<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19777
DUSA Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-3103129
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
181 University Avenue, Suite 1208
Toronto, Ontario M5H 3M7 CANADA
(Address of principal executive offices)
(Zip Code)
(416) 363-5059
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 month (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
9,365,950 shares as of November 10, 1997
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Part 1.
Item 1. FINANCIAL STATEMENTS
DUSA PHARMACEUTICALS, INC
(a development stage company)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (interest bearing) $ 3,406,606 $ 1,686,090
U.S. government securities available for sale, at
market (cost-$11,074,103 and $18,061,432
respectively) 11,059,250 18,033,406
Accrued interest receivable 104,596 208,970
Other current assets 129,285 78,367
------------- ------------
14,699,737 20,006,833
FIXED ASSETS 120,662 122,424
------------- ------------
$ 14,820,399 $ 20,129,257
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 502,530 $ 867,068
Accrued charges 253,578 160,399
------------- ------------
756,108 1,027,467
------------- ------------
SHAREHOLDERS' EQUITY
Common stock, no par, 20,000,000 shares authorized,
9,355,950 issued and outstanding 36,710,743 36,710,743
Deficit accumulated during the development stage (22,631,599) (17,580,927)
Net unrealized loss on U.S. government securities
available for sale (14,853) (28,026)
------------- ------------
14,064,291 19,101,790
------------- ------------
$ 14,820,399 $ 20,129,257
============= ============
</TABLE>
See the accompanying notes to the Consolidated Financial Statements
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DUSA PHARMACEUTICALS, INC
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
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<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
FEBRUARY 21,
1991 (DATE OF
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS INCORPORATION)
ENDED ENDED ENDED ENDED TO SEPTEMBER
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 30,
1997 1996 1997 1996 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE
Interest income $ 213,543 $ 225,043 $ 704,447 $ 805,311 $ 4,718,969
Gain (loss) on foreign currency exchange - - 240 (1,834) 18,457
Gain on sale of U.S. government securities - - - - 322,659
Unrealized loss on U.S. government securities
available for sale - - - (62) (62,832)
------------ ------------ ------------ ------------ -----------
213,543 225,043 704,687 803,415 4,997,253
------------ ------------ ------------ ------------ -----------
RESEARCH AND DEVELOPMENT COSTS 1,724,864 1,446,074 4,488,870 4,205,172 20,301,640
------------ ------------ ------------ ------------ -----------
OPERATING COSTS
General and administration 360,687 425,807 1,226,205 1,227,770 7,268,027
Depreciation and amortization 14,281 5,634 40,284 18,195 122,017
------------ ------------ ------------ ------------ -----------
374,968 431,441 1,266,489 1,245,965 7,390,044
------------ ------------ ------------ ------------ -----------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (1,886,289) (1,652,472) (5,050,672) (4,647,722) (22,694,431)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - - - - 62,832
------------ ------------ ------------ ------------ ------------
NET LOSS $ (1,886,289) $ (1,652,472) $ (5,050,672) $ (4,647,722) (22,694,431)
============ ============ ============ ============ ===========
NET LOSS PER COMMON SHARE $ (0.20) $ (0.18) $ (0.54) $ (0.52) $ (3.83)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,355,950 9,353,966 9,355,950 8,997,511 5,902,783
============ ============ ============ ============ ============
</TABLE>
See the accompanying notes to the Consolidated Financial Statements
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DUSA PHARMACEUTICALS, INC
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
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<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
FEBRUARY 21,
1991 (DATE OF
NINE MONTHS NINE MONTHS INCORPORATION)
ENDED ENDED TO SEPTEMBER
SEPTEMBER 30, SEPTEMBER 30, 30,
1997 1996 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (5,050,672) $ (4,647,722) $(22,631,599)
Adjustments to reconcile net loss to net cash used in
operating activities
Amortization of premiums and accretion of
discounts on U.S. government securities
available for sale and investment securities, net (113,875) (3,308) 58,669
Depreciation and amortization 40,284 18,196 122,017
Loss (gain) on foreign currency exchange (240) 1,834 (18,457)
Loss (gain) on sale of U.S. government securities
available for sale -- 62 (322,659)
Unrealized loss on U.S. government securities
available for sale -- -- 62,832
Cumulative effect of change in accounting principle -- -- (62,832)
Write-off of intangible assets -- -- 307,519
Compensation expense resulting from extension of
outstanding stock options terms -- -- 557,260
Changes in other assets and liabilities impacting cash flows from
operations:
Accrued interest receivable 104,374 (11,848) (104,596)
Other current assets (50,918) (13,085) (129,285)
Accounts payable (364,538) 743,960 502,530
Accrued charges 93,179 (29,049) 253,578
License agreement obligations -- -- (12,203)
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (5,342,406) (3,940,960) (21,417,226)
------------ ------------ ------------
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES
Advances by Draxis Health Inc. -- -- (2,867,900)
Repayment of advances by Draxis Health Inc. -- -- 2,867,900
Purchases of U.S. government securities available for
sale and investment securities (8,533,796) (9,828,107) (98,631,231)
Proceeds from maturing U.S. government securities
available for sale and investment security -- 10,400,000 18,410,000
Proceeds from sale of U.S. government securities
available for sale 15,635,000 -- 69,411,118
Intangible assets -- -- (193,022)
Purchases of fixed assets (38,522) (18,315) (225,758)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 7,062,682 553,578 (11,228,893)
------------ ------------ ------------
</TABLE>
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DUSA PHARMACEUTICALS, INC
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
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<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
FEBRUARY 21,
1991 (DATE OF
NINE MONTHS NINE MONTHS INCORPORATION)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
Stock offering costs $ -- $ (637,062) $ (5,048,255)
Issuance of common stock and underwriters' options -- 5,809,502 43,366,566
Payment received on note receivable from director -- 14,614 68,047
Redemption of Draxis Option -- -- (2,250,000)
Receipt of Section 16(b) common stock profits -- -- 17,125
Payment on license agreement obligations -- -- (119,215)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 5,187,054 36,034,268
------------ ------------ ------------
EFFECT OF EXCHANGE RATES ON CASH 240 (1,834) 18,457
------------ ------------ ------------
NET INCREASE IN CASH 1,720,516 1,797,838 3,406,606
CASH AT BEGINNING OF PERIOD 1,686,090 1,197,030 --
------------ ------------ ------------
CASH AT END OF PERIOD $ 3,406,606 $ 2,994,868 $ 3,406,606
============ ============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION
Issuance of common stock for promissory note from
Draxis Health Inc. $ 150,000
============
License agreement obligations incurred in the
acquisition of an intangible asset $ 131,418
============
Deferred stock offering costs offset against common
stock $ 637,062 $ 5,048,255
============ ============
Note receivable from director originating upon
exercise of options for common stock $ 68,047
============
Interest paid $ 12,594
============
</TABLE>
There were no income tax payments made during the periods.
See the accompanying notes to the Consolidated Financial Statements
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DUSA PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Consolidated Balance Sheets as of September 30, 1997, the
Consolidated Statements of Operations for the three and nine month periods
ended September 30, 1997, and 1996 and for the period from February 21,
1991, (date of incorporation) to September 30, 1997, and the Consolidated
Statements of Cash Flows for the nine month periods ended September 30,
1997, and 1996 and for the period from February 21, 1991, (date of
incorporation) to September 30, 1997, have been prepared by the Company,
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and changes in cash flows as of
September 30, 1997, and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the Company's December 31,
1996 audited consolidated financial statements and notes thereto.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, DUSA Pharmaceuticals New York,
Inc. All significant intercompany accounts have been eliminated on
consolidation. The Company was formerly a subsidiary of Draxis Health Inc.
2. The Company's United States government securities available for sale
consist of securities of the United States government, and its agencies,
with interest rates and yields ranging from 5.26% to 6.875%, and maturity
dates ranging from October 7, 1997 to August 10, 1999.
3. Net loss per common share is based on the weighted average number of
shares outstanding during each period. Certain common stock issuances
(2,200,000) were made at prices less than the initial public offering
price. Accordingly, the associated shares are included in the calculation
of net loss per share as if they were outstanding for the entire period.
Stock options are not included in the computation of the weighted average
number of shares outstanding during the period as the effect would be
antidilutive.
4. On February 13, 1997, the Company granted, subject to regulatory
requirements, incentive and non-qualified stock options to one consultant
and seven employees of the Company, to purchase 41,000 shares of common
stock at $7.25 per share pursuant to the terms of the 1996 Omnibus Plan.
The exercise price of such options is the closing stock market price on the
date of grant.
On March 13, 1997 the Company conditionally granted non-qualified stock
options to Lumenetics, Inc., a consultant to the Company, to purchase
100,000 shares of common stock at $6.125 per share. These options were
granted on the condition, which was fulfilled on October 14 , 1997, that
the parties conclude a revised development agreement. In addition, the
Company granted non-qualified stock options to a consultant to the Company
to purchase 15,000 shares of common stock at $6.125 per share as part of a
consulting agreement. The exercise price of such options is the closing
market price of the Company's common stock on the date of grant.
On June 5, 1997 at the Annual Meetings of Shareholders, the
shareholders approved an amendment to the 1996 Omnibus Plan, providing that
all of the stock options granted automatically to directors of the Company,
after the date of amendment, would immediately vest on the date of the
grant. Under the terms of the 1996 Omnibus Plan each person who is a
continuing director following the Annual Meeting of the
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Shareholders automatically receives 10,000 non-qualified stock options.
Consequently on June 6, 1997 the Company granted a total of 50,000
non-qualified stock options to the directors to purchase the common stock
of the Company at $6.25 per share. The exercise price of such options is
the closing market price of the Company's common stock on the date of
grant.
5. On September 26, 1997, the Company conditionally granted non-qualified
stock options to a consultant to the Company to purchase up to 30,000
shares of common stock at $7.4375 per share. The grant is subject to the
entry of a Consulting Agreement for investment advisory services. The
exercise price of the options is the closing market price of the Company's
common stock on the date of the grant.
On September 26, 1997 the Company adopted a Shareholders Rights Plan
(the "Plan"). The Plan provides for the distribution of one right as a
dividend for each outstanding share of common stock of the Company to
holders of record as of October 24, 1997. Each Right entitles shareholders
to purchase one unit at a Purchase Price of $50.00. Each unit consists of
one-tenth of a share of common stock of the Company and a note equal to
nine-tenths of a share of common stock based on the fair market price of
the Company's common stock on the date of exercise. The Rights may be
exercised only if a person or group either acquires or announces a tender
offer to acquire 15% or more of the Company's outstanding common stock, or
if a person or group is declared an Adverse Person, as such term is defined
in the Plan. The Rights may be redeemed by the Company at a redemption
price of one-tenth of a cent per right until 10 days following the date a
person acquires 15 percent or more of the Company, or until such later date
as may be determined by the Board.
Under the Plan, if a person or group acquires 15% or more of the
Company's common stock, all holders of Rights (other than the acquiring
shareholder) may, upon payment of the Purchase Price then in effect,
purchase shares of the Company's common stock having a value of twice the
Purchase Price. In the event that the Company is involved in a merger or
other similar transaction where it is not the surviving corporation, all
holders of Rights (other than the acquiring shareholder) shall be entitled,
upon payment of the Purchase Price, to purchase common stock of the
surviving corporation having a value of twice the Purchase Price. The
Rights will expire on October 24, 2007, unless previously redeemed.
6. On August 11, 1997, the Company entered into a new lease agreement for
larger office space in Valhalla, New York. Future minimum payments under
the new lease will total approximately $22,000 for the remainder of 1997,
$104,100 in 1998, $110,600 in 1999, $115,000 in 2000, $121,000 in 2001, and
$108,300 in 2002.
7. The Company has entered into a series of agreements for research
projects and clinical studies. As of September 30, 1997, future payments to
be made pursuant to these agreements, under certain terms and conditions,
total $710,021 for the remainder of 1997, and $163,953 for 1998.
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<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes to Consolidated Financial Statements
for the year ended December 31, 1996 and for the three and nine-month periods
ended September 30, 1997, and September 30, 1996, respectively. The Company is a
development-stage pharmaceutical company engaged primarily in the development of
photodynamic therapy ("PDT") and photodetection ("PD") utilizing Levulan(R), the
Company's brand of 5-aminolevulinic acid ("ALA"), for various medical
indications. The Company has raised funds through its initial public offering of
the Company's common stock in January 1992, private placements, and public
offerings in December 1995 and May 1996. Since the end of the third quarter, the
Company completed its Phase III PDT trials for use of Levulan(R) to treat
actinic keratoses (AKs). The Company is in the process of compiling all of the
data from its AK program for submission of its first New Drug Application
("NDA") to the U.S. Food and Drug Administration. The Company expects to file
the NDA during the first quarter of 1998.
The Company's wholly-owned subsidiary, DUSA Pharmaceuticals New York, Inc.,
relocated from Tarrytown, New York to larger facilities in Valhalla, New York in
October 1997 under the terms of a new five-year lease. The expanded facilities
will comprise approximately 5,200 square feet of space. Lease payments will
total approximately $22,000 for the remainder of 1997, $104,100 in 1998,
$110,600 in 1999, $115,000 in 2000, $121,000 in 2001, and $108,300 in 2002. The
Company believes that this space will accommodate anticipated increases in
personnel and operations during the term of the lease.
Financial Condition
The Company's total assets were $14,820,399 as of September 30, 1997,
compared to $20,129,257 as of December 31, 1996. The current rate of decline is
within managements' expectations. The decline of current assets will continue as
research and development activities proceed. However, the Company is seeking a
strategic alliance partner to market its dermatology products and is hopeful
that funds which may be raised through this type of transaction would allow the
Company to continue to advance all of its current research and development
programs and perhaps to expand its activities into new areas. As of September
30, 1997, the Company had outstanding current liabilities of $756,108 as
compared to $1,027,467 as of December 31, 1996. The decrease in current
liabilities from December 31, 1996 is due to timing of the payment of expenses.
Since its inception the Company has had no long-term debt. The Company held
United States government securities at a fair market value of $11,059,250 as of
September 30, 1997, as compared to $18,033,406 as of December 31, 1996. In the
three-month period ending September 30, 1997, the Company incurred an
operational loss of
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<PAGE> 9
$1,886,289, compared to $1,652,472 for the three-month period ended September
30, 1996. (See "Results of Operations" below).
The Company cannot guarantee that it will conclude a strategic alliance
arrangement and believes, nevertheless, that it has sufficient capital resources
to proceed with its current Levulan(R) PDT/PD development program as planned for
bladder cancer, hair removal, endometrial ablation, and acne while it awaits
review of its AK NDA by the FDA. There can be no assurances, however, that
current funds will be sufficient to maintain current research and development
spending levels for the duration of the NDA review since the Company cannot
determine how long it will take to receive marketing approval, if at all, or
whether additional testing requirements will be demanded by the FDA.
Furthermore, there can be no assurance that the Company will obtain regulatory
marketing approval or have sufficient funds to market Levulan(R) for AKs or for
any other indications currently under development. As the development program
for Levulan(R) PDT/PD continues, the Company may adjust its priorities on how
its resources are to be allocated between current indications and new potential
indications. In addition, exact allocation of the proceeds for such purposes and
timing of the expenditures will be dependent on various factors, including the
progress of the Company's research and development programs, the results of
preclinical and clinical trials, the timing of regulatory marketing approvals,
competitive developments, and the availability of additional financing. The
Company may, however, enter into joint development or licensing arrangements,
both domestically and internationally, with pharmaceutical companies. The
Company may also acquire, by license, purchase or other arrangement, businesses,
technologies, or products that enhance or expand the Company's business.
Although the Company is in active strategic alliance discussions for its
dermatology products, it may also be desirable or necessary in the future to
raise additional funds through financings, corporate alliances or other sources.
During this third quarter, the Company filed an Investigational New
Drug (IND) application with the FDA, to begin a Phase I/II multicenter clinical
trial using Levulan(R) PhotoDetection (PD) for bladder cancer. The seven-center
study, involving 60 patients, is designed to assess the ability of Levulan(R) PD
to detect bladder cancer in high-risk patients compared to current methods of
detection. The study will use light sources and cystoscopes provided by Richard
Wolf Medical Instruments Corp. The trial was initiated during the fourth
quarter. The Company's study follows publications by independent European
researchers which reported that ALA PD improved detection of bladder cancers by
up to 20% during cystoscopies by urologists, compared to standard white light
examination. When precancerous lesions were included, the reported detection
increased by 33%. The Company has also provided partial support for an ongoing
independent clinical study in Boston using Levulan(R) PD for this indication.
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<PAGE> 10
The Company began a multi-center Phase I/II trial using Levulan(R) PDT for
hair removal in the first half of this year. The study is ongoing, with results
expected in 1998. The commencement of the Company's next acne study has been
deferred until 1998, after the AK NDA is filed. The Company is also supporting
an investigator sponsored trial using Levulan(R) PDT for endometrial ablation,
which is expected to begin in the fourth quarter.
There are numerous other potential therapeutic and diagnostic uses for
Levulan(R) PDT/PD, and the Company continues to support research in certain of
these areas as appropriate, with pilot trials, and investigator-sponsored
studies based on clinical, regulatory and marketing criteria predetermined by
the Company. Some of the investigator-sponsored studies currently supported by
the Company include Levulan(R) PDT/PD for cervical cancer, psoriasis, alopecia
areata, and basal cell carcinomas.
There can be no assurance that the AK product will be approved or that any
other product will be successfully developed, prove to be safe and effective in
necessary pivotal clinical trials, or receive applicable regulatory marketing
approvals. Therefore, there is no way to predict the timing or magnitude of the
revenues from the marketing of the Company's product or whether any such
revenues will be realized.
Based upon the current status of the Company's research and development
program in relation to the mergers and acquisition environment and in order to
protect the long-term interests of the Company's shareholders, the Company
adopted a Shareholder Rights Plan, on September 26, 1997. (See Note 5 to the
Company's Notes to the Consolidated Financial Statements above.) The Company's
management is not aware of any takeover activity involving the Company. In
addition, the Board of Directors adopted certain amendments to the Company's
By-laws and Certificate of Incorporation which are consistent with the goals of
the Plan and which will be submitted to shareholders for approval at the
Company's next Annual Meeting of shareholders.
Recently, the Company and PARTEQ, the Company's licensor of ALA, agreed to
certain revisions to the License Agreement dated August 27, 1991. Subject to
entry of a definitive Revised License Agreement, PARTEQ will receive options to
purchase 85,000 options to purchase common stock of the Company at an exercise
price of $10.875 per share which will vest over four (4) years. The Company has
agreed to pay certain minimum royalties and PARTEQ has reduced the amount of
royalties which would have been due on sub-license arrangements which the
Company may have entered. In addition, PARTEQ has agreed to eliminate Draxis
Health, Inc., the Company's former parent, as a guarantor under this Agreement.
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<PAGE> 11
Results of Operations
The Company has had no sales to date. Interest income, earned primarily on
United States government securities, decreased to $213,543 for the three-month
period ended September 30, 1997, as compared to $225,043 for the three-month
period ended September 30, 1996, as the Company continues to expend funds for
ongoing research and development. This trend is expected to continue throughout
the Company's development stage. Interest income for the cumulative period from
February 21, 1991 (date of incorporation) to September 30, 1997 was $4,718,969.
Research and development costs for the three-month period ended September
30, 1997, were $1,724,864 compared to $1,446,074 for the three-month period
ended September 30, 1996. The increase in expenditures is attributable to
completion of the Phase III AK clinical trials. Research and development costs
are expected to increase, as scheduled, with the increasing number of clinical
studies and the hiring of additional research and development personnel as
necessary. Total research and development costs for the cumulative period from
February 21, 1991 (date of incorporation) to September 30, 1997 were
$20,301,640. Costs and development fees associated with all agreements for
research projects and clinical studies commit the Company to make payments of
$710,021, for the remainder of 1997.
Operating expenses were $374,968 and $431,441, respectively, for the
three-month periods ended September 30, 1997, and September 30, 1996. The
decrease in operating expenses over the prior year is due primarily to
professional fees paid in 1996 with respect to a potential acquisition which was
not completed. Operating expenses are expected, however, to increase in the
future as a result of larger facilities and as the Company continues to hire
additional financial and administrative personnel, as required, and to establish
a regulatory affairs department at the appropriate time.
The Company incurred a net loss of $5,050,672, or $0.54 per share, for the
nine-month period ended September 30, 1997, as compared to a net loss of
$4,647,722, or $0.52 per share, for the nine-month period ended September 30,
1996. Net losses for the cumulative period from February 21, 1991 (date of
incorporation) to September 30, 1997 were $22,631,599, or $3.83 per share. Such
losses are consistent with the Company's expectations and the Company
anticipates that losses will continue throughout the development stage.
Liquidity and Capital Resources
The Company's United States government securities available for sale have
an aggregate cost of $11,074,103 and a current aggregate market value of
$11,059,250 as of September 30, 1997, resulting in a net
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<PAGE> 12
unrealized loss on securities available for sale of $14,853, the provision for
which has been charged to shareholders' equity. The decline in the market value
of the Company's government securities was the result of fluctuating interest
rates in the United States from the time these securities were acquired. Some
losses could be realized, depending upon the timing of the Company's need to
convert government securities into cash to meet its working capital
requirements. The Company's securities currently have interest rates and yields
ranging from 5.26% to 6.875%, and maturity dates ranging from October 7, 1997 to
August 10, 1999. The Company believes it has sufficient capital resources to
proceed with its current development program for Levulan(R) PDT/ PD. Management
is focusing initial pivotal clinical trials on a limited number of indications
to enhance the Company's ability to complete the regulatory process, but full
development and testing of all potential indications which are currently under
development would require additional funding (see "Financial Condition"). The
Company has invested its funds in liquid investments, so that it will have ready
access to its cash reserves, as needed, for the funding of its development plans
on a short-term and long-term basis.
The foregoing Management Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1993 which represent the Company's expectations or beliefs concerning
future events, including, but not limited to statements regarding management's
expectations of regulatory approval and the commencement of sales, and the
sufficiency of the Company's cash flow for the Company's future liquidity and
capital resource needs. These forward-looking statements are further qualified
by important factors that could cause actual results to differ materially from
those in the forward-looking statements. These factors include, without
limitation, changing market conditions, availability of suitable light sources,
clinical results of its trials, the impact of competitive products and pricing,
and the timely development, FDA approval and market acceptance of the Company's
products, none of which can be assured. Results actually achieved may differ
materially from expected results included in these statements as a result of
these or other factors.
Inflation
Although inflation rates have been comparatively low in recent years,
inflation is expected to apply upward pressure on the operating costs of the
Company. The Company has included an inflation factor in its cost estimates,
however, the overall net effect of inflation on the operations of the Company
should be minimal.
-12-
<PAGE> 13
PART II- OTHER INFORMATION
Item 1.
None.
Item 2.
Changes in Securities and Use of Proceeds.
On September 26, 1997 the Company adopted a Shareholders Rights
Plan (the "Plan"). The Plan provides for the distribution of one right
as a dividend for each outstanding share of common stock of the
Company to holders of record as of October 24, 1997. Each Right
entitles shareholders to purchase one unit at a Purchase Price of
$50.00. Each unit consists of one-tenth of a share of common stock of
the Company and a note equal to nine-tenths of a share of common stock
based on the fair market price of the Company's common stock on the
date of exercise. The Rights may be exercised only if a person or
group either acquires or announces a tender offer to acquire 15% or
more of the Company's outstanding common stock, or if a person or
group is declared an Adverse Person, as such term is defined in the
Plan. The Rights may be redeemed by the Company at a redemption price
of one-tenth of a cent per right until 10 days following the date a
person acquires 15 percent or more of the Company, or until such later
date as may be determined by the Board.
Under the Plan, if a person or group acquires 15% or more of the
Company's common stock, all holders of Rights (other than the
acquiring shareholder) may, upon payment of the Purchase Price then in
effect, purchase shares of the Company's common stock having a value
of twice the Purchase Price. In the event that the Company is involved
in a merger or other similar transaction where it is not the surviving
corporation, all holders of Rights (other than the acquiring
shareholder) shall be entitled, upon payment of the Purchase Price, to
purchase common stock of the surviving corporation having a value of
twice the Purchase Price. The Rights will expire on October 24, 2007,
unless previously redeemed.
Items 3-5.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 3(ii) - By-laws, as amended by Company's Board of Directors on
September 26, 1997.
Exhibit 4 - Instruments defining the rights of Security holders.
4.1 - Stock Certificate.
4.2 - Rights Agreement dated September 26, 1997 between
DUSA Pharmaceuticals, Inc. and American Stock
Transfer & Trust Company as Rights Agent,
incorporated by reference to Exhibit 1 to the
Company's Registration Statement on Form 8-A filed
-13-
<PAGE> 14
October 24, 1997.
4.3 - Form of Indenture dated as of September 26, 1997
between DUSA Pharmaceuticals, Inc. and American Stock
Transfer & Trust Company, incorporated by reference
to Exhibit 2 to the Company's Registration Statement
on Form 8-A filed October 24, 1997.
b) Form 8-K regarding adoption of the Company's Shareholder Rights Plan
was filed on October 24, 1997.
c) Exhibits 27 - Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission for
information only and not filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DUSA PHARMACEUTICALS, INC.
DATE November 11, 1997 BY: /S/D. GEOFFREY SHULMAN
-------------------------
D. GEOFFREY SHULMAN, MD, FRCPC
PRESIDENT, CHIEF EXECUTIVE OFFICER, AND
CHIEF FINANCIAL OFFICER
-14-
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
Exhibit 3(ii) - By-laws, as amended by Company's Board of Directors on September
26, 1997.
Exhibit 4 - Instruments defining the rights of Security holders.
4.1 - Stock Certificate.
4.2 - Rights Agreement dated September 26, 1997 between DUSA Pharmaceuticals,
Inc. and American Stock Transfer & Trust Company as Rights Agent,
incorporated by reference to Exhibit 1 to the Company's Registration Statement
on Form 8-A filed October 24, 1997.
4.3 - Form of Indenture dated as of September 26, 1997 between DUSA
Pharmaceuticals, Inc. and American Stock Transfer & Trust Company,
incorporated by reference to Exhibit 2 to the
Company's Registration Statement on Form 8-A filed
October 24, 1997.
Exhibit 27 - Financial Data Schedule, which is submitted electronically to the Securities and
Exchange Commission for information only and not filed.
</TABLE>
-15-
<PAGE> 1
EXHIBIT 3(ii)
BY-LAWS
OF
DUSA PHARMACEUTICALS, INC.
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders of the
Corporation shall be held either within or without the State of New Jersey, at
such time and place as the Board of Directors may designate in the call or in a
waiver of notice thereof, or in the absence of Board action designating the time
for such meeting, on the 1st day of July of each year, commencing with the year
1991 (or if such day be a legal holiday, then on the next succeeding day not a
holiday) at 10:00 o'clock in the morning, or such other date as decided upon
during that month, for the purpose of electing directors and for the transaction
of such other business as may properly be brought before the meeting.
Section 2. Delayed Annual Meeting. If for any reason the annual meeting
of the shareholders shall not be held on the day designated pursuant to Section
1 of this Article, or on any subsequent day to which it shall have been duly
adjourned, such meeting may be called and held as a special meeting, and only
the same proceedings may be had and the same business may be transacted at such
meeting as at the original annual meeting.
Section 3. Special Meetings. Special meetings of the shareholders may be
called by the Board of Directors or by the President at such times and at such
place either within or without the State of New Jersey as may be stated in the
call or in a waiver of notice thereof.
Section 4. Notice of Meetings. Notice of the time, place and purpose of
every meeting of shareholders shall be delivered personally or mailed not less
than ten (10) days nor more than sixty (60) days previous thereto to each
shareholder of record entitled to vote, at his post office address appearing
upon the records of the Corporation or at such other address as shall be
furnished in writing by him to the Corporation for such purpose. Such further
notice shall be given as may be required by law or by these By-Laws. Any meeting
may be held without notice if all shareholders entitled to vote either are
present in person or by proxy, or waive notice in writing, either before or
after the meeting.
Section 5. Quorum. The holders of record of at least thirty-three and
one-third percent (33 1/3%) of the shares of the stock of the Corporation
issued and outstanding and entitled to vote, present in person or by proxy,
shall, except as otherwise provided by law, constitute a quorum at all meetings
of the shareholders; if there be no such quorum, the holders of a majority of
such
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<PAGE> 2
shares so present or represented may adjourn the meeting from time to time until
a quorum shall have been obtained.
Section 6. Organization of Meetings. Meetings of the shareholders shall
be presided over by the Chairman of the Board, if there be one, or if he is not
present, the President, or if he is not present, by a chairman to be chosen at
the meeting. The Secretary of the Corporation, or in his absence, an Assistant
Secretary, shall act as Secretary of the meeting, if present.
Section 7. Voting. At each meeting of shareholders, except as otherwise
provided by statute or the Certificate of Incorporation, every holder of record
of stock entitled to vote shall be entitled to one vote in person or by proxy
for each share of such stock standing in his name on the records of the
Corporation. Elections of directors shall be determined by a plurality of the
votes cast there at and, except as otherwise provided by statute, the
Certificate of Incorporation, or these By-Laws, all other action shall be
determined by a majority of the votes cast at such meeting. Each proxy to vote
shall be either in writing and signed, or given by telegram, radio, radiogram,
cable or equivalent electronic communication made by the shareholder or by his
duly authorized agent.
At all elections of directors, the voting shall be in such other manner
as may be determined by the Board of Directors, unless a shareholder present in
person or by proxy entitled to vote at such election, and before the voting
begins, demands election by ballot. With respect to any other matter presented
to the shareholders for their consideration at a meeting, any shareholder
entitled to vote may, on any question, demand a vote by ballot.
A complete list of the shareholders entitled to vote at each such
meeting, arranged in alphabetical order (within each class, series or group of
shareholders maintained by the Corporation for convenience of reference) with
the address of each, and the number of shares registered in the name of each
shareholder, shall be prepared by the Secretary and shall be produced at the
time and place during the meeting and shall be subject to the inspection of any
shareholder for reasonable periods during the meeting.
Section 8. Inspectors of Election. The Board of Directors in advance of
any meeting of shareholders, or the tabulation of written consents of
shareholders without a meeting, may appoint one or more Inspectors of Election
to act at the meeting or any adjournment thereof or to tabulate such consents.
If Inspectors of Election are not so appointed, the chairman of the meeting may,
and on the request of any shareholder entitled to vote, shall, appoint one or
more Inspectors of Election. In case any person appointed as Inspector of
Election fails to appear or act, the vacancy may be filled by appointment made
by the Board of Directors in advance of the meeting or at the meeting by the
chairman of the meeting. Each Inspector of Election, before entering upon the
discharge of his duties, shall take and sign an oath to faithfully execute the
duties of Inspector of Election at such meeting with strict impartiality and
according to the best of his ability. If appointed, Inspectors of Election shall
take charge of the polls as may be required by law and, when the vote is
completed, shall make a report of the result of the vote taken and of such other
facts as may be required by law.
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<PAGE> 3
Section 9. Action by Consent. Any action required or permitted to be
taken at any meeting of shareholders may be taken without a meeting, if, prior
to such action, a written consent or consents thereto, setting forth such
action, is or are signed by the holders of record of all of the shares of stock
of the Corporation or, in the alternative, by the holders of record of so many
of the shares of the stock of the Corporation as are required by law for the
taking of such action by written consent, if, either the Corporation solicits
for such consents or proxies for consents from the holders of all of the shares
of stock of the Corporation, issued, outstanding and entitled to vote thereon
and promptly notifies all non-consenting holders of stock of the Corporation as
required by law. Any such solicitation or notice to non-consenting shareholders
hereunder shall specify at least the action to which the consent relates, its
proposed effective date, any conditions precedent to such action, the date of
tabulation of consents, and the rights of all shareholders who are entitled to
dissent from such action, if any, together with the requisite procedure for
assertion and enforcement of those rights. In the case of a merger,
consolidation, or sale, lease, exchange or other disposition of substantially
all of the assets of the Corporation, any required or permitted shareholder
action may be taken by a prior written consent or consents to such action,
setting forth the action to be taken, signed by the holders of all of the shares
of every class of issued and outstanding stock of the Corporation, issued,
outstanding and entitled to vote, with the same notice to all other holders of
stock of the Corporation as is required hereunder to be sent to non-consenting
shareholders.
ARTICLE II
DIRECTORS
Section 1. Number, Quorum, Term, Vacancies, Removal. The Board of
Directors of the Corporation shall consist of at least five and up to nine, as
determined from time to time by the Board of Directors. The number of directors
may be determined by a resolution passed by a majority of the whole Board or by
a vote of the holders of record of at least a majority of the shares of stock of
the Corporation, issued and outstanding and entitled to vote.
A majority of the members of the Board of Directors then holding office
shall constitute a quorum, which in no case shall be less than one-third of the
total number of directors or less than two directors, except that when the
entire Board consists of one Director, then one Director shall constitute a
quorum for the transaction of business, but if at any meeting of the Board there
may shall be less than a quorum present, a majority of those present may adjourn
the meeting from time to time until a quorum shall have been obtained.
Directors shall hold office until the next annual election and until
their successors shall have been elected and shall have qualified, unless sooner
displaced.
Whenever any vacancy shall have occurred in the Board of Directors, by
reason of death, resignation, increase in the number of directors, or otherwise,
other than removal of a director with or without cause by a vote of the
shareholders, or is scheduled to occur pursuant to a resignation tendered to the
Board effective at a future date, it shall be filled by a majority of the
directors then holding office though less than a quorum (except as otherwise
provided by law), or in the case of a subsequently effective resignation, by
such a majority of the directors including
3
<PAGE> 4
the resignee, or by the shareholders, and the person so chosen shall hold office
until the next annual election and until his successor is duly elected and has
qualified.
Any one or more of the directors of the Corporation may be removed with
cause at any time by an affirmative vote of the holders of record of at least a
majority of the shares of stock of the Corporation, issued and outstanding and
entitled to vote thereon, or removed with cause at any time by a majority of the
whole Board, and thereupon the term of the director or directors who shall have
been so removed shall forthwith terminate and there shall be a vacancy or
vacancies in the Board of Directors, to be filled as provided in these By-Laws.
A majority of the whole Board may suspend any one or more of the directors of
the Corporation pending a final determination that cause for removal exists.
Section 2. Meetings, Notice. Meetings of the Board of Directors shall be
held at such place either within or without the State of New Jersey, as may from
time to time be fixed by resolution of the Board, or as may be specified in the
call or in a waiver of notice thereof. Regular meetings of the Board of
Directors shall be held at such times as may from time to time be fixed by
resolution of the Board, and special meetings may be held at any time upon the
call of one director, the Chairman of the Board, if one be elected, or the
President, by oral, telegraphic or written notice, duly served on or sent or
mailed to each director not less than two days before such meeting. A meeting of
the Board may be held without notice immediately after the annual meeting of
shareholders at the same place at which such meeting was held. Notice need not
be given of regular meetings of the Board or of any special meeting when its
time and place are determined in advance by a quorum of the Board. Any meeting
may be held without notice, if all directors are present, or if notice is waived
in writing, either before or after meeting, by those not present. Any meeting of
the Board may be held by means of telephone conference or any other means of
communication by which all persons participating in the meeting are able to hear
each other. Notice of an adjourned meeting need not be given if time and place
are fixed at the prior meeting and if the period of adjournment does not exceed
ten (10) days per adjournment.
Section 3. Committees. The Board of Directors may, in its discretion, by
resolution passed by a majority of the whole Board, designate from among its
members one or more committees which shall consist of one or more directors. The
Board may designate one or more directors as alternate members of any such
committee, who may replace any absent or disqualified member at any meeting of
the committee. Such committee shall have and may exercise such powers as shall
be conferred or authorized by the resolution appointing them. A majority of any
such committee may determine its action and fix the time and place of its
meetings, including meetings by telephone conference call or similar means of
communication, unless the Board of Directors shall otherwise provide. The Board
by resolution passed by a majority of the whole Board shall have power at any
time to change the membership of any such committee, to fill vacancies in it, or
to dissolve it.
Section 4. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, if prior to such action a written consent or
consents thereto is signed by all members of the Board,
4
<PAGE> 5
or of such committee as the case may be, and such written consent or consents is
filed with the minutes of proceedings of the Board of committee.
Section 5. Compensation. The Board of Directors, by an affirmative vote
by the majority of the Board, may determine, from time to time, the amount of
reasonable compensation which shall be paid to its members. The Board of
Directors shall also have power, in its discretion, to allow a fixed sum and
expenses for attendance at each regular or special meeting of the Board, or of
any committee of the Board; in addition, the Board of Directors shall also have
power, in its discretion, to provide for and pay to directors rendering services
to the Corporation not ordinarily rendered by directors, as such, special
reasonable compensation appropriate to the value of such services, as determined
by the Board from time to time.
ARTICLE III
OFFICERS
Section 1. Titles and Election. The officers of the Corporation, who
shall be chosen by the Board of Directors at its first meeting after each annual
meeting of shareholders, shall be a President, a Treasurer and a Secretary. The
Board of Directors from time to time may elect a Chairman of the Board, one or
more Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other
officers and agents as it shall deem necessary, and may define their powers and
duties. Any number of offices may be held by the same person.
Section 2. Terms of Office. The officers shall hold office until their
successors are chosen and qualify.
Section 3. Removal. Any officer may be removed, either with or without
cause, at any time, by the affirmative vote of a majority of the Board of
Directors.
Section 4. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the Secretary. Such resignations
shall take effect at the time specified therein, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 5. Vacancies. If the office of any officer or agent becomes
vacant by reason of death, resignation, retirement, disqualification, removal
from office or otherwise, the Board of Directors may choose a successor, who
shall hold office for the unexpired term in respect of which such vacancy
occurred.
Section 6. Chairman of the Board. The Chairman of the Board of
Directors, if one be elected, shall preside at all meetings of the Board of
Directors and of the shareholders, and he shall have and perform such other
duties as from time to time may be assigned to him by the Board of Directors.
Section 7. President. The President shall be the chief executive officer
of the Corporation and, in the absence of the Chairman, shall preside at all
meetings of the Board of
5
<PAGE> 6
Directors, and of the shareholders. He shall exercise the powers and perform the
duties usual to the chief executive officer and, subject to the control of the
Board of Directors, shall have general management and control of the affairs and
business of the Corporation; he shall appoint and discharge employees and agents
of the Corporation (other than officers elected by the Board of Directors) and
fix their compensation; and he shall see that all orders and resolutions of the
Board of Directors are carried into effect. He shall have the power to execute
bonds, mortgages and other contracts, agreements and instruments of the
Corporation, and shall do and perform such other duties as from time to time may
be assigned to him by the Board of Directors.
Section 8. Vice Presidents. If chosen, the Vice Presidents, in the order
of their seniority, shall, in the absence or disability of the President,
exercise all of the powers and duties of the President. Such Vice Presidents
shall have the power to execute bonds, notes, mortgages and other contracts,
agreements and instruments of the Corporation, and shall do and perform such
other duties incident to the office of Vice President and as the Board of
Directors, or the President, shall direct.
Section 9. Secretary. The Secretary shall attend all sessions of the
Board and all meetings of the shareholders and record all notes and the minutes
of proceedings in a book to be kept for that purpose. He shall give, or cause to
be given, notice of all meetings of the shareholders and of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors. The Secretary shall affix the corporate seal to any instrument
requiring it, and when so affixed, it shall be attested by the signature of the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
who may affix the seal to any such instrument in the event of the absence or
disability of the Secretary. The Secretary shall have and be the custodian of
the stock records and all other books, records and papers of the Corporation
(other than financial) and shall see that all books, reports, statements,
certificates and other documents and records, required by law are properly kept
and filed.
Section 10. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board, taking proper vouchers for such disbursements, and shall render to
the directors whenever they may require it, an account of all his transactions
as Treasurer and of the financial condition of the Corporation.
Section 11. Duties of Officers may be Delegated. In case of the absence
or disability of any officer of the Corporation, or for any other reason that
the Board may deem sufficient, the Board may delegate, for the time being, the
powers or duties, or any of them, of such officer to any other officer, or to
any director.
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<PAGE> 7
ARTICLE IV
INDEMNIFICATION
Section 1. Actions by Others. The Corporation (1) shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer or trustee of the Corporation or of any constituent corporation absorbed
by the Corporation in a consolidation or merger and (2) except as otherwise
required by Section 3 of this Article, may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he (a) is or was an employee or agent or the legal
representative of a director, officer, trustee, employee or agent of the
Corporation or of any absorbed constituent corporation, or (b) is or was serving
at the request of the Corporation or of any absorbed constituent corporation as
a director, officer, employee, agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise, or the legal
representative of such a person against expenses, costs, disbursements
(including attorneys' fees), judgments, fines and amounts actually and
reasonably incurred by him in good faith and in connection with such action,
suit or proceeding if he acted in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, he had no reasonable cause to believe that his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a pleas of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not meet the applicable standard of conduct.
Section 2. Actions by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, trustee, employee or agent of the
Corporation or of any constituent corporation absorbed by the Corporation by
consolidation or merger, or the legal representative of any such person, or is
or was serving at the request of the Corporation or of any absorbed constituent
corporation, as a director, officer, trustee, employee, agent of or participant,
or the legal representative of any such person in another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the New Jersey Superior Court or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the New
Jersey Superior Court or such other court shall deem proper.
7
<PAGE> 8
Section 3. Successful Defense. To the extent that a person who is or was
a director, officer, trustee, employee or agent of the Corporation or of any
constituent corporation absorbed by the Corporation by consolidation or merger,
or the legal representative of any such person, has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
Section 1 or Section 2 of this Article, or in defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 4. Specific Authorization. Any indemnification under Section 1
or Section 2 of this Article (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, trustee, employee, agent, or the legal
representative thereof, is proper in the circumstances because he has met the
applicable standard of conduct set forth in said Sections 1 and 2. Such
determination shall be made (1) by the Board of Directors by a majority vote of
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, a quorum of disinterested
directors so directs, by independent legal counsel for a written opinion, (3) by
the shareholders.
Section 5. Advance of Expenses. Expenses incurred by any person who may
have a right of indemnification under this Article in defending civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final distribution of such action, suit or proceeding as authorized by the
Board of Directors upon receipt of an undertaking by or on behalf of the
director, officer, trustee, employee, or the legal representative thereof, to
repay such amount unless it shall ultimately be determined that he is entitled
to be indemnified by the Corporation pursuant to this Article.
Section 6. Right of Indemnity not Exclusive. The indemnification and
advancement of expenses provided by this Article shall not exclude any other
rights to which those seeking indemnification may be entitled under the
certificate of incorporation of the Corporation or any By-Law, agreement, vote
of shareholders or otherwise; provided that no indemnification shall be made to
or on behalf of a director, officer, trustee, employee, agent, or legal
representative if a judgment or other final adjudication adverse to such persons
establishes that his acts or omissions (a) were in breach of his duty of loyalty
to the Corporation or its shareholders, as defined by law, (b) were not in good
faith or involved a knowing violation of law or (c) resulted in receipt by such
person of an improper personal benefit.
Section 7. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, trustee,
employee or agent of the Corporation or of any constituent corporation absorbed
by the Corporation by consolidation or merger of the legal representative of
such person or is or was serving at the request of the Corporation or of any
absorbed constituent corporation as a director, officer, trustee, employee or
agent of or participant in another corporation, partnership, joint venture,
trust or other enterprise, or the legal representative of any such person
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such or by reason of his being or having
been such, whether or not the Corporation would have the power to indemnify
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<PAGE> 9
him against such liability under the provisions of this Article, the New Jersey
Business Corporation Act, or otherwise.
Section 8. Invalidity of any Provision of this Article. The invalidity
or unenforceability of any provision of this Article shall not affect the
validity or enforceability of the remaining provisions of this Article.
ARTICLE V
CAPITAL STOCK
Section l. Certificates. The interest of each shareholder of the
Corporation shall be evidenced by certificates for shares of stock in such form
(including punch cards, magnetically coded or otherwise treated forms to
facilitate machine or automatic processing) as the Board of Directors may from
time to time prescribe. Each certificate of stock shall in any event state upon
its face all matters required by law. Each certificate of stock issued at any
time the Corporation is authorized to issue shares of more than one class of
stock shall set out on it the designations, relative rights, preferences and
limitations of each class and series then authorized and the power of the Board
of Directors to divide any such shares and to change such designations, relative
rights, preferences and limitations. The certificates of stock shall be signed
by the Chairman of the Board, if any, or by the President or a Vice President
and sealed with the seal of the Corporation or a facsimile thereof, and
countersigned by the Secretary, or the Treasurer, or an Assistant Secretary, or
an Assistant Treasurer, and registered in such manner, if any, as the Board of
Directors may by resolution prescribe. Where any such certificate is
countersigned by a transfer agent other than the Corporation or its employee, or
registered by a registrar other than the Corporation or its employee, the
signature of any such officer may be a facsimile signature. In case any officer
or officers who have signed, or whose facsimile signature or signatures shall
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the Corporation whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures shall have been used thereon had not ceased to be such officer or
officers of the Corporation.
Section 2. Transfer. The shares of stock of the Corporation shall be
transferred only upon the books of the Corporation by the holder thereof in
person or by his attorney, upon surrender for cancellation of certificates for
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably require.
Section 3. Record Dates. The Board of Directors may fix, in advance, a
date, not less than ten (10) nor more than sixty (60) days preceding the date of
any meeting of shareholders, or the date for the payment of any dividend, or the
date for the distribution or allotment of any rights, or the date when any
change, conversion or exchange of capital stock shall go into effect, as a
record date for the determination of the shareholders entitled to notice of, and
to vote at, any such meeting, or entitled to receive payment of any such
dividend, or to exercise the rights in
9
<PAGE> 10
respect of any such change, conversion or exchange of capital stock, and in such
case only such shareholders as shall be shareholders of record on the date so
fixed shall be entitled to such notice of, and to vote, at such meeting, or to
receive payment of such dividend, or to receive such distribution or allotment
or rights or to exercise such rights, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after such record date
fixed as aforesaid. Such determination of shareholders of record shall remain in
effect for any adjournment thereof unless the Board of Directors fixes a new
record date.
Section 4. Lost Certificates. In the event that any certificate of stock
is lost, stolen, destroyed, or mutilated, the Board of Directors may authorize
the issuance of a new certificate of the same enter and for the same number of
shares in lieu thereof. The Board may in its discretion, before the issuance of
such new certificate, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the legal representative of the owner, to make an
affidavit or affirmation setting forth such acts as to the loss, destruction or
mutilation as it deems necessary, and to give the Corporation a bond in such
reasonable sum as it directs to indemnify the Corporation.
ARTICLE VI
CONTRACTS AND FINANCIAL TRANSACTIONS
Section 1. Contracts. When the execution of any contract, conveyance, or
other instrument, has been authorized by the Board of Directors, or in the case
of such contract, conveyance or other instrument, between the Corporation and
any director or any corporation, firm, association or entity in which a director
of the Corporation has a direct or indirect interest, has been authorized as set
out in the New Jersey Business Corporation Act, without specification as to the
executing officer, the President, or a Vice President may execute the same in
the name and on behalf of the Corporation, and the Secretary, and Assistant
Secretary or the Secretary-Treasurer may attest to that execution and affix the
corporate seal thereto.
Section 2. Checks, Notes, Etc. All checks and drafts on the
Corporation's bank accounts and all bills of exchange and promissory notes, and
all acceptances, obligations and other instruments for the payment of money, may
be signed by the President or any Vice President and may also be signed by such
officer or officers, agent or agents, as shall be thereunto authorized from time
to time by the Board of Directors.
Section 3. Loans to Directors, Officers and Employees. The Board of
Directors may authorize the loaning of money, guaranteeing of obligations or
other assistance to any other officer or employee of the Corporation or of any
subsidiary whenever in judgment of the Board such loan, guarantee or assistance
may reasonably be expected to benefit the Corporation, provided, however, if
such officer or employee is also a director, such loan, guarantee or assistance
must be approved by a majority of the entire Board. Any such loan, guarantee or
assistance may be made with or without interest, and may be unsecured, or
secured in such manner as the Board shall approve.
10
<PAGE> 11
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Registered Office and Agent. The registered office of the
Corporation shall be located at 991 Route 22 West, Somerville, New Jersey. The
Corporation may have other offices either within or without the State of New
Jersey at such places as shall be determined from time to time by the Board of
Directors or the business of the Corporation may require. The registered agent
at such office is Nanette W. Mantell, Esq.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be as
determined by the Board of Directors.
Section 3. Corporate Seal. The seal of the Corporation shall be circular
in form and contain the name of the Corporation, and the year and state of its
incorporation. Such seal may be altered from time to time at the discretion of
the Board of Directors.
Section 4. Books and Records. There shall be kept at such office of the
Corporation as the board of Directors shall determine, within or without the
State of New Jersey, correct books and records of account of all its business
and transactions, minutes of the proceedings of its shareholders, Board of
Directors and committees, and the stock book containing the names and addresses
of the shareholders, the number of shares held by the owners of record thereof,
and in which the transfer of stock shall be registered, and such other books and
records as the Board of Directors may from time to time determine. Any person
who shall have been a shareholder of record of the Corporation for at least six
(6) months immediately preceding his or her demand, or any person holding, or so
authorized in writing by the holders of, at least five percent (5%) of the
outstanding shares of any class or series, upon at least five (5) days written
notice, shall have the right, for any proper purpose, to examine, in person or
by agent or attorney, during usual business hours, the Company's minutes of the
proceedings of its shareholders and record of shareholders and to make extracts
therefrom, at places where the same are kept.
Section 5. Voting of Stock. Unless otherwise specifically authorized by
the Board of Directors, all rights and powers, including any right to vote,
incident to any stock owned by the Corporation, other than stock of the
Corporation, shall be exercised in person or by proxy, by the President or any
Vice President of the Corporation on behalf of the Corporation in no more
restricted manner or limited extent than would apply to any owner thereof.
ARTICLE VIII
AMENDMENTS
Section 1. Amendments. The vote of the holders of at least a majority of
the shares of stock of the Corporation, issued and outstanding and entitled to
vote, shall be necessary at any meeting of shareholders to amend or repeal these
By-Laws or to adopt new By-Laws. These By-Laws may also be amended or repealed,
or new By-Laws adopted, at any meeting of the Board of Directors by the vote of
at least a majority of the entire Board; provided that any By-Law
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<PAGE> 12
adopted by the Board may be amended or repealed by the shareholders in the
manner set forth above.
Any proposal to amend or repeal these By-Laws or to adopt new By-Laws
shall be stated in the notice of the meeting of the Board of Directors of the
shareholders, or in the waiver or notice thereof, as the case may be, unless all
of the directors or the holders of record of all of the shares of stock of the
Corporation, issued and outstanding and entitled to vote, are present at such
meeting.
12
<PAGE> 1
EXHIBIT 4.1
FORM OF
STOCK CERTIFICATE
NUMBER DUSA PHARMACEUTICALS, INC. SHARES
Incorporated under the law
DUSA _____ of the State of New Jersey ______
See reverse for
Certain Definitions
CUSIP 266898 10 5
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES
OF THE COMMON STOCK, NO PAR VALUE, OF
DUSA Pharmaceuticals, Inc., (hereinafter called the"Corporation"),transferable
only on the books of the Corporation by the holder hereof in person or by duly
authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
transfer agent and registrar of the Corporation.
The shares represented by this certificate are transferable at the
corporate offices of American Stock Transfer & Trust Company in New York, New
York or at the corporate offices of Montreal Trust Company of Canada in Toronto,
Ontario.
IN WITNESS WHEREOF, the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated:
<TABLE>
<S> <C> <C> <C>
Countersigned and Registered Countersigned and Registered [Seal] President
AMERICAN STOCK TRANSFER MONTREAL TRUST COMPANY
& TRUST COMPANY OF CANADA
OR
Authorized Signature Authorized Signature Secretary
</TABLE>
<PAGE> 2
[REVERSE SIDE OF CERTIFICATE]
DUSA PHARMACEUTICALS, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-_________Custodian __________
(Cust) (Minor)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with rights under Uniform Gifts to Minors
of survivorship and not as Act _________________________
tenants in common (State)
</TABLE>
FOR VALUE RECEIVED,_________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO:
Please insert social security, social insurance
or taxpayer identification number of assignee
_____________________________________________
_____________________________________________
________________________________________________________________________________
Please print or typewrite Name and Address of Assignee
________________________________________________________________________________
___________________________________________________________ SHARES REPRESENTED
BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
____________________________________________________________________ ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
Dated: _______________________ X _____________________________________
(Signature)
_____________________________________
(Please Print Name)
______________________________ _____________________________________
Signature Guaranteed (Address)
_____________________________________
Social Security, Social Insurance or
Taxpayer Identification Number
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THIS COMMON STOCK CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK
EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, MIDWEST STOCK
EXCHANGE, OR TORONTO STOCK EXCHANGE.
This certificate also evidences and entitles the holder hereof to certain Rights
as set forth in the Rights Agreement between DUSA Pharmaceuticals, Inc., (the
"Company") and American Stock Transfer & Trust Company (the "Rights Agent")
dated as of September 26, 1997, (the "Rights Agreement"), the terms of which are
hereby incorporated by reference and a copy of which is on file at the principal
offices of the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. The Company will mail to the holder of
this certificate a copy of the Rights Agreement, as in effect on the date of
mailing, without charge promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights issued to,
or held by, any Person who is, was, or becomes an Acquiring Person, and Adverse
Person or any Affiliate or Associate of an Acquiring Person or an Adverse Person
(as such terms are defined in the Rights Agreement), whether currently held by
or on behalf of such Person or by any subsequent holder, may be null and void.
The Rights shall not be exercisable, and shall be void so long as held by a
holder in any jurisdiction where the requisite qualification to the issuance to
such holder, or the exercise by such holder, of the Rights in such jurisdiction
shall not have been obtained or be obtainable.
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR SUE McNAMEE
215-830-2158
680 BLAIR MILL ROAD PROOF OF OCTOBER 22, 1997
HORSHAM, PA 19044 DUSA
215-657-3480 H 53296PATCH
____________________________________ _________________________________
SALESPERSON R. JOHNS 212-557-9100 Opr. JH NEW
____________________________________ _________________________________
/home/jm/inprogress/home11/DUSA53296 /net/banknote/home/11/D
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS,
AND CONSOLIDATED STATEMENTS OF CASH FLOWS, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B)FORM 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,406,606
<SECURITIES> 11,059,250
<RECEIVABLES> 104,596
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,699,737
<PP&E> 120,662
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,820,399
<CURRENT-LIABILITIES> 756,108
<BONDS> 0
0
0
<COMMON> 36,710,743
<OTHER-SE> (22,631,599)
<TOTAL-LIABILITY-AND-EQUITY> 14,820,399
<SALES> 0
<TOTAL-REVENUES> 213,543
<CGS> 0
<TOTAL-COSTS> 1,724,864
<OTHER-EXPENSES> 374,968
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,886,289)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,886,289)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,886,289)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
