one percent of the
outstanding shares. Promega currently owns 262,520 shares of Ophidian, or 3.6%
before the Offering and 3.0% after the Offering.
Promega and FRPA are affiliated by virtue of common control and partial
common ownership. As sole general partner of FRPA; a shareholder, President, and
Chairman of the Board of Promega; and a Director and Chairman of the Board of
the Company, William A. Linton may be subject to various conflicts of interest
in determining whether Promega will pursue, for use in incidental markets, the
development of any technology initially developed by the Company, and would be
subject to a significant conflict of interest in connection
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<PAGE> 52
with any dispute that might arise under the disclosure agreement between the
Company and Promega described above.
On January 1, 1994, the Company entered into a Lease with Promega for a
10,000 square foot office/research laboratory and production facility at 5445
East Cheryl Parkway, Madison, Wisconsin. Mr. Linton is a shareholder, the
President and Chairman of the Board of Promega. The lease provides for a five
year lease term with an option to renew the lease for an additional five year
term.
The facility lease described above gives Promega the right to terminate in
case of a broad range of events of default by the Company, in which event the
Company would lose the value of improvements and may be liable for the remaining
rent even if its rights to use the premises are terminated. As Chairman of the
Board and a director of the Company, Mr. Linton would be subject to a
significant conflict of interest in connection with taking any adverse action on
the lease on behalf of Promega. See "Business -- Facilities"
Dr. Peter Carroll, who is Dr. Sean Carroll's brother, is an attorney with
Medlen & Carroll, LLP, San Francisco, California, and serves as patent counsel
to the Company. Dr. Peter Carroll and his wife, Maureen Collins-Carroll, were
given 40,000 shares as a gift from Dr. Sean Carroll in April, 1990. As Dr. Sean
Carroll's brother, Dr. Peter Carroll would have a conflict of interest in any
dispute between Dr. Sean Carroll and the Company, especially with respect to
ownership of intellectual property.
Pursuant to the Lilly Agreements, Lilly can require, subject to certain
qualifications, that the Company register the shares Lilly purchased either in a
separate public offering or in conjunction with a public offering sponsored by
the Company. Lilly has waived its rights to require the Company to register its
shares in conjunction with this Offering, but in every other respect, retains
those rights. See "Description of Securities -- Registration Rights" and "Shares
Eligible for Future Sale."
The Company believes that each of the transactions set forth above were
entered into on terms as fair as those that could be obtained from independent
third parties. All transactions with the Company in which a director of the
Company has a direct or indirect interest must be approved by a majority of
directors who have no direct or indirect interest in the transaction.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Company's Amended and Restated Bylaws and the Wisconsin Business
Corporation Law, directors and officers of the Company are entitled to mandatory
indemnification from the Company against certain liabilities and expenses (a) to
the extent such officers or directors are successful in the defense of a
proceeding and (b) in proceedings in which the director or officer is not
successful in the defense thereof, unless it is determined the director or
officer breached or failed to perform his or her duties to the Company and such
breach or failure constituted: (i) a willful failure to deal fairly with the
Company or its shareholders in connection with a matter in which the director or
officer had a material conflict of interest, (ii) a violation of criminal law,
unless the director or officer had reasonable cause to believe his or her
conduct was lawful or had no reasonable cause to believe his or her conduct was
unlawful, (iii) a transaction from which the director or officer derived an
improper personal profit, or (iv) willful misconduct. The Company's Amended and
Restated Bylaws provide that the Company may purchase and maintain insurance on
behalf of an individual who is a director or officer of the Company against
liability asserted against or incurred by such individual in his or her capacity
as a director or officer regardless of whether the Company is required or
authorized to indemnify or allow expenses to the individual against the same
liability under the Amended and Restated Bylaws.
Under Section 180.0828 of the Wisconsin Business Corporation Law, directors
of a corporation are not subject to personal liability to the corporation, its
shareholders, or any person asserting rights on behalf thereof for certain
breaches or failures to perform any duty resulting solely from their status as a
director, unless the person asserting liability proves that the breach or
failure constituted: (i) a willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the director had a
material conflict of interest, (ii) a violation of criminal law, unless the
director had reasonable cause to believe his or her conduct was lawful or had no
reasonable cause to believe his or her conduct was unlawful, (iii) a transaction
from which the director derived an improper personal profit, or (iv) willful
misconduct. These provisions pertain
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<PAGE> 53
only to breaches of duty by directors as directors and not in any other
corporate capacity, such as officers. As a result of such provisions,
shareholders may be unable to recover monetary damages against directors for
actions taken by them which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to shareholders in any
particular case, shareholders may not have any effective remedy against the
challenged conduct.
DESCRIPTION OF SECURITIES
The following description of the securities of the Company and certain
provisions of the Company's Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws is qualified in its entirety by the provisions of
the Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws, which have been filed as exhibits to the Company's Registration
Statement, of which this prospectus is a part.
Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 22,400,000 shares of Common Stock, $.0025 par value.
THE UNITS
Each Unit consists of one share of Common Stock and one Warrant, which
entitles the registered holder thereof to purchase one share of Common Stock at
an initial exercise price of $ per share [120% of the initial public offering
price per Unit]. The shares of Common Stock and Warrants are detachable and will
trade separately 90 days after the issuance, subject to earlier separability in
the discretion of the Representatives and the Company.
COMMON STOCK
Upon completion of this Offering, there will be 8,889,930 shares of Common
Stock issued and outstanding. Holders of Common Stock are entitled to one vote
per share on all matters to be voted upon by the shareholders of the Company.
The holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. The holders of Common Stock have no
preemptive, redemption, conversion, sinking fund or other subscription rights.
The outstanding shares of Common Stock are, and the Shares of Common Stock
included in the Units (including shares issuable upon exercise of the Warrants)
offered by the Company in the Offering will be, when issued and paid for, fully
paid and nonassessable.
WARRANTS
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company, and
Continental Stock Transfer & Trust Company, New York, New York (the "Warrant
Agent"), a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time commencing , 1999 [12 months after
the date of this Prospectus], until , 2003 [five years from the date
of this Prospectus] one Share of Common Stock at a price of $ per Share [120%
of the initial public offering price per Unit], subject to adjustment in
accordance with the anti-dilution provisions referred to below. The holder of
any Warrant may exercise such Warrant by surrendering the certificate
representing the Warrant to the Warrant Agent, with the subscription form
thereon properly completed and executed, together with payment of the exercise
price. No fractional shares will be issued upon the exercise of Warrants. The
exercise price of the Warrants bears no relationship to any objective criteria
and should in no event be regarded as an indication of any future market price
of the securities offered hereby.
Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock or the sale by the Company
of
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<PAGE> 54
shares of its Common Stock or other securities convertible into Common Stock at
a price below the initial public offering price, excluding shares of Common
Stock issued in connection with incentive or benefit plans of the Company and
strategic alliances. Additionally, an adjustment will be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or merger
in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company, in order to enable warrant
holders to acquire the kind and number of shares of stock or other securities or
property receivable in such event by a holder of the number of shares of Common
Stock that might have been purchased upon the exercise of the Warrant.
Redemption Provisions. Commencing 24 months after the date of this
Prospectus, the Warrants are subject to redemption at $.10 per Warrant on 30
days prior written notice provided that the average closing bid price of the
Common Stock as reported on Nasdaq SmallCap equals or exceeds $ per share [240%
of the initial public offering price per Unit] (subject to adjustment for stock
dividends, stock splits, combinations or reclassifications of the Common Stock),
for any 20 trading days within a period of 30 consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption. In the
event the Company exercises the right to redeem the Warrants, such Warrants will
be exercisable until the close of business on the business day immediately
preceding the date for redemption fixed in such notice. If any Warrant called
for redemption is not exercised by such time, it will cease to be exercisable
and the holder will be entitled only to the redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form. The
Warrants may be presented to the Warrant Agent for transfer or exchange
commencing 90 days after issuance, subject to earlier separability in the
discretion of the Representatives and the Company but no later than their
expiration date. The Warrants may be presented to the Warrant Agent for exercise
commencing 12 months after the date of this Prospectus but no later than their
expiration date. The expiration date of the Warrants is five years from the date
of this Prospectus, after which date the Warrants become wholly void and of no
value. If a market for the Warrants develops, the holder may sell the Warrants
instead of exercising them. There can be no assurance, however, that a market
for the Warrants will develop, or if it develops, that it will continue.
Warrantholders Not a Shareholder. The Warrants do not confer upon holders
any voting, dividend or other rights as shareholders of the Company.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than 30 days on not less than 30 days prior written notice to the
warrantholders and the Representative. Modification of the number of securities
purchasable upon the exercise of any Warrant, the exercise price and the
expiration date with respect to any Warrant requires the consent of two-thirds
of the warrantholders.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all of the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.
The Warrants are separately transferable commencing 90 days after issuance
subject to earlier separability in the discretion of the Representatives and the
Company. Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise qualified
for sale, purchasers may buy Warrants in the aftermarket or may move to
jurisdictions in which the Shares underlying the Warrants are not so registered
or qualified during the period that the Warrants are exercisable. In this event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants and holders of Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised.
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REGISTRATION RIGHTS
Lilly, the holder of 699,300 shares of Common Stock and its permitted
transferees (the "Holders") are entitled to certain rights with respect to the
registration of such shares under the Securities Act. These rights will also
extend to any additional shares purchased by Lilly under the Lilly Agreements.
Under the terms of the Lilly Agreements, if the Company proposes to register any
of its securities under the Securities Act, either for its own account or the
account of controlling shareholders of the Company participating in a secondary
distribution, the Holders are entitled to notice of such registration and are
entitled to include their registrable securities therein; provided, among other
conditions, that the underwriters have the right to limit the number of such
shares included in any such registration. Lilly, the sole Holder on the date of
this Offering, has waived this right in connection with the registration of the
Shares hereby offered. Lilly also has the right, after December 31, 1998, to
request on three occasions that the Company file a registration statement under
the Securities Act at the Company's expense with respect to its shares of Common
Stock and with respect to the shares of other Holders who request to be included
in such registration. See "Risk Factors -- Potential Adverse Effect of Shares
Eligible for Future Sale."
CERTAIN PROVISIONS OF WISCONSIN LAW
The provisions of the Wisconsin Business Corporation Law ("WBCL") described
in this section may delay or make more difficult acquisitions or changes of
control of the Company not approved by the Company's Board of Directors. Such
provisions enable the Company, particularly (but not exclusively) in the initial
years of its existence as a publicly-traded company, to develop its business in
a manner which will foster its long-term growth without disruption caused by the
threat of a takeover deemed by its Board of Directors not to be in the best
interests of the Company and its shareholders. Such provisions could have the
effect of discouraging third parties from making proposals involving an
acquisition or change of control of the Company, although such proposals, if
made, might be considered desirable by a majority of the Company's shareholders.
Constituency or Stakeholder Provision. Under Section 180.0827 of the WBCL
(the "Wisconsin Stakeholder Provision"), in discharging his or her duties to the
Company and in determining what he or she believes to be in the best interests
of the Company, a director or officer may, in addition to considering the
effects of any action on shareholders, consider the effects of the action on
employees, suppliers, customers, the communities in which the Company operates
and any other factors that the director or officer considers pertinent.
Restrictions on Business Combinations. Section 180.1141 of the WBCL
provides that a "resident domestic corporation," such as the Company, may not
engage in a "business combination" with an "interested stockholder" (a person
beneficially owning at least 10% of the voting power of the outstanding voting
stock), for three years after the date (the "stock acquisition date") the
interested stockholder acquired its 10% or greater interest, unless the business
combination (or acquisition of 10% or greater interest) was approved before the
stock acquisition date by the corporation's board of directors. After the
three-year period, a business combination that was not so approved can be
consummated only if it is approved by the majority of the outstanding voting
shares not held by the interested stockholder, or is made at a specified formula
price intended to provide a fair price for the shares held by noninterested
stockholders.
Wisconsin Fair Price Statute. Sections 180.1130 to 180.1133 of the WBCL
provides that certain business combinations involving a "significant
shareholder" and an "issuing public corporation" (each as defined below) are
subject to a supermajority vote of shareholders in addition to any approval
otherwise required. The required supermajority vote is 80% of the votes entitled
to be cast by all the outstanding voting shares of the issuing public
corporation and two-thirds of the votes entitled to be cast by holders of the
voting shares of the issuing public corporation other than the voting shares
held by the significant shareholder who is a party to that business combination.
A "significant shareholder," with respect to an issuing public corporation, is
defined as a person who beneficially owns, directly or indirectly, 10% or more
of the voting stock of the corporation, or an affiliate of the corporation which
beneficially owned, directly or indirectly, 10% or more of the voting stock of
the corporation within the last two years. An "issuing public corporation" is
defined as a Wisconsin corporation that has (i) total assets exceeding $1
million and a class of equity securities held of record by 500 or more persons
and (ii) at least 100 shareholders of record who have unlimited voting rights
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<PAGE> 56
and who are residents of Wisconsin. The supermajority vote is not required if
the aggregate amount of cash and market value of noncash consideration to be
received per share by each shareholder of the issuing public corporation in the
business combination meets certain tests of fairness.
Wisconsin Control Share Statute. Section 180.1150 of the WBCL provides that
the voting power of shares, including shares issuable upon the exercise of
options, of an issuing public corporation held by any person or persons acting
as a group, in excess of 20% of the voting power in the election of directors,
is limited in voting on any matter to 10% of the full voting power of those
excess shares. This restriction does not apply to shares acquired directly from
the issuing public corporation, in certain specified transactions, or in a
transaction with respect to which the corporation's shareholders have voted to
approve restoration of the full voting power of otherwise restricted shares.
Wisconsin Defensive Action Restrictions. Section 180.1134 of the WBCL
provides that, in addition to the vote otherwise required by the law or the
articles of incorporation of an issuing public corporation, the approval of the
holders of a majority of the shares entitled to vote is required before such
corporation can take certain action while a takeover offer is being made or
after a takeover offer has been publicly announced and before it is concluded.
Under the Wisconsin Defensive Action Restrictions, shareholder approval is
required for the corporation to (i) acquire more than five percent of the
outstanding voting shares at a price above the market price from any individual
who or organization which owns more than three percent of the outstanding voting
shares and has held such shares for less than two years, unless a similar offer
is made to acquire all voting shares, or (ii) sell or option assets of the
corporation which amount to at least 10% of the market value of the corporation,
unless the corporation has at least three independent directors (directors who
are not officers or employees) and a majority of the independent directors vote
not to have this provision apply to the corporation. The restrictions described
in clause (i) above may have the effect of deterring a shareholder from
acquiring shares of the Company's Common Stock with the goal of seeking to have
the Company repurchase such shares at a premium over the market price.
Impact of Statutory Provisions. The explicit grant in the Wisconsin
Stakeholder Provisions of discretion to directors to consider nonshareholder
constituencies could, in the context of an active "auction" of the Company, have
antitakeover effects in situations where the interests of stakeholders of the
Company, including employees, suppliers, customers and communities in which the
Company does business, conflict with the short term maximization of shareholder
value.
The Restrictions on Business Combinations in the WBCL encourage negotiation
by an acquiring shareholder with the Company board of directors prior to its
purchase of the Company's shares in order to have flexibility later to enter
into business combinations with the Company. The Wisconsin Control Share Statute
may deter any shareholder from acquiring in excess of 20% of the outstanding
voting stock of the Company and the Wisconsin Fair Price Statute may discourage
any attempt by a shareholder to squeeze out other shareholders without offering
an appropriate premium purchase price. In addition, the Wisconsin Defensive
Actions Restrictions may have the effect of deterring a shareholder from
acquiring the Company's Common Stock with the goal of seeking to have the
Company repurchase the Common Stock at a premium. The WBCL statutory provisions
referenced above are intended to encourage persons seeking to acquire control of
the Company to initiate such an acquisition through arms-length negotiations
with the Company's board of directors, and to ensure that sufficient time for
consideration of such a proposal, and any alternatives, is available. Such
measures are also designed to discourage investors from attempting to accumulate
a significant minority position in the Company and then use the threat of a
proxy contest as a means to pressure the Company to repurchase shares of Common
Stock at a premium over the market value. To the extent that such measures make
it more difficult for, or discourage, a proxy contest or the assumption of
control by a holder of a substantial block of the Company's Common Stock, they
may have the effect of discouraging a tender offer or other attempt to obtain
control of the Company, even though such attempt might be beneficial to the
Company and its shareholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Units and Common Stock
and the Warrant Agent for the Warrants is Continental Stock Transfer & Trust
Company, New York, New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 8,889,930 shares of
Common Stock outstanding, of which the 1,600,000 Shares of Common Stock included
in the Units offered hereby will be transferable without restriction under the
Securities Act commencing 90 days after issuance, subject to earlier
separability in the discretion of the Representatives and the Company. The other
outstanding shares of Common Stock are "restricted securities" (as that term is
defined in Rule 144 promulgated under the Securities Act) which may be publicly
sold only if registered under the Securities Act or if sold in accordance with
an applicable exemption from registration, such as Rule 144. In general, under
the revised holding period requirements of Rule 144, subject to the satisfaction
of certain other conditions, a person, including an affiliate of the Company,
who has beneficially owned restricted securities for at least one year, is
entitled to sell (together with any person with whom such individual is required
to aggregate sales) within any three-month period, a number of shares that does
not exceed the greater of one percent of the total number of outstanding shares
of the same class, or, if the Common Stock is quoted on Nasdaq SmallCap or a
national securities exchange, the average weekly trading volume during the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements, and the availability of
current public information regarding the Company. A person who has not been an
affiliate of the Company for at least three months, and who has beneficially
owned restricted securities for at least two years, is entitled to sell such
restricted shares under Rule 144(k) without regard to any of the limitations
described above.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 generally may be relied upon with
respect to the sale of shares purchased from the Company by its employees,
directors, officers or consultants prior to the date of this Prospectus pursuant
to written compensatory benefit plans such as the Stock Plan and written
contracts such as option agreements. Rule 701 is also available for sales of
shares acquired by persons pursuant to the exercise of options granted prior to
the effective date of this Prospectus, regardless of whether the option exercise
occurs before or after the effective date of this Prospectus. Securities issued
in reliance on Rule 701 are "restricted securities" within the meaning of Rule
144 and, beginning 90 days after the date of this Prospectus, may be sold by
persons other than affiliates of the Company subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its one-year minimum holding period requirement.
As of February 28, 1998, 646,608 options granted under the 1990/1992 Stock
Option Plans and 100,000 options granted pursuant to an agreement with a
consultant for shares of Common Stock are outstanding, and 5,296 options to
purchase additional shares are reserved for future issuance under the 1990/1992
Stock Option Plans. Of the options granted under the 1990/1992 Stock Option
Plans, and the agreement with a consultant, 579,037 were currently exercisable
as of February 28, 1998, with the remaining outstanding options to become
exercisable at the rate of 41,172 options between March 1, 1998 and December 31,
1998, 39,289 in calendar 1999 and 87,110 options in calendar 2000 and
thereafter. Shares of Common Stock issued upon the exercise of outstanding
options or the above-described Warrant will be "restricted securities" and may
not be sold in the absence of registration under the Securities Act unless an
exemption from registration is available. Potential exemptions include those
available under Rule 144 and Rule 701.
No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will have
on the market prices of the Common Stock and Warrants prevailing from time to
time. The Company has obtained lock-up agreements from its officers and
directors and will use its best efforts to obtain lock-up agreement from its
shareholders under which they have and will agree, as the case may be, not to,
directly or indirectly, issue, offer, sell, agree or offer to sell, transfer,
assign, distribute, grant an option for purchase or sale of, pledge, hypothecate
or otherwise encumber or dispose of any beneficial interest in any shares owned
by them for a period of nine months following the date of this Prospectus
without the prior written consent of the Representative. The Representatives may
in their sole discretion and at any time without notice, release all or any
portion of the shares subject to such lock-up agreements. Of the shares
outstanding prior to this Offering, 3,805,742 shares of Common Stock will be
eligible for sale under Rule 144 (subject to volume limitations imposed by such
rule), 2,887,580 shares of Common Stock will be eligible for sale under Rule
144(k), and 596,608 shares will be eligible for sale under Rule 701. The sale or
issuance, or the potential for sale or issuance, of Common Stock after such
nine-month period could have an adverse impact on the market prices of the
Common Stock and/or the Warrants. Sales of substantial amounts of Common Stock
or the perception that such sales could occur could adversely affect prevailing
market prices for the Common Stock and/or the Warrants. See "Underwriting."
56
<PAGE> 58
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Dirks &
Company, Inc. and Security Capital Trading Inc. are acting as representatives
(in such capacity, the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of Units set
forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS UNITS
------------ ---------
<S> <C> <C>
Dirks & Company, Inc. ......................................
Security Capital Trading Inc. ..............................
Total............................................. 1,600,000
=========
</TABLE>
The Underwriters are committed to purchase all the Units offered hereby, if
any of such Units are purchased. The Underwriting Agreement provides that the
obligations of the several Underwriters are subject to conditions precedent
specified therein.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Units to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less concessions not in excess of $ per Unit.
Such dealers may reallow a concession not in excess of $ per Unit to
certain other dealers. After the commencement of the Offering, the public
offering price, concession and reallowance may be changed by the
Representatives.
The Representatives have informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that Underwriters may be required to make. The Company has also agreed
to pay to the Representatives a non-accountable expense allowance equal to
2 1/2% of the gross proceeds derived from the sale of the Units underwritten, of
which $50,000 has been paid to date.
The Company has granted to the Underwriters the Over-Allotment Option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase from the Company up to an additional 240,000 Units at the initial
public offering price per Unit offered hereby, less underwriting discounts. Such
option may be exercised only for the purpose of covering over-allotments, if
any, incurred in the sale of the Securities offered hereby. To the extent such
option is exercised in whole or in part, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase the number of the
additional Securities proportionate to its initial commitment.
In connection with this Offering, the Company has agreed to sell to the
Representatives, for $.0001 per warrant, warrants to purchase from the Company
up to 160,000 Units (the "Representatives' Warrants"). The Representatives'
Warrants are initially exercisable at a price of $ per Unit [120% of the
initial public offering price per Unit] for a period of four years, commencing
one year after the date of this Prospectus and are restricted from sale,
transfer, assignment or hypothecation for a period of 12 months from the date of
this Prospectus, except to officers of the Representatives. The Warrants
contained in the Units issuable upon exercise of the Representatives' Warrants
are initially exercisable at $ per share [120% of the exercise price of the
Warrants] for a period of four years commencing one year from the date of this
Prospectus. The Representatives' Warrants provide for adjustment in the number
of securities issuable upon the exercise
57
<PAGE> 59
thereof as a result of certain subdivisions and combinations of the Common
Stock. The Representatives' Warrants grant to the holders thereof certain rights
of registration for the securities issuable upon exercise thereof.
The Company has obtained lock-up agreements from its directors and
executive officers and will use its best efforts to obtain lock-up agreements
from its shareholders under which they have and will agree, as the case may be,
not to, directly or indirectly, issue, offer, sell, agree or offer to sell,
transfer, assign, distribute, grant an option for the purchase or sale of,
pledge, hypothecate or otherwise encumber or dispose of any beneficial interest
in any shares of Common Stock owned by them for a period of nine months
following the date of this Prospectus without the prior written consent of the
Representatives. The Representatives may in their sole discretion and at any
time without notice, release all or any portion of the shares subject to such
lock-up agreements. An appropriate legend shall be placed on the certificates
representing such securities.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market prices of the Securities.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase the Units, Common Stock and/or Warrants for the purpose of stabilizing
their respective market prices. The Underwriters also may create a short
position for the account of the Underwriters by selling more Securities in
connection with the Offering than they are committed to purchase from the
Company, and in such case may purchase Securities in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
240,000 Units, by exercising the Over-Allotment Option referred to above. In
addition, the Representatives may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of other Underwriters,
the selling concession with respect to the Securities that are distributed in
the Offering but subsequently purchased for the account of the Underwriters in
the open market. Any of the transactions described in this paragraph may result
in the maintenance of the prices of the Securities at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
Dirks & Company, Inc., one of the Representatives, commenced operations in
July 1997, and Securities Capital Trading Inc., the other Representative,
commenced operations in June 1995. Neither of the Representatives has co-managed
or participated as an underwriter in any public offering of securities.
Accordingly, neither of the Representatives has any experience as a co-manager
or underwriter of public offering of securities. In addition, each of the
Representatives is a relatively small firm and no assurance can be given that
either Representative will be able to participate as a market maker in the
Securities. No assurance can be given that any broker-dealer will be a market
maker in any of the Securities. See "Underwriting."
Prior to this Offering, there has been no public market for the Units,
Common Stock or Warrants. Consequently, the initial public offering price of the
Units has been determined by negotiation between the Company and the
Representatives and does not necessarily bear any relationship to the Company's
asset value, net worth or other established criteria of value. The factors
considered in such negotiations, in addition to prevailing market conditions,
included the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings and
certain other factors as were deemed relevant.
The foregoing is a summary of the principal terms of the agreement
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration Statement
of which this Prospectus is a part. For a more complete description thereof, see
"Additional Information."
58
<PAGE> 60
LEGAL MATTERS
The legality of the Securities offered hereby will be passed upon for the
Company by LaFollette & Sinykin, Madison, Wisconsin. Medlen & Carroll, LLP, San
Francisco, California has acted as counsel to the Company in connection with
certain intellectual property and regulatory matters. Dr. Peter Carroll, a
partner in the firm of Medlen & Carroll, LLP owns 40,000 shares of the Company
and is a brother of Dr. Sean Carroll, a founder of the Company. Orrick,
Herrington & Sutcliffe LLP, New York, New York has acted as counsel to the
Underwriters in connection with the Offering. See "Certain Transactions."
EXPERTS
The financial statements of Ophidian Pharmaceuticals, Inc. at September 30,
1996, 1997 and for each of the three years in the period ended September 30,
1997 appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act
(the "Registration Statement") with respect to the Securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Securities offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contracts or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected by anyone without charge at the
Commission's principal office in Washington, D.C., and copies of all or any part
of the Registration Statement may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W. Washington, D.C. 20549, upon payment
of certain fees prescribed by the Commission. The Commission maintains an
Internet World Wide Web site that contains reports, proxy and information
reports and other materials that are filed through the Commission's Electronic
Data Gathering, Analysis and Retrieval System. The site can be accessed at
http://www.sec.gov.
59
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Shareholders' Equity........................... F-5
Statements of Cash Flows.................................... F-7
Notes to Financial Statements............................... F-8
</TABLE>
F-1
<PAGE> 62
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Ophidian Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Ophidian
Pharmaceuticals, Inc. (the Company), a development stage corporation, as of
September 30, 1996 and 1997, and the related statements of operations,
shareholders' equity and cash flows for each of three years in the period ended
September 30, 1997 and the cumulative period from inception to September 30,
1997 (not separately presented herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at September 30,
1996 and 1997 and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1997 and the cumulative period
from inception to September 30, 1997 (not separately presented herein), in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
October 9, 1997
F-2
<PAGE> 63
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 3,276,339 $ 3,547,036 $ 2,435,401
Short-term investments (Note 2)................... 481,463 359,588 359,588
Accounts receivable............................... 28,554 214,988 140,807
Prepaid expenses and other........................ 12,334 58,975 58,252
----------- ----------- ------------
Total current assets...................... 3,798,690 4,180,587 2,994,048
Long-term investments (Note 2)...................... 456,806 -- --
Other assets........................................ -- 278,005 493,141
Equipment and leasehold improvements (Note 4)
Furniture and fixtures............................ 96,692 96,692 96,692
Manufacturing equipment........................... 82,381 123,452 128,469
Laboratory equipment.............................. 325,914 429,758 464,113
Office equipment.................................. 53,760 54,537 54,537
Leasehold improvements............................ 11,758 24,092 24,092
----------- ----------- ------------
570,505 728,531 767,903
Accumulated depreciation.......................... 290,438 406,167 439,517
----------- ----------- ------------
Net equipment and leasehold improvements............ 280,067 322,364 328,386
Patent costs, net of accumulated amortization of
$11,097, $20,765 and $24,935 at September 30, 1996
and 1997 and December 31, 1997, respectively...... 712,198 1,194,650 1,300,601
----------- ----------- ------------
Total assets.............................. $ 5,247,761 $ 5,975,606 $ 5,116,176
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 92,244 $ 246,096 $ 147,707
Accrued expenses and other liabilities............ 60,148 105,502 105,969
Deferred revenue (Note 7)......................... 300,000 -- --
Current portion of capital lease obligations (Note
4)............................................. 18,195 16,450 15,200
----------- ----------- ------------
Total current liabilities................. 470,587 368,048 268,876
Capital lease obligations, less current portion
(Note 4).......................................... 33,914 17,956 14,463
Deferred revenue -- noncurrent (Note 7)............. -- 191,646 288,379
Commitments and contingencies
Shareholders' equity (Notes 5 and 6):
Common stock, $.0025 par value, 22,400,000 shares
authorized, 6,716,766, 7,287,315 and 7,288,566
shares issued and outstanding at September 30,
1996, and 1997 and December 31, 1997,
respectively................................... 16,791 18,218 18,221
Additional paid-in capital........................ 9,546,730 12,680,394 12,687,266
Deficit accumulated during the development
stage.......................................... (4,812,298) (7,299,633) (8,160,802)
Net unrealized loss on available-for-sale
securities..................................... (7,963) (1,023) (227)
----------- ----------- ------------
Total shareholders' equity.......................... 4,743,260 5,397,956 4,544,458
----------- ----------- ------------
Total liabilities and shareholders' equity.......... $ 5,247,761 $ 5,975,606 $ 5,116,176
=========== =========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 64
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTHS ENDED (NOVEMBER 11,
YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1989) TO
--------------------------------------- ------------------------ DECEMBER 31,
1995 1996 1997 1996 1997 1997
----------- ----------- ----------- ----------- ---------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $ 386,979 $ 321,444 $ 671,881 $ 393,361 $ 115,185 $ 4,388,327
Operating expenses:
Research & development....... 1,215,366 1,339,048 2,432,102 428,998 666,632 8,306,647
General & administrative..... 916,294 1,119,409 1,005,797 256,151 355,100 5,070,359
----------- ----------- ----------- ----------- ---------- -----------
Total operating
expenses............ 2,131,660 2,458,457 3,437,899 685,149 1,021,732 13,377,006
----------- ----------- ----------- ----------- ---------- -----------
Operating loss................. (1,744,681) (2,137,013) (2,766,018) (291,788) (906,547) (8,988,679)
Other income (expense):
Investment income, net....... 144,750 50,761 281,483 75,864 46,102 865,822
Interest expense............. (4,624) (3,320) (2,800) (718) (724) (38,710)
Other........................ 668 -- -- -- -- 765
----------- ----------- ----------- ----------- ---------- -----------
140,794 47,441 278,683 75,146 45,378 827,877
----------- ----------- ----------- ----------- ---------- -----------
Net loss.............. $(1,603,887) $(2,089,572) $(2,487,335) $ (216,642) $ (861,169) $(8,160,802)
=========== =========== =========== =========== ========== ===========
Net loss per share............. $ (0.26) $ (0.34) $ (0.34) $ (.03) $ (0.12)
</TABLE>
See accompanying notes.
F-4
<PAGE> 65
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET DEFICIT
UNREALIZED ACCUMULATED
COMMON STOCK LOSS ON DURING THE
--------------------- AVAILABLE-FOR- ADDITIONAL DEVELOPMENT
SHARES PAR VALUE SALE SECURITIES PAID-IN STAGE TOTAL
--------- --------- --------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for:
Cash at .0625 per share on
January 17, 1990........... 800,000 $ 2,000 $ -- $ 48,000 $ -- $ 50,000
Assignment of intellectual
property................... 3,200,000 8,000 192,000 -- 200,000
Net loss for 1990............ -- -- -- -- (247,248) (247,248)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1990......................... 4,000,000 10,000 -- 240,000 (247,248) 2,752
Net loss for 1991............ -- -- -- -- (298,863) (298,863)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1991......................... 4,000,000 10,000 -- 240,000 (546,111) (296,111)
Common stock issued for cash
at $2.00 per share on
January 10, 1992........... 933,120 2,333 -- 1,826,031 -- 1,828,364
Net loss for 1992............ -- -- -- -- (473,896) (473,896)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1992......................... 4,933,120 12,333 -- 2,066,031 (1,020,007) 1,058,357
Exercise of stock warrants at
$2.25 per share on March 4,
1993 through March 22, 1993
and $2.00 per share on
September 30, 1993......... 572,120 1,430 -- 1,254,590 -- 1,256,020
Common stock issued for cash
at $4.50 per share on June
22, 1993................... 579,482 1,449 -- 2,578,212 -- 2,579,661
Net income for 1993.......... -- -- -- -- 606,463 606,463
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1993......................... 6,084,722 15,212 -- 5,898,833 (413,544) 5,500,501
Common stock issued for
consulting services at
$4.50 per share on November
30, 1993, February 11, 1994
and July 22, 1994.......... 2,801 7 -- 12,597 -- 12,604
Net unrealized loss on
available for-sale
securities................. -- -- (127,577) -- -- (127,577)
Net loss for 1994............ -- -- -- -- (705,295) (705,295)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1994......................... 6,087,523 15,219 (127,577) 5,911,430 (1,118,839) 4,680,233
Common stock issued for
consulting services at
$4.50 per share on October
20, 1994, January 4, 1995,
April 4, 1995 and July 6,
1995....................... 2,668 6 -- 11,989 -- 11,995
Net unrealized gain on
available for-sale
securities................. -- -- 68,203 -- -- 68,203
Net loss for 1995............ -- -- -- -- (1,603,887) (1,603,887)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1995......................... 6,090,191 15,225 (59,374) 5,923,419 (2,722,726) 3,156,544
</TABLE>
See accompanying notes.
F-5
<PAGE> 66
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
SHAREHOLDERS' EQUITY -- CONTINUED
<TABLE>
<CAPTION>
NET DEFICIT
UNREALIZED ACCUMULATED
COMMON STOCK LOSS ON DURING THE
--------------------- AVAILABLE-FOR- ADDITIONAL DEVELOPMENT
SHARES PAR VALUE SALE SECURITIES PAID-IN STAGE TOTAL
--------- --------- --------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for
consulting services at
$4.50 per share on October
19, 1995 and May 10, 1996
and $5.50 per share on
August 6, 1996............. 2,668 6 -- 11,993 -- 11,999
Common stock issued for cash
at $6.50 on August 6, 1996
and $5.50 per share issued
on October 25, 1996........ 618,651 1,547 -- 3,515,819 -- 3,517,366
Exercise of stock options at
$2.00 per share on August
6, 1996.................... 5,256 13 -- 10,499 -- 10,512
Provision for Compensation --
consultant stock options... -- -- -- 85,000 -- 85,000
Net unrealized gain on
available for-sale
securities................. -- -- 51,411 -- -- 51,411
Net loss for 1996............ -- -- -- -- (2,089,572) (2,089,572)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1996......................... 6,716,766 16,791 (7,963) 9,546,730 (4,812,298) 4,743,260
Common stock issued for
consulting services at
$5.50 per share on October
3, 1996, January 27, 1997,
April 11, 1997, May 15,
1997, July 15, 1997 and
August 15, 1997............ 4,095 10 -- 22,493 -- 22,503
Common stock issued for cash
at $5.50 per share issued
on October 25, 1996........ 566,454 1,417 -- 3,111,171 -- 3,112,588
Net unrealized gain on
available for-sale
securities................. -- -- 6,940 -- -- 6,940
Net loss for 1997............ -- -- -- -- (2,487,335) (2,487,335)
--------- ------- --------- ----------- ----------- ----------
Balance at September 30,
1997......................... 7,287,315 18,218 (1,023) 12,680,394 (7,299,633) 5,397,956
--------- ------- --------- ----------- ----------- ----------
Common stock issued for
consulting services at
$5.50 per share on October
31 and December 5, 1997
(unaudited)................ 1,251 3 -- 6,872 -- 6,875
Net unrealized gain on
available for sale
securities (unaudited)..... -- -- 796 -- -- 796
Net loss for December 31,
1997 (unaudited)........... -- -- -- -- (861,169) (861,169)
--------- ------- --------- ----------- ----------- ----------
Balance at December 31, 1997
(unaudited).................. 7,288,566 $18,221 $ (227) $12,687,266 $(8,160,802) $4,544,458
========= ======= ========= =========== =========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 67
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTHS ENDED (NOVEMBER 11,
YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1989) TO
--------------------------------------- ----------------------- DECEMBER 31,
1995 1996 1997 1996 1997 1997
----------- ----------- ----------- ---------- ---------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................... $(1,603,887) $(2,089,572) $(2,487,335) $ (216,642) $ (861,169) $(8,160,802)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 90,530 108,854 132,744 27,385 36,104 514,290
Loss on sale of investments............... 36,720 44,464 5,622 -- -- 86,806
Common stock issued for consulting
services................................ 11,995 11,999 22,503 3,000 6,875 65,976
Provision for Compensation -- consulting
stock options........................... -- 85,000 -- -- -- 85,000
Assignment of intellectual property used
in research and development............. -- -- -- -- -- 200,000
Changes in operating assets and
liabilities:
Accounts receivable..................... (3,804) (14,103) (186,434) 3,289 74,181 (140,807)
Prepaid expenses and other.............. (1,643) 2,690 (46,641) (18,344) 723 (58,252)
Accounts payable........................ 41,200 (42,269) 153,852 2,748 (98,389) 147,707
Accrued expenses and other
liabilities........................... (3,162) 10,994 45,354 25,561 467 105,969
Deferred revenue........................ (8,090) 300,000 (108,354) (300,000) 96,733 288,379
----------- ----------- ----------- ---------- ---------- -----------
Net cash used in operating activities....... (1,440,141) (1,581,943) (2,468,689) (473,003) (744,475) (6,865,734)
INVESTING ACTIVITIES
Purchase of available-for-sale
securities.............................. (235,672) -- -- -- -- (4,517,181)
Proceeds from sale of available-for-sale
securities.............................. 1,338,030 701,821 580,000 222,146 -- 4,056,260
Purchases of equipment and leasehold
improvements, net....................... (71,073) (97,995) (165,374) (46,479) (38,576) (697,044)
Expenditures for patents and other
assets.................................. (208,736) (145,216) (492,120) (50,426) (108,705) (1,335,241)
----------- ----------- ----------- ---------- ---------- -----------
Net cash provided by (used in) investing
activities................................ 822,549 458,610 (77,494) 125,241 (147,281) (2,493,206)
FINANCING ACTIVITIES
Proceeds from issuance of common stock.... -- 3,566,939 3,115,497 3,115,497 -- 12,462,365
Private placement financing costs......... -- (39,061) (2,909) (2,260) -- (107,854)
Principal payments of capital lease
obligation.............................. (16,126) (15,783) (17,703) (5,242) (4,743) (67,029)
Advances from shareholder................. -- -- -- -- -- 330,000
Payments to shareholder................... -- -- -- -- -- (330,000)
Offering costs............................ -- -- (278,005) -- (215,136) (493,141)
----------- ----------- ----------- ---------- ---------- -----------
Net cash provided by (used in) financing
activities................................ (16,126) 3,512,095 2,816,880 3,107,995 (219,879) 11,794,341
----------- ----------- ----------- ---------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (633,718) 2,388,762 270,697 2,760,233 (1,111,635) 2,435,401
Cash and cash equivalents at beginning of
period.................................... 1,521,295 887,577 3,276,339 3,276,339 3,547,036 --
----------- ----------- ----------- ---------- ---------- -----------
Cash and cash equivalents at end of
period.................................... $ 887,577 $ 3,276,339 $ 3,547,036 $6,036,572 $2,435,401 $ 2,435,401
=========== =========== =========== ========== ========== ===========
Supplemental disclosure of cash flows
information --
Cash paid for interest.................... $ 4,655 $ 3,320 $ 2,800 $ 718 $ 724
Supplemental disclosure of non-cash
transactions --
Common stock issued for consulting
services................................ $ 11,995 $ 11,999 $ 22,503 $ 3,000 $ 6,875
</TABLE>
See accompanying notes.
F-7
<PAGE> 68
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Ophidian Pharmaceuticals, Inc. (the Company) was incorporated on November
10, 1989, and began operations on January 17, 1990. Ophidian is a development
stage corporation dedicated to the research, development and commercialization
of therapeutic and diagnostic products for human and animal use. The Company's
business has been directed to numerous areas of disease but has focused
principally on products for infectious disease prevention and treatment. The
Company has not received any revenues from the sale of FDA licensed products to
date and it does not expect to receive any such revenues during the next two
years.
INTERIM FINANCIAL INFORMATION
The financial information at December 31, 1997, and for the three-month
periods ended December 31, 1996 and 1997 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for those periods. Results for the
three months ended December 31, 1997 are not necessarily indicative of the
results for the entire year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
AUTHORIZATION OF INITIAL PUBLIC OFFERING
In February 1997, the Board of Directors authorized management of the
Company to enter a letter of intent with an underwriter to file a registration
statement with the Securities and Exchange Commission ("SEC") allowing the
Company to sell up to 2,875,000 shares of its common stock and issue warrants to
purchase 2,875,000 shares of its common stock. The Company has incurred costs
aggregating $232,000 related to the planned initial public offering which are
included in other assets as of September 30, 1997.
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to SFAS No. 128
requirements.
The following table sets forth the computation of basic weighted-average
shares used in the per share calculations. Dilutive earnings per share is not
shown as the impact is antidilutive.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------- ---------------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding..... 6,089,128 6,115,336 7,215,274 6,788,750 7,287,464
Options and warrants that could
potentially dilute basic earnings per
share in the future that are not
included in the computation of diluted
earnings per share as their impact is
antidilutive (treasury stock
method)............................... 357,942 358,963 392,752 381,838 398,293
</TABLE>
F-8
<PAGE> 69
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less at the date of acquisition to be cash equivalents. Cash
equivalents, consisting of commercial paper, treasury and commercial notes,
repurchase agreements and money market funds, totaled $3,081,019 and $3,451,707
at September 30, 1996 and 1997. The cost of these securities, which are
considered "available for sale" for financial reporting purposes, approximates
fair value at both September 30, 1996 and 1997.
INVESTMENTS
The Company's investments are considered available-for-sale securities and,
as such, are carried at fair value, with unrealized gains and losses, net of
tax, reported as a separate component of shareholders' equity. The cost of
securities sold is based on the specific identification method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization of assets under capital leases are provided over the estimated
useful lives of the assets, generally five years, and lease terms, respectively,
by the straight-line method.
OTHER ASSETS
Patent costs, principally legal fees, are capitalized and, upon issuance,
are amortized on a straight-line basis over the estimated useful life of the
patents.
REVENUE RECOGNITION
Revenues on cost-reimbursement contracts are recorded under awarded
research grants and recognized as revenue as the associated costs are incurred
by the Company. Milestone payments for collaborative product development are
recorded as earned based on the performance requirements of the contract.
Payments received which are related to future performance are deferred and taken
into revenue as earned. Contract payments designated to purchase specific assets
to be used in the performance of a contract are recognized as revenue over the
shorter of the useful life of the asset acquired or the contract.
RESEARCH AND DEVELOPMENT
All costs for research and development activities are expensed in the year
incurred.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities (see Note 9). No current or
deferred income taxes have been provided because of the net operating losses
incurred by the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 presentation.
F-9
<PAGE> 70
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)
2. INVESTMENTS
The following is a summary of available-for-sale investments at September
30:
<TABLE>
<CAPTION>
1996
-----------------------------------
GROSS ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUE
-------- ---------- ---------
<S> <C> <C> <C>
U.S. Government and agency obligations............. $846,275 $7,849 $838,426
Corporate obligation............................... 99,957 114 99,843
-------- ------ --------
$946,232 $7,963 $938,269
======== ====== ========
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------
GROSS ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUE
-------- ---------- ---------
<S> <C> <C> <C>
U.S. Government and agency obligations............. $360,466 $ 878 $359,588
-------- ------ --------
</TABLE>
Available-for-sale investments have been classified based upon their
contractual maturity dates. The amortized cost and estimated fair value of
investments at September 30, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ----------------------
ESTIMATED ESTIMATED
FAIR FAIR
COST VALUE COST VALUE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Due in one year or less.............. $ 484,029 $ 481,463 $360,466 $359,588
Due after one year through three
years.............................. 462,203 456,806 -- --
---------- ---------- -------- --------
$ 946,232 $ 938,269 $360,466 $359,588
========== ========== ======== ========
</TABLE>
3. LINE OF CREDIT
The Company has available a $500,000 bank line of credit which is annually
renewable in February. Any borrowings bear interest at prime plus 1% and are
collateralized by the Company's investments. There were no borrowings on the
line during fiscal 1996, and 1997.
4. CAPITAL LEASE OBLIGATIONS
The Company has incurred obligations under capital leases for equipment and
furniture and fixtures, including the following amounts for leases that have
been capitalized at September 30:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Furniture and fixtures...................................... $84,934 $84,934
Office equipment............................................ 11,758 11,758
------- -------
96,692 96,692
Less accumulated depreciation............................... 53,181 72,519
------- -------
$43,511 $24,173
======= =======
</TABLE>
F-10
<PAGE> 71
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)
Future minimum payments under capital lease obligations consist of the
following at September 30, 1997:
<TABLE>
<CAPTION>
RELATED CAPITAL
PARTY OTHER LEASES
------- ------ -------
(NOTE
7)
-------
<S> <C> <C> <C>
1998................................................... 16,800 956 17,756
1999................................................... 6,513 -- 6,513
2000................................................... 3,084 -- 3,084
2001................................................... 3,084 -- 3,084
2002................................................... 3,084 -- 3,084
Thereafter............................................. 3,855 -- 3,855
------- ------ -------
Total minimum lease payments........................... $36,420 956 37,376
======= ======
Amount representing interest........................... 2,970
-------
Present value of net minimum lease payments (including
current portion of $16,450).......................... $34,406
=======
</TABLE>
5. STOCK OPTION PLANS AND WARRANTS
The Company has an incentive stock option plan and an employee stock option
plan (collectively, the Plans) under which options for a maximum of 657,160
shares of common stock may be granted. The option price per share will be no
less than fair market value at the date the options are granted. The options
expire within ten years from such date. Options for 5,256 shares have been
exercised at September 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at September 30, 1994......................... 445,105 $1.55
Granted at $4.50........................................ 2,667 4.50
Exercised............................................... -- --
Canceled at $2.00 - $4.50............................... 14,871 3.03
------- -----
Outstanding at September 30, 1995......................... 432,901 1.51
Granted at $2.00 - $5.50................................ 41,142 3.12
Exercised at $2.00...................................... 5,256 2.00
Canceled at $4.50....................................... 6,059 3.05
------- -----
Outstanding at September 30, 1996......................... 462,728 1.63
Granted at $5.50........................................ 192,325 5.50
Exercised............................................... -- --
Canceled at $4.50....................................... 8,445 4.50
------- -----
Outstanding at September 30, 1997......................... 646,608 $2.74
------- -----
</TABLE>
F-11
<PAGE> 72
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)
The following table summarizes weighted-average information by range of
exercise prices for stock options outstanding and exercisable.
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTION
-------------------------------------------------------- --------------------------------------
RANGE OF SHARES AT OUTSTANDING WEIGHTED AVERAGE SHARES AT WEIGHTED AVERAGE
EXERCISE PRICE SEPTEMBER 30, 1997 EXERCISE PRICE EXERCISE LIFE SEPTEMBER 30, 1997 EXERCISE PRICE
-------------- ------------------ -------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.06................ 160,080 $0.06 2.8 years 160,080 $0.06
$2.00-2.25........... 250,645 $2.01 5.0 years 244,756 $2.01
$4.50-5.50........... 235,883 $5.34 8.5 years 29,026 $4.54
------- -------
646,608 $2.74 433,862 $1.46
</TABLE>
In fiscal 1990, the Company granted a warrant to a shareholder to purchase
up to 114,290 shares of common stock at a price of $.0025 per share. The warrant
becomes exercisable in a defined manner upon the issuance of shares of common
stock under the Plans. The warrant terminates thirty days after exercise of the
total number of options covered by the plans discussed above. At September 30,
1997, 1,314 shares are exercisable under the warrant.
In May 1996, the Company granted a consultant an option to purchase 100,000
shares of the Company's common stock at a price of $4.50 per share exercisable
until May, 2004. The Company recorded $85,000 as compensation expenses based
upon the estimated fair value of the option using the minimum value option
pricing method with an assumption of a risk free interest rate of 6%, an
expected life of three and one-half years, and no expected dividend yield.
The Company has reserved 866,194 shares of common stock at September 30,
1997 to provide for the exercise of stock options and outstanding warrants.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("FAS No. 123") became effective for the Company
beginning October 1, 1996. As allowed by FAS No. 123, the Company has elected to
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," (APB No. 25) in accounting for its stock option
plan. Under APB No. 25, the Company does not recognize compensation expense on
the issuance of its stock options because the option terms are fixed and the
exercise price equals the market price of the underlying stock on the grant
date.
The weighted average fair value of options granted in 1996 and 1997 was
$2.06 and $0.98 per above, respectively. Had compensation expense for the
Company's stock option plan been determined based upon the fair value at the
grant date for these options consistent with the methodology described under FAS
No. 123, the Company's net earnings would have been reduced by approximately
$8,000 and $76,400 in 1996 and 1997, respectively. The pro forma impact on a per
share basis is not material to the financial presentation. The fair value of the
options granted during both years is estimated using the minimum value option
pricing model using a risk-free interest rate of 6% and assuming no dividends.
The model assumes that all options will be exercised in two years after an
initial public offering of stock projected for November 1997. All options
vesting after that date are expected to be exercised immediately.
Pro forma net earnings reflect only options granted in fiscal years 1997
and 1996. Therefore, the full impact of calculating compensation cost for stock
options under FASB Statement No. 123 is not reflected in the pro forma net
earnings amounts presented because compensation cost is reflected over the
option-vesting period and compensation expense for options granted prior to
October 1, 1995 is not considered.
F-12
<PAGE> 73
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
The Company leases its facilities under a five-year operating lease,
expiring in 1999, from a corporation whose principal shareholder is a director
of the Company. Rent expense of $208,586 and $233,688 was recorded for the years
ended September 30, 1996 and 1997, respectively. The lease includes an option to
extend the lease for an additional five years. At September 30, 1996, future
minimum rental commitments are as follows:
<TABLE>
<CAPTION>
FISCAL
------
<S> <C>
1998........................................................ $240,456
1999........................................................ 60,540
--------
Total............................................. $300,996
========
</TABLE>
In addition, the Company leases certain furniture and fixtures, from this
same related-party corporation, under a capital lease arrangement as described
in Note 4.
The Company has consulting agreements with shareholders that expire at
various dates. Consulting expenses were $64,000, $84,000 and $84,000 for the
years ended September 30, 1995, 1996 and 1997, respectively.
7. ELI LILLY & COMPANY COLLABORATIVE AGREEMENT (THE AGREEMENT)
On June 3, 1996, Eli Lilly & Company (Lilly) and the Company entered into a
20-year collaborative agreement (Agreement) and stock purchase agreement with
respect to the further research, development, manufacture and sale of products
for the treatment of Clostridium difficile-associated diseases.
In accordance with the Agreement, Lilly may provide the Company with up to
$12.4 million over the term of the Agreement. As of September 30, 1997, Lilly
has: (1) made equity investments totaling $4.0 million; $1.0 million in fiscal
1996 for 153,846 shares and $2,999,997 in November 1996, for 545,454 shares of
the Company's stock; (2) made cash payments of $400,000 in fiscal 1996, of which
$300,000 was recognized as revenues in fiscal 1997 upon meeting certain
contractual requirements; and (3) agreed to reimburse the Company for certain
patent application costs totaling $191,646.
Upon achievement of specific milestone events by the Company, as defined in
the Agreement, Lilly will make future equity investments or fee payments. Lilly
has agreed to pay a price per share equal to the average of the closing prices
of the Company's stock as quoted on a national exchange for the first ten of the
most recent fifteen trading days prior to attainment of the respective milestone
event, or if the Company's stock is not listed on an exchange, the fair market
value for equity investments, determined by mutual agreement of Lilly and the
Company. Pursuant to other provisions in the Agreement, Ophidian must provide
manufacturing facilities and meet certain bulk product delivery requirements and
timetables. The Agreement also defines a pricing structure for future delivery
of product.
8. 401(K) PLAN
The Ophidian Pharmaceuticals, Inc. 401(k) Plan (the Plan) covers all
employees. Employees become eligible to participate in the Plan on the first day
of their employment and may contribute up to 15% of their compensation. The
Company may make matching contributions at a discretionary percentage. No
matching contributions were made for the years ended September 30, 1995, 1996
and 1997.
F-13
<PAGE> 74
OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)
9. INCOME TAXES
At September 30, 1997, the Company has net operating loss carryforwards for
federal and Wisconsin tax purposes remaining of approximately $7,604,000 and
$7,842,000, respectively. These carryforwards expire beginning in 2007. The
Company has research and other tax credit carryforwards of approximately
$423,000 and $192,000 for federal and Wisconsin tax purposes, respectively.
The types of temporary differences between tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax asset (liability) and their approximate tax effects are as follows at
September 30:
<TABLE>
<CAPTION>
1996 1997
------------------------- --------------------------
TEMPORARY TAX TEMPORARY TAX
DIFFERENCE EFFECT DIFFERENCE EFFECT
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Depreciation, patents, prepaid
insurance and other.......... $ (660,000) $ (257,000) $(1,164,000) $ (456,000)
Net operating loss
carryforwards................ 4,899,000 1,911,000 7,604,000 2,981,000
Research and AMT credit
carryforwards................ - 273,000 - 423,000
----------- -----------
Deferred tax assets, net....... 1,927,000 2,948,000
Valuation allowance............ (1,927,000) (2,948,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
Utilization of the net operating losses and credits may be subject to an
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before utilization.
F-14
<PAGE> 75
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 18
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 28
Management............................ 42
Principal Shareholders................ 49
Certain Transactions.................. 50
Liability and Indemnification of
Directors and Officers.............. 51
Description of Securities............. 52
Shares Eligible for Future Sale....... 56
Underwriting.......................... 57
Legal Matters......................... 59
Experts............................... 59
Additional Information................ 59
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1998, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS)
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
OPHIDIAN
PHARMACEUTICALS, INC.
1,600,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON
STOCK PURCHASE WARRANT
------------------------
PROSPECTUS
------------------------
DIRKS & COMPANY, INC.
SECURITY CAPITAL TRADING INC.
, 1998
======================================================
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the Common Stock being registered. All amounts are estimated
except the Commission Registration Fee, the NASD Filing Fee and the Nasdaq
SmallCap Market Fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 12,801
NASD Filing Fee............................................. 4,687
Nasdaq SmallCap Market Application Fee...................... 10,000
Blue Sky Qualification Fees and Expenses.................... 60,000
Accounting Fees and Expenses................................ 100,000
Legal Fees and Expenses..................................... 220,000
Transfer Agent and Registrar Fees........................... 5,000
Printing and Engraving...................................... 130,000
Miscellaneous............................................... 57,512
--------
Total............................................. $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Wisconsin Business Corporation Law, directors and officers of the
Company are entitled to mandatory indemnification from the Company against
certain liabilities and expenses (a) to the extent such officers or directors
are successful in the defense of a proceeding and (b) in proceedings in which
the director or officer is not successful in defense thereof, unless it is
determined the director or officer breached or failed to perform his duties to
the Company and such breach or failure constituted: (i) a willful failure to
deal fairly with the Company or its shareholders in connection with a matter in
which the director or officer had a material conflict of interest, (ii) a
violation of criminal law, unless the director or officer had reasonable cause
to believe his or her conduct was lawful or had no reasonable cause to believe
his or her conduct was unlawful, (iii) a transaction from which the director or
officer derived an improper personal profit, or (iv) willful misconduct. The
Company's Bylaws provide that the Company may purchase and maintain insurance on
behalf of an individual who is a director or officer of the Company against
liability asserted against or incurred by such individual in his or her capacity
as a director or officer regardless of whether the Company is required or
authorized to indemnify or allow expenses to the individual against the same
liability under the Bylaws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the registrant has issued the securities set
forth below which were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
In November 1996, the Company completed a private placement offering under
which it sold 485,805 shares of Common Stock at $5.50 per share and raised net
proceeds of $2,629,959 to certain accredited and unaccredited investors. The
shares were issued under Rule 506 of the Securities Act and Section 4(2) of the
Securities Act.
In June 1996, the Company and Eli Lilly and Company ("Lilly") entered into
collaborative agreements, according to which the Company sold to Lilly 153,846
shares of Common Stock at $6.50 per share and in November, 1996 sold 545,454
shares of Common Stock at $5.50 per share.
During the past three fiscal years, the Company has issued an aggregate of
10,408 shares of its Common Stock to consultants for services rendered in the
ordinary course of business and 8,137 to certain Directors for payment in lieu
of cash for an aggregate value of $6,006. The Company has issued 5,256 of its
Common Stock to an employee pursuant to an exercise of her stock options granted
pursuant to the 1990/1992 Stock Option
II-1
<PAGE> 77
Plans. The shares issued to consultants, Directors, and pursuant to the exercise
of options under the 1990/1992 Stock Option Plans, were issued under Rule 701 of
the Securities Act pursuant to written agreements between the Company and the
respective parties. See "Management -- Consultant Compensation and Director
Compensation."
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation**
3.2 Amended and Restated Bylaws**
4.1 Specimen Common Stock Certificate**
4.2 Specimen Warrant Certificate (included in Exhibit 4.4)
4.3 Form of Representatives' Warrant Agreement including form of
Representatives' Warrant
4.4 Form of Warrant Agreement
4.5 Specimen Unit Certificate**
5.1 Opinion of LaFollette & Sinykin**
10.1 Lease dated February 12, 1994 between the Company and
Promega Corporation**
10.2 1997 Incentive Stock Option Plan**
10.3 1990 Incentive Stock Option Plan**
10.4 1992 Employee Stock Option Plan**
+10.5 Agreement dated June 3, 1996 between the Company and Eli
Lilly and Company**
10.6 Employment Agreement dated June 1, 1997 between the Company
and Douglas C. Stafford**
10.7 Employment Agreement dated June 1, 1997 between the Company
and Joseph Firca**
10.8 Employment Agreement dated August 1, 1997 between the
Company and F. Michael Hoffmann**
10.9 Employment Agreement dated November 6, 1997 between the
Company and Donald L. Nevins**
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of LaFollette & Sinykin (included in Exhibit 5.1)**
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Portions of the Agreement between the Company and Eli Lilly have been omitted
and filed separately with the SEC pursuant to a request for confidentiality.
** Filed previously.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
The Company hereby undertakes that:
(1) For purpose of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-2
<PAGE> 78
(1A) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar volume of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in value and
price represent no more than a 20% change in the aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(1B) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(1C) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Company pursuant to the provisions set forth in Item 14 above, or otherwise,
the Company has been advised in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred, or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 will be governed by the final
adjudication of such issue.
II-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this amendment to the
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized on March 18, 1998 in the City of Madison,
Wisconsin.
OPHIDIAN PHARMACEUTICALS, INC.
By: /s/ DOUGLAS C. STAFFORD
------------------------------------
Douglas C. Stafford, Ph.D.
President, Chief Executive Officer
and Director
By: /s/ MARGARET B. VAN BOLDRIK
------------------------------------
Margaret B. van Boldrik, Ph.D.
Vice President, Secretary and
Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Douglas
C. Stafford and Margaret B. van Boldrik, and each of them as his or her true and
lawful attorney-in-fact and agent with full power of substitution to sign on his
or her behalf, individually and in the capacity stated below and to perform any
acts necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement of
the amendments thereto. Each of the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or his or her substitute, does or
causes to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
WILLIAM A. LINTON* Chairman of the Board of Directors March 18, 1998
- ------------------------------------------------
William A. Linton
/s/ DOUGLAS C. STAFFORD President, Chief Executive Officer and March 18, 1998
- ------------------------------------------------ Director (Principal Executive
Douglas C. Stafford, Ph.D. Officer)
/s/ DONALD L. NEVINS Vice President, Finance, Chief March 18, 1998
- ------------------------------------------------ Financial Officer (Principal
Donald L. Nevins Financial Officer)
/s/ MARGARET B. VAN BOLDRIK Vice President, Secretary and Director March 18, 1998
- ------------------------------------------------
Margaret B. van Boldrik, Ph.D.
REX J. BATES* Director March 18, 1998
- ------------------------------------------------
Rex J. Bates
PETER MODEL* Director March 18, 1998
- ------------------------------------------------
Peter Model
W. LEIGH THOMPSON* Director March 18, 1998
- ------------------------------------------------
W. Leigh Thompson, Ph.D, M.D.
*/s/ DOUGLAS C. STAFFORD March 18, 1998
- ------------------------------------------------
Douglas C. Stafford as true and lawful
attorney-in-fact for William A. Linton, Rex J.
Bates, Peter Model and W. Leigh Thompson
*/s/ MARGARET B. VAN BOLDRIK March 18, 1998
- ------------------------------------------------
Margaret B. van Boldrik as true and lawful
attorney-in-fact for William A. Linton, Rex J.
Bates, Peter Model and W. Leigh
Thompson
</TABLE>
II-4
<PAGE> 80
INDEX TO EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation**
3.2 Amended and Restated Bylaws**
4.1 Specimen Common Stock Certificate**
4.2 Specimen Warrant Certificate (included in Exhibit 4.4)
4.3 Form of Representatives' Warrant Agreement including form of
Representatives' Warrant
4.4 Form of Warrant Agreement
4.5 Specimen Unit Certificate**
5.1 Opinion of LaFollette & Sinykin**
10.1 Lease dated February 12, 1994 between the Company and
Promega Corporation**
10.2 1997 Incentive Stock Option Plan**
10.3 1990 Incentive Stock Option Plan**
10.4 1992 Employee Stock Option Plan**
+10.5 Agreement dated June 3, 1996 between the Company and Eli
Lilly and Company**
10.6 Employment Agreement dated June 1, 1997 between the Company
and Douglas C. Stafford**
10.7 Employment Agreement dated June 1, 1997 between the Company
and Joseph Firca**
10.8 Employment Agreement dated August 1, 1997 between the
Company and F. Michael Hoffmann**
10.9 Employment Agreement dated November 6, 1997 between the
Company and Donald L. Nevins**
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of LaFollette & Sinykin (included in Exhibit 5.1)**
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Portions of the Agreement between the Company and Eli Lilly have been omitted
and filed separately with the SEC pursuant to a request for confidentiality.
** Filed previously.
II-5
<PAGE> 1
1,600,000 UNITS, EACH UNIT CONSISTING OF ONE
SHARE OF COMMON STOCK AND
ONE REDEEMABLE WARRANT
OPHIDIAN PHARMACEUTICALS, INC.
UNDERWRITING AGREEMENT
New York, New York
__________, 1998
DIRKS & COMPANY, INC.
SECURITY CAPITAL TRADING INC.
As Representatives of the
Several Underwriters listed on Schedule A hereto
c/o Dirks & Company, Inc.
520 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
Ophidian Pharmaceuticals, Inc., a Wisconsin corporation (the "Company"),
confirms its agreement with Dirks & Company, Inc. ("Dirks") and Security
Capital Trading Inc. ("Security") and each of the underwriters named in
Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 11), for
whom Dirks and Security are acting as representatives (in such capacity, Dirks
and Security shall hereinafter be referred to as "you" or the
"Representatives"), with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of the respective number of
units ("Units") set forth in Schedule A hereto, each Unit consisting of one
share ("Shares") of the Company's Common Stock, $.0025 par value ("Common
Stock") and one warrant to acquire one additional share of Common Stock (the
"Redeemable Warrants"). The shares of Common Stock and Redeemable Warrants
comprising the Units will not be separately transferable for a period of three
months after the date hereof or such earlier date as shall be determined by the
Representatives and the Company (the "Separation Date"). The 1,600,000 Units
are hereafter referred to as the "Firm Securities." Each Redeemable Warrant is
exercisable
<PAGE> 2
commencing on _________, 1999 until __________, 2003, unless previously
redeemed by the Company, at an initial exercise price of $7.32 per share. The
Redeemable Warrants may be redeemed by the Company at a redemption price of
$.10 per Redeemable Warrant at any time after __________, 2000 on thirty (30)
days' prior written notice, provided that the closing sale price of the Common
Stock equals or exceeds $14.64 per share, for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption, all in accordance
with the terms and conditions of the Warrant Agreement (herein defined).
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 240,000 Units for the purpose of covering
over-allotments, if any. Such 240,000 Units are hereinafter collectively
referred to as the "Option Securities." The Company also proposes to issue and
sell to you warrants (the "Representatives' Warrants") pursuant to the
Representatives' Warrant Agreement (the "Representatives' Warrant Agreement")
for the purchase of an additional 160,000 Units . The shares of Common Stock
and Redeemable Warrants issuable upon exercise of the Representatives' Warrants
are hereinafter referred to as the "Representatives' Securities." The Firm
Securities, the Option Securities, the Representatives' Warrants and the
Representatives' Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (as hereinafter defined) and each
Option Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-33219), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Securities, the Option Securities and the Representatives'
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to those documents or information incorporated by reference therein)
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430(A) of the Regulations), is hereinafter called the
"Registration Statement", and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter
called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the
rules and regulations
2
<PAGE> 3
adopted by the Commission under either the Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or any part of any thereof
and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus, the
Registration Statement and Prospectus at the time of filing thereof conformed
with the requirements of the Act and the Rules and Regulations, and none of
the Preliminary Prospectus, the Registration Statement or Prospectus at the
time of filing thereof contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that this representation and warranty does
not apply to statements made in reliance upon and in conformity with written
information furnished to the Company with respect to the Underwriters by or on
behalf of the Underwriters expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus
will contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and will conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of any
Underwriter expressly for use in the Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
Except as set forth in the Prospectus, the Company does not own an interest in
any corporation, partnership, trust, joint venture or other business entity.
The Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification or
licensing. The Company has all requisite power and authority (corporate and
other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the Prospectus;
the Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all applicable federal, state, local and foreign laws, rules and
regulations; and the
3
<PAGE> 4
Company has not received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the Company's business as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances under which they
were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon
the assumptions set forth therein, and the Company is not a party to or bound
by any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Warrant Agreement, the Representatives' Warrant Agreement and as
described in the Prospectus. The Securities and all other securities issued or
issuable by the Company conform or, when issued and paid for, will conform, in
all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable and the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability by
reason of being such holders except as described in the Prospectus; and none of
such securities were issued in violation of the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company. The Securities are not and will not be subject to any preemptive
or other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not
be subject to any liability solely as such holders except as described in the
Prospectus; all corporate action required to be taken for the authorization,
issue and sale of the Securities has been duly and validly taken; and the
certificates representing the Securities will be in due and proper form. Upon
the issuance and delivery pursuant to the terms hereof of the Securities to be
sold by the Company hereunder, the Underwriters or the Representatives, as the
case may be, will acquire good and marketable title to such Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever.
(f) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, income, changes in cash flow, changes in stockholders' equity and the
results of operations of the Company at the respective dates and for the
respective periods to which they apply and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved and
such financial statements as are audited have been examined by Ernst & Young
LLP, who are independent certified public accountants within the meaning of the
Act and the Rules and Regulations, as indicated in their reports filed
4
<PAGE> 5
therewith. There has been no adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company, whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company,
conform in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information (including,
without limitation, any pro forma financial information) set forth in the
Prospectus under the headings "Summary Financial Information," "Selected
Financial Data," "Capitalization," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," fairly present, on the basis
stated in the Prospectus, the information set forth therein, and have been
derived from or compiled on a basis consistent with that of the audited
financial statements included in the Prospectus; and, in the case of pro forma
financial information, if any, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein. The amounts shown
as accrued for current and deferred income and other taxes in such financial
statements are sufficient for the payment of all accrued and unpaid federal,
state, local and foreign income taxes, interest, penalties, assessments or
deficiencies applicable to the Company, whether disputed or not, for the
applicable period then ended and periods prior thereto; adequate allowance for
doubtful accounts has been provided for unindemnified losses due to the
operations of the Company; and the statements of income do not contain any
items of special or nonrecurring income not earned in the ordinary course of
business, except as specified in the notes thereto.
(g) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code
of 1986, as amended (the "Code"), and has furnished all information returns it
is required to furnish pursuant to the Code, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax arising under
federal or State of Wisconsin law is payable by or on behalf of the
Underwriters in connection with (i) the issuance by the Company of the
Securities, (ii) the purchase by the Underwriters of the Firm Securities and
the Option Securities from the Company and the purchase by the Representatives
of the Representatives' Warrants from the Company, (iii) the consummation by
the Company of any of its obligations under this Agreement, or (iv) resales of
the Firm Securities and the Option Securities in connection with the
distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability and property insurance, which insures each of the
Company and its employees, against such losses and risks generally insured
against by comparable businesses. The Company (A) has not failed to give
notice or present any insurance claim with respect to any matter, including but
not limited to the Company's business, property or employees, under any
insurance policy or surety bond in a due and timely manner, (B) does not have
any disputes or claims against any underwriter of such insurance policies
or surety bonds and has paid all premiums due and payable thereunder, and (C)
has complied with all conditions contained in such insurance
5
<PAGE> 6
policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or to the best of the Company's knowledge
threatened against (or circumstances that may give rise to the same), or
involving the properties or business of, the Company which (i) questions the
validity of the capital stock of the Company, this Agreement, the Warrant
Agreement or the Representatives' Warrant Agreement, or of any action taken or
to be taken by the Company pursuant to or in connection with this Agreement,
the Warrant Agreement or the Representatives' Warrant Agreement, (ii) is
required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all material respects), or (iii) might materially
and adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, stockholders' equity, value, operation, properties,
business or results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement,
the Warrant Agreement and the Representatives' Warrant Agreement and to
consummate the transactions provided for in this Agreement, the Warrant
Agreement and the Representatives' Warrant Agreement; and this Agreement, the
Warrant Agreement and the Representatives' Warrant Agreement have each been
duly and properly authorized, executed and delivered by the Company. Each of
this Agreement, the Warrant Agreement and the Representatives' Warrant
Agreement constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms except to the
extent the right to indemnification may be limited by applicable law and except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditor's rights generally or general equitable principles, and none of the
Company's issue and sale of the Securities, execution or delivery of this
Agreement, the Warrant Agreement or the Representatives' Warrant Agreement, its
performance hereunder and thereunder, its consummation of the transactions
contemplated herein and therein, conflicts with or will conflict with or
results or will result in any material breach or violation of any of the terms
or provisions of, or constitutes or will constitute a material default under,
or result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity
of any kind whatsoever upon, any property or assets (tangible or intangible) of
the Company pursuant to the terms of (i) the amended and restated articles of
incorporation or amended and restated by-laws of the Company, (ii) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which the Company is or may be bound or to which its or assets (tangible
or intangible) is or may be subject, or any indebtedness, or (iii) any statute,
judgment, decree, order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or any of its activities or properties.
6
<PAGE> 7
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement,
the Warrant Agreement and the Representatives' Warrant Agreement and the
transactions contemplated hereby and thereby, including without limitation, any
waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Securities, except such
as have been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Firm Securities and the Option Securities, and the
Representatives' Warrants to be sold by the Company hereunder.
(m) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it or they
may be bound or to which its or their respective assets, properties or business
may be subject have been duly and validly authorized, executed and delivered by
the Company and constitute the legal, valid and binding agreements of the
Company, as the case may be, enforceable against it in accordance with their
terms except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditor's rights generally or general equitable principles. The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form S-1, and there are no contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or
filed as required, and the exhibits which have been filed are complete and
correct copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, (i) the Company has not (a)
issued any securities or incurred any material liability or obligation, direct
or contingent, for borrowed money, (b) entered into any transaction other than
in the ordinary course of business, or (c) declared or paid any dividend or
made any other distribution on or in respect of its capital stock of any class,
and (ii) there has not been (a) any change in the capital stock, debt (long or
short term) or liabilities of the Company or (b) any material adverse change in
or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of the Company.
(o) No material default exists in the due performance and
observance of any term, covenant or condition of any license, contract,
collective bargaining agreement, indenture, mortgage, installment sale
agreement, lease, deed of trust, voting trust agreement, stockholders
agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other agreement or instrument evidencing an obligation
for borrowed money, or any other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which the
property or assets (tangible or intangible) of the Company is subject or
affected.
(p) The Company has generally enjoyed a satisfactory employer-
employee relationship with its employees and is in compliance with all federal,
state, local, and foreign
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<PAGE> 8
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours. There are no pending
investigations involving the Company by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any lockout, strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the best knowledge of the Company,
threatened against or involving the Company, or any predecessor entity, and
none has ever occurred. No representation question exists respecting the
employees of the Company, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists, or, is imminent.
(q) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or
contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in material compliance with all
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from
the Internal Revenue Service with respect to each ERISA Plan which is intended
to comply with Code Section 401(a), stating that such ERISA Plan and the
attendant trust are qualified thereunder. The Company has never completely or
partially withdrawn from a "multiemployer plan."
(r) Neither the Company, nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or to the best knowledge of the
Company, will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities or
otherwise.
(s) Except as otherwise disclosed in the Prospectus and to the
Company's knowledge, none of the patents, patent applications, trademarks,
service marks, trade names and copyrights, and licenses and rights to the
foregoing presently owned or held by the Company, are in dispute or are in any
conflict with the right of any other person or entity. The Company (i)
owns or has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted to the Company's knowledge, without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any
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<PAGE> 9
payment by way of royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise except pursuant
to license agreements entered into by the Company.
(t) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, free and clear of all
liens, charges, claims, encumbrances, pledges, security interests, defects, or
other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and payable.
(u) Ernst & Young LLP, whose report is filed with the Commission as
a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(v) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors and holders collectively of at least eighty-five percent (85%) or
more of the Common Stock of the Company or securities exchangeable or
exercisable for or convertible into shares of Common Stock, has agreed not to,
directly or indirectly, issue, offer, offer to sell, sell, grant any option for
the sale or purchase of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144 of the
Rules and Regulations or otherwise) or dispose of any beneficial interest
therein for a period of not less than nine (9) months following the effective
date of the Registration Statement without the prior written consent of the
Representatives and the Company. During the nine (9) month period commencing
on the effective date of the Registration Statement, the Company shall not,
without the prior written consent of the Representatives, sell, contract or
offer to sell, issue, transfer, assign, pledge, distribute, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any options,
rights or warrants with respect to any shares of Common Stock; provided,
however, that the Company and any subsidiaries may sell or offer for sale any
of their respective securities without the consent of the Representatives (i)
pursuant to the exercise of options and warrants issued and outstanding on the
date hereof and disclosed in the Prospectus; (ii) pursuant to incentive stock
or options granted to officers, directors, employees or consultants at not
less than eighty-five percent (85%) of the current market price of such
security on the date of the issuance of such incentive stock or options,
provided that such incentive stock or options are issued prior to the effective
date of the Registration Statement (for a period of nine (9) months thereafter,
such incentive stock or options may only be issued at the higher of (a) market
price of the Common Stock or (b) the initial public offering price of the Units
except for up to an aggregate 100,000 shares of stock or options issued to new
employees of the Company and/or to non-officer or director employees on a merit
basis); (iii) in connection with any bona fide merger, acquisition, joint
venture or similar corporate partnering transaction, equipment leasing
transaction or facilities construction transaction with Promega Corporation or
with any non-affiliate of the Company, and/or with Eli Lilly and Company or
(iv) in connection with a follow-on offering of the Company's securities to the
public or in a private placement. The Company will cause the Transfer Agent (as
hereinafter defined) to mark an appropriate
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<PAGE> 10
legend on the face of stock certificates representing all of such securities
and to place "stop transfer" orders on the Company's stock ledgers.
(w) To the Company's knowledge, there are no claims, payments,
issuances, arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with respect to the
sale of the Securities hereunder or any other arrangements, agreements,
understandings, payments or issuance with respect to the Company, or any of its
officers, directors, stockholders, partners, employees or affiliates, that may
affect the Underwriters' compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
(x) The Units, Common Stock and Redeemable Warrants have been
approved for quotation on the Nasdaq SmallCap Market ("Nasdaq").
(y) None of the Company, nor to the Company's knowledge, any of its
officers, employees, agents or any other person acting on behalf of the Company
has, directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which (a) might subject the Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have had
a material adverse effect on the assets, business or operations of the Company,
or (c) if not continued in the future, might adversely affect the assets,
business, condition, financial or otherwise, earnings, position, properties,
value, operations or prospects of the Company. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(z) To the Company's knowledge, except as set forth in the
Prospectus, no officer, director, 5% or greater securityholder or partner of
the Company, or any "affiliate" or "associate" (as these terms are defined in
Rule 405 promulgated under the Rules and Regulations) of any of the foregoing
persons or entities has or has had, either directly or indirectly, (i) an
interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold
by the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficiary interest in any contract or agreement
to which the Company is a party or by which it may be bound or affected.
Except as set forth in the Prospectus under "Certain Transactions," there are
no existing agreements, arrangements, understandings or transactions, or
proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, or 5% or greater securityholder
of the Company, or to the Company's knowledge, any partner, affiliate or
associate of any of the foregoing persons or entities.
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<PAGE> 11
(aa) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(bb) The minute books of the Company have been made available to the
Underwriters and contain a complete summary of all meetings and actions of the
directors (including committees thereof) and stockholders of the Company, since
the time of its incorporation, and reflect all transactions referred to in such
minutes accurately in all material respects.
(cc) Except and to the extent described in the Prospectus, no holders
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity other than
Eli Lilly and Company, holds any anti-dilution rights with respect to any
securities of the Company.
(dd) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of Douglas C.
Stafford, Ph.D., Joseph R. Firca Ph.D., and F. Michael Hoffman, Ph.D., in the
form filed as Exhibit 10.6, Exhibit 10.7, and Exhibit 10.8, respectively, to
the Registration Statement and (ii) purchased term key person insurance on the
life of Dr. Douglas C. Stafford in the amount of $500,000 which policy names
the Company as the sole beneficiary thereof.
(ee) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(ff) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparations of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(gg) The Company has entered into a warrant agreement substantially
in the form filed as Exhibit 4.4 to the Registration Statement (the "Warrant
Agreement") with Continental Stock Transfer and Trust Company, as Warrant
Agent, in form and substance satisfactory to the Representatives, with respect
to the Redeemable Warrants.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to
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<PAGE> 12
sell to each Underwriter, and each Underwriter, severally and not jointly,
agrees to purchase from the Company at a price of $_____ per Unit [91% of
initial public offering price of the Units], that number of Firm Securities set
forth in Schedule A opposite the name of such Underwriter, subject to such
adjustment as the Representatives in its sole discretion shall make to
eliminate any sales or purchases of fractional shares, plus any additional
number of Firm Securities which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 240,000 Units at a price of $_____ [91% of the initial public
offering price of the Units] per Unit. The option granted hereby will expire
forty-five (45) days after (i) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (ii) the date of this Agreement if the Company has elected
to rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment
and delivery for any such Option Securities. Any such time and date of
delivery (an "Option Closing Date") shall be determined by the Representatives,
but shall not be later than three (3) full business days after the exercise of
said option, nor in any event prior to the Closing Date, as hereinafter
defined, unless otherwise agreed upon by the Representatives and the Company.
Nothing herein contained shall obligate the Underwriters to make any
over-allotments. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of the Representatives at
Dirks & Company, Inc., 520 Madison Avenue, New York, New York 10022, or at such
other place as shall be agreed upon by the Representatives and the Company.
Such delivery and payment shall be made at 10:00 a.m. (New York City time) on
_________, 1998 or at such other time and date as shall be agreed upon by the
Representatives and the Company, but not less than three (3) nor more than five
(5) full business days after the effective date of the Registration Statement
(such time and date of payment and delivery being herein called the "Closing
Date"). In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the
above-mentioned office of the Representatives or at such other place as shall
be agreed upon by the Representatives and the Company on each Option Closing
Date as specified in the notice from the Representatives to the Company.
Delivery of the certificates for the Firm Securities and the Option Securities,
if any, shall be made to the Underwriters against payment by the Underwriters,
severally and not jointly, of the purchase price for the Firm Securities and
the Option Securities, if any, to the order of the Company for the Firm
Securities and the Option Securities, if any, by New York Clearing House funds.
In the event such option is exercised, each of the Underwriters, acting
severally and not jointly, shall purchase that proportion of the total number
of Option Securities then being purchased which the number of Firm Securities
set
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<PAGE> 13
forth in Schedule A hereto opposite the name of such Underwriter bears to
the total number of Firm Securities, subject in each case to such adjustments
as the Representatives in its discretion shall make to eliminate any sales or
purchases of fractional shares. Certificates for the Firm Securities and the
Option Securities, if any, shall be in definitive, fully registered form, shall
bear no restrictive legends and shall be in such denominations and registered
in such names as the Underwriters may request in writing at least two (2)
business days prior to the Closing Date or the relevant Option Closing Date, as
the case may be. The certificates for the Firm Securities and the Option
Securities, if any, shall be made available to the Representatives at such
office or such other place as the Representatives may designate for inspection,
checking and packaging no later than 9:30 a.m. on the last business day prior
to the Closing Date or the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representatives Representatives' Warrants at a purchase price of $.0001 per
warrant, which Representatives' Warrants shall entitle the holders thereof to
purchase an aggregate of 160,000 Units. The Representatives' Warrants shall be
exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at a price equaling one hundred
twenty percent (120%) of the initial public offering price of the Units. The
Representatives' Warrant Agreement and form of Warrant Certificate shall be
substantially in the form filed as Exhibit 4.3 to the Registration Statement.
Payment for the Representatives' Warrants shall be made on the Closing Date.
3. Public Offering of the Units. As soon after the Registration
Statement becomes effective as the Representatives deems advisable, the
Underwriters shall make a public offering of the Units (other than to residents
of or in any jurisdiction in which qualification of the Units is required
and has not become effective) at the price and upon the other terms set forth
in the Prospectus. The Representatives may from time to time increase or
decrease the respective public offering price after distribution of the Units
has been completed to such extent as the Representatives, in its sole
discretion deems advisable. The Underwriters may enter into one or more
agreements as the Underwriters, in each of their sole discretion, deem
advisable with one or more broker-dealers who shall act as dealers in
connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective
date of the Registration Statement, file any amendment to the Registration
Statement or supplement to the Prospectus or file any document under the Act or
Exchange Act before termination of the offering of the Units by the
Underwriters of which the Representatives shall not previously have been
advised and furnished with a copy, or to which the Representatives shall have
reasonably objected or which is not in compliance with the Act, the Exchange
Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representatives and confirm the notice in writing
(i) when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A
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<PAGE> 14
promulgated under the Act will be relied upon, when the Prospectus has
been filed in accordance with said Rule 430A and when any post-effective
amendment to the Registration Statement becomes effective; (ii) of the issuance
by the Commission of any stop order or of the initiation, or the threatening,
of any proceeding suspending the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of
proceedings for that purpose; (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose;
(iv) of the receipt of any comments from the Commission; and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If
the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representatives,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
on the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifth business day after the effective
date of the Registration Statement.
(d) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes
for use by the Underwriters in connection with the offering of the Securities
which differs from the corresponding prospectus on file at the Commission at
the time the Registration Statement becomes effective, whether or not such
revised prospectus is required to be filed pursuant to Rule 424(b) of the Rules
and Regulations), and will furnish the Representatives with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representatives or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representatives, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representatives may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such
documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representatives agrees that such action
is not at the time necessary or advisable, use all reasonable efforts to file
and make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
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<PAGE> 15
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Representatives promptly
and prepare and file with the Commission an appropriate amendment or supplement
in accordance with Section 10 of the Act, each such amendment or supplement to
be reasonably satisfactory to Underwriters' Counsel, and the Company will
furnish to the Underwriters copies of such amendment or supplement as soon as
available and in such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than forty-
five (45) days after the end of the 12-month period beginning on the day after
the end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (ninety (90) days in the event that the end
of such fiscal quarter is the end of the Company's fiscal year), the Company
shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representatives, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Representatives:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
certified public accountants;
iii. as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
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iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company;
and
vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representatives may request.
During such five-year period, if the Company has an active subsidiary, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Common Stock and Redeemable Warrants.
(j) The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the Representatives
may designate, copies of each Preliminary Prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto (two of
which copies will be signed and will include all financial statements and
exhibits), the Prospectus, and all amendments and supplements thereto,
including any prospectus prepared after the effective date of the Registration
Statement, in each case as soon as available and in such quantities as the
Representatives may request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representatives with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of nine (9) months from the effective date of the Registration
Statement, each of the Company's officers, directors and holders collectively
of eighty-five percent (85%) or more of the Common Stock of the Company or
securities exchangeable or exercisable for or convertible into shares of Common
Stock agrees that it or he or she will not, directly or indirectly, issue,
offer to sell, sell, grant an option for the sale or purchase of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of
Common Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior consent of the
Representatives (collectively, the "Lock-up Agreements"). During the 9 month
period commencing on the effective date of the Registration Statement, the
Company shall not, without the prior written consent of the Representatives,
sell, contract or offer to sell, issue, transfer, assign, pledge, distribute,
or otherwise dispose of, directly or indirectly, any shares of Common Stock or
any options, rights or warrants with respect to any shares of Common Stock;
provided, however, that the Company and any subsidiaries may sell or offer for
sale any of their respective securities without the consent of the
Representatives (i) pursuant to the exercise of options and warrants issued and
outstanding on the
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<PAGE> 17
date hereof and disclosed in the Prospectus; (ii) pursuant to incentive stock
or options granted to officers, directors, employees or consultants at not less
than eighty-five percent (85%) of the current market price of such security on
the date of the issuance of such incentive stock or options, provided that
such incentive stock or options are issued prior to the effective date of the
Registration Statement (for a period of nine (9) months thereafter, such
incentive stock or options may only be issued at the higher of (a) market price
of the Common Stock or (b) the initial public offering price of the Units
except for up to an aggregate 100,000 shares of stock or options issued to new
employees of the Company and/or to non-officer or director employees on a merit
basis); (iii) in connection with any bona fide merger, acquisition, joint
venture or similar corporate partnering transaction, equipment leasing
transaction or facilities construction transaction with Promega Corporation or
with any non-affiliate of the Company, and/or with Eli Lilly & Company, or (iv)
in connection with a follow-on offering of the Company's securities to the
public or in a private placement. On or before the Closing Date, the Company
shall deliver instructions to the Transfer Agent authorizing it to place
appropriate legends on the certificates representing the securities subject to
the Lock-up Agreements and to place appropriate stop transfer orders on the
Company's ledgers. The Company further covenants that it will not file a
registration statement with the Commission during the nine (9) month period
commencing on the effective date of the Registration Statement.
(l) None of the Company, nor to the best knowledge of the Company,
any of its officers, directors, stockholders, nor any of its affiliates (within
the meaning of the Rules and Regulations) will take, directly or indirectly,
any action designed to, or which might in the future reasonably be expected
to cause or result in, stabilization or manipulation of the price of any
securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use
of Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may
be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(o) The Company shall furnish to the Representatives as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than sixty (60)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(l) and 6(m) hereof.
(p) The Company shall cause the Units and the underlying Common
Stock and Redeemable Warrants to be listed on Nasdaq and, for a period of five
(5) years from the date
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hereof, use its best efforts to maintain the Nasdaq listing of the Units prior
to their delisting and Common Stock and the Redeemable Warrants to the extent
outstanding.
(q) For a period of three (3) years from the Closing Date, the
Company shall furnish to the Representatives at the Representatives' reasonable
request and the Company's sole expense, (i) daily consolidated transfer sheets
relating to the Units, Common Stock and Redeemable Warrants and (ii) the list
of holders of all of the Company's securities.
(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than five (5) years.
(s) The Company hereby agrees that, except as set forth above in
Section 4(k) and the 975,000 shares reserved for future issuance under the
Company's 1990 Incentive Stock Option Plan and 1992 Employee Stock Option Plan
as amended and the Company's 1997 Incentive Stock Option Plan (collectively,
"Stock Option Plans"), it will not, for a period of nine (9) months from the
effective date of the Registration Statement, adopt, propose to adopt or
otherwise permit to exist any employee, officer, director, consultant or
compensation plan or similar arrangement, permitting (i) the grant, issue,
sale or entry into any agreement to grant, issue or sell any option, warrant or
other contract right (x) at an exercise price that is less than the greater of
the public offering price of the Shares set forth herein and the fair market
value on the date of grant or sale or (y) to any of its executive officers or
directors or to any holder of 5% or more of the Common Stock; (ii) the maximum
number of shares of Common Stock or other securities of the Company purchasable
at any time pursuant to options or warrants issued by the Company to exceed
such 975,000 shares reserved for future issuance under the Company's Stock
Option Plans plus warrants to purchase up to 114,290 shares of Common Stock and
an option to purchase 100,000 shares of Common Stock as described in the
Prospectus; (iii) the payment for such securities with any form of
consideration other than cash; or (iv) the existence of stock appreciation
rights, phantom options or similar arrangements. Furthermore, the Company
agrees that for a period of nine (9) months from the effective date of the
Registration Statement, the Company will not amend any material employment
agreement or option agreement or other agreement providing compensation to any
executive officer, director or 5% or greater stockholder, without the prior
written consent of the Representatives.
(t) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representatives and
Underwriters' Counsel, issue, directly or indirectly, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering contemplated hereby, other than trade releases
issued in the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Representatives'
Securities, the Company will use its best
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<PAGE> 19
efforts to not take any action or actions which may prevent or disqualify the
Company's use of Form S-1 (or other appropriate form) for the registration
under the Act of the Representatives' Securities. The Company further agrees
to use its best efforts to file such post-effective amendments to the
Registration Statement, as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective while any of
the Redeemable Warrants remain outstanding.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than Representatives' due diligence expenses and fees
of Underwriters' Counsel, except as provided in (iv) below) incident to the
performance of the obligations of the Company under this Agreement, the Warrant
Agreement and the Representatives' Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments
and supplements thereto and the printing, mailing (including the payment of
postage with respect thereto) and delivery of this Agreement, the Warrant
Agreement, the Representatives' Warrant Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Firm Securities and the Option Securities and the purchase by the
Representatives of the Representatives' Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement, the
Warrant Agreement and the Representatives' Warrant Agreement, and (z) resale of
the Firm Securities and the Option Securities by the Underwriters in connection
with the distribution contemplated hereby, (iv) the qualification of the
Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements, filing fees and fees of counsel in
connection therewith, (v) reasonable advertising costs and expenses, including
but not limited to costs and expenses in connection with the "road show",
information meetings and presentations, bound volumes and prospectus
memorabilia and "tombstone" advertisement expenses, (vi) fees and expenses of
the Transfer Agent and registrar and all issue and transfer taxes, if any,
(vii) applications for assignment of a rating of the Securities by qualified
rating agencies, (viii) the fees payable to the Commission and the NASD, and
(x) the fees and expenses incurred in connection with the quotation of the
Securities on Nasdaq and any other exchange.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 6 (except Sections 6(c), 6(k) and
6(o)) or Section 12, the Company shall reimburse and indemnify the
Representatives for all of their actual out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) hereof), provided that the
total of such out-of-pocket
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expenses payable to the Underwriters shall not exceed $100,000 and further
provided that the Company shall reimburse and indemnify Underwriters Counsel
for all of their Blue Sky counsel fees, filing fees and disbursements. In
addition, the Representatives agrees to return to the Company any unaccounted
for portion of funds advanced by the Company to them as disclosed in Section
5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representatives on the Closing Date by deduction from the proceeds of the
offering of the Firm Securities, a non-accountable expense allowance equal to
2% of the gross proceeds received by the Company from the sale of the Firm
Securities, $50,000 of which has been paid to date. In the event the
Representatives elects to exercise the overallotment option described in
Section 2(b) hereof, the Company further agrees to pay to the Representatives
on each Option Closing Date by deduction from the proceeds of the Option
Securities purchased on such Option Closing Date, a non-accountable expense
allowance equal to 2- 1/2% of the gross proceeds received by the Company from
the sale of such Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had
been made on and as of the Closing Date or each Option Closing Date, as the
case may be; the accuracy on and as of the Closing Date or Option Closing Date,
if any, of the statements of the officers of the Company made pursuant to the
provisions hereof; and the performance by the Company on and as of the Closing
Date and each Option Closing Date, if any, of its covenants and obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 9:30 a.m., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representatives, and, at
the Closing Date and each Option Closing Date, if any, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or shall be pending
or contemplated by the Commission and any request on the part of the Commission
for additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Units and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period and, prior to the Closing Date, the Company
shall have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have
been promptly filed and declared effective in accordance with the requirements
of Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state
a fact which, in the Representatives' opinion, is material and is required to
be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue
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<PAGE> 21
statement of fact which, in the Representatives' opinion, is material, or omits
to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option Closing
Date, if any, the Representatives shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Representatives may request and
Underwriters' Counsel shall have received such papers and information as they
request and as are reasonably necessary to enable them to pass upon such
matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of LaFollette & Sinykin, counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
i. the Company (A) has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Wisconsin,
(B) is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification
or licensing, and (C) has all requisite corporate power and authority, and
has obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar
matters)(other than the United States Food and Drug Administration ("FDA")
with respect to which Medlen and Carroll, patent counsel to the Company,
will give its opinion), to own or lease its properties and conduct its
business as described in the Prospectus; to counsel's knowledge, the
Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state and local laws, rules and regulations; and,
to counsel's knowledge, the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially adversely affect the
business, operations, condition, financial or otherwise, or the earnings,
business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company. The disclosures in the
Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the Company's business (other than with
respect to the FDA, to which Medlen and Carroll, patent counsel to the
Company, will give its opinion) as currently conducted and as contemplated
are correct in all material respects and do not omit to state a fact
required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances in which
they were made;
ii. except as described in the Prospectus, the Company does not own an
interest in any other corporation, partnership, joint venture, trust or
other business entity;
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iii. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and the Company is not a party
to or bound by any instrument, agreement or other arrangement providing
for it to issue, sell, transfer, purchase or redeem any capital stock,
rights, warrants, options or other securities, except for this Agreement,
the Warrant Agreement and the Representatives' Warrant Agreement and as
described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform in all material respects to all
statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability solely by
reason of being such holders, except as described in the Prospectus; and
none of such securities were issued in violation of the preemptive rights
of any holders of any security of the Company or any similar rights
granted by the Company. The Securities to be sold by the Company
hereunder and under the Warrant Agreement and the Representatives' Warrant
Agreement are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will
be validly issued, fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders, except as
described in the Prospectus; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities are in due
and proper form. The Representatives' Warrants and the Redeemable
Warrants constitute valid and binding obligations of the Company to issue
and sell, upon exercise thereof and payment therefor, the number and type
of securities of the Company called for thereby. Upon the issuance and
delivery pursuant to this Agreement of the Firm Securities and the Option
Securities and the Representatives' Warrants to be sold by the Company,
the Underwriters and the Representatives, respectively, will acquire good
and marketable title to the Firm Securities and the Option Securities and
the Representatives' Warrants free and clear of any pledge, lien, charge,
claim, encumbrance, pledge, security interest, or other restriction or
equity of any kind whatsoever. No transfer tax imposed by the federal
government or by the State of Wisconsin is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company, and the purchase by the
Representatives of the Representatives' Warrants from the Company (C) the
consummation by the Company of any of its obligations under this
Agreement, the Warrant Agreement or the Representatives' Warrant
Agreement, or (D) resales of the Firm Securities and the Option Securities
in connection with the distribution contemplated hereby.
iv. the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement or Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
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<PAGE> 23
purpose have been instituted or are pending or, to the best of such
counsel's knowledge, threatened or contemplated under the Act;
v. each of the Preliminary Prospectus, the Registration Statement, and
the Prospectus and any amendments or supplements thereto (other than the
financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations.
vi. to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a party or by which
it is bound, including any document to which the Company is a party or by
which it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate and fairly represent the
information required to be shown by Form S-1; (C) there is not pending or
threatened against the Company any action, arbitration, suit, proceeding,
inquiry, investigation, litigation, governmental or other proceeding
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or
threatened against (or circumstances that may give rise to the same), or
involving the properties or business of the Company which (x) is required
to be disclosed in the Registration Statement which is not so disclosed
(and such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects), (y) questions the validity of the
capital stock of the Company or this Agreement, the Warrant Agreement or
the Representatives' Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described as
required; and (E) there is no action, suit or proceeding pending or
threatened against or affecting the Company before any court or arbitrator
or governmental body, agency or official (or any basis thereof known to
such counsel) in which there is a reasonable possibility of a decision
which may result in a material adverse change in the condition, financial
or otherwise, or the earnings, position, prospects, stockholders' equity,
value, operation, properties, business or results of operations of the
Company, which could adversely affect the present or prospective ability
of the Company to perform its obligations under this Agreement, the
Warrant Agreement or the Representatives' Warrant Agreement or which in
any manner draws into question the validity or enforceability of this
Agreement, the Warrant Agreement or the Representatives' Warrant
Agreement;
vii. the Company has full legal right, power and authority to enter
into each of this Agreement, the Warrant Agreement and the
Representatives' Warrant Agreement,
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and to consummate the transactions provided for therein; and each of this
Agreement, the Warrant Agreement and the Representatives' Warrant
Agreement has been duly authorized, executed and delivered by the Company.
Each of this Agreement, the Warrant Agreement and the Representatives'
Warrant Agreement, assuming due authorization, execution and delivery by
each other party thereto constitutes a legal, valid and binding agreement
of the Company enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or
delivery of this Agreement, the Warrant Agreement and the Representatives'
Warrant Agreement, its performance hereunder or thereunder, its
consummation of the transactions contemplated herein or therein,
conflicts with or will conflict with or results or will result in any
material breach or violation of any of the terms or provisions of, or
constitutes or will constitute a material default under, or result in the
creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the
Company pursuant to the terms of, (A) the articles of incorporation or
by-laws of the Company, (B) any license, contract, collective bargaining
agreement, indenture, mortgage, deed of trust, lease, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any
other material agreement or instrument to which the Company is a party or
by which it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or (C)
any statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency
or other governmental agency or body (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or any of its respective
activities or properties.
viii. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no
opinion need be rendered) is required in connection with the issuance of
the Firm Securities and the Option Securities pursuant to the Prospectus
and the Registration Statement, the issuance of the Representatives'
Warrants, the performance of this Agreement, the Warrant Agreement and the
Representatives' Warrant Agreement, and the transactions contemplated
hereby and thereby;
ix. the properties (other than the intellectual property, with
respect to which Medlen and Carroll, patent counsel to the Company, will
give its opinion) conform in all material respects to the description
thereof contained in the Registration Statement and the Prospectus; and
the Company has good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property stated
(other than the intellectual property, with respect to which Medlen and
Carroll, patent counsel to the Company, will give its opinion) in the
Prospectus to be owned or leased by it, in each case free and clear of all
liens, charges, claims, encumbrances, pledges, security interests,
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defects or other restrictions or equities of any kind whatsoever, other
than those referred to in the Prospectus and liens for taxes not yet due
and payable;
x. (other than obligations of the Company relating to intellectual
property , to which Medlen and Carroll, patent counsel to the Company,
will give its opinion), to the best of counsel's knowledge, the Company is
not in material breach of, or in material default under, any term or
provision of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale agreement, deed of trust, lease,
voting trust agreement, stockholders' agreement, partnership agreement,
note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may be
bound or to which the properties or assets (tangible or intangible) of the
Company is subject or affected; and the Company is not in violation of any
term or provision of its Amended and Restated Articles of Incorporation or
Amended and Restated By-Laws or in violation of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation;
xi. the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they refer
to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects
(other than matters related to intellectual property and FDA regulation,
as to which Medlen and Carroll, patent counsel to the Company, will give
its opinion);
xii. the Securities have been accepted for quotation on Nasdaq;
xiii. the persons listed under the caption "PRINCIPAL STOCKHOLDERS" in
the Prospectus are the respective "beneficial owners" (as such phrase is
defined in regulation 13d--3 under the Exchange Act) of the securities set
forth opposite their respective names thereunder as and to the extent set
forth therein;
xiv. to such counsel's knowledge, none of the Company nor any of its
officers, stockholders, employees or agents, nor any other person acting
on behalf of the Company has, directly or indirectly, given or agreed to
give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or
official or employee of any governmental agency or instrumentality of any
government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who is or may be in a
position to help or hinder the business of the Company (or assist it in
connection with any actual or proposed transaction) which (A) might
subject the Company to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (B) if not given in the past, might
have had an adverse effect on the assets, business or operations of the
Company, as reflected in any of the financial statements contained in the
Registration Statement, or (C) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the
Company;
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xv. except as described in the Prospectus, no person, corporation,
trust, partnership, association or other entity has the right to include
and/or register any securities of the Company in the Registration
Statement, require the Company to file any registration statement or, if
filed, to include any security in such registration statement;
xvi. to such counsel's knowledge, except as described in the
Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee
with respect to the sale of the Securities hereunder or financial
consulting arrangements or any other arrangements, agreements,
understandings, payments or issuances that may affect the Underwriters'
compensation, as determined by the NASD;
xvii. Intentionally omitted.
xviii. except as described in the Prospectus, the Company does not (A)
maintain, sponsor or contribute to any ERISA Plans, (B) maintain or
contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA, and (C) has never completely or
partially withdrawn from a "multiemployer plan";
xix. the minute books of the Company have been made available to the
Underwriters and to such counsel's knowledge, contain a complete summary
of all meetings and actions of the directors and stockholders of the
Company since the time of its incorporation and reflect all transactions
referred to in such minutes accurately in all material respects;
xx. except as set forth in the Prospectus and to the best
knowledge of such counsel, no officer, director or stockholder of the
Company, or any "affiliate" or "associate" (as these terms are defined in
Rule 405 promulgated under the Rules and Regulations) of any of the
foregoing persons or entities has or has had, either directly or
indirectly, (A) an interest in any person or entity which (x) furnishes or
sells services or products which are furnished or sold or are proposed to
be furnished or sold by the Company, or (y) purchases from or sells or
furnishes to the Company any goods or services, or (B) a beneficial
interest in any contract or agreement to which the Company is a party or
by which it may be bound or affected. Except as set forth in the
Prospectus under "CERTAIN TRANSACTIONS," there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the
Company, and any officer, director, or 5% or greater securityholder of the
Company, or to such counsel's knowledge, any affiliate or associate of any
such person or entity;
xxi. to the best of such counsel's knowledge, after due inquiry,
there is no action, suit, proceeding, inquiry, investigation, litigation
or governmental proceeding, domestic or foreign, pending or threatened (or
circumstances that may give rise to the same) involving the Company's
production, use, testing, manufacturing or marketing of any products or
services, which (i) questions the authority of the Company to produce,
use, test, manufacture or market any products or services as described in
the Prospectus, (ii) questions the completeness or accuracy of data
generated by any trials, tests or studies
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being conducted by or on behalf of the Company, (iii) is required to be
disclosed in the Prospectus which is not so disclosed, or (iv) might
materially and adversely affect the condition, financial or otherwise, or
the earnings, prospects, value, operations or business of the Company.
xxii. none of the Company nor any of its affiliates shall be subject
to the requirements of or shall be deemed an "Investment Company,"
pursuant to and as defined under, respectively, the Investment Company
Act.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company, and representatives of
the independent public accountants for the Company, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and related matters and, although such counsel is
not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Preliminary
Prospectus, the Registration Statement and Prospectus, on the basis of the
foregoing, no facts have come to the attention of such counsel which lead them
to believe that either the Registration Statement or any amendment thereto, at
the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and that the
Representatives, Underwriters' Counsel and they are each justified in relying
thereon. Any opinion of counsel for the Company shall not state that it is to
be governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991)
or any comparable state accord.
(e) At the Closing Date, the Underwriters shall have received the
favorable opinion of Medlen and Carroll, patent counsel to the Company, dated
the Closing Date, addressed to the Underwriters in substantially the form
attached hereto as Schedule B.
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(f) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinions of each of LaFollette & Sinykin, counsel to the
Company, and Medlen and Carroll, patent counsel to the Company dated such
Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of such Option Closing Date
the statements made by each of LaFollette & Sinykin and Medlen and Carroll in
their respective opinions delivered on the Closing Date.
(g) On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(h) Prior to each of the Closing Date and each Option Closing Date,
if any, (i) there shall have been no material adverse change nor development
involving a prospective material adverse change in the condition, financial or
otherwise, earnings, position, value, properties, results of operations,
prospects, stockholders' equity or the business activities of the Company,
whether or not in the ordinary course of business, from the latest dates as of
which such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by the Company, from the latest date as of which the
financial condition of the Company is set forth in the Registration Statement
and Prospectus which is materially adverse to the Company; (iii) the Company
shall not be in material default under any provision of any instrument relating
to any outstanding indebtedness; (iv) the Company shall not have issued any
securities (other than the Securities) other than as contemplated in the
Prospectus or declared or paid any dividend or made any distribution in respect
of its capital stock of any class and there has not been any change in the
capital stock or any material change in the debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise); (v) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus;
(vi) no action, suit or proceeding, at law or in equity, shall have been
pending or to the Company's knowledge threatened (or circumstances giving rise
to same) against the Company, or affecting any of its respective properties or
businesses before or by any court or federal, state or foreign commission,
board or other administrative agency wherein an unfavorable decision, ruling or
finding may materially adversely affect the business, operations, earnings,
position, value, properties, results of operations, prospects or financial
condition or income of the Company; and (vii) no stop order shall have been
issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(i) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
i. The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as
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the case may be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this Agreement on
its part to be performed or satisfied at or prior to such Closing Date or
Option Closing Date, as the case may be;
ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of each of
such person's knowledge, are contemplated or threatened under the Act;
iii. The Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements the
rein not misleading and neither the Preliminary Prospectus or any
supplement thereto included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) the Company
has not incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent;
(b) the Company has not paid or declared any dividends or other
distributions on its capital stock; (c) the Company has not entered
into any material transactions not in the ordinary course of business; (d)
there has not been any change in the capital stock or long-term debt or
any increase in the short-term borrowings (other than any increase in the
short-term borrowings in the ordinary course of business) of the Company;
(e) the Company has not sustained any material loss or damage to its
properties or assets, whether or not insured; (f) there is no litigation
which is pending or threatened (or circumstances giving rise to same)
against the Company or any affiliated party which is required to be set
forth in an amended or supplemented Prospectus which has not been set
forth; and (g) there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(i) are to such documents as amended and supplemented at the date of such
certificate.
(j) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(k) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Ernst & Young LLP:
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i. confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable Rules
and Regulations;
ii. stating that it is their opinion that the financial statements and
supporting schedules of the Company included in the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations thereunder and that the
Representatives may rely upon the opinion of Ernst & Young LLP with respect to
the financial statements and supporting schedules included in the Registration
Statement;
iii. stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim financial statements of the
Company, a reading of the latest available minutes of the stockholders and
board of directors and the various committees of the board of directors of the
Company, consultations with officers and other employees of the Company
responsible for financial and accounting matters and other specified procedures
and inquiries, nothing has come to their attention which would lead them to
believe that (A) the unaudited financial statements and supporting schedules of
the Company included in the Registration Statement do not comply as to form in
all material respects with the applicable accounting requirements of the Act
and the Rules and Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements of the Company
included in the Registration Statement, or (B) at a specified date not more
than five (5) days prior to the effective date of the Registration Statement,
there has been any change in the capital stock or long-term debt of the
Company, or any decrease in the stockholders' equity or net current assets or
net assets of the Company as compared with amounts shown in the December 31,
1997 balance sheet included in the Registration Statement, other than as set
forth in or contemplated by the Registration Statement, or, if there was any
change or decrease, setting forth the amount of such change or decrease, and
(C) during the period from December 31, 1997 to a specified date not more than
five (5) days prior to the effective date of the Registration Statement, there
was any decrease in net revenues, net earnings or increase in net earnings per
common share of any of the Company or the Subsidiaries, in each case as
compared with the corresponding period beginning December 31, 1996, other than
as set forth in or contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
iv. setting forth, at a date not later than five (5) days prior to the
date of the Registration Statement, the amount of liabilities of the Company
and the Subsidiaries taken as a whole (including a break-down of commercial
paper and notes payable to banks);
v. stating that they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each case
to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any
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questions requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards) set
forth in the letter and found them to be in agreement;
vi. statements as to such other matters incident to the transaction
contemplated hereby as the Representatives may request.
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Ernst & Young LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
subsection (k) of this Section, except that the specified date referred to
shall be a date not more than five (5) days prior to the Closing Date or the
Option Closing Date, as the case may be, and, if the Company has elected to
rely on Rule 430A of the Rules and Regulations, to the further effect that they
have carried out procedures as specified in clause (v) of subsection (k) of
this Section with respect to certain amounts, percentages and financial
information as specified by the Representatives and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
(m) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Representatives pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or shall be contemplated.
(o) On or before the Closing Date, the Company shall have executed
and delivered to the Representatives, (i) the Representatives' Warrant
Agreement substantially in the form filed as Exhibit 4.3 to the Registration
Statement, in final form and substance satisfactory to the Representatives,
and (ii) the Representatives' Warrants in such denominations and to such
designees as shall have been provided to the Company.
(p) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for listing on Nasdaq, subject to
official notice of issuance.
(q) On or before the Closing Date, there shall have been delivered
to the Representatives all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
(r) On or before the Closing Date, the Company shall have executed
and delivered to the Representatives and the Transfer Agent the Warrant
Agreement substantially in the form filed as Exhibit 4.4 to the Registration
Statement, in final form and substance satisfactory to the Representatives.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the
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Closing Date or the relevant Option Closing Date, as the case may be, is not so
fulfilled, the Representatives may terminate this Agreement or, if the
Representatives so elects, it may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several (and
actions, proceedings, investigations, inquiries, suits and litigation in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any
untrue statement or alleged untrue statement of a material fact contained (i)
in any Preliminary Prospectus, the Registration Statement or the Prospectus (as
from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise of
the Securities; or (iii) in any application or other document or written
communication (in this Section 7 collectively called "application") executed by
the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or
agency, Nasdaq or any other securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made), or
(C) any breach of any representation, warranty, covenant or agreement of the
Company contained herein or in any certificate by or on behalf of the Company
or any of its officers delivered pursuant hereto, unless, in the case of clause
(A) or (B) above, such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company with respect to
any Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be. The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
The foregoing indemnity with respect to any untrue statement contained in
or omission from a Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) from whom the person
asserting any such loss, liability, claim, damage or expense purchased any of
the Securities which are the subject thereof if (1) the Company shall sustain
the burden of proving that such asserting person did not receive a copy of the
Prospectus (or the Prospectus as amended or supplemented) at or prior to the
written confirmation of the sale of such Securities to such person and the
untrue statement contained in
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or omitted from such Preliminary Prospectus was corrected in the Prospectus (or
the Prospectus as amended or supplemented); and (2) the Company shall have
complied with its covenant pursuant to Section 4(f) of this Agreement.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof
or supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering.
The Company acknowledges that the statements with respect to the public
offering of the Firm Securities and the Option Securities set forth under the
heading "Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus. The indemnity agreement in this subsection (b)
shall be in addition to any liability which the Underwriters may have at common
law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a
reasonable time after notice of commencement thereof, or (iii) such indemnified
party or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct
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the defense thereof on behalf of the indemnified party or parties), in any of
which events such fees and expenses of one additional counsel shall be borne by
the indemnifying parties. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one claim, action, suit, investigation, inquiry, proceeding
or litigation or separate but similar or related claims, actions, suits,
investigations, inquiries, proceedings or litigation in the same jurisdiction
arising out of the same general allegations or circumstances. Anything in this
Section 7 to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim, action, suit, investigation, inquiry,
proceeding or litigation effected without its written consent; provided,
however, that such consent was not unreasonably withheld. An indemnifying
party will not, without the prior written consent of the indemnified parties,
settle, compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit, investigation, inquiry, proceeding
or litigation in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim, action, suit, investigation, inquiry, proceeding or
litigation), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit, investigation, inquiry, proceeding or litigation
and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of each of the contributing parties, on
the one hand, and the party to be indemnified on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages,
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expenses or liabilities, as well as any other relevant equitable
considerations. In any case where the Company is the contributing party and
the Underwriters are the indemnified party, the relative benefits received by
the Company on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Firm Securities and the Option Securities (before deducting expenses)
bear to the total underwriting discounts received by the Underwriters
hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. 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, or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this
subsection (d) 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
subsection (d), the Underwriters shall not be required to contribute any amount
in excess of the underwriting discount applicable to the Firm Securities and
the Option Securities purchased by the Underwriters hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section 7, each
person, if any, who controls the Company or the Underwriter within the meaning
of the Act, each officer of the Company who has signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company or the Underwriter, as the case may be, subject in
each case to this subsection (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subsection (d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subsection (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representatives, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representatives, in its discretion, shall release the Securities for sale to
the public; provided, however, that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section
9, the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representatives of telegrams to
securities dealers releasing such securities for offering or the release by the
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Representatives
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has materially adversely disrupted, or
in the Representatives' opinion will in
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the immediate future materially adversely disrupt, the financial markets; or
(ii) if any material adverse change in the financial markets shall have
occurred; or (iii) if trading generally shall have been suspended or materially
limited on or by, as the case may be, any of the New York Stock Exchange, the
American Stock Exchange, the NASD, the Commission or any governmental authority
having jurisdiction over such matters; or (iv) if trading of any of the
securities of the Company shall have been suspended, or any of the securities
of the Company shall have been delisted, on any exchange or in any
over-the-counter market; (v) if the United States shall have become involved in
a war or major hostilities, or if there shall have been an escalation in an
existing war or major hostilities or a national emergency shall have been
declared in the United States; or (vi) if a banking moratorium has been
declared by a state or federal authority; or (vii) if a moratorium in foreign
exchange trading has been declared; or (viii) if the Company shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representatives' opinion, make it inadvisable to proceed with the offering,
sale and/or delivery of the Securities; or (ix) if there shall have been such a
material adverse change in the conditions or prospects of the Company, or such
material adverse change in the general market, political or economic
conditions, in the United States or elsewhere, that, in each case, in the
Representatives' judgment, would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities or (x) if either Dr. Douglas
C. Stafford or Dr. Joseph R. Firca shall no longer serve the Company in his
present capacity.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representatives for all of its actual out-of-pocket
expenses in an amount not to exceed $100,000, including the fees and
disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 5(c) above). In addition, the Company shall remain liable
for all Blue Sky counsel fees and disbursements, expenses and filing fees. The
Representatives agrees to return to the Company any unaccounted for portion of
funds advanced by the Company as disclosed in Section 5(c) hereof.
Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not
this Agreement is otherwise carried out, the provisions of Section 5 and
Section 7 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination
of this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase
on such date under this Agreement (the "Defaulted Securities"), the
Representatives shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:
36
<PAGE> 37
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be purchased
on an Option Closing Date, the Underwriters may at the Representatives'
option, by notice from the Representatives to the Company, terminate the
Underwriters' obligation to purchase Option Securities from the Company on
such date).
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representatives shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such
date, then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representatives' option, by notice from the
Representatives to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to
have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives Dirks & Company, Inc., 520 Madison Avenue, New York, New York
10022, Attention: Jessy Dirks, President, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence
B. Fisher, Esq. Notices to the Company shall be directed to the Company at
5445 East Cheryl Parkway, Madison, Wisconsin 53711, Attention: Dr. Douglas C.
Stafford, President and Chief Executive Officer, with a copy to: LaFollette &
Sinykin, One East Main Street, Post Office Box 2719, Madison, Wisconsin,
53701-2719, Attention: Michael E. Skindrud, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No
37
<PAGE> 38
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the Warrant Agreement
and the Representatives' Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representatives
and the Company.
38
<PAGE> 39
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
OPHIDIAN PHARMACEUTICALS, INC.
By:______________________________________
Douglas C. Stafford, Ph.D.
President and Chief Executive Officer
Confirmed and accepted as of
the date first above written.
DIRKS & COMPANY, INC.
SECURITY CAPITAL TRADING INC.
By: Dirks & Company, Inc.
Acting on its own behalf and as the
Representatives of the several Underwriters
named in Schedule A hereto.
By:______________________________
Name:
Title:
39
<PAGE> 40
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM SECURITIES
NAME OF UNDERWRITERS TO BE PURCHASED
-------------------- ---------------
<S> <C>
Dirks & Company, Inc.........
Security Capital Trading Inc.
Total........................ 1,600,000
=========
</TABLE>
A-1
<PAGE> 41
_____________________, 1998
SCHEDULE B
[FORM OF INTELLECTUAL PROPERTY OPINION]
___________________, 1998
DIRKS & COMPANY, INC.
SECURITY CAPITAL TRADING INC.
As Representatives of the several
Underwriters named in Schedule A
to the Underwriting Agreement
% 520 Madison Avenue
New York, New York 10022
Re: Initial Public Offering of 1,600,000 Units, each Unit consisting of
One Share of Common Stock and One Redeemable Warrant of
Ophidian Pharmaceuticals, Inc.
-------------------------------------------------------------------
Gentlemen:
We have acted as special counsel to Ophidian Pharmaceuticals, Inc., a
Wisconsin corporation (the "Company"), in connection with the entering into by
the Company of that certain Underwriting Agreement by and between Dirks &
Company, Inc. and Security Capital Trading Inc. (as representatives of the
several underwriters named therein) (the "Representatives") and the Company,
dated _______________, 1998 (the "Underwriting Agreement"). This opinion is
provided to you pursuant to Section 6(e) of the Underwriting Agreement.
For the purpose of rendering the opinions set forth below we have reviewed
the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
B-1
<PAGE> 42
___________________, 1998
(ii) that certain Form S-1 as filed by the Company
with the Securities and Exchange Commission on ______, 1998,
together with any and all exhibits and schedules and all
heretofore filed amendments thereto (collectively, the
"Registration Statement");
(iii) the Company's prospectus dated _______________,
1998 (the "Prospectus");
(iv) a search of the United States Patent and
Trademark Office records relevant to ownership of any and all:
patents and patent applications (including, without
limitation, the patents and patent applications listed on
Schedule A annexed hereto and hereby incorporated by
reference herein (collectively, the "Patents")), and
trademarks, trademark applications, service marks and service
mark applications (collectively, the "Marks") (including,
without limitation, the Marks listed on Schedule B annexed
hereto and hereby incorporated by reference herein
(collectively, the "Trademarks")),
owned, purportedly owned or licensed by either the Company or
the Subsidiary (including, those patents, patent applications and
Marks licensed, without limitation, pursuant to the licenses listed
on Schedule C annexed hereto and hereby incorporated by reference
herein (collectively, the "Licenses")), conducted by
______________________________ and certified as true and correct as
of _______________________, 1998 (no earlier than 5 days prior to
the effective date of the Registration Statement);
(v) a search of the United States Copyright Office
records relevant to ownership of any and all copyrighted
material (including, without limitation, the copyright in, or
license permitting the Company's actual use of, the material
licensed or otherwise distributed by either the Company and
listed on Schedule D annexed hereto and hereby incorporated by
reference herein (collectively, the "Copyrighted Material")),
owned, purportedly owned or licensed by the Company conducted
by _____________________ and certified as true and correct as
of __________________, 1998 (no earlier than 5 days prior to
the effective date of the Registration Statement);
(vi) an intellectual property litigation search with
respect to all Patents, Trademarks, Licenses and Copyrighted
Material, listed on Schedules A, B, C and D, respectively;
(vii) a search of the Uniform Commercial Code ("UCC")
recordation office, in the following jurisdiction: --
Wisconsin, with respect to the following two categories of
general intangibles:
B-2
<PAGE> 43
_____________, 1998
(a) the intellectual property general intangibles of the
Company, including, without limitation, the Company's patents,
patent applications, inventions, know how, trademarks, service
marks, copyrights, service and trade names, intellectual property
licenses and other rights, and
(b) the intellectual property general intangibles licensed to
the Company, including, without limitation, the patents, patent
applications, inventions, know how, trademarks, service marks,
copyrights, service and trade names and other intellectual property
rights licensed to the Company pursuant to the Licenses (listed on
Schedule C),
said search certified to us as complete and accurate by
________________ and current through ________________________, 1998
(no earlier than 5 days prior to the effective date of the
Registration Statement) and said jurisdictions being the only
jurisdictions in which filing of UCC financing statements or other
documents may be filed to effectively evidence a security or other
interest in said general intangibles; and
(viii) any and all records, documents, instruments and agreements
in our possession or under our control relating to the
Company.
We have also examined such corporate records, documents, instruments
and agreements, and inquired into such other matters, as we have deemed
necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the best of our
knowledge" or "to the best of our knowledge, after due inquiry," such language
means that, based upon (i) our inquiries of officers of the Company, (ii) our
review of the Documents, and (iii) our review of such other corporate records,
documents, instruments and agreements described in the first sentence of this
paragraph, we believe that such opinions are factually correct.
To the best of our knowledge, as to all matters of fact represented
to you by the Company, we advise you that nothing has come to our attention
that would cause us to believe that such facts are incorrect, incomplete or
misleading or that reliance thereon is not warranted under the circumstances.
We call to your attention that our opinion is limited to such facts as they
exist on the date hereof and do not take into account any change of
circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion that:
1. To the best of our knowledge, after due inquiry, except as
described in the Prospectus, the Company owns or has the right to
use, free and clear of all liens, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind
whatsoever,
(i) all patents and patent applications
(including, without limitation, the Patents),
B-3
<PAGE> 44
________________, 1998
(ii) all trademarks and service marks
(including, without limitation, the Trademarks),
(iii) all copyrights (including, without
limitation, the Copyrighted Material),
(iv) all service and trade names, and
(v) all intellectual property licenses
(including, without limitation, the Licenses),
used in, or required for, the conduct of the Company's respective
business.
2. To the best of our knowledge, after due inquiry, the
Company possesses all material intellectual property licenses or
rights used in, or required for, the conduct of its respective
business (including, the Licenses and without limitation, any such
licenses or rights described in the Prospectus as being owned,
possessed or licensed by the Company) and such licenses and rights
are in full force and effect.
3. To the best of our knowledge, after due inquiry, there is
no claim or action, pending, threatened or potential, which affects
or could affect the rights of the Company with respect to any
trademarks, service marks, copyrights, service names, trade names,
patents, patent applications or licenses used in, or required for,
the conduct of the Company's business.
4. To the best of our knowledge, after due inquiry, there is no
intellectual property based claim or action, pending, threatened or
potential, which affects or could affect the rights of the Company
with respect to any products, services, processes or licenses,
including, without limitation, the Licenses used in the conduct of
the Company's business.
5. To the best of our knowledge, after due inquiry, except as
described in the Prospectus, the Company is not under any obligation
to pay royalties or fees to any third party with respect to any
material, technology or intellectual properties developed, employed,
licensed or used by the Company.
6. To the best of our knowledge, after due inquiry, the
statements in the Prospectus under the headings, "Risk Factors -
Uncertainty Regarding Patents and Proprietary Rights," and "Business
- Patents and Proprietary Technology", are accurate in all material
respects, fairly represent the information disclosed therein and do
not omit to state any fact necessary to make the statements made
therein complete and accurate.
7. To the best of our knowledge, after due inquiry, the
statements in the Registration Statement and Prospectus do not
contain any untrue statement of
B-4
<PAGE> 45
____________________, 1998
a material fact with respect to the intellectual property position of
the Company, or omit to state any material fact relating to the
intellectual property position of the Company which is required to be
stated in the Registration Statement and the Prospectus or is
necessary to make the statements therein not misleading.
We call your attention to the fact that the members of this firm are
licensed to practice law in the State of ______________ and before the United
States Patent and Trademark Office as Registered Patent Attorneys.
Accordingly, we express no opinion with respect to the laws, rules and
regulations of any jurisdictions other than the State of ___________ and the
United States of America.
The opinions expressed herein are for the sole benefit of, and may be
relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe LLP.
Very truly yours,
B-5
<PAGE> 1
================================================================================
OPHIDIAN PHARMACEUTICALS, INC.
AND
DIRKS & COMPANY, INC.
AND
SECURITY CAPITAL TRADING INC.
__________
REPRESENTATIVES'
WARRANT AGREEMENT
DATED AS OF ____________, 1998
================================================================================
<PAGE> 2
REPRESENTATIVES' WARRANT AGREEMENT dated as of ___________, 1998 by and
between OPHIDIAN PHARMACEUTICALS, INC., a Wisconsin corporation (the
"Company"), DIRKS & COMPANY, INC. and SECURITY CAPITAL TRADING INC.(hereinafter
referred to variously as the "Holder" or the "Representatives").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representatives warrants
("Warrants") to purchase up to an aggregate 160,000 units (the "Units"), each
Unit consisting of one share of Common Stock, $0.0025 par value, of the Company
and one redeemable Common Stock purchase warrant of the Company ("Redeemable
Warrants"), each Redeemable Warrant to purchase one additional share of Common
Stock; and
WHEREAS, the Representatives have agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between
the Company and the several Underwriters listed therein to act as the
Representatives in connection with the Company's proposed public offering of up
to 1,600,000 Units, each Unit consisting of one share of Common Stock and one
Redeemable Warrant (the "Public Warrants") at a public offering price of $6.10
per Unit (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives in consideration for, and as
part of the Representatives' compensation in connection with, the
Representatives acting as the Representatives pursuant to the Underwriting
Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representatives to the Company of an aggregate sixteen dollars ($16.00), the
agreements herein set
<PAGE> 3
forth and other good and valuable consideration, hereby acknowledged, the
parties hereto agree as follows:
1. Grant. The Representatives (or their designees) are hereby granted the
right to purchase, at any time from _________, 1999, until 5:30 P.M., New York
time, on __________, 2003, up to an aggregate of 160,000 Units at an initial
exercise price (subject to adjustment as provided in Section 8 hereof) of $____
per Unit [120% of the initial public offering price of the Units] from
____________, 1999, until 5:30 p.m. New York time on ____________, 2003. One
Redeemable Warrant is exercisable to purchase one additional share of Common
Stock at an initial exercise price of $_____ per share [120% of the exercise
price of the Public Warrants] from ____________, 1999 until ____________, 2003,
at which time the Redeemable Warrants shall expire. Except as set forth
herein, the Units, shares of Common Stock and the Redeemable Warrants issuable
upon exercise of the Warrants are in all respects identical to the Units,
shares of Common Stock and the Public Warrants being purchased by the
Underwriters for resale to the public pursuant to the terms and provisions of
the Underwriting Agreement. The Units, shares of Common Stock and the
Redeemable Warrants issuable upon exercise of the Warrants are sometimes
hereinafter referred to collectively as the "Securities."
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall
be in the form set forth in Exhibit A, attached hereto and made a part hereof,
with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
2
<PAGE> 4
3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are exercisable at
an aggregate initial exercise price (subject to adjustment as provided in
Section 8 hereof) per Unit set forth in Section 6 hereof payable by certified
or official bank check in New York Clearing House funds, subject to adjustment
as provided in Section 8 hereof. Upon surrender of a Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with payment
of the Exercise Price (as hereinafter defined) for the Units purchased at the
Company's principal executive offices in Wisconsin (presently located at 5445
East Cheryl Parkway, Madison, Wisconsin 53711) the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased and a
certificate or certificates for the Redeemable Warrants so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of the Common Stock and Redeemable Warrants underlying the Warrants).
In the event the Company redeems all of the Public Warrants, then the Warrants
may only be exercised if such exercise is accompanied by the simultaneous
exercise of the Redeemable Warrant(s) underlying the Warrants being so
exercised. Warrants may be exercised to purchase all or part of the shares of
Common Stock together with an equal or unequal number of the Redeemable
Warrants represented thereby. In the case of the purchase of less than all the
Units purchasable under any Warrant Certificate, the Company shall cancel said
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate of like tenor for the balance of the Units purchasable
thereunder.
3
<PAGE> 5
Section 3.2 Exercise by Surrender of Warrant. In addition to the method
of payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 hereof. The
number of Units to be issued pursuant to this Section 3.2 shall be equal to the
difference between (a) the number of Units in respect of which the Warrants are
exercised and (b) a fraction, the numerator of which shall be number of Units
in respect of which the Warrants are exercised multiplied by the Exercise Price
and the denominator of which shall be the Market Price (as defined in Section
3.3 hereof) of the Units. In the event that at the time of the exercise of the
Representatives' Warrants pursuant to this Section 3.2, the Market Price per
Unit is unavailable, such Market Price shall be equal to the sum of the
respective Market Prices per share of Common Stock and per Public Warrant.
Solely for the purposes of this paragraph, Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to Section 14 hereof ("Notice Date")
or (ii) as the average of the Market Prices for each of the five trading days
preceding the Notice Date, whichever of (i) or (ii) is greater.
Section 3.3 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be (i) when referring to the Units or the
Common Stock, the last reported sale price, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted
to trading or by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), or, if the Common Stock is not listed or admitted
to trading on any national
4
<PAGE> 6
securities exchange or quoted by Nasdaq, the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted on Nasdaq, as determined in
good faith (using customary valuation methods) by resolution of the members of
the Board of Directors of the Company, based on the best information available
to it or (ii) when referring to a Redeemable Warrant, the last reported sales
price, or, in the case no such reported sale takes place on such day, the
average of the last reported sale prices for the last three (3) trading days,
in either case as officially reported by the principal securities exchange on
which the Redeemable Warrants are listed or admitted to trading or by Nasdaq,
or, if the Redeemable Warrants are not listed or admitted to trading on any
national securities exchange or quoted by Nasdaq, the average closing bid price
as furnished by the NASD through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Redeemable Warrants are not quoted
on Nasdaq or are no longer outstanding, the Market Price of a Redeemable
Warrant shall equal the difference between the Market Price of the Common Stock
and the Exercise Price of the Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or Redeemable Warrants
and/or other securities, properties or rights underlying such Warrants and,
upon the exercise of the Redeemable Warrants, the issuance of certificates for
shares of Common Stock and/or other securities, properties or rights underlying
such Redeemable Warrants shall be made forthwith (and in any event within five
(5) business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof,
5
<PAGE> 7
and such certificates shall (subject to the provisions of Sections 5
and 7 hereof) be issued in the name of, or in such names as may be directed by,
the Holder thereof; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares of
Common Stock and the Redeemable Warrants underlying the Warrants and the shares
of Common Stock underlying the Redeemable Warrants (and/or other securities,
property or rights issuable upon the exercise of the Warrants or the Redeemable
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company. Warrant Certificates shall be
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer. Certificates representing the shares of
Common Stock and Redeemable Warrants, and the shares of Common Stock underlying
each Redeemable Warrant (and/or other securities, property or rights issuable
upon exercise of the Warrants) shall be dated as of the Notice Date (regardless
of when executed or delivered) and dividend bearing securities so issued shall
accrue dividends from the Notice Date.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants
6
<PAGE> 8
may not be sold, transferred, assigned, hypothecated or otherwise disposed of,
in whole or in part, for a period of one (1) year from the date hereof, except
to officers of the Representatives.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $____ per Unit [120% of the initial public offering price of the Units].
The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof. Any transfer of a Warrant shall
constitute an automatic transfer and assignment of the registration rights set
forth in Section 7 hereof with respect to the Securities or other securities,
properties or rights underlying the Warrants.
Section 6.2 Exercise Price. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context or unless otherwise specified.
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The Warrants,
the shares of Common Stock and Redeemable Warrants in the Units or other
securities issuable upon exercise of the Warrants, and the shares of Common
Stock or other securities issuable upon exercise of the Redeemable Warrants
(collectively, the "Warrant Securities") have been registered under the
Securities Act of 1933, as amended (the "Act") pursuant to the Company's
Registration Statement on Form S-1 (Registration No. 333-33219) (the
"Registration Statement"). All of the representations and warranties of the
Company contained in the Underwriting Agreement relating to the Registration
Statement, the Preliminary
7
<PAGE> 9
Prospectus and Prospectus (as such terms are defined in the Underwriting
Agreement) and made as of the dates provided therein, are incorporated by
reference herein. The Company agrees to use its best efforts to file
post-effective amendments to such Registration Statement as may be necessary in
order to maintain its effectiveness and otherwise to take such action as may be
necessary to maintain the effectiveness of the Registration Statement as long
as any Warrants are outstanding. In the event that, for any reason,
whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement, the certificates representing the Warrant Securities
shall bear the following legend:
The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended ("Act"), and may not be offered or sold
except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar
rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such
opinion shall be reasonably satisfactory to counsel to
the issuer, that an exemption from registration under
such Act is available.
Section 7.2 Piggyback Registration. If, at any time commencing
after the
date hereof and expiring five (5) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-4,
Form S-8 or a comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Representatives and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If the
Representatives or other Holders of the Warrants and/or Warrant Securities
notify the Company within fifteen (15) business days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford the Representatives and such
Holders of the Warrants and/or Warrant Securities the opportunity to have any
such Warrant Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring five (5)
years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representatives and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for six (6) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten
(10) days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered
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afford the Representatives and such Holders of the Warrants and/or Warrant
Securities the opportunity to have any such Warrant Securities registered
under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring five (5)
years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representatives and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for six (6) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten
(10) days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered
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Holders of the Warrants and the Warrant Securities within ten (10) days from
the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant
to the written notice specified in Section 7.3(a) of a Majority of the Holders
of the Warrants and/or Warrant Securities, the Company may, at its option, upon
the written notice of election of a Majority of the Holders of the Warrants
and/or Warrant Securities requesting such registration, repurchase (i) any and
all Warrant Securities of such Holders at the higher of the Market Price per
Unit on (x) the date of the notice sent pursuant to Section 7.3(a) or (y) the
expiration of the period specified in Section 7.4(a) and (ii) any and all
Warrants of such Holders at such Market Price less the Exercise Price of such
Warrant. Such repurchase shall be in immediately available funds and shall
close within two (2) days after the later of (i) the expiration of the period
specified in Section 7.4(a) or (ii) the delivery of the written notice of
election specified in this Section 7.3(c).
(d) If all of the Holders are able to sell the Warrant Securities pursuant
to Rule 144 under the Securities Act of 1933, as amended, and without regard to
the volume limitations thereunder, the Holders' rights under Section 7.2 and
7.3(a) shall terminate.
Section 7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within sixty (60) days of receipt of any demand therefor, shall use
its best efforts to have any
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registration statements declared effective at the earliest possible time, and
shall furnish each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has
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agreed to indemnify each of the Underwriters contained in Section 7 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to
be or remain effective during the effectiveness of a registration statement
filed pursuant to Section 7.3 hereof (other than (i) shelf registrations
effective prior thereto and (ii) registrations on Form S-4 or S-8), without the
prior written consent of the Holders of the Warrants and Warrant Securities
representing a Majority of such securities.
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(h) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff
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with respect to the registration statement and permit each Holder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the NASD. Such investigation shall include access to books, records
and properties and opportunities to discuss the business of the Company with
its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder or underwriter shall
reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested pursuant to Section 7.3(a) to be
included in such underwriting, which may be the Representatives. Such
agreement shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriter(s), and shall contain such
representations, warranties and covenants by the Company and such other terms
as are customarily contained in agreements of that type used by the managing
underwriter(s). The Holders shall be parties to any underwriting agreement
relating to an underwritten sale of their Warrant Securities whether pursuant
to Section 7.2 or Section 7.3(a) and may, at their option, require that any or
all of the representations, warranties and covenants of the Company to or for
the benefit of such underwriter(s) shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any representations
or warranties to or agreements with the Company or the underwriter(s) except as
they may relate to such Holders and their intended methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the
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then outstanding Warrants or Warrant Securities that (i) are not held by the
Company, an affiliate, officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith and (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision
or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case the Company shall
pay a dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased. An adjustment made pursuant to this
Section 8.2 shall be made as of the record date for the subject stock dividend
or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
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Section 8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value.
Section 8.5 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of
each Warrant then outstanding or to be outstanding shall have the right
thereafter (until the expiration of such Warrant) to receive, upon exercise of
such Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the
number of securities of the Company for which such Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall
be identical to the adjustments provided in Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than two cents (2c.) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of
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<PAGE> 18
and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents (2c.) per
Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations
as shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of the
Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
or Redeemable Warrants upon the exercise of the Warrants, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or Redeemable Warrants or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants and the
Redeemable Warrants, such
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number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock, Redeemable Warrants and other securities issuable
upon such exercise shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any stockholder. The Company
further covenants and agrees that upon exercise of the Redeemable Warrants
underlying the Warrants and payment of the respective Redeemable Warrant
exercise price therefor, all shares of Common Stock and other securities
issuable upon such exercises shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long as the Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Warrants and Redeemable Warrants and all Redeemable Warrants underlying the
Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock or the Public Warrants issued to
the public in connection herewith may then be listed and/or quoted on Nasdaq.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive
a dividend or
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distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings or
capital surplus (in accordance with applicable law), as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written
notice of such event at least thirty (30) days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
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13. Redeemable Warrants.
The form of the certificate representing Redeemable Warrants (and the
form of election to purchase shares of Common Stock upon the exercise of
Redeemable Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit "A" to the Warrant
Agreement dated as of the date hereof by and between the Company and
Continental Stock Transfer and Trust Company (the "Redeemable Warrant
Agreement"). Each Redeemable Warrant issuable upon exercise of the Warrants
shall evidence the right to initially purchase a fully paid and
non-assessable share of Common Stock at an initial purchase price of $_____
per share [120% of the exercise price of the Public Warrants] from _________,
1999 until 5:30 p.m. New York time on _________, 2003 at which time the
Redeemable Warrants, unless the exercise period has been extended, shall
expire. The exercise price of the Redeemable Warrants and the number of
shares of Common Stock issuable upon the exercise of the Redeemable Warrants
are subject to adjustment, whether or not the Warrants have been exercised
and the Redeemable Warrants have been issued, in the manner and upon the
occurrence of the events set forth in Section 8 of the Redeemable Warrant
Agreement, which is hereby incorporated herein by reference and made a part
hereof as if set forth in its entirety herein. Subject to the
provisions of this Agreement and upon issuance of the Redeemable Warrants
underlying the Warrants, each registered holder of such Redeemable Warrant
shall have the right to purchase from the Company (and the Company shall
issue to such registered holders) up to the number of fully paid and
non-assessable shares of Common Stock (subject to adjustment as provided
herein and in the Redeemable Warrant Agreement), free and clear of all
preemptive rights of stockholders, provided that such registered holder
complies with the terms governing exercise of the Redeemable Warrant set
forth in the Redeemable Warrant Agreement, and pays the applicable exercise
price,
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determined in accordance with the terms of the Redeemable Warrant
Agreement. Upon exercise of the Redeemable Warrants, the Company shall
forthwith issue to the registered holder of any such Redeemable Warrant in
his name or in such name as may be directed by him, certificates for the
number of shares of Common Stock so purchased. Except as otherwise provided
in this Agreement, the Redeemable Warrants underlying the Warrants shall be
governed in all respects by the terms of the Redeemable Warrant Agreement.
The Redeemable Warrants shall be transferable in the manner provided in the
Redeemable Warrant Agreement, and upon any such transfer, a new Redeemable
Warrant Certificate shall be issued promptly to the transferee. The Company
covenants to, and agrees with, the Holder(s) that without the prior written
consent of Majority of the Holder(s), which will not be unreasonably
withheld, the Redeemable Warrant Agreement will not be modified, amended,
canceled, altered or superseded, and that the Company will send to each
Holder, irrespective of whether or not the Warrants have been exercised, any
and all notices required by the Redeemable Warrant Agreement to be sent to
holders of Redeemable Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by
notice to the Holders.
15. Supplements and Amendments. The Company and the Representatives may
from time to time supplement or amend this Agreement without the approval of
any
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Holders of Warrant Certificates (other than the Representatives) in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Representatives may deem necessary or desirable and which
the Company and the Representatives deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close of business
on __________, 2005. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on __________, 2011.
18. Governing Law; Legal Costs and Expenses. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Representatives and the Holders agree that the
prevailing party(ies) in any action, proceeding or claim arising out of, or
relating in any way to this Agreement shall be entitled to recover from the
other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
19. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement and the Redeemable Warrant Agreement to the extent
portions
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thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may
not be modified or amended except by a writing duly signed by the party against
whom enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representatives and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Representatives and any other registered Holders of Warrant Certificates or
Warrant Securities.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
OPHIDIAN PHARMACEUTICALS, INC.
By: _____________________________
Name:
Title:
SECURITY CAPITAL TRADING INC.
By: _____________________________
Name:
Title:
Attest:
_______________________
Secretary
DIRKS & COMPANY, INC.
By: _____________________________
Name:
Title:
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<PAGE> 26
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2003
No. W- Warrants to Purchase Units
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________, or registered
assigns, is the registered holder of _________________ Warrants to purchase
initially, at any time from __________, 1999 until 5:30 p.m. New York time on
__________, 2003 ("Expiration Date"), up to __________ Units, each Unit
consisting of one fully-paid and non-assessable share of common stock, $.0025
par value ("Common Stock"), of OPHIDIAN PHARMACEUTICALS, INC., a Wisconsin
corporation (the "Company"), and one Redeemable Warrant of the Company (one
Redeemable Warrant entitling the owner to purchase one fully-paid and
non-assessable share of Common Stock) at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $____ per Unit upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the warrant agreement dated as of __________, 1998 by and between the
Company and DIRKS & COMPANY, INC. and SECURITY CAPITAL TRADING INC. (the
"Warrant Agreement"). Payment of the Exercise Price shall be made by certified
or official bank check in New York Clearing House funds payable to the order of
the Company or by surrender of this Warrant Certificate.
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<PAGE> 27
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of
this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE> 28
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of __________, 1998
OPHIDIAN PHARMACEUTICALS, INC.
By: _____________________________
Name:
Title:
A-3
<PAGE> 29
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] ______________ shares of Common Stock;
[ ] ______________ Redeemable Warrants;
[ ] ______________ shares of Common Stock together with an equal number of
Redeemable Warrants; or
[ ] ______________ shares of Common Stock together with
______________ Redeemable Warrants.
and herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House Funds to the order of Ophidian
Pharmaceuticals, Inc. in the amount of $_______________________, all in
accordance with the terms of Section 3.1 of the Representatives' Warrant
Agreement dated as of __________, 1998 by and between Ophidian Pharmaceuticals,
Inc. and Dirks & Company, Inc. and Security Capital Trading Inc. The
undersigned requests that a certificate for such securities be registered in
the name of _____________________ address is ______________________ that such
Certificate be delivered to ____________________________ whose address is
____________________________.
Dated: Signature ________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
__________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-4
<PAGE> 30
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] _____________ shares of Common Stock;
[ ] _____________ Redeemable Warrants;
[ ] _____________ shares of Common Stock together with an equal number of
Redeemable Warrants; or
[ ] _____________ shares of Common Stock together with
_____________ Redeemable Warrants.
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representatives' Warrant
Agreement dated as of __________, 1998 by and between Ophidian Pharmaceuticals,
Inc. and Dirks & Company, Inc. and Security Capital Trading Inc. The
undersigned requests that a certificate for such securities be registered in
the name of _______________________ whose address is __________________________
that such Certificate be delivered to ____________________________ whose
address is __________________________________.
Dated: Signature _______________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
_________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-5
<PAGE> 31
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________ hereby sells, assigns and
transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: _______________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
__________________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
A-6
<PAGE> 1
================================================================================
OPHIDIAN PHARMACEUTICALS, INC.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
__________
WARRANT AGREEMENT
DATED AS OF ___________, 1998
================================================================================
<PAGE> 2
AGREEMENT, dated this ____ day of _______, 1998, by and between OPHIDIAN
PHARMACEUTICALS, INC., a Wisconsin corporation (the "Company") and CONTINENTAL
STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent.
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public of up to
1,600,000 Units (the "Units"), each Unit consisting of one share of Common
Stock (as defined in Section 1) and one redeemable common stock purchase
warrant (the "Warrants"), each warrant entitling the holder thereof to purchase
one additional share of Common Stock, (ii) the over-allotment option to
purchase up to an additional 240,000 Units (the "Over-allotment Option"), and
(iii) the sale to Dirks & Company, Inc. and Security Capital Trading Inc., as
representatives of the several underwriters (the "Representatives"), of
warrants (the "Representative's Warrants") to purchase up to 160,000 Units, the
Company will issue up to 2,000,000 Warrants (subject to increase as provided in
the Representative's Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants and the rights of the holders thereof.
<PAGE> 3
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the rights
and obligations thereunder of the Company, the holders of certificates
representing the Warrants and the Warrant Agent, the parties hereto agree as
follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Common Stock" shall mean the authorized stock of the Company of any
class, whether now or hereafter authorized, which has the right to participate
in the voting and in the distribution of earnings and assets of the Company
without limit as to amount or percentage.
(c) "Commission" shall mean the Securities and Exchange Commission.
(d) "Corporate Office" shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its business in New York, New York,
shall be administered, which office is located on the date hereof at 2
Broadway, New York, New York 10004.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "Exercise Date" shall mean, subject to the provisions of Section 5(b)
hereof, as to any Warrant, the date on which the Warrant Agent shall have
received both (i) the Warrant Certificate representing such Warrant, with the
exercise form thereon duly executed by the Registered Holder thereof or his
attorney duly authorized in writing, and (ii) payment in cash or
2
<PAGE> 4
by official bank or certified check made payable to the Warrant Agent for the
account of the Company, of the amount in lawful money of the United States of
America equal to the applicable Purchase Price (as hereinafter defined) in good
funds.
(g) "Initial Public Offering Price" shall mean $6.10 per Unit.
(h) "Initial Warrant Exercise Date" shall mean __________, 1999.
(i) "Initial Warrant Redemption Date" shall mean __________, 2000.
(j) "NASD" shall mean the National Association of Securities Dealers, Inc.
(k) "Nasdaq" shall mean the Nasdaq Stock Market.
(l) "Purchase Price" shall mean, subject to modification and adjustment as
provided in Section 8, $7.32 per Unit and further subject to the Company's
right, in its sole discretion, to decrease the Purchase Price for a period of
not less than 30 days on not less than 30 days' prior written notice to the
Registered Holders.
(m) "Redemption Date" shall mean the date (which may not occur before the
Initial Warrant Redemption Date) fixed for the redemption of the Warrants in
accordance with the terms hereof.
(n) "Redemption Price" shall mean the price at which the Company may, at
its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.10 per Warrant, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof.
(o) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
3
<PAGE> 5
(p) "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company, or its authorized successor.
(q) "Underwriting Agreement" shall mean the underwriting agreement dated
__________, 1998 between the Company and the several underwriters listed
therein relating to the purchase for resale to the public of the 1,600,000
Units.
(r) "Representative's Warrant Agreement" shall mean the agreement dated as
of __________, 1998 between the Company and the Representatives, relating to
and governing the terms and provisions of the Representative's Warrants.
(s) "Warrant Certificate" shall mean a certificate representing each of
the Warrants substantially in the form annexed hereto as Exhibit A.
(t) "Warrant Expiration Date" shall mean, unless the Warrants are redeemed
as provided in Section 9 hereof prior to such date, 5:30 p.m. (New York time),
on _________, 2003, or the Redemption Date as defined herein, whichever date is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then 5:30 p.m. (New York time)
on the next following day which, in the State of New York, is not a holiday or
a day on which banks are authorized to close. Upon five business days' prior
written notice to the Registered Holders, the Company shall have the right to
extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Purchase Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one share of Common Stock upon the
4
<PAGE> 6
exercise thereof in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates representing
the number of Warrants sold pursuant to the Underwriting Agreement (subject to
modification and adjustment as provided in Section 8) shall be executed by the
Company and delivered to the Warrant Agent.
(c) Upon exercise of the Representative's Warrants as provided therein,
Warrant Certificates representing all or a portion of 160,000 Warrants to
purchase up to an aggregate of 160,000 shares of Common Stock (subject to
modification and adjustment as provided in Section 8 hereof and in the
Representative's Warrant Agreement), shall be countersigned, issued and
delivered by the Warrant Agent upon written order of the Company signed by its
Chairman of the Board, Chief Executive Officer, President or a Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary.
(d) From time to time, up to the Warrant Expiration Date or the Redemption
Date, whichever date is earlier, the Warrant Agent shall countersign and
deliver Warrant Certificates in required denominations of one or whole number
multiples thereof to the person entitled thereto in connection with any
transfer or exchange permitted under this Agreement. Except as provided
herein, no Warrant Certificates shall be issued except (i) Warrant Certificates
initially issued hereunder and those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants held by the
exercising Registered Holder, (ii) Warrant Certificates issued upon any
transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7,
5
<PAGE> 7
(iv) Warrant Certificates issued pursuant to the Representative's Warrant
Agreement, and (v) at the option of the Company, Warrant Certificates in such
form as may be approved by its Board of Directors, to reflect any adjustment or
change in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Redemption Price therefor made pursuant
to Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein)
and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage. The Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer, exchange or
in lieu of mutilated, lost, stolen or destroyed Warrant Certificates) and
issued in registered form. Warrants shall be numbered serially with the letter
W on the Warrants.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, Chief Executive Officer, President or any Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon, and
shall have imprinted thereon a facsimile of the Company's seal, if any.
Warrant Certificates shall be manually countersigned by
6
<PAGE> 8
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer of the Company before
the date of issuance of the Warrant Certificates or before countersignature by
the Warrant Agent and issue and delivery thereof, such Warrant Certificates,
nevertheless, may be countersigned by the Warrant Agent, issued and delivered
with the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be such officer of the Company. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder promptly and without further
action by the Company, except as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples thereof may
be exercised by the Registered Holder thereof commencing at any time on or
after the Initial Warrant Exercise Date, but not after the Warrant Expiration
Date, upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the Exercise Date and
the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder, upon exercise thereof, as of
the close of business on the Exercise Date. If Warrants in denominations other
than whole number multiples thereof shall be exercised at one time by the same
Registered Holder, the number of full shares of Common Stock which shall be
issuable upon exercise thereof shall be computed on the basis of the aggregate
number of full shares of Common Stock issuable upon such exercise. As soon as
practicable on or after the Exercise Date and in any event within five business
days after such date, if one or more Warrants
7
<PAGE> 9
have been exercised, the Warrant Agent on behalf of the Company shall cause to
be issued to the person or persons entitled to receive the same a Common Stock
certificate or certificates for the shares of Common Stock deliverable upon
such exercise, and the Warrant Agent shall deliver the same to the person or
persons entitled thereto. Upon the exercise of any one or more Warrants, the
Warrant Agent shall promptly notify the Company in writing of such fact and of
the number of securities delivered upon such exercise and shall cause all
payments of an amount in cash or by check made payable to the order of the
Company, equal to the Purchase Price, to be deposited promptly in the Company's
bank account.
(b) The Company shall not be required to issue fractional shares on the
exercise of Warrants. Warrants may only be exercised in such multiples as are
required to permit the issuance by the Company of one or more whole shares. If
one or more Warrants shall be presented for exercise in full at the same time
by the same Registered Holder, the number of whole shares which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares purchasable on exercise of the Warrants so
presented. If any fraction of a share would, except for the provisions
provided herein, be issuable on the exercise of any Warrant (or specified
portion thereof), the Company shall pay an amount in cash equal to such
fraction multiplied by the then current market value of a share of Common
Stock, determined as follows:
(1) If the Common Stock is listed, or admitted to unlisted trading
privileges on any national securities exchange, or is traded on Nasdaq, the
current market value of a share of Common Stock shall be the closing sale price
of the Common Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Warrants
8
<PAGE> 10
on whichever of such exchanges or Nasdaq had the highest average daily trading
volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed, quoted or reported
for trading on Nasdaq, but is traded in the over-the-counter market, the
current market value of a share of Common Stock shall be the average of the
last reported bid and asked prices of the Common Stock reported by the National
Quotation Bureau, Inc. on the last business day prior to the date of exercise
of the Warrants; or
(3) If the Common Stock is not listed, admitted to unlisted trading
privileges on any national securities exchange, or listed, quoted or reported
for trading on Nasdaq, and bid and asked prices of the Common Stock are not
reported by the National Quotation Bureau, Inc., the current market value of a
share of Common Stock shall be an amount, not less than the book value thereof
as of the end of the most recently completed fiscal quarter of the Company
ending prior to the date of exercise, determined by the members of the Board of
Directors of the Company exercising good faith and using customary valuation
methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery thereof, be duly and validly
9
<PAGE> 11
issued and fully paid and nonassessable and free from all preemptive or similar
rights, taxes, liens and charges with respect to the issue thereof, and that
upon issuance such shares shall be listed on each securities exchange, if any,
on which the other shares of outstanding Common Stock of the Company are then
listed.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment, use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and deliver a prospectus which complies with Section
10(a)(3) of the Act, to the Registered Holder exercising the Warrant (except,
if in the opinion of counsel to the Company, such registration is not required
under the federal securities law or if the Company receives a letter from the
staff of the Commission stating that it would not take any enforcement action
if such registration is not effected). The Company will use its best efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws with respect to any such securities. However, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of
10
<PAGE> 12
the Registered Holder of the Warrant Certificate representing any Warrant being
exercised, then no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer
Agent to requisition from time to time certificates representing shares of
Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and, upon
satisfaction of the terms and provisions hereof, the Company shall execute and
the Warrant Agent shall countersign, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office, books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with customary practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants of the same
class.
(c) With respect to all Warrant Certificates presented for registration of
11
<PAGE> 13
transfer, or for exchange or exercise, the subscription or exercise form, as
the case may be, on the reverse thereof shall be duly endorsed or be
accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder thereof or his attorney-in-fact duly
authorized in writing.
(d) A service charge may be imposed upon such Holder by the Warrant Agent
for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such Holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of any Warrant Certificate and (in the
case of loss, theft or destruction) of indemnity satisfactory to them, and (in
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
12
<PAGE> 14
and/or the Warrant Agent that a new Warrant Certificate has been acquired by a
bona fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of Common
Stock Deliverable.
(a) Except as hereinafter provided, in the event the Company shall, at any
time or from time to time after the date hereof and until _________, 2003,
issue or sell any shares of Common Stock for a consideration per share less
than the Initial Public Offering Price of the Units or issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivide
or combine the outstanding shares of Common Stock into a greater or lesser
number of shares (any such issuance, subdivision or combination being herein
called a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Purchase Price for the Warrants (whether or not the same shall be
issued and outstanding) in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number of
shares of Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the Purchase Price in effect immediately prior to such Change of
Shares and (b) the consideration, if any, received by the Company upon such
sale, issuance, subdivision or combination, by (ii) the total number of shares
of Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Purchase Price be adjusted pursuant to this
computation to an
13
<PAGE> 15
amount in excess of the Purchase Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of
Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section 8(a), the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be cash,
the amount of the cash portion of the consideration therefor deemed to have
been received by the Company shall be (i) the subscription price, if shares of
Common Stock are offered by the Company for subscription, or (ii) the public
offering price (before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or
dealers or others performing similar services, or any expenses incurred in
connection therewith), if such securities are sold to underwriters or dealers
for public offering without a subscription offering, or (iii) the gross amount
of cash actually received by the Company for such securities, in any other
case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company, using customary
valuation methods and on the basis of prevailing
14
<PAGE> 16
market values for similar property or services.
(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants granted and vested and upon the
conversion or exchange of convertible or exchangeable securities.
(b) Upon each adjustment of the Purchase Price pursuant to this Section 8,
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Purchase
Price in effect prior to such adjustment and dividing the product so obtained
by the applicable adjusted Purchase Price.
15
<PAGE> 17
(c) In case the Company shall at any time after the date hereof until
__________, 2003, issue options, rights or warrants to subscribe for shares of
Common Stock, or issue any securities convertible into or exchangeable for
shares of Common Stock, for a consideration per share (determined as provided
in Sections 8(a) and 8(b) and as provided below) less than the Initial Public
Offering Price of the Units, or without consideration (including the issuance
of any such securities by way of dividend or other distribution), the Purchase
Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the case
may be, shall be reduced to a price determined by making the computation in
accordance with the provisions of Sections 8(a) and 8(b) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock, as the case
may be, issuable or that may become issuable under such options, rights or
warrants (assuming exercise in full even if not then currently exercisable or
currently exercisable in full) shall be deemed to be issued and outstanding at
the time such options, rights or warrants were issued, for a consideration
equal to the minimum purchase price per share provided for in such options,
rights or warrants at the time of issuance, plus the consideration, if any,
received by the Company for such options, rights or warrants; provided,
however, that upon the expiration or other termination of such options, rights
or warrants, if any thereof shall not have been exercised, the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(A) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be
reduced by the number of shares as to which options, warrants and/or rights
shall have expired, and such number of shares shall no longer be deemed to be
issued and outstanding, and the Purchase Price
16
<PAGE> 18
then in effect shall forthwith be readjusted and thereafter be the price that
it would have been had adjustment been made on the basis of the issuance only
of the shares actually issued plus the shares remaining issuable upon the
exercise of those options, rights or warrants as to which the exercise rights
shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or
exchangeable securities (whether by reason of redemption or otherwise), the
number of shares of Common Stock deemed to be issued and outstanding pursuant
to this subsection (B) (and for the purposes of subsection (E) of Section 8(a)
hereof) shall be reduced by the number of shares as to which the conversion or
exchange rights shall have expired or terminated unexercised, and such number
of shares shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and thereafter be
the price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon conversion or exchange of those convertible or exchangeable securities as
to which the conversion or exchange rights shall not have expired or terminated
unexercised.
(C) If any change shall occur in the price per share provided
for in any
17
<PAGE> 19
of the options, rights or warrants referred to in subsection (A) of this
Section 8(c), or in the price per share or ratio at which the securities
referred to in subsection (B) of this Section 8(c) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, to the extent not theretofore exercised, shall be
deemed to have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the exercise
or conversion or exchange thereof, and the Company shall be deemed to have
issued upon such date new options, rights or warrants or convertible or
exchangeable securities.
(d) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (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 (1) a
merger with a subsidiary of the Company in which merger the Company is the
continuing corporation or (2) any consolidation or merger of the Company with
or into another corporation which, in either instance, does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock issuable upon exercise of the Warrants (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 subdivision or combination)) or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
18
<PAGE> 20
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the Corporate Office of the Warrant
Agent a statement signed by its Chief Executive Officer, President or a Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary evidencing such provision. Such provisions shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Sections 8(a), (b) and (c). The
above provisions of this Section 8(d) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the Purchase Price or
the number of shares of Common Stock purchasable upon exercise of the Warrants,
the Warrant Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant to
Section 2(e) hereof, continue to express the Purchase Price per share and the
number of shares purchasable thereunder as the Purchase Price per share and the
number of shares purchasable thereunder were expressed in the Warrant
Certificates when the same were originally issued.
(f) After each adjustment of the Purchase Price pursuant to this Section
8, the Company will promptly prepare a certificate signed by the Chairman,
Chief Executive Officer or President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, of the Company setting
forth: (i) the Purchase Price as so adjusted, (ii) the number of
19
<PAGE> 21
be carried forward and shall shares of Common Stock purchasable upon exercise
of each Warrant, after such adjustment, and (iii) a brief statement of the
facts accounting for such adjustment. The Company will promptly file such
certificate with the Warrant Agent and cause a brief summary thereof to be sent
by ordinary first class mail to each Registered Holder at his last address as
it shall appear on the registry books of the Warrant Agent. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail
such notice, or except as to the holder whose notice was defective. The
affidavit of an officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such notice has been mailed shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
(g) No adjustment of the Purchase Price shall be made as a result of or in
connection with (A) the issuance or sale of shares of Common Stock pursuant to
options, warrants, stock purchase agreements and convertible or exchangeable
securities outstanding or in effect on the date hereof and on the terms
described in the final prospectus relating to the public offering contemplated
by the Underwriting Agreement; (B) stock options to be granted under the
Company's 1990 Incentive Stock Option Plan and 1992 Employee Stock Option Plan,
as amended, and the Company's 1997 Incentive Stock Option Plan (collectively,
"Stock Option Plans") to employees, consultants and directors; (C) shares of
Common Stock, options or warrants issued to outside parties in connection with
strategic alliances, joint ventures or other corporate partnerships with the
Company, or (D) the issuance or sale of shares of Common Stock if the amount of
said adjustment shall be less than $.10, provided, however, that in such case,
any adjustment that would otherwise be required then to be made shall
20
<PAGE> 22
be made at the time of and together with the next subsequent adjustment that
shall amount, together with any adjustment so carried forward, to at least
$.10. In addition, Registered Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the Company may, on
30 days' prior written notice, redeem all the Warrants at ten cents ($.10) per
Warrant, provided, however, that before any such call for redemption of
Warrants can take place, the average closing bid price for the Common Stock as
reported by Nasdaq, if the Common Stock is then traded on Nasdaq, (or the
closing sale price, if the Common Stock is then traded on a national exchange)
shall have equaled or exceeded $14.64 per share for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the
fifth trading day prior to the date on which the notice contemplated by (b) and
(c) below is given (subject to adjustment in the event of any stock splits or
other similar events as provided in Section 8 hereof).
(b) In case the Company shall exercise its right to redeem all of the
Warrants, it shall give or cause to be given notice to the Registered Holders
of the Warrants, by mailing to such Registered Holders a notice of redemption,
first class, postage prepaid, at their last address as shall appear on the
records of the Warrant Agent. Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than four (4) trading days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to National a
similar notice telephonically and confirmed in writing
21
<PAGE> 23
together with a list of the Registered Holders (including their respective
addresses and number of Warrants beneficially owned) to whom such notice of
redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption price, (ii)
the Redemption Date, which shall in no event be less than thirty (30) days
after the date of mailing of such notice, (iii) the place where the Warrant
Certificate shall be delivered and the redemption price shall be paid, and (iv)
that the right to exercise the Warrant shall terminate at 5:30 p.m. (New York
time) on the business day immediately preceding the date fixed for redemption.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
holder (a) to whom notice was not mailed or (b) whose notice was defective. An
affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:30 p.m. (New York
time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued
upon exercise of any Warrant is fully
22
<PAGE> 24
paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustments, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence, bad
faith or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed
by the Chairman of the Board of Directors, Chief Executive Officer, President
or any Vice President (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be
23
<PAGE> 25
liable for any action taken, suffered or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand reasonably
believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; the Company further agrees to indemnify the Warrant Agent and save
it harmless from and against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by
the Warrant Agent in the execution of its duties and powers hereunder except
losses, expenses and liabilities arising as a result of the Warrant Agent's
negligence, bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own gross negligence or willful misconduct),
after giving 30 days' prior written notice to the Company. At least 15 days
prior to the date such resignation is to become effective, the Warrant Agent
shall cause a copy of such notice of resignation to be mailed to the Registered
Holder of each Warrant Certificate at the Company's expense. Upon such
resignation, or any inability of the Warrant Agent to act as such hereunder,
the Company shall appoint in writing a new warrant agent. If the Company shall
fail to make such appointment within a period of 15 days after it has been
notified in writing of such resignation by the resigning Warrant Agent, then
the Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
24
<PAGE> 26
transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged, any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent or
any new warrant agent shall be a successor warrant agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to
the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from
25
<PAGE> 27
acting in any other capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the date
of exercise any Warrant Certificate received by it upon such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (i) that they shall deem appropriate
to cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained; or (ii) that they may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Warrant Certificates; provided, however, that no change in the
number or nature of the securities purchasable upon the exercise of any
Warrant, or to increase the Purchase Price therefor or to accelerate the
Warrant Expiration Date, shall be made without the consent in writing of the
Registered Holders representing not less than 66 2/3% of the Warrants then
outstanding, other than such changes as are presently specifically prescribed
by this Agreement as originally executed. In addition, this Agreement may not
be modified, amended or supplemented without the prior written consent of the
Representatives, other than to cure any ambiguity or to correct any provision
which is inconsistent with any other provision of this Agreement or to make any
such change that is necessary or desirable and which shall not adversely affect
the interests of the Representatives, and except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been made when delivered or mailed
first-class registered or certified mail, postage prepaid, as follows: if to
the Registered Holder of a Warrant Certificate,
26
<PAGE> 28
at the address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company at 5445 East Cheryl Parkway, Madison,
Wisconsin 53711, Attention: Dr. Douglas C. Stafford, President and Chief
Executive Officer, or at such other address as may have been furnished to the
Warrant Agent in writing by the Company; and if to the Warrant Agent, at its
Corporate Office. Copies of any notice delivered pursuant to this Agreement
shall also be delivered to Dirks & Company, Inc., 520 Madison Avenue, New York,
New York 10022, Attention: General Counsel, or at such other address as may
have been furnished to the Company and the Warrant Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Nothing in
this Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim, in equity or at law, or to impose upon any
other person any duty, liability or obligation.
SECTION 15. Termination.
This Agreement shall terminate at the close of business on the Expiration
Date of all of the Warrants or such earlier date upon which all Warrants have
been exercised or redeemed, except that the Warrant Agent shall account to the
Company for cash held by it and
27
<PAGE> 29
the provisions of Section 10 hereof shall survive such termination.
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
28
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
OPHIDIAN PHARMACEUTICALS, INC.
By: ___________________________
Name:
Title:
Attest:
By: ___________________
Name:
Title:
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY,
As Warrant Agent
By: ___________________________
Name:
Title:
29
<PAGE> 31
EXHIBIT A
No. W ____ VOID AFTER _________, 2003
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
OPHIDIAN PHARMACEUTICALS, INC.
CUSIP ___
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number
of Redeemable Warrants (the "Warrants") specified above. Each Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.0025 par value, of Ophidian Pharmaceuticals, Inc., a Wisconsin corporation
(the "Company"), at any time between _________, 1999 (the "Initial Warrant
Exercise Date"), and the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of
Continental Stock Transfer and Trust Company, as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $7.32 subject to
adjustment (the "Purchase Price"), in lawful money of the United States of
America in cash or by check made payable to the Warrant Agent for the account
of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated _________,
1998, between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York time) on the
date which is forty-eight (48) months after the Initial Warrant Exercise Date.
If each such date shall in
A-1
<PAGE> 32
the State of New York be a holiday or a day on which the banks are authorized
to close, then the Expiration Date shall mean 5:30 p.m. (New York time) on the
next following day which in the State of New York is not a holiday or a day on
which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $0.10 per
Warrant, at any time commencing after _________, 2000, provided that the
average closing bid price for the Common Stock as reported by Nasdaq (or the
average closing sale price, if the Common Stock is then traded on any national
securities exchange), shall have equaled or exceeded $14.64 per share for any
twenty (20) trading days within a period of thirty (30) consecutive trading
days ending on the fifth trading day prior to the Notice of Redemption, as
defined below (subject to adjustment in the event of any stock splits or other
similar events). Notice of redemption (the "Notice of Redemption") shall be
given not later than the thirtieth day before the date fixed for redemption,
all as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the
Warrants except to receive the $.10 per Warrant upon surrender of this Warrant
Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each
A-2
<PAGE> 33
Warrant represented hereby (notwithstanding any notations of ownership or
writing hereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary, except as provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: OPHIDIAN PHARMACEUTICALS, INC.
[SEAL]
By: _____________________
Name:
Title:
By: _____________________
Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By: _____________________
Authorized Officer
A-3
<PAGE> 34
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
__________________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
______________________
______________________
______________________
(please print or type name and address)
and be delivered to
______________________
______________________
______________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
<PAGE> 35
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by
__________________. [ ]
2. The exercise of this Warrant was not
solicited. [ ]
Dated: _____________ X ___________________________
___________________________
___________________________
Address
___________________________
Social Security or Taxpayer
Identification Number
___________________________
Signature Guaranteed
___________________________
<PAGE> 36
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ___________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
_____________________
_____________________
_____________________
_____________________
(please print or type name and address)
_________________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints _______________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: __________ X ___________________
Signature Guaranteed
___________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated October 9, 1997 in
Amendment No. 8 to the Registration Statement (Form S-1 No. 333-33219) and
related Prospectus of Ophidian Pharmaceuticals, Inc. for the registration of up
to 1,840,000 Units.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1998
<PERIOD-START> OCT-01-1996 OCT-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 6,036,572 2,435,401
<SECURITIES> 480,487 359,588
<RECEIVABLES> 25,265 140,801
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,573,002 2,994,048
<PP&E> 616,983 767,903
<DEPRECIATION> 316,651 439,517
<TOTAL-ASSETS> 7,872,350 5,116,176
<CURRENT-LIABILITIES> 199,178 268,876
<BONDS> 0 0
0 0
0 0
<COMMON> 18,209 18,221
<OTHER-SE> 7,626,573 4,526,237
<TOTAL-LIABILITY-AND-EQUITY> 7,872,350 5,116,176
<SALES> 0 0
<TOTAL-REVENUES> 393,361 115,185
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 718 724
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (216,642) (861,169)
<EPS-PRIMARY> (0.03) (0.12)
<EPS-DILUTED> (0.03) (0.12)
</TABLE>
