<PAGE> 1
As filed with the Securities and Exchange Commission on March 3, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DUSA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-3103129
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
25 UPTON DRIVE
WILMINGTON, MASSACHUSETTS 01887
(978) 657-7500
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
NANETTE W. MANTELL, ESQ.
LANE AND MANTELL
991 ROUTE 22 WEST, PO BOX 8539
SOMERVILLE, NEW JERSEY 08876
(908) 253-9333
(Name, address, including ZIP code, and telephone number, including
area code, of agent for service)
COPIES TO:
DR. D. GEOFFREY SHULMAN, PRESIDENT
DUSA PHARMACEUTICALS, INC.
25 UPTON DRIVE
WILMINGTON, MASSACHUSETTS 01887
(978) 657-7500
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ XX ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement 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, 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. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Amount Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities to be Offering Price Per Aggregate Offering Registration
to be Registered Registered Share Price Fee
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<S> <C> <C> <C> <C>
Shares of common stock without par value(1) 1,500,000 $34.50(2) $ 51,750,000.00 $ 13,662.00
Shares of common stock without par value(3) 155,323 $8.97(4) $ 1,393,247.31 $ 367.82
TOTAL REGISTRATION FEE .........................................................................................$14,029.82
</TABLE>
(1) Represents shares to be issued to certain selling shareholders in a private
placement under Rule 506 of Regulation D of the Securities Act of 1933, as
amended, pursuant to a stock purchase agreement.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended, based upon
the average of the high and low price as reported on The NASDAQ National Market
on March 2, 2000.
(3) Represents shares issuable upon the exercise of options granted to certain
of the selling shareholders in connection with services rendered to DUSA by the
individuals or entities. (These options were not eligible for registration on
Form S-8 under the Securities Act of 1933, as amended.)
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(h)(1) of the Securities Act of 1933, as amended, based upon
the weighted average exercise price of the options rounded to the nearest cent.
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
PROSPECTUS Subject to Completion, Dated March 3, 2000
1,655,323 SHARES
DUSA PHARMACEUTICALS, INC.
COMMON STOCK
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This prospectus relates to an offering of 1,655,323 shares of common
stock by the selling shareholders listed on page 26.
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------------------------------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 1.
------------------------------------
Our common stock is traded on The NASDAQ National Market under the
symbol "DUSA."
The last reported sale price of our common stock on NASDAQ on March 2,
2000 was $34.50 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is March __, 2000
<PAGE> 4
TABLE OF CONTENTS
Page
DUSA........................................................................i
Risk Factors............................................................... 1
Business ..................................................................10
Use of Proceeds............................................................24
Dilution ................................................................. 25
Selling Shareholders...................................................... 26
Plan of Distribution...................................................... 27
Securities to be Offered...................................................27
Legal Matters............................................................. 28
Experts................................................................... 28
Where You Can Find More Information....................................... 29
Incorporation of Certain Documents by Reference........................... 29
We have registered the trademarks DUSA Pharmaceuticals, Inc.(R) in the
United States and Canada and Levulan(R) in the United States and the European
Union. We have trademark applications pending for the Kerastick(TM) and
BLU-U(TM) in the United States and the European Union. We are applying for the
Levulan, Kerastick and BLU-U marks in Canada. This prospectus also contains
product names, trade names and trademarks that belong to other organizations.
<PAGE> 5
DUSA
We are a pharmaceutical company developing drugs in combination with
light devices to treat or detect a variety of conditions in processes known as
photodynamic therapy or photodetection. We are engaged primarily in the research
and development of our first drug, the Levulan(R) brand of aminolevulinic acid
HCl, or ALA, with light, for use in a broad range of medical conditions.
o When we use Levulan(R) and follow it with exposure to light to
treat a medical condition it is known as Levulan(R)
photodynamic therapy or Levulan(R) PDT.
o When we use Levulan(R) and follow it with exposure to light to
detect medical conditions it is known as Levulan(R)
photodetection or Levulan(R) PD.
We are developing Levulan(R) PDT and PD under an exclusive worldwide
license of patents and technology from PARTEQ Research and Development
Innovations, the licensing arm of Queen's University, Kingston, Ontario, Canada.
We also own or license certain patents relating to methods for using
pharmaceutical formulations which contain our drug and related processes and
improvements. In addition to the Levulan(R) trademark, we also have published
trademark applications for our drug applicator, the Kerastick(TM) and one of our
light devices, the BLU-U(TM).
On December 3, 1999, the FDA approved our New Drug Application, or NDA,
to market our first product, the Levulan(R) Kerastick(TM) 20% Topical Solution
with PDT for the treatment of actinic keratoses, or AKs, of the face and scalp.
We also received approval of our pre-market approval application, or PMA, of the
clinical trial version of our first light device product, called the BLU-U(TM).
The commercial version of the BLU- U(TM) is a modified version of the unit used
in the clinical studies. We are in the process of preparing a supplement to the
PMA covering these modifications, and intend to file it with the FDA during the
first quarter of 2000.
In November, 1999, we signed a marketing, development and supply
agreement with Schering AG, a German corporation. We granted to Schering AG the
right to promote, market, sell and distribute our Levulan(R) Kerastick(TM) with
PDT for AKs, on a worldwide basis, with the exception of Canada. Together we
intend to co-develop and commercialize additional Levulan(R) products for other
dermatology disorders. Subject to approval of the PMA supplement, Schering AG
has advised us that it expects to launch our first products during the second
quarter of 2000.
On February 23, 2000, we signed a definitive agreement with ten mutual
funds or collective trust funds advised by the INVESCO Funds Group, Inc. for a
private placement of 1.5 million shares of our common stock. The purchase price
is $28.50 per share. The closing is scheduled to occur promptly after the
declaration by the SEC that this registration statement, which covers the
shares, is effective. If the shares are not registered by 105 days following the
filing of this registration statement, the funds have the right to terminate the
agreement. We agreed to pay at closing a commission of 4.5% on the gross
proceeds plus a non-accountable expense allowance of $25,000 to the placement
agent.
Our principal executive offices are located at 25 Upton Drive,
Wilmington, Massachusetts, 01887 and our telephone number is (978) 657-7500.
i
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RISK FACTORS
Investing in our common stock is very speculative and involves a high
degree of risk. You should carefully consider the risks and uncertainties
described below before making an investment decision. They are not the only ones
we face. Additional risks and uncertainties that we are not aware of or that we
currently deem immaterial also may impair our business.
If any of the following risks actually occur, our business, financial
condition and operating results could be materially adversely affected, the
trading price of our common stock could decline, and you might lose all or part
of your investment.
This prospectus contains forward-looking statements that involve risks
and uncertainties, such as statements of our plans, objectives, expectations and
intentions. We use words such as "anticipate", "believe", "expect", future" and
"intend" and similar expressions to identify forward-looking statements. Our
actual results could differ materially from those anticipated in these forward-
looking statements for many reasons, including the factors described below and
elsewhere in this prospectus. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
RISKS RELATED TO DUSA
WE ARE NOT CURRENTLY PROFITABLE AND MAY NOT BE PROFITABLE IN THE FUTURE UNLESS
WE CAN SUCCESSFULLY MARKET AND SELL OUR FIRST PRODUCT, THE LEVULAN(R)
KERASTICK(TM) WITH PDT FOR THE TREATMENT OF AKS.
WE NEED APPROVAL FROM THE FDA FOR OUR COMMERCIAL LIGHT SOURCE, THE
BLU-U(TM), BEFORE WE CAN BEGIN MARKETING OUR FIRST PRODUCT, THE
LEVULAN(R) KERASTICK(TM), AND WE MAY NOT RECEIVE IT IN TIME FOR OUR
PLANNED PRODUCT LAUNCH IN THE SECOND QUARTER OF 2000.
The FDA has approved our first drug product, Levulan(R) Kerastick(TM)
20% Topical Solution with PDT for AKs of the face and scalp. The FDA has also
approved the clinical trial version of our light device, the BLU-U(TM). The FDA
must still approve the commercial version of our light device, the BLU-U(TM),
before we can market it. Without this additional approval, the Levulan(R)
Kerastick(TM) cannot be widely marketed or used by physicians since the therapy
combines use of Levulan(R) with exposure to the BLU- U(TM). We must file a
supplement with the FDA so that the FDA may examine the differences between our
approved clinical version and our proposed commercial version of the BLU-U(TM).
We expect that our pre-market approval, or PMA, supplement will be filed
shortly. While we believe the modifications we are making to our device do not
affect its performance and FDA review should take approximately two to three
months, FDA regulations give the agency up to six months to review a supplement.
The agency also will inspect our Wilmington, Massachusetts facility before
giving its approval. The FDA also may choose to reinspect our third-party
manufacturer. We would incur additional expenses if either of these facilities
fail to pass inspection. The FDA may also request additional testing information
and can extend the time for review of the PMA supplement. The launch of
Levulan(R) Kerastick(TM) with PDT for AKs will be delayed if we do not receive
approval of our PMA supplement from the FDA or if our facilities do not pass FDA
inspection before the planned product launch during the second quarter of 2000.
Schering AG may choose to delay the launch until the Fall of 2000 if product
supplies are not available by the middle of the second quarter. A delay in the
launch will delay our receipt of royalties and supply prices from sales of our
product. We may not receive approval of the BLU-U(TM).
BECAUSE NEITHER WE NOR SCHERING AG, OUR MARKETING PARTNER FOR
DERMATOLOGY PRODUCTS, HAS ANY EXPERIENCE MARKETING OR SELLING
DERMATOLOGY PRODUCTS IN THE UNITED STATES, OUR REVENUES FROM ROYALTIES
AND PRODUCT SALES MAY BE LIMITED.
The commercial success of Levulan(R) Kerastick(TM) with PDT for AKs of
the face and scalp will partly depend on the scope of the launch into the United
States market through promotional activities, a knowledgeable sales force and
adequate market penetration. The United States market introduction of Levulan(R)
Kerastick(TM) with PDT for AKs will be undertaken by Schering AG through its
affiliate, Berlex Laboratories, Inc. While Schering AG has experience marketing
dermatology products in Europe, neither Schering AG, Berlex nor DUSA has any
experience marketing dermatology products in the United States. Schering AG has
not agreed to hire specific numbers of sales representatives or committed to any
particular budget for the launch. Additionally, our competitors in the AK market
already have experienced, well-funded, marketing and sales operations in the
United States. If Schering AG fails to adequately fund the launch of our product
or fails to adequately develop, train and manage a sales force, the demand for
our product will be limited and our royalties from Schering AG on sales of the
product, our income from light device rentals, and our revenue on supply fees on
the Kerastick(TM) will be adversely affected.
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SINCE WE RELY HEAVILY ON OUTSIDE CONTRACTORS AS SOLE SUPPLIERS AND
MANUFACTURERS OF OUR LEVULAN(R) KERASTICK(TM) AND BLU-U(TM), OUR
MARKETING EFFORTS AND SALES MAY SUFFER IF THESE THIRD-PARTIES FAIL IN
ANY WAY TO ADEQUATELY SUPPLY US WITH THE QUALITY AND QUANTITY OF THE
PRODUCTS WE NEED.
We do not currently have the capacity to manufacture any of our
products on our own. We rely on third-parties to manufacture our products. We
have only one source for Levulan(R), one source for our Kerastick(TM), and one
for the BLU-U(TM). While we have purchased equipment in order to establish a
second source with a limited production line for the manufacture of our
Kerastick(TM), if it becomes necessary, any new manufacturer would have to pass
inspection by the FDA. None of our manufacturers have produced our products in
commercial quantities. Manufacturers often encounter difficulties when large
quantities of new products are manufactured for the first time, including
problems involving:
o product yields;
o quality control;
o component and service availability;
o compliance with FDA regulations; and
o the need for further FDA approval if manufacturers
make material changes to manufacturing processes
and/or facilities.
We cannot guarantee that problems will not arise with production
yields, costs or quality as our manufacturers seek to increase production. Any
manufacturing problems could delay or limit our supplies or prevent
commercialization of our products. If any of these suppliers fail to meet our
needs, our business, financial condition and results of operations would suffer.
If any facility or equipment in the facility of our manufacturers is
damaged or destroyed, we will not be able to quickly or inexpensively replace
it.
Under the terms of our agreement with Schering AG, our continuing
failure to supply Schering AG's requirements of Levulan(R), the Kerastick(TM)
and/or the BLU-U(TM) would release Schering AG from its obligation to purchase
supplies from us. The supply fees Schering AG is required to pay to us would be
reduced by Schering's cost to manufacture and we would continue to receive a
royalty payment on sales. Our business, financial condition and results of
operations would be adversely affected.
IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR PRODUCTS
FROM THIRD-PARTY PAYORS, OUR REVENUES AND PROFITS COULD BE
SIGNIFICANTLY LIMITED.
Our profitability will depend on the availability of reimbursement to
patients or physicians for the cost of our products from third-party payors such
as governmental programs, private insurance and private health plans. We cannot
predict whether levels of reimbursement for our drug and light combination
therapy will be high enough to allow us to realize a reasonable profit margin.
Third-party payors may deny reimbursement if the payor determines that our
particular new therapy is unnecessary, inappropriate or not cost effective. If
patients or physicians are not entitled to receive reimbursements similar to
reimbursements for competing therapies, patients will have to pay for the
unreimbursed amounts. Some medicare providers may require physicians to
prescribe 5-FU to treat AKs because 5-FU is an inexpensive treatment, or limit
the number of AK treatments in a particular year. These reimbursement factors
could limit our revenues, and our profits, if physicians or patients choose
therapies with higher reimbursements than may be assigned to our therapy or if
government agencies or other third-party payors mandate a treatment regimen. The
reimbursement status of newly-approved health care products is highly uncertain.
We are relying on Schering AG to obtain reimbursement codes from third-party
payors. If levels of reimbursement are decreased in the future, the demand for
our products could diminish or our ability to sell our products on a profitable
basis could be hurt.
EVEN IF WE RECEIVE REGULATORY APPROVAL FOR OUR BLU-U(TM), ANY FAILURE
TO COMPLY WITH ONGOING GOVERNMENTAL REGULATIONS IN THE UNITED STATES OR
TO OBTAIN FOREIGN REGULATORY APPROVALS WILL LIMIT OUR ABILITY TO MARKET
OUR FIRST PRODUCT.
Our products are subject to continued and comprehensive regulation by
the FDA and by state and local regulations. These laws require, among other
things,
o approval of manufacturing facilities, including adherence to
"good manufacturing and laboratory practices" during
production and storage;
o controlled research and testing of products even after
approval; and
o control of marketing activities, including advertising and
labelling.
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<PAGE> 8
Both the manufacture and marketing of our first product, Levulan(R)
Kerastick(TM) with PDT for AKs, are subject to continuing FDA review. Our
manufacturers must continue to comply with the FDA's current Good Manufacturing
Practices, commonly known as cGMP, and foreign regulatory requirements. The cGMP
requirements govern quality control and documentation policies and procedures.
In complying with cGMP and foreign regulatory requirements, our third party
manufacturers will be obligated to expend time, money and effort in production,
recordkeeping and quality control to assure that our products meet applicable
specifications and other requirements. If our third party manufacturer's fail to
comply with these requirements, we would be subject to possible regulatory
action and may be limited in the jurisdictions in which we are permitted to sell
our products.
As part of our approval from the FDA, we are required to conduct two
Phase IV follow-up studies; one to evaluate the long-term recurrence rate of AKs
after treatment with our new therapy, and the second to test for allergic skin
reactions to the Levulan(R) Kerastick(TM). If we discover a previously unknown
problem with the product, a manufacturer or its facility, changes in product
labeling restrictions or withdrawal of the product from the market may occur.
Manufacturing facilities are subject to ongoing periodic inspection by the FDA,
including unannounced inspections. We cannot give you any assurance that our
third-party sole sources will continue to meet all applicable FDA regulations
in the future. If any of our manufacturers fail to maintain compliance with FDA
regulatory requirements, it would be time consuming and costly to qualify other
sources. These consequences could have an adverse effect on our financial
condition and operations. If we fail to comply with applicable regulatory
approval requirements, a regulatory agency may:
o send us warning letters;
o impose fines and other civil penalties on us;
o suspend our regulatory approvals;
o refuse to approve pending applications or supplements to
approved applications filed by us;
o refuse to permit exports or our products from the United
States;
o require us to recall products;
o require us to notify physicians of labelling changes and/or
product related problems;
o impose restrictions on our operations; or
o criminally prosecute us.
As part of our collaboration agreement with Schering AG, we will be
jointly seeking foreign regulatory approvals for Levulan(R) Kerastick(TM) PDT
for AKs. We cannot give you any assurances that we will receive foreign
approvals on a timely basis, or at all, or that problems will not arise that
could delay or prevent the commercialization of our product in foreign
countries. The introduction of our product in foreign markets will subject us to
foreign regulatory clearances, which may be unpredictable and uncertain, and
which may impose substantial additional costs and burdens which we and Schering
AG may be unwilling or unable to pay. At present, applications for foreign
marketing authorizations are made at the national level, although certain
registration procedures are available within the European Union to companies
wishing to market a product in more than one member country. A regulatory
authority must be satisfied that adequate evidence of safety, quality, and
efficacy of the product has been presented before marketing authorization is
granted. In addition, electrical medical devices, such as the BLU-U(TM), must be
manufactured in compliance with the current requirements of ISO 9000. Our third-
party manufacturer is not currently qualified under ISO 9000. The foreign
regulatory approval process includes all of the risks associated with obtaining
FDA marketing approval and approval by the FDA does not ensure approval by other
countries. Failure to obtain foreign regulatory approval could adversely affect
our financial condition and operations.
WE HAVE SIGNIFICANT LOSSES AND MAY NEVER BE PROFITABLE.
We have a history of operating losses. We expect to have continued
losses over the next 12 months as we expand our research and development of new
products and establish ourselves in the marketplace. We may never become
profitable. As of December 31, 1999, our accumulated deficit was approximately
$35,947,000. We cannot predict whether any of our products will achieve market
acceptance to generate sufficient revenues to become profitable. Our commercial
success will depend on whether:
o Our products are more effective therapies that currently
available treatments;
o We receive sufficient reimbursement for our products; and
o We can, either together with a partner or alone, successfully
market our products.
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<PAGE> 9
WE HAVE ONLY ONE PRODUCT THAT HAS RECEIVED REGULATORY APPROVAL AND WE CANNOT
PREDICT WHETHER WE WILL EVER DEVELOP OR COMMERCIALIZE ANY OTHER PRODUCTS.
EXCEPT FOR THE LEVULAN(R) KERASTICK(TM) WITH PDT FOR AKS, ALL OF OUR
PRODUCTS ARE IN EARLY STAGES OF DEVELOPMENT AND MAY NEVER RESULT IN ANY
COMMERCIALLY SUCCESSFUL PRODUCTS.
Currently, we are developing a single drug compound for a number of
different medical conditions. To be profitable, we must successfully research,
develop, obtain regulatory approval for, manufacture, introduce, market and
distribute our products. All of our products, except for the Levulan(R)
Kerastick(TM) with PDT for AKs, are at an early stage of development. We cannot
predict how long the development for these products will take or whether they
will be medically effective. We cannot be sure that a successful market will
ever develop for our new drug technology. We do not know if any of our products
will ever be commercially successful.
WE MUST RECEIVE SEPARATE APPROVAL FOR EACH OF OUR POTENTIAL PRODUCTS
BEFORE WE CAN SELL THEM COMMERCIALLY IN THE UNITED STATES OR ABROAD.
Except for the Levulan(R) Kerastick(TM) with PDT for AKs, which is
already approved, all of our other potential products, including the commercial
version of the BLU-U(TM), will require the approval of the FDA before they can
be marketed in the United States. If we fail to obtain the required approvals
for other potential products our revenues will be limited. We may not achieve or
be able to sustain a positive cash flow or profits from the sales of our first
product. Before an NDA, which is an application to the FDA seeking approval to
market a new drug, can be filed with the FDA, a product must undergo, among
other things, extensive animal testing and human clinical trials. The process of
obtaining FDA approvals can be lengthy, costly, and time-consuming. Following
the acceptance of an NDA, the time required for regulatory approval can vary and
is usually one to three years or more. The FDA may require additional animal
studies and/or human clinical trials before granting approval. Our Levulan(R)
PDT products are based on new technology. To the best of our knowledge, the FDA
has approved only two drugs for use in photodynamic therapy, including
Levulan(R). This factor may lengthen the approval process. We face much trial
and error and we may fail at numerous stages along the way.
We cannot predict whether we will obtain approval for any of our
potential products. Data obtained from preclinical testing and clinical trials
can be susceptible to varying interpretations which could delay, limit or
prevent regulatory approvals. Future clinical trials may not show that
Levulan(R) PDT or PD is safe and effective for any new use we are studying. In
addition, delays or disapprovals may be encountered based upon additional
governmental regulation resulting from future legislation or administrative
action or changes in FDA policy. We must also obtain foreign regulatory
clearances before we can market our products in foreign markets. The foreign
regulatory approval process includes all of the risks associated with obtaining
FDA marketing approval and may impose substantial additional costs.
BECAUSE WE ARE RELYING ON OUR CORPORATE PARTNER, SCHERING AG, TO ASSIST
US WITH AND TO PROVIDE FUNDS TO DEVELOP OUR POTENTIAL DERMATOLOGY
PRODUCTS, WE COULD EXPERIENCE DELAYS IN OUR DEVELOPMENT IF SCHERING AG
FAILS TO PROVIDE US WITH ADEQUATE SUPPORT.
We are relying on Schering AG to provide funds and co-develop with us
our other potential dermatology products. Under the terms of the agreement,
Schering AG can terminate its funding for the co-development program after two
years. We cannot be certain that Schering AG will continue to fund the
co-development program. If Schering AG's fails to co-develop our products or
fails to make milestone or royalty payments as required, we may not be able to
continue our development program as we have planned.
OUR LACK OF SALES AND MARKETING EXPERIENCE COULD AFFECT OUR ABILITY TO
MARKET OUR NON-DERMATOLOGY PRODUCTS WHICH COULD ADVERSELY AFFECT OUR
REVENUES FROM FUTURE PRODUCT SALES.
We are lacking the experience and capacity to market, sell and
distribute our products. In order to market non-dermatology products and/or if
Schering AG abandons its rights to any dermatology products and if we do not
enter an agreement with a corporate partner who has the experience and resources
to perform these roles for other products, we would be required to hire our own
staff and a sales force. We have no experience in developing, training or
managing a sales force. We will incur substantial additional expenses if we have
to develop, train and manage these business activities. We may be unable to
build a sales force and the costs of establishing a sales force may exceed our
product revenues. Our direct marketing and sales efforts may be unsuccessful. In
addition, we compete with many companies that currently have extensive and
well-funded marketing and sales operations. Any marketing and sales efforts we
make may be unsuccessful against these companies.
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<PAGE> 10
IF WE ARE UNABLE TO OBTAIN THE NECESSARY CAPITAL TO FUND OUR
OPERATIONS, WE WILL HAVE TO DELAY OUR DEVELOPMENT PROGRAMS AND MAY NOT
BE ABLE TO COMPLETE OUR CLINICAL TRIALS.
If our sales goals for our first product are not met and/or if Schering
AG terminates funding of the co-development program, then we will need
substantial additional funds to fully develop, manufacture, market and sell all
of our other potential products. We cannot predict exactly when additional funds
will be needed. We may obtain funds through a public or private financing,
including equity financing, and/or through collaborative arrangements. We cannot
predict whether any financing will be available on acceptable terms when we need
it because investors may be unwilling to invest in DUSA if we have setbacks in
the development program or if the public fails to use our products.
If funding is insufficient, we will have to delay, reduce in scope or
eliminate some or all of our research and development programs. We cannot
predict which programs will be affected since it will depend upon the status of
clinical trials at that time. We may license rights to third-parties to
commercialize products or technologies that we would otherwise have attempted to
develop and commercialize on our own.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, TRADE SECRETS OR
KNOW-HOW, WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS PROFITABLY.
WE HAVE LIMITED PATENT PROTECTION AND IF WE ARE UNABLE TO PROTECT OUR
PATENTS AND PROPRIETARY RIGHTS, COMPETITORS MIGHT BE ABLE TO TAKE
ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS TO DEVELOP SIMILAR
PRODUCTS TO COMPETE WITH OURS.
Our ability to compete successfully depends, in part, on our ability to
defend patents that have issued, obtain new patents, protect trade secrets and
operate without infringing the proprietary rights of others. We have no product
patent protection for the compound ALA itself, as our basic patents are for
methods of detecting and treating various diseased tissues using ALA or related
compounds called precursors, in combination with light. Even where we have
patent protection, there is no guarantee that we will be able to enforce our
patents. We own or exclusively license patents and patent applications related
to the following:
o unique physical forms of ALA;
o methods of using ALA and its unique physical forms in
combination with light; and
o compositions and apparatus for those methods.
Some of the indications we are developing may not be covered by the
claims in our existing patents. In addition, a number of third parties are
seeking patents for additional uses of ALA. These additional uses, whether
patented or not, could limit the scope of our future operations because other
ALA products might become available which would not infringe our patents. These
products would compete with ours even though they are marketed for a different
use.
We have limited patent protection outside the United States which may
make it easier for third-parties to compete there. Our basic method of treatment
patents and applications have counter-parts in only four foreign countries.
Absent patent protection, third-parties may freely market ALA, subject to
appropriate regulatory approval. There are reports of several third-parties
conducting clinical studies using ALA in countries where DUSA lacks patent
protection. These studies could provide the clinical data necessary to gain
regulatory approval, resulting in competition.
Our patent protection in Japan may be diminished or lost entirely. The
Japanese Patent Office Board of Appeals, acting upon its review of an opposition
to Japanese Patent No. 273032 which we have licensed from PARTEQ Research and
Development Innovation, issued a document titled "Notice of Reasons for
Cancellation" which DUSA received on February 12, 1999. With PARTEQ's
assistance, we prepared and filed our response to this action. If our response
does not allay the concerns of the Board, they may limit our patent protections
or finalize the cancellation. Japan is a major pharmaceutical market and loss of
this patent could adversely affect DUSA in at least two ways. First, should DUSA
seek to enter the Japanese market, the lack of a patent would probably diminish
our market share. Second, even if we did not seek to market in Japan,
third-parties might not be interested in licensing the product in Japan without
patent protection, and this might affect DUSA's revenues.
While we attempt to protect our proprietary information as trade
secrets through agreements with each employee, licensing partner, consultant,
university, pharmaceutical company and agent, we cannot guarantee that these
agreements will provide effective protection for our proprietary information. It
is possible that
o these persons or entities might breach the agreements;
o we might not have adequate remedies for a breach; and/or
o our competitors will independently develop or otherwise
discover our trade secrets.
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PATENT LITIGATION IS EXPENSIVE, AND WE MAY NOT BE ABLE TO AFFORD THE
COSTS.
The costs of litigation or any proceeding relating to our intellectual
property rights could be substantial even if resolved in our favor. Some of our
competitors have far greater resources than we do and may be better able to
afford the costs of complex patent litigation. For example, third-party
competitors may infringe one or more of our patents, and we could be required to
spend significant resources to enforce our patent rights. Also, if we were to
sue a third-party for infringement of one or more of our patents, that
third-party could challenge the validity of our patent(s). Defending our patents
could also result in the expenditure of significant resources. We cannot
guarantee that a third-party or parties will not claim, with or without merit,
that we have infringed on their patent(s), or misappropriated their proprietary
material. Defending this type of legal action could also involve considerable
expense.
If a third party were to file a United States patent application, or be
issued a patent claiming technology also claimed by us in a pending United
States application(s), we may be required to participate in interference
proceedings in the United States Patent and Trademark Office to determine the
priority of invention. A third-party also could request the declaration of a
patent interference between one of our issued patents, and a third-party United
States patent application. Any interference proceedings likely would require
participation by us and/or PARTEQ, and could involve substantial legal fees.
Thermolase Corporation has patents that may affect our ability to
commercialize the use of ALA for hair removal. We are aware that Thermolase has
nine related issued United States patents, some of which claim methods for
removing or inhibiting the growth of hair. We do not know whether any of these
patents cover our plans to market hair removal using ALA because we have not
developed a final formulation or method of removing hair with ALA and light. If,
after finalizing our formulation and method, we find that any of these patents
do cover our planned use of ALA, Thermolase may either prevent us from using our
system or they may require us to take a license for a fee.
BECAUSE OF THE NATURE OF OUR BUSINESS, THE LOSS OF OUR REGULATORY CONSULTANT OR
KEY MEMBERS OF OUR MANAGEMENT TEAM COULD DELAY ACHIEVEMENT OF OUR GOALS.
IF ANY OF THE KEY MEMBERS OF OUR MANAGEMENT WERE TO END HIS
RELATIONSHIP WITH US, WE COULD EXPERIENCE SIGNIFICANT DELAYS IN OUR
BUSINESS AND RESEARCH OBJECTIVES.
We are a small company with only 24 employees. We are highly dependent on
several key employees with specialized scientific and technical skills
including: D. Geoffrey Shulman, MD, FRCPC, Chairman of the Board, President,
Chief Executive Officer and Chief Financial Officer of the Company; Ronald L.
Carroll, Executive Vice President and Chief Operating Officer; Stuart L. Marcus,
MD, PhD, Senior Vice President, Scientific Affairs; and Scott Lundahl, Vice
President, Technology. At least one of them receives regular solitications for
employment from industry competitors. While we have entered employment
agreements with these four executive officers, they may not remain with us. Our
growth and future success will depend, in large part, on the continued
contributions of these key individuals as well as our ability to, motivate and
retain these qualified personnel in our specialty drug and light device areas.
We currently do not employ anyone who could replace them. The photodynamic
therapy industry is still quite small and the number of experts is limited. The
loss of Dr. Shulman, Mr. Carroll, Dr. Marcus or Mr. Lundahl could cause
significant delays in achievement of our business and research goals since very
few people with their expertise could be hired. Our business, financial
condition and results of operations could suffer.
We also must identify, attract and retain additional qualified
management and technical personnel to manage and support our business.
Competition for top management and technical personnel is intense, and we may
not be able to recruit and retain the personnel we need. Our future success
depends to a significant extent on the ability of our executive officers and
other members of our management team to operate effectively, both individually
and as a group. We cannot be certain that we will be able to satisfactorily
allocate responsibilities and that the new members of our executive team will
succeed in their roles.
OUR LEVULAN(R) APPROVAL AND CO-DEVELOPMENT RELATIONSHIP IS ALLOWING
RAPID GROWTH AND IS CREATING ADDITIONAL STRESS FOR OUR ALREADY
OVERBURDENED STAFF WHICH MAY RESULT IN UNANTICIPATED DELAYS IN OUR
BUSINESS AND RESEARCH OBJECTIVES.
We have recently begun an aggressive growth plan that includes
substantial and increased investment in research and development and additional
personnel that we will require to support our growth. This rapid growth and
increased scope of operations presents a number of risks, including:
o an increase in operating expenses,
o the complexities associated with managing a larger and faster
growing organization; and
o unanticipated and substantial costs and time delays.
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Our recent FDA approvals, and preparations for the launch of our
products together with our commitment to accelerate our research and development
programs has placed and, if sustained, will continue to place, a significant
strain on our management and operations. Accordingly, our future operating
results will depend on the ability of our officers and other key employees to
continue to implement and improve our operational, customer service and internal
control systems, and to effectively expand, train and manage our employee base.
Demands placed on our clinical and light device staff have increased
and are expected to continue to increase as result of the numerous investigator
studies and clinical trials in development. There can be no guarantee that we
will be able to effectively oversee and monitor all of these investigator
studies and clinical trials. If we are unable to manage multiple studies and
clinical trials at the same time, we could have increased costs or significant
delays in our development program. In addition, as a result of our recent and
anticipated growth, we will need to recruit and hire additional personnel at all
operating levels. There can be no guarantee that we will be able to identify
suitable candidates to fill these positions.
BECAUSE WE ARE DEPENDENT UPON OUR INDEPENDENT CONSULTANTS, GUIDELINES,
INC., FOR OUR REGULATORY AFFAIRS EXPERTISE, IF THEY STOPPED PROVIDING
SERVICES, IT COULD BE COSTLY AND TIME-CONSUMING FOR US TO REPLACE THEM.
Our clinical development program is being implemented by our senior
management, with the assistance of consultants, primarily Guidelines, Inc., a
Florida-based company, specializing in drug development and regulatory affairs.
While we have improved our regulatory affairs expertise, we still rely on
Guidelines to act as liaison with the FDA. A loss of Guidelines' services would
force us to expand our regulatory affairs capacity quickly. This could prove to
be costly and time-consuming which could cause a material adverse effect on our
development program.
RISKS RELATED TO OUR INDUSTRY
PRODUCT LIABILITY AND OTHER CLAIMS AGAINST US MAY REDUCE DEMAND FOR OUR PRODUCTS
OR RESULT IN DAMAGES.
IF WE BECOME SUBJECT TO A PRODUCT LIABILITY CLAIM WE MAY NOT HAVE
ADEQUATE INSURANCE COVERAGE AND THE CLAIM COULD ADVERSELY AFFECT OUR
BUSINESS.
The development, manufacture and sale of medical products exposes us to
the risk of significant damages from product liability claims. We maintain
product liability insurance for coverage of our clinical trial activities. We
intend to obtain coverage for our products when they enter the marketplace but
we do not know if it will be available at acceptable costs. If the cost is too
high, we will have to self-insure. While we have not experienced any product
liability claims, a successful claim in excess of our clinical trial insurance
coverage or any coverage for commercial use of our products could have a
materially adverse effect on our business, financial condition and results of
operations.
OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS AND WE MAY INCUR SIGNIFICANT
COSTS COMPLYING WITH ENVIRONMENTAL LAWS AND REGULATIONS.
We use various hazardous materials, such as mercury in fluorescent
tubes in our research and development activities. Even though we do not
currently manufacture any products, we are subject to federal, state and local
laws and regulations which govern the use, manufacture, storage, handling and
disposal of hazardous materials and specific waste products. We believe that we
are in compliance in all material respects with applicable environmental laws
and regulations and we do not expect to make material capital expenditures for
environmental control facilities in the near-term. However, we cannot guarantee
that we will not incur significant costs to comply with environmental laws and
regulations in the future. We also cannot guarantee that our operations,
business or assets will not be materially adversely effected by current or
future environmental laws or regulations. In addition, although we believe our
safety procedures for handling and disposing of these materials comply with
federal, state and local laws and regulations, we cannot completely eliminate
the risk of accidental contamination or injury from these materials. In the
event of such an accident, we could be held liable for any resulting damages,
and this liability could exceed our resources.
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WE MAY NOT BE ABLE TO KEEP UP WITH RAPID CHANGES IN THE BIOTECHNOLOGY AND
PHARMACEUTICAL INDUSTRIES THAT COULD MAKE SOME OR ALL OF OUR PRODUCTS
NON-COMPETITIVE OR OBSOLETE.
COMPETING PRODUCTS AND TECHNOLOGIES MAY MAKE SOME OR ALL OF OUR
PROGRAMS OR POTENTIAL PRODUCTS NONCOMPETITIVE OR OBSOLETE.
Our industry is subject to rapid, unpredictable and significant
technological change. Competition is intense. Well-known pharmaceutical,
biotechnology and chemical companies are marketing well-established therapies
for the treatment of various dermatological conditions including AKs. Doctors
may prefer familiar methods that they are comfortable using rather than try our
products. Many companies are also seeking to develop new products and
technologies for medical conditions for which we are developing treatments. Our
competitors may succeed in developing products that are safer or more effective
than ours and in obtaining regulatory marketing approval of future products
before we do. We anticipate that we will face increased competition as new
companies enter our markets and as the scientific development of PDT/PD
advances.
We expect that our principal methods of competition with other PDT
companies will be based upon such factors as:
o the ease of administration of our photodynamic therapy,
o the degree of generalized skin sensitivity to light,
o the number of required doses,
o the selectivity of our drug for the target lesion or tissue
of interest, and
o the type and cost of our light systems.
We cannot give you any assurance that new drugs or future developments
in PDT or in other drug technologies will not have a material adverse effect on
our business. Increased competition could result in:
o price reductions,
o lower levels of third-party reimbursements,
o failure to achieve market acceptance, and
o loss of market share
any of which could have an adverse effect on our business. Further, we cannot
give you any assurance that developments by our competitors or future
competitors will not render our technology obsolete.
OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY
HAVE BETTER PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING
EXPERTISE.
Several companies are developing PDT agents other than Levulan(R).
These include: QLT PhotoTherapeutics Inc. (Canada); Miravant, Inc. (U.S.);
Pharmacyclics, Inc. (U.S.); Scotia Pharmaceuticals (United Kingdom); and
Photogen Technologies, Inc. (U.S.). We are also aware of several overseas
companies doing research with ALA, including: medac GmbH (Germany) which is 25%
owned by Schering AG; ESC Medical Systems Ltd. (Israel); and Photocure (Norway).
Many of our competitors have substantially greater financial and
technical and marketing resources than we have. In addition, several of these
companies have significantly greater experience than we do in developing
products, conducting preclinical and clinical testing and obtaining regulatory
approvals to market products for health care.
Photocure is also conducting late-stage clinical trials using a related
ALA compound with PDT for dermatological uses. We are aware that medac is
developing ALA PDT for bladder cancer detection in Germany and may receive
regulatory approval in Germany prior to the time that we could receive approval
from the FDA. We believe that our United States patents may be infringed if
medac sells its products in the United States.
We also know from published reports that an Israeli firm, ESC Medical
Systems Ltd., has entered into a worldwide distribution and supply agreement for
a medical grade of ALA (ALA Fine(TM)) for PDT applications. ESC has indicated
that it has used ALA Fine(TM) and its Versalight(R) to treat skin cancer in over
1,000 patients. These products are not available in the United States and we
believe that the PARTEQ patents would be infringed if the ESC products were
made, used or sold in the United States. However, these ESC products could
compete with some of our products, if approved by health regulatory authorities
outside of the United States or other countries covered by PARTEQ patents.
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RISKS RELATED TO THIS OFFERING
IF OUTSTANDING OPTIONS AND WARRANTS ARE CONVERTED, THE VALUE OF THOSE SHARES OF
COMMON STOCK OUTSTANDING JUST PRIOR TO THE CONVERSION WILL BE DILUTED.
As of February 15, 2000 there were outstanding options and warrants to
purchase 2,087,500 shares of common stock, with exercise prices ranging from
U.S. $3.25 to $15.875 per share, respectively, and ranging from CDN. $4.69 to
CDN. $12.875 per share, respectively. In addition, there are 32,575 outstanding
underwriter's purchase options from offerings completed in 1995 and 1996 and
7,109 outstanding placement agent warrants from a private placement completed in
1999. If the holders exercise a significant number of these securities at any
one time, the market price of the common stock could fall. The value of the
common stock held by other shareholders will be diluted. The holders of the
options and warrants have the opportunity to profit if the market price for the
common stock exceeds the exercise price of their respective securities, without
assuming the risk of ownership. If the market price of the common stock does not
rise above the exercise price of these securities, then they will expire without
exercise. The holders are likely to exercise their securities when we would
probably be able to raise capital from the public on terms more favorable than
those provided in these securities.
RESULTS OF OUR OPERATIONS AND GENERAL MARKET CONDITIONS FOR BIOTECHNOLOGY STOCK
COULD RESULT IN THE SUDDEN CHANGE IN THE MARKET VALUE OF OUR STOCK.
From time to time and in particular during the last several months, the
price of our common stock has been highly volatile. These fluctuations create a
greater risk of capital losses for our shareholders as compared to less volatile
stocks. From January 1, 1999 to January 31, 2000, our stock price has ranged
from a high of $31.875 to a low of $5.531. Over approximately the past six (6)
months our stock price has ranged from a high of $32.751 to a low of $13.063
Factors that contributed to the volatility of our stock during the last twelve
(12) months included:
o announcement of "approvability" from the FDA;
o new competitors entering the marketplace;
o execution of a collaboration agreement;
o release by us and our competitors of the results of clinical
trials; and
o receipt of marketing approval from the FDA.
The significant general market volatility in similar stage
pharmaceutical and biotechnology companies made the market price of our common
stock even more volatile.
EFFECTING A CHANGE OF CONTROL OF DUSA WOULD BE DIFFICULT, WHICH MAY DISCOURAGE
OFFERS FOR SHARES OF OUR COMMON STOCK.
Our certificate of incorporation authorizes the board of directors to
issue up to 100 million shares of stock, 40 million of which are common stock.
The board of directors has the authority to determine the price, rights,
preferences and privileges, including voting rights, of the remaining 60 million
shares without any further vote or action by the shareholders. The rights of the
holders of our common stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future.
We also have a shareholder rights plan. The plan may have the effect of
delaying, deterring, or preventing changes the management or control of DUSA,
which may discourage potential acquirers who otherwise might wish to acquire us
without the consent of the board of directors. Under the plan, if a person or
group acquires 15% or more of our common stock, all holders of rights (other
than the acquiring shareholder) may, upon payment of the purchase price then in
effect, purchase common stock having a value of twice the purchase price. In the
event that we are involved in a merger or other similar transaction where DUSA
is not the surviving corporation, all holders of rights (other than the
acquiring shareholder) shall be entitled, upon payment of the then in effect
purchase price, to purchase common stock of the surviving corporation having a
value of twice the purchase price. The rights will expire on September 26, 2007,
unless previously redeemed.
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BUSINESS
OVERVIEW
We are a pharmaceutical company developing drugs in combination with
light devices to treat or detect a variety of conditions in processes known as
photodynamic therapy or photodetection. We are engaged primarily in the research
and development of our first drug, the Levulan(R) brand of aminolevulinic acid
HCl, or ALA, with light, for use in a broad range of medical conditions. When we
use Levulan(R) and follow it with exposure to light to TREAT a medical
condition, it is known as Levulan(R) photodynamic therapy or Levulan(R) PDT.
When we use Levulan(R) and follow it with exposure to light to DETECT medical
conditions it is known as Levulan(R) photodetection or Levulan(R) PD.
On December 3, 1999, the FDA approved our New Drug Application, called
an NDA, to market our first product, the Levulan(R) Kerastick(TM) 20% Topical
Solution with PDT for the treatment of actinic keratoses, or AKs, of the face
and scalp. AKs are precancerous skin lesions caused by chronic sun exposure. AKs
can develop over time into a form of skin cancer called squamous cell carcinoma.
We also received approval of our pre-market approval application, or PMA, of the
clinical trial version of our first light device product, called the BLU-U(TM).
The commercial version of the BLU-U(TM) which we intend to market is a modified
version of the unit used in the clinical studies. We are in the process of
preparing a supplement to the PMA covering these modifications, and intend to
file it with the FDA during the first quarter of 2000.
In November, 1999, we signed a marketing, development and supply
agreement with Schering AG, a German corporation, for dermatology products. We
granted to Schering AG the right to promote, market, sell and distribute our
Levulan(R) Kerastick(TM) with PDT for AKs of the face and scalp on a worldwide
basis, except for Canada. Schering AG will also promote the BLU-U(TM); however,
we are responsible for leasing or selling the units, as well as for repairs and
maintenance. Schering AG, and its United States affiliate, Berlex Laboratories,
Inc., have advised us that Berlex plans to launch Levulan(R) PDT for AKs in the
United States during the second quarter of 2000, subject to approval of the PMA
supplement for the BLU-U(TM). We also intend to co-develop and commercialize
additional Levulan(R) products for other dermatology disorders. Under the
agreement, Schering AG has the exclusive right to market, promote, sell and
distribute the products which are developed in the co-development program.
Schering AG has agreed to fund two-thirds of the co-development program, up to a
total of $3.0 million per year, through 2001. The parties may agree to continue
to fund the co-development program beyond this date. Under the terms of the
agreement, we have received $15 million, including $8.75 million in cash
milestone payments and $6.25 million for which a Schering AG affiliate received
340,458 shares of our common stock. Schering AG is obligated to pay $8 million
for future research and development support to be used at our discretion and an
additional milestone payment of $7 million within 30 days after the first
commercial sale of the Levulan(R) Kerastick(TM), provided that the FDA has
approved the commercial model of the BLU-U(TM).
We are developing Levulan(R) PDT and PD under an exclusive worldwide
license of patents and technology from PARTEQ Research and Development
Innovations, the licensing arm of Queen's University, Kingston, Ontario, Canada.
We also own or license certain patents relating to methods for using
pharmaceutical formulations which contain our drug and related processes and
improvements. In addition to the Levulan(R) trademark, we also have published
trademark applications for our drug applicator, the Kerastick(TM) and one of our
light devices, the BLU-U(TM).
We have submitted Levulan(R) PDT development proposals to Schering AG
for acne, photodamaged skin, warts, hair removal and onychomycosis, more
commonly known as nail fungus. Together, we expect to finalize the development
program for 2000 to include several of these conditions and to begin new
clinical trials shortly. Also during this year, we expect to begin a new Phase
I/II clinical trial using Levulan(R) for the detection of bladder cancer. We are
also currently supporting independent investigator trials to advance clinical
programs such as the use of Levulan(R) PDT to prevent restenosis, a narrowing of
blood vessels following balloon angioplasty; to treat dysfunctional uterine
bleeding; and to detect and/or treat precancer of the cervix, known as CIN. We
may also consider supporting other independent investigator clinical trials this
year to advance clinical programs such as use of Levulan(R) PDT to treat
Barrett's esophagus, a potentially precancerous condition of the throat.
On February 23, 2000, we signed a definitive agreement with ten mutual
funds or collective trust funds advised by the INVESCO Funds Group, Inc. for a
private placement of 1.5 million shares of our common stock. The purchase price
is $28.50 per share. The closing is scheduled to occur promptly after the
declaration by the SEC that this registration statement, which covers the
shares, is effective. If the shares are not registered by 105 days following the
filing of this registration statement, the funds have the right to terminate the
agreement. We agreed to pay at closing a commission of 4.5% on the gross
proceeds plus a non-accountable expense allowance of $25,000 to the placement
agent.
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BUSINESS STRATEGY
The following are the key elements of our strategy:
o Successfully Launch our First Product. We are working with our
dermatology marketing partner, Schering AG, to begin selling,
in the United States, our first PDT system, the Levulan(R)
Kerastick(TM) 20% Topical Solution with our BLU-U(TM) for the
treatment of AKs of the face and scalp.
o Leveraging our Levulan(R) PDT/PD Platform to Develop
Additional Products. In dermatology, we intend, together with
Schering AG, to co-develop and commercialize additional
Levulan(R) products for other skin conditions. Outside
dermatology, we intend to develop new drug formulations and
light devices to target large markets with unmet medical
needs, such as bladder cancer detection, prevention of
restenosis and the detection and/or treatment of a number of
gynecological conditions.
o Enter into Additional Strategic Alliances. When we believe
that the development program for a non-dermatology indication
may be beyond our own resources or may be advanced to market
more rapidly with the use of resources of a corporate partner,
we may seek opportunities to license, market or co-promote our
products.
o Use the Results of Independent Researchers to Identify New
Applications. We will continue to support independent
investigators' research so that we have the benefit of human
data when we evaluate potential indications for corporate
development. We will also continue to monitor independent
research in order to identify potential new indications.
o Consider the Addition of Complimentary Products. We intend to
evaluate and pursue licensing and acquisition opportunities
for complementary products which may include drugs, devices,
technologies or related businesses.
PDT/PD OVERVIEW
In general, both photodynamic therapy and photodetection are two-step
processes:
o The first step is the application of a drug known as a
"photosensitizer," which collects in specific cells.
o The second step is activation of the photosensitizer by
controlled exposure to a selective light source.
During this process, energy from the light activates the
photosensitizer. In PDT, the activated photosensitizer transfers energy to
oxygen molecules found in cells, converting the oxygen into a highly energized
form known as "singlet oxygen", which destroys or alters the sensitized cells.
In PD, the activated photosensitizer emits energy in the form of light, making
the sensitized cells fluoresce, or "glow".
The longer the wavelength of visible light, the deeper into tissue it
penetrates. Different wavelengths, or colors, of light, including red and blue
light, may be used to activate photosensitizers. The selection of the
appropriate color of light for a given indication is primarily based on two
criteria:
o the desired depth of penetration of the light into the target
tissue, and
o the efficiency of the light in activating the photosensitizer.
Blue light does not penetrate deeply into tissues and is better suited
for treating superficial lesions. It is generally a potent activator of
photosensitizers. Red light penetrates more deeply into the skin. Therefore, it
is better suited for treating cancers and deeper tissues, but it is generally
not as strong an activator of photosensitizers. Different photosensitizers do
not absorb all colors of visible light in the same manner. For any given
photosensitizer, some colors are more strongly absorbed than others.
Another consideration in selecting a light source is the location of
the target tissue. Lesions on the skin which are easily accessible can generally
be treated with a non-laser light source. Internal indications, which are often
more difficult to access, may require a laser in order to focus the light into a
small fiber optic delivery system which may be passed through an endoscope or
into a hollow organ.
PDT can be a highly selective treatment that targets specific tissue
while minimizing damage to normal surrounding tissue. It allows for a multiple
course of therapy. The photosensitizer and the light separately have no PDT/PD
effect. The most common side effect of photosensitizers that are taken
systemically is temporary skin sensitivity to bright light. Patients undergoing
PDT and PD
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treatments are usually advised to avoid direct sunlight and/or to wear
protective clothing during this period. Patients' indoor activities are
unrestricted except that they are told to avoid bright lights. The degree of
selectivity and period of skin photosensitivity varies among different
photosensitizers and is also related to the drug dose given.
OUR LEVULAN(R) PDT/PD PLATFORM
OUR LEVULAN(R) BRAND OF ALA
We have a unique approach to PDT and PD, using the human cell's own
natural processes. Levulan(R) PDT takes advantage of the fact that ALA is the
first product in a natural biosynthetic pathway present in virtually all living
human cells. In normal cells, the production of ALA is tightly regulated through
a feedback inhibition process. In our PDT/PD system, excess ALA, as Levulan(R)
is added from outside the cell, bypassing the normal feedback inhibition. The
ALA is then converted through a number of steps into a potent natural
photosensitizer named protoporphyrin IX, or PpIX. This is the compound that is
activated by light during Levulan(R) PDT/PD, especially in fast growing cells.
Any PpIX that remains after treatment is eliminated naturally by the same enzyme
pathway.
We believe that Levulan(R) is unique among PDT/PD agents. It has the
following features:
o Naturally Occurring. ALA is a naturally occurring substance
found in virtually all human cells.
o Small Molecule. Levulan(R) is a small molecule that is easily
absorbed whether delivered topically, orally, or
intravenously.
o Highly Selective. Levulan(R) is not itself a photosensitizer,
but is a pro-drug that is converted through a cell-based
process into the photosensitizer PpIX. The combination of
topical application, tissue specific uptake and conversion
into PpIX and targeted light delivery make this a highly
selective process. Therefore, we can achieve clinical effects
in targeted tissue with minimal effects to normal surrounding
and underlying tissue.
o Controlled Activation. Levulan(R) has no PDT effect without
exposure to light at specific wavelengths, so the therapy is
easily controlled.
Scientists believe that the accumulation of PpIX following the application of
Levulan(R) is more pronounced in:
o rapidly growing diseased tissues, such as precancerous and
cancerous lesions,
o conditions characterized by rapidly proliferating inflammatory
cells, such as acne and psoriasis, and
o in certain normally fast-growing tissues, such as hair
follicles and the lining of the uterus.
OUR KERASTICK(TM) BRAND APPLICATOR
We designed our proprietary Kerastick(TM) specifically for use with
Levulan(R). It is a single-use, disposable applicator which allows for the rapid
preparation and uniform application of Levulan(R) topical solution in
standardized doses. The Kerastick(TM) has two separate glass ampules, one
containing Levulan(R) powder and one containing a liquid vehicle, enclosed
within a plastic tube and an outer cardboard sleeve. There is a filter and a
metered dosing tip at one end. Prior to application, the doctor or nurse crushes
and shakes the Kerastick(TM) according to directions to mix the contents into a
solution. The Kerastick(TM) tip is then dabbed on to the individual AK lesions,
releasing a predetermined amount of Levulan(R) 20% solution.
OUR LIGHT SOURCES
Customized light sources are critical to successful Levulan(R) PDT/PD
because the effectiveness of Levulan(R) therapy depends on delivering light at
the appropriate wavelengths and intensities. We intend to continue to develop
integrated drug and light device systems, in which the light sources:
o are compact and tailored to fit specific medical needs;
o are pre-programmed and easy to use; and
o provide cost-effective therapy.
Our proprietary BLU-U(TM) is a fluorescent light source that can treat
the entire face or scalp at one time which has been specifically designed for
use with Levulan(R). The light source is compact and easily portable. It can be
used in a physician's office,
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requires minimal floor space, and plugs into a standard electrical outlet. The
BLU-U(TM) also incorporates a proprietary regulator that controls the optical
power of the light source to within specified limits. It has a simple control
panel consisting of an on-off key switch and digital timer which turns off the
light automatically at the end of the treatment.
We are using non-laser light sources whenever feasible because,
compared to lasers, they are:
o safer;
o simpler to use;
o more reliable; and
o far less expensive.
For treatment of AKs, our BLU-U(TM) uses blue light which penetrates
superficial skin lesions and is a potent activator of PpIX. Longer red
wavelengths penetrate more deeply into tissue but are not as potent activators
of PpIX. Therefore, for treatment of superficial lesions of the skin, such as
AKs and acne, we are using relatively low intensity, non-laser blue light
sources, which are designed to treat large areas, such as the entire face or
body. For destruction of hair follicles or treatment of diseases which have
lesions which may penetrate several millimeters into the skin or other tissue,
e.g. for most forms of cancer, high-powered red light is preferable. We have
United States and foreign patents and patent applications pending which relate
to devices and methods of using light devices for use in Levulan(R) PDT and PD.
We also have an agreement with Richard Wolf Medical Instruments Corp.
for the supply of proprietary non-laser light sources and cystoscopes to be used
in our clinical trial for bladder cancer detection. The Wolf light device was
utilized by the investigators in our Phase I/II clinical trial for bladder
cancer detection.
Our Levulan(R) PDT/PD research and development team has experience in
the development and regulatory approval process of both drugs and devices for
use in clinical PDT/PD.
OUR PRODUCTS
The following table outlines our products and product candidates.
<TABLE>
<CAPTION>
PRODUCT/INDICATION REGULATORY STATUS MARKETING RIGHTS(1)
DERMATOLOGY
<S> <C> <C>
Levulan(R)Kerastick(TM)and BLU-U(TM)for PDT of AKs Approved; Phase IV - Planned Schering AG
Levulan(R)PDT for Acne Phase I/II2 Schering AG
Levulan(R)PDT for Facial Photodamaged Skin Phase I/II - Proposed(2) Schering AG
Levulan(R)PDT for Recalcitrant Wart Removal Phase I/II - Proposed(2) Schering AG
Levulan(R)PDT for Onychomycosis (Nail Fungus) Phase I/II - Proposed(2) Schering AG
Levulan(R)PDT for Hair Removal Phase I/II - Proposed(2) Schering AG
Levulan(R)PDT for Psoriasis Investigator Study Schering AG
Levulan(R)PDT for Cutaneous T-Cell Lymphoma Investigator Study Schering AG
OTHER INDICATIONS
Levulan(R)for Bladder Cancer Detection Phase I/II DUSA
Levulan(R)PDT for Prevention of Restenosis Investigator Study DUSA
Levulan(R)PDT for Barrett's Esophagus Investigator Study DUSA
Levulan(R)PDT for Dysfunctional Uterine Bleeding Investigator Study DUSA
Levulan(R)PDT/PD for Cervical Intraepitheleal Neoplasia Investigator Study DUSA
</TABLE>
1 Draxis Health, Inc., our former parent, holds a license to PARTEQ's ALA
patents for Canada.
2 Under consideration for co-development with Schering AG.
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<PAGE> 19
DERMATOLOGY INDICATIONS
Actinic Keratoses (AKs). AKs are superficial precancerous skin lesions
usually appearing as rough, scaly patches of skin with some underlying redness.
The current preferred methods of treating AKs are cryotherapy, or the freezing
of skin, using liquid nitrogen, and 5-flourouracil cream, or 5-FU. Although both
methods can be effective, each has limitations and can result in significant
side effects. Cryotherapy is non-selective, is usually painful at the site of
freezing and can cause blistering and loss of skin pigmentation, leaving white
spots. In addition, because there is no standardized treatment protocol, results
are not uniform. 5-FU can be highly irritating and requires twice-a-day
application by the patient for approximately two to four weeks, resulting in
inflammation, redness and erosion or rawness of the skin. Following the
treatment an additional one to two weeks of healing is required.
Our approved treatment method involves applying Levulan(R) 20% topical
solution using the Kerastick(TM) to the AK lesions, followed 14-18 hours later
with exposure to our BLU-U(TM) for approximately 17 minutes. In 1998, we
completed two identical Phase III trials to test the safety and efficacy of our
therapy. Over 240 patients were treated at a total of 16 sites across the U.S.
Each patient had at least four and not more than 15 AKs. We treated patients in
the control group with solution without the active drug. The results showed
clearing (no visual or palpable evidence of the AK) in 83% of the AK lesions
after one treatment with Levulan(R). We repeated treatment of any remaining AK
lesions after eight weeks. At 12 weeks, after one or two treatments, 91% of
lesions had cleared as compared to 25% of the lesions in the control group. The
only adverse medical effect of our treatment was a stinging/burning sensation of
the AK lesions during exposure to our BLU-U(TM). This discomfort subsided
shortly after the light treatment ended. During the next several years, we plan
to carry out two Phase IV trials, as required by the FDA; one to evaluate the
long-term effects of our therapy, and the second to test for allergic skin
reactions to our therapy.
Acne. Acne is a common skin condition caused by the blockage and/or
inflammation of sebaceous, or oil, glands. In our ongoing clinical trials, we
are targeting patients with mild to moderate facial inflammatory acne.
Traditional treatments for this form of acne include over-the-counter topical
medications for mild cases, and prescription topical medications or oral
antibiotics for mild to moderate cases. An oral retinoid drug called
Accutane(R)(1) is the treatment of choice for cystic acne and can be used for
moderate to severe inflammatory acne. Over-the-counter treatments are often not
effective and can result in side effects, including drying, flaking and redness.
Prescription antibiotics lead to improvement in many cases, but patients must
often take them on a long-term basis. Accutane(R) can have a variety of side
effects, from dryness of the lips and joint pains, to birth defects, elevated
levels of triglycerides, and liver enzymes. With Levulan(R) PDT therapy for
acne, we are seeking to improve or clear patients' acne without the need for
long-term oral therapy, and with fewer side effects than current therapies.
Based on pre-existing knowledge about ALA activity in sebaceous glands,
we carried out a small study in acne patients in 1994. The preliminary results
showed specific localization and conversion of Levulan(R) to PpIX in the acne
lesions, which suggested that we may be able to treat acne with Levulan(R) PDT.
In 1995, we sponsored a Phase I/II human clinical trial which confirmed the
selective accumulation of PpIX in acne lesions after application of Levulan(R)
in a small number of patients. As a next step, we conducted a Phase I/II
dose-ranging clinical trial using topical Levulan(R) and a proprietary non-laser
red light. We designed the study primarily to test safety and to help guide the
design of Phase II clinical trials. The clinical response was encouraging.
Patients tolerated the treatments well, and no adverse events were reported. In
October 1999, we began a new Phase I/II clinical trial designed to test the
safety and efficacy of repeated doses of Levulan(R) 20% topical solution
followed by light exposure using the BLU-U(TM).
Facial Photodamaged Skin. Photodamaged skin, which is skin damaged by
the sun, occurs primarily in fair-skinned individuals after many years of sun
exposure. Signs of photodamaged skin include roughness, wrinkles and brown
spots. AKs also tend to occur in areas of photodamaged skin. There are numerous
consumer cosmetic and herbal products which claim to lessen or relieve the
symptoms of photodamaged skin. In most cases, there is little scientific data to
support these claims. The FDA has approved only one prescription drug to treat
this common skin condition, Renova(R)(2). Patients generally use the product for
between six and 24 weeks before improvement may be seen.
As part of our AK clinical trials, we conducted a Phase II safety and
efficacy study, testing 64 patients with three to seven AK lesions of the face
or scalp within an area of photodamaged skin. The physician investigators
applied Levulan(R) 20% solution over the entire area including the photodamaged
skin. After 14-18 hours, the patients were treated with blue light at differing
light doses. Investigators noticed marked improvement in the roughness of skin
and some degree of improvement of wrinkles and brown spots in two-thirds of the
patients. However, ten of the 64 patients found that the burning and stinging of
the PDT therapy was too uncomfortable and as a result the treatment was either
terminated early or the light power was reduced. No one reported a serious
- ----------------------
1 Accutane(R) is a registered trademark of Hoffman La-Roche.
2 Renova(R) is a registered trademark of Johnson & Johnson.
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<PAGE> 20
treatment-related adverse event. Based upon these results, we have proposed two
studies on the treatment of photodamaged skin to Schering AG for this year's
development program.
Recalcitrant Hand and Foot Warts. Warts, which are characterized by
abnormal epidermal skin cell growth, are a common skin condition caused by the
human papilloma virus (HPV). Warts are usually treated first with
over-the-counter salicylic acid preparations. Often, these treatments are
successful. However, in cases where the warts do not clear, patients normally
consult a physician. The physician's next line of therapy is usually cryotherapy
with liquid nitrogen which is applied by the doctor for anywhere from weeks to
months to years in rare cases. This treatment is painful and can occasionally
leave scars. Some dermatologists use lasers to treat warts, although this
process can also take many treatments with no guarantee of success. Often, the
warts still persist despite all attempts at treatment and we refer to them as
recalcitrant warts.
In an independent Danish randomized clinical trial using ALA PDT on 30
patients with 250 warts, the investigator reported, in 1999, that one of the
treatment groups showed a 70% elimination of recalcitrant warts through a 12
month period. Based on these results, we have proposed to Schering AG that we
include development of Levulan(R) PDT for warts in the dermatology co-
development program.
Onychomycosis. This condition is more commonly known as nail fungus.
Current topical therapies are only effective in a small percentage of patients.
Oral prescription medications are more effective but must be taken over 12 weeks
or more, and pose risks of systemic side effects such as liver disease and
adverse interactions with other medications. In an unpublished investigator
study, 12 patients received a single treatment of Levulan(R) to their infected
nail, which was then exposed to a non-laser red light source. Three patients
showed a complete response to the Levulan(R) PDT. They lost their nail after one
week and regrew a new nail which was free of nail fungus. Based on this
investigator study, DUSA and Schering AG are considering co-development of a
therapy for this indication.
Hair Removal. Unwanted hair is a common problem that is experienced by
both men and women of all races and skin colors. Currently, permanent hair
removal involves procedures using electrolysis or lasers. Electrolysis requires
insertion of an electrified needle into each hair follicle. It requires numerous
treatments over extended periods of time that can have varying degrees of
success. Laser treatments do not require a needle but, instead, heat the hairs
by absorption of laser light energy. Laser treatments work best for individuals
with light skin and dark hair, but usually they do not work as well for
individuals with darker skin tones.
We believe that due to the selective properties of Levulan(R) PDT for
targeting rapidly growing cells, such as hair follicle cells, we may be able to
achieve biologically targeted permanent hair removal without the need for
heating or burning the individual hairs. In an independent pilot study performed
by researchers from Massachusetts General Hospital-Harvard Medical School using
a Levulan(R) formulation that we supplied and a laser light source, researchers
achieved hair removal in 12 subjects who were followed for up to six months. In
June 1999, we announced the results of our first Phase I/II clinical study
examining the ability of Levulan(R) PDT to permanently remove human hair. Thirty
patients were enrolled in this study at three clinical trial sites in the United
States. Investigators counted the hairs on a portion of each patient's upper leg
(thigh region) to establish a baseline. These areas were then treated with
Levulan(R) 20% topical solution. Patients then received a dose of light from a
non-laser red light source which we developed, or a dose of red laser light. The
patient's other thigh received only placebo treatment. Patients were followed
for six months after the single Levulan(R) PDT treatment. The study results
showed that when the non-laser light source was used, patients who received the
highest intensity and duration of light showed a reduction in hair count from
the baseline of approximately 10-15% as compared with that seen in the
non-treated control site. Levulan(R) plus laser light delivered at high doses
showed the best result, a 20-24% reduction in hair count as compared with
control sites. Because only 25-28% of the hairs on the thigh are actively
growing at any one time, it appears that Levulan(R) with non-laser light was
able to affect a significant portion of the actively growing hair and Levulan(R)
with laser light appeared to affect essentially all of the actively growing
hair. A majority of patients treated with each type of light source experienced
mild to moderate burning and stinging during light exposure. Hyperpigmentation
or freckling of the skin was also observed in the majority of patients treated
using this protocol. In some cases the freckling remained throughout the 6 month
follow-up. Therefore, we have proposed a new protocol to Schering AG seeking to
reduce the freckling and increase the amount of hair removed.
OTHER INDICATIONS
Bladder Cancer Detection. According to the American Cancer Society,
there will be more than 50,000 new cases of bladder cancer diagnosed this year
in the United States. Bladder cancer is most often treated by surgical removal
of the tumor, but in many cases tumors recur within two to three years. Doctors
screen high-risk patients regularly for bladder cancer because of the risk of
recurrence. One of the standard methods for bladder cancer detection involves
using a cystoscope to view the bladder with white light.
We believe that Levulan(R) PD for bladder cancer may complement current
white light cystoscopy methods, giving urologists an additional tool to help
detect bladder cancer. Two independent European studies of bladder cancer in 82
patients showed the selective accumulation of PpIX in human bladder tumors and
precancerous lesions following ALA application. These tumors and
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lesions showed fluorescence when exposed to certain wavelengths of light,
allowing the identification of malignant and precancerous lesions, including
lesions which were missed by routine visual examination using white light. Based
upon this early clinical data, we decided to undertake our own Phase I/II
multi-center clinical trial for enhancement of bladder cancer detection using
Levulan(R) PD and an endoscope light source provided by Richard Wolf Medical
Instruments Corp.
The study was completed in December 1999. Based on preliminary analysis
of the data, we found a total of 109 cancers in 73 patients. Levulan(R) plus
blue light detected 12 cancers which were not identified by any other method. In
this study, areas which appeared normal under white light were also biopsied by
the investigator (random biopsy method). An additional 15 cancers were detected
using this random biopsy method, only one of which was also detected using blue
light and Levulan(R). There were no significant side effects reported
attributable to the Levulan(R) PD procedure. These results suggest that for
optimal detection of bladder cancer, it appears that Levulan(R) and blue light
should be used together with white light cystoscopy and random biopsy. However,
biopsies are not normally carried out during office-based cystoscopies, due to
the increased risks of this procedure. We believe, based upon a review of the
clinical trial data with a panel of urology experts, that there may be an
opportunity to develop Levulan(R) PD as an adjunct to white light cystoscopies
for office-based surveillance procedures. We are currently planning the design
of clinical trials with the goal of optimizing this technique. We intend to
begin new trials during late 2000.
Prevention of Restenosis Following Balloon Angioplasty. Restenosis is
the re-narrowing of an artery after balloon angioplasty due to the rapid growth
of smooth muscle cells at the site of the angioplasty. Many of the patients who
undergo balloon angioplasty suffer restenosis within six months of the
procedure. Current forms of treatment for restenosis involve repeated
angioplasty procedures, stenting or by-pass surgery. Animal studies have shown
that Levulan(R) PDT prevents the rapid growth of smooth muscle cells within the
artery after balloon angioplasty. In October 1999, results were published in the
British Journal of Surgery from an investigator study using Levulan(R) PDT to
reduce restenosis after balloon angioplasty. The investigators studied seven
patients with a total of eight blockages of the femoral (leg) artery. Each of
the patients had undergone conventional balloon angioplasty for blockages in the
femoral artery within the previous two to six months, and all of the patients
had developed restenosis and associated symptoms, including leg pains, calf
pains, and muscle cramps while walking. In the study, patients received oral
doses of Levulan(R) and then underwent a second balloon angioplasty procedure.
After the angioplasty procedure, red laser light was delivered to the site
through the transparent angioplasty balloon. There were no reported
complications from the procedure. All of the patients had symptomatic relief
and, during the six month follow-up period, none of the patients had any
recurrence of symptoms. At the end of the six month period, the investigators
examined all the treated arteries, each of which remained open to some degree.
Testing showed no evidence of restenosis at three sites; 25% restenosis at three
sites; and 40% restenosis at two sites. We are currently assisting with the
design of a randomized controlled investigator study to further evaluate the use
of Levulan(R) PDT in the prevention of restenosis following balloon angioplasty.
This study is expected to begin in 2000.
Barrett's Esophagus. Barrett's esophagus is a potentially precancerous
condition of the esophagus which occurs when the lining of the esophagus
converts to stomach-type tissue in response to chronic exposure to stomach acid.
Over time, the area of the esophagus affected can develop precancerous and
eventually cancerous cells. The condition is often undetected until the disease
reaches later stages. According to the American Cancer Society, patients with
this condition have an increased risk of esophageal cancer which is 50 times
higher than that of the overall population. Esophageal cancer is one of the
deadliest forms of cancer, with five-year survival rates of less than one
percent for late-stage patients.
There are no effective treatments for early-stage Barrett's esophagus.
Doctors treat milder forms of the condition with medication, to reduce stomach
acid. A current treatment for more advanced, pre-cancerous, Barrett's esophagus
involves surgery to remove affected areas of the esophagus.
Since European studies have shown that Barrett's esophagus cells have a
high degree of selectivity for Levulan(R), we intend to continue to support
investigator studies involving the use of Levulan(R) PDT for the treatment of
Barrett's esophagus lesions. We believe that potential damage to the muscle wall
of the esophagus should not occur with Levulan(R) since PpIX accumulation has
not been observed in the underlying muscle tissue.
Dysfunctional Uterine Bleeding. Dysfunctional uterine bleeding occurs
when the lining of the uterus (the endometrium) responds abnormally to the
hormonal changes associated with menstruation. Treatments for dysfunctional
uterine bleeding include hysterectomy, or removal of the uterus by surgery, or
endometrial ablation, the destruction of the lining of the uterus by surgical or
thermal methods. In endometrial ablation treatments where the uterus is not
removed, incomplete ablation and/or damage to the muscle wall of the uterus can
result. Therefore, we propose to use Levulan(R) PDT as a less invasive and less
costly treatment for dysfunctional uterine bleeding. We have supported research
by independent investigators using Levulan(R) to treat this condition in
clinical studies at centers in the United Kingdom and the United States. These
studies have shown that endometrial tissue selectively absorbs Levulan(R) with
no evidence of toxicity. We believe our product system is a good candidate for
clinical trials because Levulan(R) is selectively absorbed by the lining of the
uterus and activated by light sources which can be inserted into the uterus
without the need to anesthetize the patient. We are currently supporting a pilot
human trial for treatment of dysfunctional uterine bleeding which began in
January 2000.
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Cervical Intraepitheleal Neoplasia. Cervical intraepitheleal neoplasia,
or CIN, is a common precancerous condition of the cervix. Doctors use the pap
smear (cervical cytology specimens) to screen for cancerous and precancerous
conditions of the cervix. Each year millions of pap smear procedures are
performed in the United States. Approximately one-third of the test results
reveal some abnormality of the cervical tissue, and in many of these cases the
results are suspicious but not conclusive and therefore cannot be definitively
diagnosed. We believe that Levulan(R) PD could help doctors to locate and biopsy
the abnormal cervical tissue.
In March 1997, an investigator-sponsored study showed the selectivity
of Levulan(R) PDT/PD for CIN tissue. We are considering supporting a new
investigator-sponsored study to examine the use of Levulan(R) as an adjunct to
pap smears to begin sometime in 2000.
OTHER POTENTIAL INDICATIONS
There may be numerous other potential therapeutic and cancer detection
uses for Levulan(R) PDT/PD, and we may support research in several of these
areas, as appropriate, with pilot trials, and/or investigator-sponsored studies,
based on pre-clinical, clinical, regulatory and marketing criteria we have
established through our strategic planning processes. Some of these potential
uses in dermatology include treatment of skin cancers, such as squamous cell
carcinomas and cutaneous T-cell lymphomas, psoriasis, and genital warts; and
non-dermatology indications may include detection and/or treatment of brain
cancer, gastro-intestinal tumors, and oral cavity cancer.
STRATEGIC PARTNERS
In November 1999, we signed a marketing, development and supply
agreement with Schering AG for the use of our Levulan(R) products to treat or
detect dermatology disorders. Schering AG is a large multi-national
pharmaceutical company which has significant dermatology sales outside the
United States. Under the agreement, we granted to Schering AG the exclusive
worldwide right, except for Canada, to promote, market, sell and distribute our
Levulan(R) Kerastick(TM) with PDT for AKs, and any additional dermatology
products developed under the co-development program. The parties have agreed to
jointly fund the dermatology co-development program for at least two years,
with Schering AG contributing two-thirds of the joint committee-approved budget,
while we contribute the remaining one-third. For the years 2000 and 2001, the
parties have committed to a budget of $4.5 million, subject to final agreement
on the development program. Schering AG also has limited rights to negotiate
with us for rights to non-dermatology products which we intend to develop with
other corporate partners.
We have already received $15 million, including $8.75 million in cash
milestone payments and $6.25 million for which a Schering AG affiliate received
340,458 shares of our common stock. Schering AG is obligated to pay $8 million
for future research and development support to be used at our discretion and an
additional milestone payment of $7 million within 30 days after the first
commercial sale of the Levulan(R) Kerastick(TM), provided that the FDA has
approved the commercial model of our BLU-U(TM).
Schering AG has indicated that it initially plans to target
dermatologists in the United States using dedicated sales representatives. The
launch of Levulan(R) PDT by Schering AG's United States affiliate, Berlex
Laboratories, Inc., represents our partner's entree into the U.S. dermatology
marketplace. We will be responsible for the manufacture and supply of the
Kerastick(TM) to Schering AG. Schering AG will pay a supply price to us for the
drug products, as well as a royalty on drug sales. Schering AG will also promote
the BLU-U(TM) which we expect to lease directly to dermatologists and other
physicians. We have agreed to maintain and repair the BLU-U(TM) units under
lease/maintenance agreements with the end-users. Under the terms of a guaranty,
Schering AG has agreed to guarantee the lease payments by each lessee up to our
cost of the BLU-U(TM) from our third-party manufacturer. The guaranty will
expire on the second anniversary of the first delivery to an end-user of a
BLU-U(TM). In addition, Schering AG has agreed to provide us with an
interest-free line of credit for up to $1 million to finance inventory of
BLU-U(TM) units. Our repayment of amounts borrowed under the line of credit is
secured by the BLU-U(TM) units. Any amounts we draw on the line of credit must
be repaid within 12 months.
The marketing, development and supply agreement terminates on a
product-by-product basis in each country in the territory on the later of (a)
12-1/2 years after the first commercial sale of a respective product in such
country, or (b) the expiration of patents pertaining to the manufacture, sale or
use of such product in such country. Subject to the terms of the agreement, the
parties may terminate the agreement earlier.
SUPPLY PARTNERS
National Biological Corporation. In November 1998, we entered into a
purchase and supply agreement with NBC for the manufacture of some of our light
sources, including the BLU-U(TM). We have agreed to order from NBC all of our
supply needs of these light sources for the United States and Canada and NBC has
agreed to supply us with the quantities we order.
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NBC has granted to us a license to manufacture the light sources if NBC
fails to meet our supply needs. Under these circumstances, we would also have a
worldwide license to import, use, sell or dispose of the light sources under
NBC's technology within the field of PDT. Also, NBC has agreed that it will not
supply light sources that may be used to compete with our business. The
agreement has a ten year term, subject to earlier termination for breach or
insolvency or for convenience.
We have also entered a co-development agreement with NBC to develop
light devices meeting particular specifications for use in PDT. NBC has the
exclusive right to manufacture and supply these light sources to us, subject to
the terms of the purchase and supply agreement between the parties.
North Safety Products. In September 1999, we entered into a purchase
and supply agreement with North, a unit of Norcross Safety Products, LLC., for
the manufacture and supply of our Kerastick(TM) brand applicator. We have agreed
to purchase from North a significant portion of our total commercial
requirements for supply of the Kerastick(TM) for sale in the United States and
Canada. Prices for the product are based on the quantities of Kerasticks(TM)
ordered, which are subject to change depending on various product costs and
competitive market conditions. The agreement has a five year term which may be
extended.
Sochinaz S.A. Under an agreement dated December 24, 1993, Sochinaz
manufactures and supplies all of our requirements of Levulan(R) worldwide from
its FDA approved facility in Switzerland. The agreement remains in effect for
five years from the receipt of our first drug approval, or until December 3,
2004.
LICENSES
PARTEQ Research and Development Innovations. We license the patents
underlying our Levulan(R) PDT/PD systems under a license agreement with PARTEQ,
the licensing arm of Queen's University, Kingston, Ontario. Under the agreement,
we have been granted an exclusive worldwide license, with a right to sublicense,
under PARTEQ patent rights, to make, have made, use and sell products which are
precursors of PpIX, including ALA. The agreement covers certain use patent
rights. It also includes any improvements discovered, developed or acquired by
or for PARTEQ, or Queen's University, to which PARTEQ has the right to grant a
license. Effective October 7, 1991, we assigned to our former parent, Draxis
Health, Inc., our rights and obligations under the original PARTEQ license
agreement to the extent they relate to Canada.
When we are selling our products directly, we have agreed to pay to
PARTEQ royalties of 6% and 4% on 66% of the net selling price in countries where
patent rights do and do not exist, respectively. In cases where we have a
sublicensee, such as Schering AG, we will pay 6% and 4% when patent rights do
and do not exist, respectively, on our net selling price less the cost of goods
for products sold to the sublicensee, and 6% of royalty payments we receive on
sales of products by the sublicensee. We are also obligated to pay 5% of any
lump sum sublicense fees paid to us, such as milestone payments, excluding
amounts designated by the sublicensee for future research and development
efforts. The agreement is effective for the life of the latest United States
patents and becomes perpetual and royalty-free when no United States patent
subsists. We have the right to terminate the PARTEQ agreement with or without
cause upon 90 days notice.
Other License. We acquired a license from a British technology firm in
April 1997 to develop and market an incoherent or non-laser light source which
is a candidate for use in our dysfunctional uterine bleeding, bladder cancer
detection and/or other clinical programs. On February 24, 2000, we were served
with legal papers relating to a lawsuit filed by Photo Therapeutics Limited in
the British High Court of Justice - Chancery Division, Claim No.: HC 2000 00
777. Photo Therapeutics is the assignee of the license agreement. The agreement
dated April 8, 1997 grants us exclusive rights in North, Central and South
American countries and non-exclusive rights in numerous European countries to
develop, manufacture, market and sell a patented incoherent light device and
improvements to the device. We paid a fee of 10,000 British Pounds ($16,421)
upon execution, and will pay royalties on sales ranging from 1.25% to 5%
depending on the patent status and territory in which sales may occur. The
lawsuit alleges that we breached the agreement by failing to use our best
endeavors to develop the device. Photo Therapeutics is seeking unspecified
damages, return of the technology and information relating to the device and a
declaration that the agreement has been terminated. We are reviewing the
complaint and while we believe we have meritorious defenses, we cannot determine
the outcome at this early stage of the litigation. We do not believe that this
matter will have a material adverse effect on our business, results of
operations or financial condition.
MANUFACTURING
We do not currently operate any manufacturing facilities. Our drug,
Levulan(R), the Kerastick(TM) brand applicator and the BLU-U(TM) brand light
source are each manufactured by a single third-party supplier. Under our
agreement with Schering AG, we are obligated to maintain certain inventory
levels of our Levulan(R) products until we qualify a second source of supply for
ALA. We have purchased key pieces of equipment to prepare for the establishment
of a limited production line so that a second source could manufacture the
Kerastick(TM).
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MARKETING AND SALES
Under our agreement with Schering AG, marketing and sales of Levulan(R)
PDT products for use in dermatology in the United States will be the
responsibility of Schering AG's affiliate, Berlex Laboratories, Inc. Following
receipt of marketing approval in the United States, Schering AG must select the
country, countries or key territories in which it intends to seek regulatory
approval and to sell our products on a product-by-product basis. If Schering AG
elects not to market a product in a specific territory or country, we regain the
right to market the product. We retain the rights to market and sell all future
products for non-dermatology indications. Subject to Schering AG's limited right
to negotiate, we can enter into marketing, co-promotional, distribution or
similar type agreements with corporate partners for our non-dermatology
indications.
PATENTS AND TRADEMARKS
We actively seek, when appropriate, to protect our products and
proprietary information through United States and foreign patents, trademarks
and contractual arrangements. In addition, we rely on trade secrets and
contractual arrangements to protect certain of its proprietary information and
products.
Our ability to compete successfully depends, in part, on our ability to
defend our patents that have issued, obtain new patents, protect trade secrets
and operate without infringing the proprietary rights of others. We have no
product patent protection for the compound ALA itself, as our basic patents are
for methods of detecting and treating various diseased tissues using ALA or
related compounds called precursors, in combination with light. Even where we
have patent protection, there is no guarantee that we will be able to enforce
our patents. Patent litigation is expensive, and we may not be able to afford
the costs. We own or exclusively license patents and patent applications related
to the following:
o unique physical forms of ALA;
o methods of using ALA and its unique physical forms in
combination with light; and
o compositions and apparatus for those methods.
These patents expire no earlier than 2009, and certain patents are
entitled to terms beyond that date.
We entered into a license agreement effective August 27, 1991 with
PARTEQ and Draxis Health, Inc. We hold an exclusive worldwide license to certain
patent rights from PARTEQ in the United States and a limited number of foreign
countries.
All United States patents and patent applications licensed from PARTEQ
relating to ALA are method of treatment patents. Method of treatment patents
limit direct infringement to users of the methods of treatment covered by the
patents. We currently have patents and/or pending patent applications in the
United States and in a number of foreign countries covering unique physical
forms of ALA, compositions containing ALA, as well as ALA applicators, light
sources for use with ALA, and other technology. We cannot guarantee that any
pending patent applications will mature into issued patents.
We have limited patent protection outside the United States which may
make it easier for third parties to compete there. Our basic method of treatment
patents and applications have counter-parts in only four foreign countries. Even
with the issuance of additional patents, other parties are free to develop other
uses of ALA, including medical uses, and to market ALA for such uses, assuming
that they have obtained appropriate regulatory marketing approvals. Certain
forms of ALA are commercially available chemical products. ALA in the form
commercially supplied for decades is not itself subject to patent protection. In
fact there are reports of several third-parties conducting clinical studies with
ALA for the treatment of certain conditions in countries outside the United
States of America where PARTEQ may not have patent protection Additionally,
enforcement of a given patent may not be practicable or an economically viable
alternative.
We can give no assurance that a third-party or parties will not claim
(with or without merit) that we have infringed or misappropriated their
proprietary rights. A number of entities have obtained, and are attempting to
obtain patent protection for various uses of ALA. We can give no assurances as
to whether any issued patents, or patents that may later issue to third-parties,
may affect the uses on which we are working or whether such patents can be
avoided, invalidated or licensed if they cannot be avoided or invalidated. If
any third-party were to assert a claim for infringement, we can give no
assurances that we would be successful in the litigation or that such litigation
would not have a material adverse effect on our business, financial condition
and results of operation. Furthermore, we may not be able to afford the expense
of defending against such a claim.
Thermolase Corporation has patents that may affect our ability to
commercialize the use of ALA for hair removal. We are aware that Thermolase has
nine related issued United States patents some of which claim methods for
removing or inhibiting the growth of hair. We do not know whether any of these
patents cover our plans to market hair removal using ALA because we have not
19
<PAGE> 25
developed a final formulation or method of removing hair with ALA and light. If,
after finalizing our formulation and method, we find that these patents do cover
our planned use of ALA, Thermolase may either prevent us from using our system
or they may require us to obtain a license for a fee.
Except for the opposition of Japanese Patent No. 273032, which we
license from PARTEQ, we are not aware of any formal challenges to the validity
of PARTEQ's or our patents. However, we cannot guarantee that other challenges
or claims will not be asserted in the future. Japanese Patent No. 273032, which
relates to the basic method of using ALA, has recently been opposed and, as a
result, the Japanese Patent Office Board of Appeals issued a "Notice of Reasons
for Cancellation," which we received on February 12, 1999. With PARTEQ's
assistance, we prepared and filed our response to this action. We can give no
assurance of the likelihood of success of such a contest or any assurance that
we will decide to spend the funds required to complete the contest. If our
response does not allay the concerns of the Board, they may limit our patent
protection or finalize the cancellation. Japan is a major pharmaceutical market
and loss of this patent could adversely affect us in at least two ways. First,
if we seek to enter the Japanese market, the lack of a patent would probably
retard or diminish our market share. Second, even if we did not seek to market
in Japan, third parties might not be interested in licensing the product in
Japan without patent protection, and this might affect our revenues.
In addition, we cannot guarantee that our patents, whether owned or
licensed, or any future patents that may issue, will prevent other companies
from developing similar or functionally equivalent products. Further, we cannot
guarantee that we will continue to develop our own patentable technologies or
that our products or methods will not infringe upon the patents of
third-parties. In addition, we cannot guarantee that any of the patents that may
be issued to us will effectively protect our technology or provide a competitive
advantage for our products or will not be challenged, invalidated, or
circumvented in the future.
We also attempt to protect our proprietary information as trade
secrets. Generally agreements with each employee, licensing partner, consultant,
university, pharmaceutical company and agent contain provisions designed to
protect the confidentiality of our proprietary information. However, we can give
no assurances that these agreements will provide effective protection for its
proprietary information in the event of unauthorized use or disclosure of such
information. Furthermore, we can give no assurances that our competitors will
not independently develop substantially equivalent proprietary information or
otherwise gain access to our proprietary information, or that we can
meaningfully protect our rights in unpatentable proprietary information.
Even in the absence of composition of matter patent protection for ALA,
we may receive financial benefits from:
o patents relating to the use of such product, like PARTEQ's
patents;
o patents relating to special compositions and formulations; and
o limited marketing exclusivity that may be available as a
patent term extension under the Hatch/Waxman Act and any
counterpart protection available in foreign countries.
Effective patent protection also depends on many other factors such as the
nature of the market and the position of the product in it, the growth of the
market, the complexities and economics of the process for manufacture of the
active ingredient of the product and the requirements of the new drug provisions
of the Food, Drug and Cosmetic Act, or similar laws and regulations in other
countries.
We intend to seek registration of trademarks in the United States, and
other countries where we may market our products when it is sufficiently close
to commercialization so that appropriate brand names may be selected in light of
the circumstances then existing. To date, we have been issued four trademark
registrations, and other applications are pending.
COMPETITION
Commercial development of PDT agents other than Levulan(R) are
currently being pursued by a number of companies. These include: QLT
PhotoTherapeutics Inc. (Canada); Miravant, Inc. (U.S.); Pharmacyclics, Inc.
(U.S.); Scotia Pharmaceuticals (United Kingdom); and Photogen Technologies, Inc.
(U.S.). We are also aware of several overseas companies doing research with ALA,
including: medac GmbH (Germany) which is 25% owned by Schering AG; ESC Medical
Systems Ltd. (Israel); and Photocure (Norway). Photocure is also conducting
late-stage clinical trials using ALA PDT for dermatological uses.
We are aware that other companies are involved in competitive
activities in countries where we do not have patent protection. See Risk
Factors.
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<PAGE> 26
GOVERNMENT REGULATION
The manufacture and sale of pharmaceuticals and medical devices in the
United States are governed by a variety of statutes and regulations. These laws
require, among other things:
o approval of manufacturing facilities, including adherence to
current good manufacturing, laboratory and clinical practices
during production and storage known as cGMPs, GLPs and GCPs
respectively;
o controlled research and testing of products;
o applications for marketing approval containing manufacturing,
preclinical and clinical data to establish the safety and
efficacy of the product; and
o control of marketing activities, including advertising and
labeling.
The marketing of pharmaceutical products requires the approval of the
FDA in the United States, and similar agencies in other countries. The FDA has
established regulations and safety standards, which apply to the preclinical
evaluation, clinical testing, manufacture and marketing of pharmaceutical
products. The process of obtaining marketing approval for a new drug normally
takes several years and often involves significant costs. The steps required
before a new drug can be produced and marketed for human use in the United
States include:
o preclinical studies,
o the filing of an Investigational New Drug, or IND,
application;
o human clinical trials; and
o the approval of a New Drug Application, or NDA.
Preclinical studies are conducted in the laboratory and on animals to
obtain preliminary information on a drug's efficacy and safety. The time
required for conducting preclinical studies varies greatly depending on the
nature of the drug, and the nature and outcome of the studies. Such studies can
take many years to complete. The results of these studies are submitted to the
FDA as part of the IND application. Human testing can begin if the FDA does not
object to the IND application.
The human clinical testing program involves three phases. Each clinical
study typically is conducted under the auspices of an Institutional Review Board
or IRB at the institution where the study will be conducted. An IRB will
consider among other things, ethical factors, the safety of human subjects and
the possible liability of the institution. A clinical plan, or "protocol", must
be submitted to the FDA prior to commencement of each clinical trial. All
patients involved in the clinical trial must provide informed consent prior to
their participation. The FDA may order the temporary or permanent discontinuance
of a clinical trial at any time for a variety of reasons, particularly if safety
concerns exist. These clinical studies must be conducted in conformance with the
FDA's bioresearch monitoring regulations.
In Phase I, studies are usually conducted on a small number of healthy
human volunteers to determine the maximum tolerated dose and any product-related
side effects of a product. Phase I studies generally require several months to
complete, but can take longer, depending on the drug and the nature of the
study. Phase II studies are conducted on a small number of patients having a
specific disease to determine the most effective doses and schedules of
administration. Phase II studies generally require from several months to two
years to complete, but can take longer, depending on the drug and the nature of
the study. Phase III involves wide scale studies on patients with the same
disease in order to provide comparisons with currently available therapies.
Phase III studies generally require from six months to four years to complete,
but can take longer, depending on the drug and the nature of the study.
Data from Phase I, II and III trials are submitted with the NDA. The
NDA involves considerable data collection, verification and analysis, as well as
the preparation of summaries of the manufacturing and testing processes and
preclinical and clinical trials. Submission of an NDA does not assure FDA
approval for marketing. The application review process generally takes one to
three years to complete, although reviews of treatments for AIDS, cancer and
other life-threatening diseases may be accelerated, expedited or subject to fast
track treatment. The process may take substantially longer if, among other
things, the FDA has questions or concerns about the safety and/or efficacy of a
product. In general, the FDA requires properly conducted, adequate and
well-controlled clinical studies demonstrating safety and efficacy with
sufficient levels of statistical assurance. However, additional information may
be required. For example, the FDA also may request long-term toxicity studies or
other studies relating to product safety or efficacy. Even with the submission
of such data, the FDA may decide that the application does not satisfy its
regulatory criteria for approval and may
21
<PAGE> 27
disapprove the NDA. Finally, the FDA may require additional clinical tests
following NDA approval to confirm safety and efficacy, often referred to as
Phase IV clinical trials.
Upon approval, a prescription drug may only be marketed for the
approved indications in the approved dosage forms and at the approved dosage
with the approved labeling. Adverse experiences with the product must be
reported to the FDA. In addition, the FDA may impose restrictions on the use of
the drug that may be difficult and expensive to administer. Product approvals
may be withdrawn if compliance with regulatory requirements is not maintained or
if problems occur or are discovered after the product reaches the market. After
a product is approved for a given indication, subsequent new indications, dosage
forms, or dosage levels for the same product are reviewed by the FDA via the
filing and upon approval of a supplemental NDA. The supplement deals primarily
with safety and effectiveness data related to the new indication or dosage.
Finally, the FDA requires reporting of certain safety and other information,
often referred to as "adverse events" that become known to a manufacturer of an
approved drug. If an active ingredient of a drug product has been previously
approved, there may be other types of drug applications that can be filed that
may be less time-consuming and costly.
On December 3, 1999, the FDA approved the marketing of our Levulan(R)
Kerastick(TM) 20% Topical Solution with PDT for treatment of AKs of the face and
scalp.
We are currently conducting Phase I/II studies on the use of ALA for
bladder cancer detection and treatment of acne. Other than the FDA-approved use
of Levulan(R) Kerastick(TM) with PDT for treatment of AKs, our other products
still require significant development, including additional preclinical and
clinical testing, and regulatory marketing approval prior to commercialization.
The process of obtaining required approvals can be costly and time consuming and
there can be no guarantee that the use of Levulan(R) in any future products will
be successfully developed, prove to be safe and effective in clinical trials, or
receive applicable regulatory marketing approvals. Medical devices, such as our
light source devices, are also subject to the FDA's rules and regulations. These
products are required to be tested, developed, manufactured and distributed in
accordance with FDA regulations, including good manufacturing, laboratory and
clinical practices. Under the Food, Drug & Cosmetic Act, all medical devices are
classified as Class I, II or III devices. The classification of a device affects
the degree and extent of the FDA's regulatory requirements, with Class III
devices subject to the most stringent requirements and FDA review. Generally,
Class I devices are subject to general controls (e.g., labeling and adherence to
the cGMP requirement for medical devices), and Class II devices are subject to
general controls and special controls (e.g., performance standards, postmarket
surveillance, patient registries and FDA guidelines). Class III devices, which
typically are life-sustaining or life-supporting and implantable devices, or new
devices that have been found not to be substantially equivalent to a legally
marketed Class I or Class II "predicate device", are subject to general controls
and also require clinical testing to assure safety and effectiveness before FDA
approval is obtained. The FDA also has the authority to require clinical testing
of Class I and II devices. The BLU-U(TM) has been classified as a Class III
device. We anticipate that our other devices will also be classified as Class
III and be subject to the highest level of FDA regulation. Approval of Class III
devices require the filing of a PMA application supported by extensive data,
including preclinical and clinical trial data, to demonstrate the safety and
effectiveness of the device. If human clinical trials of a device are required
and the device presents a "significant risk", the manufacturer of the device
must file an investigational device exemption or "IDE" application and receive
FDA approval prior to commencing human clinical trials. At present, our devices
are being studied in preclinical and clinical trials under our INDs.
Following receipt of the PMA application, if the FDA determines that
the application is sufficiently complete to permit a substantive review, the
agency will "file it". Once the submission is filed, the FDA begins a review of
the PMA application. Under the Food, Drug and Cosmetic Act, the FDA has 180 days
to review a PMA application. The review of PMA applications more often occur
over a significantly protracted time period, and the FDA may take up to two
years or more from the date of filing to complete its review.
The PMA process can be expensive, uncertain and lengthy. A number of
devices other companies have sought premarket approval have never been approved
for marketing. The review time is often significantly extended by the FDA, which
may require more information or clarification of information already provided in
the submission. During the review period, an advisory committee likely will be
convened to review and evaluate the PMA application and provide recommendations
to the FDA as to whether the device should be approved for marketing. In
addition, the FDA will inspect the manufacturing facility to ensure compliance
with cGMP requirements for medical devices prior to approval of the PMA
application. If granted, the premarket approval may include significant
limitations on the indicated uses for which the product may be marketed, and the
agency may require post-marketing studies of the device.
Medical products containing a combination of drugs, including biologic
drugs, or devices may be regulated as "combination products" in the United
States. A combination product generally is defined as a product comprised of
components from two or more regulatory categories (drug/device, device/biologic,
drug/biologic, etc.) Each component of a combination product is subject to the
requirements established by the FDA for that type of component, whether a drug,
including a biologic drug, or device. Currently, PDT/PD treatments are defined
as drug/device combination products. The main responsibility for review of PDT
products (drugs and devices) is under the jurisdiction of the FDA's drug center,
the Center for Drug Evaluation and Research, with support from the Center
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<PAGE> 28
for Devices and Radiological Health. The FDA has not formally established the
degree and extent of the regulatory requirements for the various components of
PDT/PD.
In connection with our NDA for the Levulan(R) Kerastick(TM) with PDT
for AKs, a combination filing (including a PMA for the BLU-U(TM) light source
device and the NDA for the Levulan(R) Kerastick(TM)) was submitted to the Center
for Drug Evaluation and Research. The PMA was then separated from the NDA
submission by the FDA and reviewed by the FDA's Center for Devices and
Radiological Health. Based upon this experience, we anticipate that any future
NDAs for Levulan(R) PDT/PD will be a combination filing accompanied by PMAs.
There is no guarantee that PDT products will continue to be regulated as
combination products.
The BLU-U(TM) PMA, which covered the devices used in the AK clinical
trials was approved by the FDA on December 3, 1999. The commercial light device
unit we intend to market is a modified version of the BLU-U(TM) units used in
the clinical studies. We are in the process of preparing a supplement to the PMA
covering these modifications, and intend to file the supplement during the first
quarter of 2000. The FDA has six months to review the PMA supplement which must
be approved before we can market the commercial units of the BLU-U(TM). While we
believe that the changes to the BLU-U(TM) do not affect its performance and we
expect the FDA to approve the PMA supplement application, the FDA may request
additional information or may decide not to approve the supplement.
The United States Drug Price Competition and Patent Term Restoration
Act of 1984 known as the Hatch-Waxman Act provides for the return of up to
five-years of patent term for a patent that covers a new product or its use, to
compensate for time lost during the regulatory review process. The application
for patent term extension is subject to approval by the U.S. Patent and
Trademark Office, in conjunction with the FDA. It takes at least six months to
obtain approval of the application for patent term extension, and there can be
no guarantee that the application will be granted. We believe that the FDA's
December 3, 1999 approval of our NDA for the Levulan(R) Kerastick(TM) with PDT
is the first marketing approval for a medical use of ALA. We therefore believe
that this approval may form the basis for extending the term of one of our
patents. However, there can be no assurance that we will receive a patent term
extension.
The Hatch-Waxman Act also establishes a five-year period of marketing
exclusivity from the date of NDA approval for new chemical entities approved
after September 24, 1984. Levulan(R) is a new chemical entity and marketing
exclusivity will expire on December 3, 2004. During this Hatch-Waxman marketing
exclusivity period, no third-party may submit an "abbreviated NDA" or "paper
NDA" to the FDA.
Finally, any abbreviated or paper NDA applicant will be subject to the
notification provisions of the Hatch-Waxman Act, which should facilitate our
notification about potential infringement of our patent rights. The abbreviated
or paper NDA applicant must notify the NDA holder and the owner of any patent
applicable to the abbreviated or paper NDA product, of the application and
intent to market the drug that is the subject of the NDA.
We also intend market our products marketed outside of the United
States. Prior to marketing a product in other countries, approval by that
nation's regulatory authorities must be obtained. Our marketing partner,
Schering AG, will be responsible for applying for marketing approvals outside
the United States for Levulan(R) PDT for dermatology uses. Generally, we try to
design our protocols for clinical studies so that the results can be used in all
the countries where we hope to market the product. However, countries sometimes
require additional studies to be conducted on patients located in their country.
With the enactment of the Drug Export Amendments Act of the United
States in 1986, products not yet approved in the United States may be exported
to certain foreign markets if the product is approved by the importing nation
and approved for export by the United States government. We can give you no
assurance that we will be able to get approval for any of our potential products
from any importing nations' regulatory authorities or be able to participate in
the foreign pharmaceutical market.
Our research and development activities involve the controlled use of
certain hazardous materials, such as mercury in fluorescent tubes. While we do
not currently manufacture any products, we are subject to various laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and certain waste products. We believe that we are in
material compliance with applicable environmental laws and regulations. For the
present, we do not have any plans to make any material capital expenditures for
environmental control facilities. However, we can give you no assurance that we
will not have to make significant expenditures in order to comply with
environmental laws and regulations in the future. Also, we cannot assure you
that our operations, business or assets will not be materially adversely
effected by current or future environmental laws or regulations. In addition,
although we believe that our safety procedures for the handling and disposal of
such materials comply with the standards prescribed by current environmental
laws and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, we
could be held liable for any damages that result, and any such liability could
exceed our resources.
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<PAGE> 29
EMPLOYEES
We have 24 full-time employees. We have employment agreements with our
four key executive officers. We have purchased, and are the named beneficiary
of, a key man life insurance policy having a face value of CDN $2 million on the
life of our President. We have also retained numerous independent consultants
and the services of key researchers at leading university centers whose
activities are coordinated by our employees. We intend to hire other employees
and consultants as needed.
PROPERTIES
In May 1999 we entered into a new five year lease for 16,000 square
feet plus an option on an additional 2,000 square feet of office/warehouse space
to be used for offices and manufacturing in Wilmington, Massachusetts. This
facility will accommodate the expansion of operational, technical and marketing
personnel for the scale-up of the manufacturing process. In October 1997, our
wholly owned subsidiary, DUSA Pharmaceuticals New York, Inc., relocated from
Tarrytown, New York, to larger facilities, approximately 4,000 square feet, in
Valhalla, New York under the terms of a five year lease. We have also entered
into a new three year lease for approximately 1,300 square feet of office space
in Toronto in the building DUSA currently occupies. This facility accommodates
the offices of our President, Controller and shareholder services personnel.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock by the selling shareholders. We will receive the exercise price for
the shares of common stock that underlie the options if those securities are
converted with cash payments into shares by their holders. Potential proceeds to
DUSA if all holders options convert their securities into shares of common stock
total approximately $1,392,407, as follows:
o $120,000 upon the exercise of nonqualified stock options to
purchase 20,000 shares with an exercise price of CDN.
$6.79/U.S.$6.00 per share;
o $636,067.87 upon the exercise of nonqualified stock options to
purchase 58,489 shares with an exercise price of $10.875 per
share;
o $63,214.50 upon the exercise of nonqualified stock options to
purchase 6,834 shares with an exercise price of $9.25 per
share;
o $223,125 upon the exercise of nonqualified stock options to
purchase 30,000 shares with an exercise price of $7.4375 per
share;
o $133,750 upon the exercise of nonqualified stock options to
purchase 10,000 shares with an exercise price of $13.375 per
share;
o $83,750 upon the exercise of nonqualified stock options to
purchase 10,000 shares with an exercise price of $8.375 per
share;
o $33,750 upon the exercise of nonqualified stock options to
purchase 10,000 shares with an exercise price of $3.375 per
share; and
o $98,750 upon the exercise of nonqualified stock options to
purchase 10,000 shares with an exercise price of $9.875 per
share.
Any proceeds that we may receive upon any exercise of options will be
used for working capital, to fund our clinical development programs, capital
expenditures and other general corporate purposes. We may also use a portion of
the proceeds to acquire or invest in businesses, technologies or products that
are complementary to our business. We currently have no commitments or
agreements with respect to any acquisitions.
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<PAGE> 30
DILUTION
Our net tangible book value at December 31, 1999 was approximately
$16.7 million, or $1.40 per share. Net tangible book value per share is
determined by dividing our tangible net worth (total tangible assets less total
liabilities) by the number of shares of common stock outstanding. After giving
effect to our sale of the 1.5 million shares of common stock offered by this
prospectus at an offering price of $28.50 per share (less underwriting discounts
and commissions and estimated offering expenses we expect to pay in connection
with this offering), our net tangible book value at December 31, 1999 would have
been approximately $57.3 million, or $4.27 per share. This represents an
immediate increase in net tangible book value of $2.87 per share to existing
stockholders and an immediate dilution in net tangible book value of $24.23 per
share to new investors purchasing shares at the offering price. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Offering price per share............................................... $28.50
Net tangible book value per share before the offering............... $1.40
Increase per share attributable to existing investors............... $2.87
----
Net tangible book value per share after the offering................... $ 4.27
------
Dilution per share to new investors.................................... $24.23
======
</TABLE>
At December 31, 1999, we had outstanding options and warrants to
purchase shares of common stock as follows:
<TABLE>
<CAPTION>
Number of Shares
Subject to Weighted Average
Options/Warrants Exercise Price
---------------- --------------
<S> <C> <C>
Stock option plans........................................ 1,712,500 $7.80
Underwriters' Options and Placement Agent Warrants........ 69,532 $7.46
Other Options and Warrants................................ 420,000 $5.90
------- -----
Total............................................ 2,202,032 $7.43
========= =====
</TABLE>
Additionally, as of December 31, 1999, there were 638,753 shares
available for future grants under our employee stock option plans. To the extent
option holders exercise outstanding options, or any options we grant in the
future, there will be further dilution to new investors.
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<PAGE> 31
SELLING SHAREHOLDERS
The following table sets forth the names of the selling shareholders,
the number of shares of common stock beneficially owned by each selling
shareholder as of February 29, 2000, the number of shares of common stock that
each may offer from time to time and the number of shares of common stock
beneficially owned by each selling shareholder upon completion of the offering,
assuming all of the shares offered are sold. The number of shares sold by each
selling shareholder may depend on a number of factors, including, among other
things, the market price of the common stock.
The table is based upon information obtained from the selling
shareholders and upon information in our possession regarding the issuance and
sale of securities offered by this prospectus and the registration rights
granted to the selling shareholders. The selling shareholders listed in the
table as numbers 1 through 10 are related to the INVESCO Funds Group, Inc.(1).
<TABLE>
<CAPTION>
DUSA Shares Number of DUSA Shares
Beneficially Owned Number of Shares that May be Beneficially Owned
Prior to Offering Shares Offered Upon After Offering
Name Shares Percent Offered Exercise of Options Shares Percent
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. INVESCO Global Health Sciences Fund 337,200 2.5 308,000 0 29,200 *
2. INVESCO Health Sciences Fund ...... 748,500 5.5 682,500 0 66,000 *
3. INVESCO VIF - Health Sciences Fund 21,400 * 19,500 0 1,900 *
4. AIM Global Health Sciences Fund ... 217,800 1.6 195,000 0 22,800 *
5. AIM Global Health Sciences Class .. 106,100 * 95,000 0 11,100 *
6. INVESCO Small Company
Growth Fund .................... 81,430 * 81,430 0 0 0
7. INVESCO VIF -
Small Company Growth Fund ...... 500 * 500 0 0 0
8. IRT Small Cap Growth Fund ......... 11,950 * 1,850 0 10,100 *
9. Maxim INVESCO
Small-Cap Growth Portfolio ..... 16,220 * 16,220 0 0 0
10. INVESCO Endeavor Fund ............ 109,300 * 100,000 0 9,300 *
11. Nanette W. Mantell(2) ............ 41,000 * 0 40,000 1,000 *
12. PARTEQ Research &
Development Innovations(3) ..... 85,323 * 0 85,323 0 0
13. Mid-Ocean Investments Ltd.(4) .... 30,000 * 0 30,000 0 0
</TABLE>
* Less than 1%
(1) Selling shareholders numbered one through ten, inclusive, are mutual funds
or collective trust funds advised by INVESCO Funds Group, Inc. a registered
investment advisor. INVESCO has represented to DUSA that each fund is the owner
of its own shares of DUSA, and no fund has any ownership interest in the shares
of DUSA held by any other fund.
(2) Ms. Mantell is DUSA's secretary. The securities being offered represent
40,000 shares that may be issued upon the exercise of non-qualified stock
options, 37,500 of which are vested and the remainder of which vest on June 7,
2000.
(3) PARTEQ is the licensor of various ALA patents which underlie DUSA's
Levulan(R) PDT/PD systems. The securities being offered represent 85,323 shares
that may be issued upon the exercise of non-qualified stock options, 49,244.5 of
which are vested and the remainder of which vest as follows:
o 14,622.25 options on each of the 3rd and 4th anniversary date
of the grant, being October 21, 1997; and
o 1,708.5 options on each of the 1st, 2nd, 3rd and 4th
anniversary dates of the grant, being June 23, 1999.
(4) Mid-Ocean Investments Ltd. acts as an investor relations consultant under an
agreement dated October 1, 1997. The securities being offered represent 30,000
shares that may be issued upon the exercise of non-qualified stock options,
15,000 of which are vested and the remainder of which vest 7,500 options on each
of the 3rd and 4th anniversary date of the grant, being September 26, 1997.
26
<PAGE> 32
PLAN OF DISTRIBUTION
The selling shareholders are offering shares of common stock which they
have agreed to purchase from us in a private placement or which are issuable to
them upon conversion of options that we have issued to them. The shares may be
sold from time to time in public transactions, on or off The NASDAQ National
Market, or in private transactions, at prevailing market prices or at privately
negotiated prices or through a combination of such methods of sale, at fixed
prices which may be changed, at prices related to prevailing market prices or at
negotiated prices. In addition, any shares of the common stock may be sold
according to Rule 144 of the Securities Act of 1933, as amended, rather than as
part of this prospectus.
The shares may be sold directly by the selling shareholders or through
underwriters, broker-dealers or agents. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholders and/or the purchaser of the shares for whom such
broker-dealer may act as agent, or to whom they sell as principals, or both
(which compensation might be in excess of commission that brokers usually
receive). In addition, the selling shareholders may enter into hedging
transactions with broker-dealers who may engage in short sales of common stock
in the course of hedging the positions they assume with a selling shareholder.
There can be no assurance that all or any of the common stock offered by this
prospectus will be issued to, or sold by, the selling shareholders. The selling
shareholders and any brokers, dealers or agents, who sell any of the common
stock offered by this prospectus, may be deemed "underwriters" as that term is
defined under the Securities Act or the Securities Exchange Act of 1934, as
amended, or the rules and regulations which pertain to these laws. Any
commissions which these persons or firms receive and any profits on the resale
of the shares purchased by them may be deemed to be underwriting commissions or
discounts under such acts. As of the date of this prospectus, the selling
shareholders have advised us that there are no special selling arrangements
between any broker-dealer or other person and any of the selling shareholders.
Under the Exchange Act, any person taking part in the distribution of
the shares may not simultaneously engage in market-making activities with
respect to the common stock for five business days prior to the start of the
distribution. In addition, each selling shareholder and any other person taking
part in the distribution will be subject to the Exchange Act which may limit the
timing of purchases and sales of common stock by them. These rules may affect
the marketability of the common stock and the ability of brokers or dealers to
engage in market-making activities.
At the time a particular offer of shares is made, a supplemental
prospectus will be distributed, if required, which will set forth the number of
shares being offered and the terms of the offering, including the name or names
of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the shares purchased from the selling shareholders, any
discounts, commissions or other items constituting compensation from the selling
shareholders in any discount, commission or concession allowed or reallowed or
paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and complied with.
The selling shareholders may be entitled under agreements entered into
with us to indemnification from us against liabilities under the Securities Act.
SECURITIES TO BE OFFERED
A total of 1,500,000 of the 1,655,323 securities being offered in this
prospectus are shares of common stock, no par value, being offered by the
participants of a private placement under Rule 506 of Regulation D.
The remaining 155,323 securities being offered in this prospectus are
offered pursuant to options to purchase shares of common stock as follows:
o PARTEQ is offering a total of 85,323 securities in connection
with three individual grants of options to purchase DUSA
common stock and pursuant to:
o A stock option agreement dated September 30, 1991 to
purchase 20,000 shares of DUSA common stock. The
options vest 25% on each of the 1st, 2nd, 3rd, and
4th anniversary dates of the grant. The options have
an exercise price of CDN. $6.79/U.S. $6.00 per share,
are 100% vested and remain outstanding. The options
had an original expiration date of September 30,
1996, which was extended for five years until 5:00
p.m. New York time on September 30, 2001.
27
<PAGE> 33
o A nonqualified stock option agreement dated October
21, 1997 to purchase 85,000 shares of DUSA common
stock, of which 58,489 options remain outstanding in
PARTEQ's name. The options vest 25% on each of the
1st, 2nd, 3rd, and 4th anniversary dates of the
grant. The options have an exercise price of $10.875
per share and are 50% vested. These options have a
ten year term and can be exercised until 5:00 p.m.
New York time on October 20, 2007.
o A nonqualified stock option agreement dated June 23,
1999 to purchase 10,000 shares of DUSA common stock,
of which 6,834 options remain outstanding in PARTEQ's
name. The options vest 25% on each of the 1st, 2nd,
3rd, and 4th anniversary dates of the grant. The
options have an exercise price of $9.25 per share and
none are vested. These options have a ten year term
and can be exercised until 5:00 p.m. New York time on
June 22, 2009.
o Mid-Ocean Investments Limited is offering 30,000 securities in
connection with a grant of options and pursuant to a
nonqualified stock option agreement dated September 26, 1997.
The options vest 25% on each of the 1st, 2nd, 3rd, and 4th
anniversary dates of the grant. The options have an exercise
price of $7.4375 per share, are 50% vested and remain
outstanding. These options have a ten year term and can be
exercised until 5:00 p.m. New York time on September 25, 2007.
o Nanette W. Mantell is offering 40,000 securities in connection
with four individual grants of options to purchase DUSA common
stock and pursuant to:
o A stock option agreement dated February 18, 1992 to
purchase 10,000 shares of DUSA common stock. The
options vest 25% on each of the 1st, 2nd, 3rd, and
4th anniversary dates of the grant. The options have
an exercise price of $13.375 per share, are 100%
vested and remain outstanding. The options had an
original expiration date of February 18, 1997, which
was extended for five years until 5:00 p.m. New York
time on February 18, 2002.
o A stock option agreement dated February 1, 1993 to
purchase 10,000 shares of DUSA common stock. The
options vest 25% on each of the 1st, 2nd, 3rd, and
4th anniversary dates of the grant. The options have
an exercise price of $8.375 per share, are 100%
vested and remain outstanding. The options had an
original expiration date of February 1, 1998, which
was extended for five years until 5:00 p.m. New York
time on February 1, 2003.
o A stock option agreement dated August 2, 1994 to
purchase 10,000 shares of DUSA common stock. The
options vest 25% on each of the 1st, 2nd, 3rd, and
4th anniversary dates of the grant. The options have
an exercise price of $3.375 per share, are 100%
vested and remain outstanding. These options have a
ten year term and can be exercised until 5:00 p.m.
New York time on August 2, 2004.
o A nonqualified stock option agreement dated June 7,
1996 to purchase 10,000 shares of DUSA common stock.
The options vest 25% on each of the 1st, 2nd, 3rd,
and 4th anniversary dates of the grant. The options
have an exercise price of $9.875 per share, are 75%
vested and remain outstanding. These options have a
ten year term and can be exercised until 5:00 p.m.
New York time on June 6, 2006.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon by
Lane and Mantell, a professional corporation, Somerville, New Jersey. As of
March 3, 2000, shareholders and associates of Lane and Mantell beneficially own,
directly or indirectly, less than 1% of DUSA common stock.
EXPERTS
The financial statements incorporated by reference in this prospectus
from DUSA's Annual Report on Form 10-K for the year ended December 31, 1999 have
been audited by Deloitte & Touche, LLP independent auditors, as stated in their
report (which report expressed an unqualified opinion and includes an
explanatory paragraph indicating that DUSA is in the development stage), which
is incorporated herein by reference, and have been so incorporated in reliance
upon their authority as experts in accounting and auditing.
28
<PAGE> 34
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission in Washington,
D.C. You may read and copy any document we file at the SEC's public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, NW, Washington,
D.C., 20549. The SEC has prescribed rates for copying. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public at the SEC's website at
http://www.sec.gov.
Our reports and other information can also be inspected at the offices
of the National Association of Securities Dealers at 1735 K Street, NW,
Washington, DC 20006-1506.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
information we file with the SEC in other documents. This means that we can
disclose important information to you by referring you to those documents. The
information incorporated may include documents filed after the date of this
prospectus which will update and supercede the information you read in this
prospectus. We incorporate by reference the documents listed below, except to
the extent information contained in those documents is different from the
information contained in this prospectus.
o Annual report on Form 10-K for the year ended December 31,
1999.
o Current Report on Form 8-K dated and filed on February 23,
1999.
o The description of DUSA's common stock contained in its
registration statement on Form 8-A which was filed on January
3, 1992 and amended on October 24, 1997 and in DUSA's report
on Form 10-Q which was filed on November 12, 1997.
We also incorporate by reference all other documents which we file in
the future with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the
Securities Exchange Act of 1934, as amended, prior to the termination of this
offering.
You may request a copy of these filings, at no cost, by writing or
telephoning us at:
181 UNIVERSITY AVENUE, SUITE 1208
TORONTO, ONTARIO M5H 3M7 CANADA
ATTENTION: MS. SHARI LOVELL
(416) 363-5059
E-MAIL TO: [email protected]
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC. You should rely only on the information and representations
provided in this prospectus or on the information incorporated by reference in
this prospectus. Neither we nor the selling shareholders have authorized anyone
to provide you with different information. Neither we nor the selling
shareholders are making an offer of these securities in any state where the
offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of this
document.
29
<PAGE> 35
================================================================================
1,655,323 SHARES
DUSA
PHARMACEUTICALS, INC.
Common Stock
------------------------------------
PROSPECTUS
------------------------------------
------------------------------------
March __, 2000
------------------------------------
================================================================================
<PAGE> 36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the expenses (excluding placement agent
commissions and non-accountable expense allowance) in connection with the
offering described in the registration statement, all of which will be borne by
DUSA.
SEC Registration Fee $14,029.82
NASDAQ Listing Fee 17,500.00
Printing and Engraving* 50,000.00
Accounting Fees and Expenses* 50,000.00
Legal Fees and Expenses* 95,000.00
Miscellaneous Expenses* 1,500.00
------------
TOTAL $228,029.82
*Estimated.
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 5 of the Company's Certificate of Incorporation, as amended,
and New Jersey Business Corporation Act, N.J.S.A. 14A:2-7 provide as follows:
Any director and officer of the Corporation shall not be personally
liable to the Corporation or its shareholders for damages for breach of
any duty owed to the Corporation or its shareholders, except that this
provision shall not relieve a director or officer from liability for
any breach of duty based upon an act or omission (a) in breach of such
person's duty of loyalty to the Corporation or its shareholders; (b)
not in good faith or involving a knowing violation of law; or (c)
resulting in receipt by such person of an improper personal benefit.
The Company's By-laws, as amended, pursuant to the New Jersey Business
Corporation Act, N.J.S.A. 14A:3-5, provide as follows:
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
II-1
<PAGE> 37
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.
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 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, (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 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.
II-2
<PAGE> 38
Item 16. EXHIBITS
(a) Exhibits:
(1) Inapplicable
(2) None
(3) Inapplicable
(4) Instruments defining the rights of security holders, including
indentures
(4.1) Common Stock specimen, filed as Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997 filed November
12, 1997, and is incorporated herein by reference.
(5) Opinion re: legality
(5.1) Opinion of Lane and Mantell, a professional corporation.
(6) Inapplicable
(7) Inapplicable
(8) None
(9) Inapplicable
(10) None
(11) Inapplicable
(12) None
(13) Inapplicable
(14) Inapplicable
(15) None
(16) Inapplicable
(17) Inapplicable
(18) Inapplicable
(19) Inapplicable
(20) Inapplicable
(21) Inapplicable
(22) Inapplicable
(23) Consents of experts and counsel
(23.1) Consent of Deloitte & Touche LLP
(23.2) Consent of Lane and Mantell, a professional corporation
(24) Powers of Attorney
(24.1) Power of Attorney appointing D. Geoffrey Shulman, MD,
FRCPC on original signature page
(25) None
(26) None
(27) None
(28) None
(99.1) Purchase Agreement between DUSA Pharmaceuticals, Inc. and INVESCO
Global Health Sciences Fund.
(99.2) Stock Option Agreement, dated September 30, 1991, between
Deprenyl USA, Inc. and PARTEQ Research and Development
Innovations;
(99.3) Nonqualified Stock Option Agreement, dated October 21, 1997,
between DUSA Pharmaceuticals, Inc. and PARTEQ Research and
Development Innovations;
(99.4) Nonqualified Stock Option Agreement, dated June 23, 1999, between
DUSA Pharmaceuticals, Inc. and PARTEQ Research and Development
Innovations;
(99.5) Nonqualified Stock Option Agreement, dated September 26, 1997,
between DUSA Pharmaceuticals, Inc. and Mid-Ocean Investments
Limited;
(99.6) Stock Option Agreement, dated February 18, 1992, between Deprenyl
USA, Inc. and Nanette W. Mantell;
(99.7) Stock Option Agreement, dated February 1, 1993, between Deprenyl
USA, Inc. and Nanette W. Mantell;
(99.8) Stock Option Agreement, dated August 2, 1994, between DUSA
Pharmaceuticals, Inc. and Nanette W. Mantell;
(99.9) Nonqualified Stock Option Agreement, dated June 7, 1996, between
DUSA Pharmaceuticals, Inc. and Nanette W. Mantell.
II-3
<PAGE> 39
Item 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) 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 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.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, 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.
(3) 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.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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.
II-4
<PAGE> 40
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-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wilmington, Commonwealth of Massachusetts, USA, on
March 3, 2000.
DUSA Pharmaceuticals, Inc.
(Registrant)
By: s/ D. Geoffrey Shulman
D. Geoffrey Shulman,
President and
Chief Executive Officer
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature
appears below constitutes and appoints D. Geoffrey Shulman as his/her true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him/her and in his/her name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement or any related registration statement that is to
be effective upon filing pursuant to Rule 462(b), and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection with the above premises, as
fully to all intents and purposes as he/she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
s/ D. Geoffrey Shulman Director, Chairman of the Board, March 3, 2000
- ---------------------------------- President, Chief Executive Officer ---------------
D. Geoffrey Shulman, MD, FRCPC and Chief Financial Officer Date
(Principal Executive, Financial, and
Accounting Officer)
s/Ronald L. Carroll Executive Vice President, Chief March 3, 2000
- ---------------------------------- Operating Officer ---------------
Ronald L. Carroll Date
s/Stuart L. Marcus Senior Vice President, March 3, 2000
- ---------------------------------- Scientific Affairs ---------------
Stuart L. Marcus, MD, PhD Date
s/Scott L. Lundahl Vice President, March 3, 2000
- ---------------------------------- Technology ---------------
Scott Lundahl Date
s/Mark C. Carota Vice President, March 3, 2000
- ---------------------------------- Operations ---------------
Mark. C. Carota Date
s/Nanette W. Mantell Secretary March 3, 2000
- ---------------------------------- ---------------
Nanette W. Mantell, Esq. Date
s/John H. Abeles Director March 3, 2000
- ---------------------------------- ---------------
John H. Abeles, MD Date
s/James P. Doherty Director March 3, 2000
- ---------------------------------- ---------------
James P. Doherty, BSc Date
s/Jay M. Haft Director March 3, 2000
- ---------------------------------- ---------------
Jay M. Haft, Esq. Date
s/Richard C. Lufkin Director March 3, 2000
- ---------------------------------- ---------------
Richard C. Lufkin Date
</TABLE>
<PAGE> 41
INDEX TO EXHIBITS
(1) Inapplicable
(2) None
(3) Inapplicable
(4) Instruments defining the rights of security holders, including
indentures
(4.1) Common Stock specimen, filed as Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997 filed November
12, 1997, and is incorporated herein by reference.
(5) Opinion re: legality
(5.1) Opinion of Lane and Mantell, a professional corporation
(6) Inapplicable
(7) Inapplicable
(8) None
(9) Inapplicable
(10) None
(11) Inapplicable
(12) None
(13) Inapplicable
(14) Inapplicable
(15) None
(16) Inapplicable
(17) Inapplicable
(18) Inapplicable
(19) Inapplicable
(20) Inapplicable
(21) Inapplicable
(22) Inapplicable
(23) Consents of experts and counsel
(23.1) Consent of Deloitte & Touche LLP
(23.2) Consent of Lane and Mantell, a professional corporation
(24) Powers of Attorney
(24.1) Power of Attorney appointing D. Geoffrey Shulman, MD, FRCPC
on original signature page
(25) None
(26) None
(27) None
(28) None
(99.1) Purchase Agreement between DUSA Pharmaceuticals, Inc. and INVESCO
Global Health Sciences Fund.
(99.2) Stock Option Agreement, dated September 30, 1991, between Deprenyl USA,
Inc. and PARTEQ Research and Development Innovations;
(99.3) Nonqualified Stock Option Agreement, dated October 21, 1997, between
DUSA Pharmaceuticals, Inc. and PARTEQ Research and Development
Innovations;
(99.4) Nonqualified Stock Option Agreement, dated June 23, 1999, between DUSA
Pharmaceuticals, Inc. and PARTEQ Research and Development Innovations;
(99.5) Nonqualified Stock Option Agreement, dated September 26, 1997, between
DUSA Pharmaceuticals, Inc. and Mid- Ocean Investments Limited;
(99.6) Stock Option Agreement, dated February 18, 1992, between Deprenyl USA,
Inc. and Nanette W. Mantell;
(99.7) Stock Option Agreement, dated February 1, 1993, between Deprenyl USA,
Inc. and Nanette W. Mantell;
(99.8) Stock Option Agreement, dated August 2, 1994, between DUSA
Pharmaceuticals, Inc. and Nanette W. Mantell;
(99.9) Nonqualified Stock Option Agreement, dated June 7, 1996, between DUSA
Pharmaceuticals, Inc. and Nanette W. Mantell.
<PAGE> 1
Exhibit 5.1
LANE AND MANTELL
a professional corporation
ATTORNEYS AT LAW
991 Route 22 West, Post Office Box 8539, Suite 102
Somerville, New Jersey 08876
Nanette Weitman Mantell Telephone (908) 253-9333
Steven R. Lane Facsimile (908) 253-9339
---------
Rosemary Farr Howard Freeman
Of Counsel
March 3, 2000
DUSA Pharmaceuticals, Inc.
25 Upton Drive
Wilmington, MA 01887
Re: DUSA Pharmaceuticals, Inc. (the "Company")
Registration Statement - Form S-3
Gentlemen:
We have examined the Company's Registration Statement on Form S-3 as
filed on March 3, 2000 in connection with the registration under the Securities
Act of 1933, as amended (the "Act"), of up to 1,655,323 shares of common stock,
without par value ("Common Stock").
We have also reviewed (i) the Certificate of Incorporation of the
Company and all amendments to the Certificate of Incorporation filed by the
Company in the Office of the Secretary of State of the State of New Jersey, (ii)
the By-laws of the Company, (iii) the Stock Purchase Agreement dated February
23, 2000 (the "Invesco Funds Group Agreement") and specific stock option
agreements between the Company and the selling shareholders, respectively, with
respect to Common Stock being offered pursuant to the Registration Statement and
(iv) such records of corporate proceedings and other documents as we have deemed
necessary in order to enable us to express the opinion set forth below. In our
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity with the
original of all documents submitted to us as copies thereof. Where factual
matters relevant to such opinion were not independently established, we have
relied upon certificates of officers and responsible employees and agents of the
Company. Our opinion set forth below is limited to the Business Corporation Law
of the State of New Jersey.
Based on the foregoing examination, it is our opinion that:
A. the 1,500,000 shares of Common Stock to be issued by the Company in
connection with the private placement transaction pursuant to Regulation D of
the Act, when certificates or instruments therefor are countersigned by the
Company's transfer agent, and when issued and delivered to the purchasers
against payment therefor, according to the terms and conditions of the INVESCO
Funds Group Agreement, will be validly issued and outstanding, fully paid and
non-assessable; and
<PAGE> 2
DUSA Pharmaceuticals, Inc.
March 3, 2000
Page 2
B. the 85,323 shares of Common Stock underlying the non-qualified stock
options granted to PARTEQ Research & Development Innovations, the 40,000 shares
of Common Stock underlying the non-qualified stock options granted to Nanette W.
Mantell, and the 30,000 shares of Common Stock underlying the non-qualified
stock options granted to Mid-Ocean Investments Ltd., respectively, if and when
duly converted in accordance with the terms and conditions of such stock option
agreements respectively, against payment to the Company, will be validly issued
and outstanding, fully paid and non-assessable.
Very truly yours,
LANE AND MANTELL
a professional corporation
/S/STEVEN R. LANE
By: STEVEN R. LANE
SRL:ng
<PAGE> 1
Exhibit 23.1
DELOITTE & TOUCHE LLP
BCE PLACE
181 BAY STREET
SUITE 1400
TORONTO, ONTARIO M5J2V1
CANADA
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
DUSA Pharmaceuticals, Inc. on Form S-3 of our report dated February 4, 2000,
except for Note 13 which is as of March 2, 2000 (which expresses an unqualified
opinion and includes an emphasis paragraph indicating that the Company is in the
development stage), appearing in the Annual Report on Form 10-K of DUSA
Pharmaceuticals, Inc. for the year ended December 31, 1999 and to the reference
to us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Toronto, Ontario
March 3, 2000
<PAGE> 1
Exhibit 23.2
LANE AND MANTELL
a professional corporation
ATTORNEYS AT LAW
991 Route 22 West, Post Office Box 8539, Suite 102
Somerville, New Jersey 08876
Nanette Weitman Mantell Telephone (908) 253-9333
Steven R. Lane Facsimile (908) 253-9339
-----------
Rosemary Farr Howard Freeman
Of Counsel
March 3, 2000
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, NW
Washington, DC 20549
Re: DUSA Pharmaceuticals, Inc.
Registration Statement on Form S-3
Dear Sir or Madam:
We consent to the use of our firm's name under the heading "Legal
Matters" in the Registration Statement on Form S-3 and any amendments thereto
filed by the Registrant with the Securities and Exchange Commission in
connection with the above-referenced matter.
Very truly yours,
LANE and MANTELL
a professional corporation
/s/Nanette W. Mantell
By: NANETTE W. MANTELL
<PAGE> 1
Exhibit 99.1
CONFIDENTIAL
THE SECURITIES PURCHASED PURSUANT TO THIS AGREEMENT ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE AND CANADIAN SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE INVESTOR SHOULD BE AWARE THAT IT WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME,
INCLUDING THE RISKS AS SET FORTH IN THE COMPANY'S REPORTS AND REGISTRATION
STATEMENTS AS FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION.
THE SECURITIES PURCHASED PURSUANT TO THIS AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF CERTAIN STATES OR QUALIFIED FOR DISTRIBUTION UNDER APPLICABLE CANADIAN
SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES
PURCHASED PURSUANT TO THIS AGREEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION, THE ONTARIO SECURITIES COMMISSION OR OTHER UNITED STATES OR CANADIAN
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR
ENDORSED THE MERITS OF THE SECURITIES OFFERED BY THE COMPANY. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
STOCK PURCHASE AGREEMENT
AGREEMENT made as of the __th day of February, 2000, by and between
DUSA PHARMACEUTICALS, INC., a New Jersey corporation, having its principal
executive offices located at 25 Upton Drive, Wilmington, Massachusetts 01887
(hereinafter referred to as the "Company") and Invesco Global Health Sciences
Fund, a business trust formed under laws of the State of Massachusetts, having
its principal executive offices located at 7800 East Union Avenue, Suite 1100,
Denver, Colorado, 80237 (hereinafter referred to as the "Purchaser").
W I T N E S S E T H
WHEREAS, the Company has issued and outstanding as of the date hereof
12,008,505 shares of common stock, without par value; and
WHEREAS, the Company believes that it is in its best interests to issue
1,500,000 shares of its authorized but unissued common stock to the Purchaser
for the consideration stated herein, and the Purchaser wishes to purchase such
shares on the terms provided herein.
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<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants provided
herein, the parties agree as follows:
1. Purchase.
1.1 At the Closing, the Purchaser shall purchase from the
Company, and the Company shall issue and sell to the Purchaser, One Million Five
Hundred Thousand (1,500,000) shares of the Company's common stock (hereinafter
referred to as the "Shares") for the purchase price of United States
Twenty-Eight Dollars and Fifty Cents ($28.50) per Share, or an aggregate price
of United States Forty-Two Million Seven Hundred Fifty Thousand Dollars
($42,750,000) (hereinafter referred to as the "Purchase Price"), at the closing
(the "Closing"). At the Company's sole option and without affecting the
conditions or obligations of the Purchaser under this Stock Purchase Agreement,
the Company may enter into substantially the same form of purchase agreement
with certain other investors (the "Other Purchasers", and, collectively with the
Purchaser, the "Purchasers") to sell shares of its common stock to such Other
Purchasers, provided that (i) the Company may not sell more than 500,000 shares
of common stock in the aggregate to such Other Purchasers for a total offering
by the Company of 2,000,000 shares of common stock (the "Offering") and (ii)
such Other Purchasers agree to purchase such shares on or prior to the date
hereof on terms no less favorable to the Company.
1.2 Payment of the Purchase Price shall be in same day funds
by certified check, bank cashier's check, money order or similar instrument, or
by means of wire transfer due and payable to the Company at the Closing.
1.3 The Closing shall take place at the offices of Lane and
Mantell, 991 Route 22 West, Somerville, New Jersey on the day which is one (1)
business day after the Company receives notification from the staff of the U.S.
Securities and Exchange Commission (the "Commission") of the staff's willingness
to declare effective the registration statement to be filed by the Company as
provided in Section 5 of this Stock Purchase Agreement, or at such other place
or on such other date as may be mutually agreeable to the Company and the
Purchasers (the "Closing Date"). At the Closing, the Company will deliver to the
Purchaser certificates evidencing the Shares to be purchased by the Purchaser,
registered in its name, upon payment of the Purchase Price thereof in the manner
specified in Section 1.2. As of the date of Closing, the Purchaser shall be
entitled to vote all of the Shares, to receive dividends, if any, and to obtain
all of the rights otherwise granted to the Company's shareholders.
1.4 The certificate or certificates evidencing the Shares
shall be endorsed as follows:"The securities represented by this certificate
were originally purchased on _____ , 2000, and sold in reliance upon the
exemption from registration under the Securities Act of 1933 of the United
States of America, as amended (the "Act"), provided by Section 4(2) thereof and
Rule 506 thereunder and may not be sold or transferred in the United States in
the absence of an effective registration statement under the Act or an exemption
from registration thereunder."
2. Representations and Warranties by the Company. To induce the Purchaser to
enter into this Agreement and to purchase the Shares, the Company hereby
represents and warrants to the Purchaser as of the date hereof and as of the
Closing Date, the following:
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<PAGE> 3
2.1 Organization, Standing, Etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New Jersey and has the requisite corporate power and authority to own
or lease its properties and to carry on its business as it is now being
conducted. The Company has one subsidiary, DUSA Pharmaceuticals New York, Inc.
which is wholly-owned. The subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
the requisite corporate power and authority to own or lease its properties and
to carry on its business as it is now being conducted. The Company and its
subsidiary are duly qualified to transact business and are in good standing in
each jurisdiction in which the failure to so qualify would have a material
adverse effect on their business, prospects, financial condition, assets or
properties (a "Material Adverse Effect"). The Company has the requisite
corporate power and authority to issue the Shares and to perform its obligations
under this Stock Purchase Agreement. For purposes of this Stock Purchase
Agreement, where appropriate, references to the Company shall include its
subsidiary.
2.2 Valid Issuance. The Shares, when issued and delivered
against payment therefor pursuant to terms of this Stock Purchase Agreement,
will be duly authorized, validly issued and outstanding, fully paid and
nonassessable, and enforceable in accordance with their respective terms and the
terms of this Stock Purchase Agreement. The Shares will be free of any liens or
encumbrances other than those created by or imposed upon the Purchaser through
no action of the Company. Except for certain holders of outstanding options
listed on Schedule 2.2 of this Stock Purchase Agreement, no stockholder of the
Company has any right (which has not been waived or has not expired by reason of
lapse of time following notification of the Company's intent to file the Resale
Registration Statement) to request or require the Company to register the sale
of any shares owned by such stockholder in the Resale Registration Statement (as
defined in Section 5.3).
2.3 Corporate Acts and Proceedings. This Stock Purchase
Agreement and the sale of Shares have been duly authorized by all necessary
corporate action on behalf the Company. This Stock Purchase Agreement has been
duly executed and delivered by an authorized officer of the Company, is a valid
and binding agreement on the part of the Company and is enforceable against the
Company in accordance with its terms subject to laws of general application from
time to time in effect affecting creditors' rights and the exercise of judicial
discretion in accordance with general equitable principles and the
enforceability of the indemnification obligations set forth in Section 5.4
hereof. All corporate actions necessary to the authorization, creation, issuance
and delivery of the Shares have been taken by the Company. The Company has all
requisite legal power and authority to execute and deliver this Stock Purchase
Agreement and to carry out and perform its obligations hereunder.
2.4 Compliance with Applicable Laws and Other Instruments. The
Company is not in violation of or default of its Certificate of Incorporation or
Bylaws or, except as disclosed in the SEC Filings as defined in Section 2.6 of
any instrument, indenture or agreement to which it is a party or by which it is
bound, or to its knowledge of any provision of federal or state law, or any
judgment, order, writ, decree, statute, rule or regulation applicable to the
Company, the violation of which would have a Material Adverse Effect. Neither
the execution or delivery of, nor the performance of or compliance with this
Stock Purchase Agreement, the issuance of the Shares nor the consummation of the
transactions contemplated hereby will, with
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<PAGE> 4
or without the giving of notice or passage of time, result in any material
breach of, or constitute a material default under, or result in the imposition
of any material lien or encumbrance upon any asset or property of the Company
pursuant to, any material agreement, contract, permit, license, indenture or
other instrument to which the Company is a party or by which it or any of its
properties, assets or rights is bound or affected or to its knowledge any
provision of federal or state law or any judgment, order, writ, decree, statute,
rule or regulation applicable to the Company the violation of which would have a
Material Adverse Effect, and will not violate the Company's Certificate of
Incorporation or Bylaws.
2.5 Securities Laws. Based in part upon the representations of
the Purchaser in Section 3 hereof, no consent, authorization, approval, permit
or order of or filing with any governmental or regulatory authority is required
under current laws and regulations in connection with the execution and delivery
of this Agreement or the offer, issuance, sale or delivery of the Shares, other
than (i) the filing of a Form D pursuant to Regulation D under the Securities
Act of 1933, as amended (the "Act"), (ii) the filing, if required, of any notice
with any state whose laws require such filing, (iii) the qualification thereof,
if required, under other applicable state laws, which qualification has been or
will be effected as a condition to the Closing and (iv) the listing thereof on
the NASDAQ Stock Market. Based in part upon the representations of the Purchaser
in Section 3, the offer, issuance, sale and delivery of the Shares will not
require compliance with the prospectus delivery or registration requirements in
the Act.
2.6 Capital Stock. The authorized and issued capital stock of
the Company is correctly set forth in the financial statements for the year
ended December 31, 1999. All of the outstanding shares of the Company were duly
authorized and validly issued and are fully paid and nonassessable, have been
issued in compliance with applicable securities laws, were not issued in
violation of or are not otherwise subject to any preemptive or other similar
right or rights to subscribe for or purchase securities and conform in all
material respects to the description thereof contained in the Form 10-K. Except
as described in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, (the "Form 10-K"), and any other reports filed prior to
Closing (collectively, the "SEC Filings"), in each case as filed with the
Securities and Exchange Commission (the "Commission"), or on Schedule 2.6
attached to this Stock Purchase Agreement, there are no outstanding
subscriptions, options, warrants, calls, contracts, demands, commitments,
convertible securities, proxy or stockholder agreements, or other agreements or
arrangements of any character or nature whatever, other than in connection with
the Offering, pursuant to which the Company is obligated to issue any securities
of any kind representing an ownership interest in the Company. Neither the offer
nor the issuance or sale of the Shares constitutes an event under any
anti-dilution provisions of any securities issued (or issuable pursuant to
outstanding rights, warrants or options) by the Company or any agreements with
respect to the issuance of securities by the Company, which will either increase
the number of securities issuable pursuant to such provisions or decrease the
consideration per share to be received by the Company pursuant to such
provisions. No holder of any securities of the Company is entitled to any
preemptive or similar rights to purchase any securities of the Company.
2.7 SEC Filings. The Company has furnished, or made available
through the EDGAR Internet web site of the Commission, to the Purchaser true and
complete copies of the SEC Filings. As of their respective filing dates, the SEC
Filings complied in all material
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<PAGE> 5
respects with the applicable requirements of the Exchange Act of 1934, as
amended (the "Exchange Act"). The SEC Filings do not as of their respective
dates contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Deloitte & Touche LLP has expressed their opinion with
respect to the audited consolidated financial statements to be incorporated by
reference into the Registration Statement and the Prospectus which forms a part
thereof from the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and are independent accountants as required by the Act and the
rules and regulations thereunder. The consolidated financial statements
(including the notes and schedules thereto) have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis (except as otherwise disclosed in the notes thereto) and fairly
present the financial position of the Company as at the dates thereof and the
results of its operations and cash flows for the periods then ended subject, in
the case of unaudited interim financial statements, to normally recurring
year-end adjustments and any other adjustments described in such financial
statements.
2.8 Intellectual Property.
Except as otherwise specifically disclosed in the SEC Filings
to the best of its knowledge, the Company and its subsidiary: (i)own, or have
obtained licenses or rights to use, patents, trademarks (both registered and
unregistered), trade names, and trade secrets necessary to carry out the
Company's and its subsidiary's respective businesses as currently conducted with
respect to the treatment of actinic keratoses of the face and scalp with
Levulan7KerastickJ; provided however, that the Company does not provide any
warranty of non-infringement (collectively, the "Intellectual Property"); (ii)
have not received notice from any third party who has asserted any ownership
rights to any Intellectual Property; (iii) are not aware of sales of any
products that would constitute an infringement by third parties of any material
Intellectual Property; (iv) are aware of no pending or threatened action, suit,
proceeding or claim by a third party challenging the ownership rights in,
validity or scope of, the Intellectual Property; provided however that the
Company is aware of: (a) the opposition to Japanese Patent No. 273032, licensed
by the Company from PARTEQ, (b) while not a threat of litigation, the January
14, 2000 and February 8, 2000 letters from Dr. Edwin Adair to the Company, (c)
the letters dated January 11, 2000 and January 18, 2000 from Berwin Leighton to
the Company alleging breach and termination of the License Agreement between the
Company and Photo Therapeutics Limited with respect to patents and know-how
regarding a prototype light device; and (v) are not aware of any pending or
threatened action, suit, proceeding or claim by a third party asserting that the
Company or its Subsidiary infringe or otherwise violate any patent, trademark,
copyright, trade secret or other proprietary right of any third party as would
reasonably be expected to result in a Material Adverse Effect.
2.9 Litigation. Other than as described in the SEC Filings (as
defined in Section 2.6 ), there are no legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings pending or, to the best
of the Company's knowledge, threatened against the Company or its properties,
assets or business, and neither the Company nor any of its officers is aware of
any facts which might result in or form the basis for any such action, suit or
other proceeding, in each case which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect or prevent or
adversely affect the transactions
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<PAGE> 6
contemplated by this Agreement. The Company is not in default with respect to
any judgment, order or decree of any court or any governmental agency or
instrumentality which default would have a Material Adverse Effect.
2.10 Properties. The Company has good and marketable title to
all the properties and assets reflected as owned in the financial statements
included in the SEC Filings, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such financial
statements, or (ii) those which are not material in amount and do not adversely
affect the use made and promised to be made of such property by the Company and
its subsidiary. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company. Except as
disclosed in the SEC Filings, the Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be conducted.
2.11 No Brokers or Finders. Except for claims of Chase
Securities Inc. and CIBC World Markets (the "Agents") in connection with this
transaction which shall not exceed an aggregate of 5% of the total purchase
price for the Shares, no person, firm or corporation has or will have, as a
result of any act or omission of the Company, any right, interest or valid claim
against the Purchaser for any commission, fee or other compensation as a finder
or broker in connection with the transactions contemplated by this Agreement.
The fees and commissions payable to the Agents shall be paid by the Company and
the Company shall indemnify and hold the Purchaser harmless for any claims made
by the Agents concerning the purchase of the Shares.
2.12 Insurance. Each of the Company and its subsidiary
maintains insurance of the types and in the amounts generally deemed adequate
for its business, including, but not limited to, insurance covering all real and
personal property owned or leased by the Company and its subsidiary against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect; however the
Company is seeking, but has not yet obtained product liability insurance.
2.13 Compliance with Environmental Laws. Except as disclosed
in the SEC Filings, the Company is not, to its knowledge, in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and, to the best of the Company's knowledge, no
material expenditures are or will be required in order to comply with any such
existing statute, law or regulation, except to the extent such expenditure may
be required in the case of the establishment of a limited production line as a
second source for the Levulan(R) Kerastick(TM). To the best of the Company's
knowledge, the Company does not have any material liability to any governmental
authority or other third party arising under or as a result of any such past or
existing statute, law or regulation.
2.14 Compliance. The Company has not been advised, and has no
reason to believe, that either it or any of its subsidiary is not conducting
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business; except where failure to be so
in compliance would not have a Material Adverse Effect.
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<PAGE> 7
2.15 Taxes. The Company and its subsidiary have filed all
necessary federal, state and foreign income and franchise tax returns and have
paid or accrued all taxes shown as due thereon, and the Company has no knowledge
of any tax deficiency which has been or might be asserted or threatened against
the Company or its subsidiary which could materially and adversely affect the
business, operations or properties of the Company and its subsidiary.
2.16 Transfer Taxes. On the Closing Date, all stock transfer
or other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Shares to be sold to the Purchaser
hereunder will be, or will have been, fully paid or provided for by the Company
and all laws imposing such taxes will be or will have been complied with fully.
2.17 Changes. Except as set forth in the SEC Filings, since
December 31, 1999, the Company has not, to the extent material to the Company
and its subsidiary, taken as a whole, (i) incurred any debts, obligations or
liabilities, absolute, accrued or contingent, whether due or to become due,
other than in the ordinary course of business or which could materially and
adversely affect the Company's (and its subsidiary) future profitability, (ii)
mortgaged, pledged or subjected to lien, charge, security interest or other
encumbrance any of its assets, tangible or intangible, (iii) waived any debt
owed to the Company, (iv) satisfied or discharged any lien, claim or encumbrance
or paid any obligation other than in the ordinary course of business, (v)
declared or paid any dividend, or (vi) entered into any transaction other than
in the usual and ordinary course of business. Other than as may be set forth in
the SEC Filings, there has been no material adverse changes in the financial
condition or business, assets or properties of the Company since the date of the
financial statements contained in the SEC Filings other than normal recurring
operating losses.
2.18 Representations. The Company certifies that the
representations set forth herein concerning the Company are true and correct as
of the date hereof, shall be true and accurate as of the Closing Date and shall
survive thereafter.
3. Representations by Purchaser.
The Purchaser makes the following representations, declarations and
warranties to the Company, with the intent and understanding that the Company is
relying thereon, all of which shall survive the Closing:
3.1 The Purchaser acknowledges that the Shares have not been
registered under the Act or under the securities laws of any state, and have not
been qualified for distribution under any applicable Canadian securities laws;
that the Company has no obligation to effect such registration or qualification,
except as set forth in Section 5 hereof; and that the Shares issuable hereunder
are subject to substantial restrictions on transfer. The Purchaser is not a
resident of Canada.
3.2 The Shares are being purchased for the Purchaser's own
account for investment purposes and not with a view to or for sale in connection
with any distribution, except as permitted hereunder and in accordance with
applicable law. The Purchaser has such knowledge and experience in financial and
business matters that will enable the Purchaser to
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<PAGE> 8
utilize the information made available to it in connection herewith to evaluate
the merits and risks of the prospective investment and to make an informed
investment decision.
3.3 The Purchaser understands that an investment in the Shares
involves significant risks and that it has taken full cognizance of and
understands the risk factors relating to the purchase of the Shares set forth in
the SEC Filings, including, but not limited to, certain risk factors as set
forth in the "Risk Factors" section of the Company's Form 10-K for the year
ended December 31, 1999 to be filed with the Commission.
3.4 The Purchaser is validly existing and has all requisite
power and authority to enter into this Agreement and perform its obligations
hereunder. The execution, delivery and performance by the Purchaser of this
Stock Purchase Agreement, and the purchase of the Shares have been duly
authorized and approved by all necessary corporate or other action by the
Purchaser. This Stock Purchase Agreement has been duly executed and delivered
and constitutes a valid and binding obligation of the Purchaser, enforceable in
accordance with its terms, subject to laws of general application from time to
time in effect affecting creditors' rights and the exercise of judicial
discretion in accordance with general equitable principles and the
enforceability of the indemnification obligations set forth in Section 5.4
hereof. The execution, delivery and performance of this Stock Purchase Agreement
and the purchase of the Shares will not conflict with, or result in a material
breach of any of the terms of, or constitute a material default under, any
articles of incorporation, agreement, trust, instrument, covenant or other
restriction to which the Purchaser is a party or by which it is bound.
3.5 The Purchaser's investment in the Company is reasonable in
relation to the Purchaser's net worth and financial needs and the Purchaser is
able to bear the economic risk of losing the entire investment in the Shares.
The Purchaser is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D of the Act.
3.6 The Purchaser understands that no United States or state
agency, or Canadian or provincial regulatory authority, has approved or
disapproved the Shares, passed upon or endorsed the merits of this offering, or
made any finding or determination as to the fairness of the Shares for
investment.
3.7 The Purchaser is fully aware that the Shares purchased are
being sold in reliance upon exemptions from registration under the Act and state
securities laws, as well as applicable Canadian laws and regulations, based
upon, among other things, the Purchaser's representations, warranties,
declarations and agreements set forth in this Agreement. The Purchaser is fully
aware of the restrictions on resale, transferability and assignment of the
Shares, and that the Purchaser must bear the economic risk of their investment
in the Company for an indefinite period of time because the Shares have not been
registered under the Act and, therefore, cannot be offered or sold unless they
are subsequently registered under the Act or qualified for distribution under
the applicable Canadian securities legislation, or an exemption from
registration or prospectus requirements is available thereunder.
3.8 The Purchaser certifies that the representations set forth
herein concerning the Purchaser are true and correct as of the date hereof ,
shall be true and accurate as of the Closing Date, and shall survive the
Closing.
8
<PAGE> 9
3.9 The Purchaser acknowledges that material documents,
records and books pertaining to the Company have, on request, been made
available to the Purchaser or its counsel or other representatives, including
but not limited to, the Company's Annual Report on Form 10- K for the year ended
December 31, 1999.
3.10 The Purchaser acknowledges that, at a reasonable time
prior to the date hereof, it has had the opportunity to ask questions of, and
receive answers from the senior management of the Company concerning all
material aspects of the business of the Company and the terms and conditions of
the purchase of the Shares, and to obtain any additional information to the
extent that the Company possesses such information or can acquire it without
unreasonable effort or expense, which is necessary to verify the accuracy of the
information given to the Purchaser or otherwise to make an informed investment
decision.
3.11 The Purchaser has, in connection with its decision to
purchase the number of Shares set forth in Section 1 above, relied solely upon
the SEC Filings and the documents included therein and the representations and
warranties of the Company contained herein and not on any other information
concerning the Company or the Offering. .
3.12 The Purchaser represents and warrants to and covenants
with the Company that the Purchaser has not engaged and will not engage in any
sales of the Shares, including a short sale covered by the Shares, (i) prior to
the effectiveness of the Resale Registration Statement (as defined in Section
5), except to the extent that any such short sale is fully covered by shares of
common stock of the Company other than the Shares, or (ii) unless such sale is
exempt from the registration requirements of applicable securities laws.
3.13 The Purchaser has not entered into any agreement to pay
commissions to any persons with respect to the purchase or sale of the Shares,
except commissions for which the Purchaser will be responsible.
3.14 The Purchaser acknowledges that the Company will pay to
Chase Securities Inc. and CIBC World Markets with respect to the sale of the
Shares by the Company to the Purchaser a commission of 5 % of the aggregate
Purchase Price, payable in cash at the time of Closing.
4. Covenants of the Purchaser.
4.1 Purchaser covenants that the Purchaser shall resell the
Shares only pursuant to effective registration under the Act in accordance with
the rules and regulations which may pertain to the Purchaser upon such resale
under the Act or under any other applicable United States or Canadian securities
regulation, or pursuant to an available exemption from registration or
prospectus requirements there, including applicable prospectus delivery
requirements, under and in accordance with the requirements of Securities Act
(Ontario) to the extent that such act applies to such resale.
4.2 The Purchaser acknowledges and agrees that the Shares are
not transferable on the books of the Company unless the certificate submitted to
the transfer agent
9
<PAGE> 10
evidencing the Shares is accompanied by a separate officer's certificate to the
effect that (A) the Shares have been sold in accordance with the Registration
Statement, the Securities Act and the Rules and Regulations and any applicable
state securities or blue sky laws and (B) the requirement of delivering a
current prospectus has been satisfied. The Purchaser acknowledges that there may
occasionally be times when the Company must suspend the use of the prospectus
forming a part of the Registration Statement until such time as an amendment or
supplement to the Registration Statement or the Prospectus has been filed by the
Company and any such amendment to the Registration Statement is declared
effective by the Commission, or until such time as the Company has filed an
appropriate report with the Commission pursuant to the Exchange Act. The
Purchaser hereby covenants that it will not sell any Shares pursuant to said
prospectus during the period commencing at the time at which the Company gives
the Purchaser written notice of the suspension of the use of said prospectus and
ending at the time the Company gives the Purchaser written notice that the
Purchaser may thereafter effect sales pursuant to said prospectus. The Purchaser
further covenants to notify the Company promptly of the sale of all of its
Shares.
5. Certain Registration and Related Rights. In accepting this
subscription, the Company agrees to the following provisions regarding certain
registration and related rights:
5.1 Registration of the Shares. The Company agrees to use its
best efforts to file with the Commission, and other appropriate United States
securities regulatory agencies, pursuant to the Act, a Registration Statement on
Form S-3, or its equivalent, in order to register the Shares purchased by the
Purchaser according to the procedure stated in Section 5.3 below.
5.2 Expenses. The Company will pay all Registration Expenses
in connection with the registration of the Shares pursuant to Section 5.1. The
term "Registration Expenses" shall mean all expenses incurred by the Company in
complying with Section 5.1, including, without limitation, all registration and
filing fees, printing expenses, transfer agent and registrar fees, fees and
disbursements of counsel for the Company, "blue sky" fees and expenses,
accountants' expenses including without limitation any special audits or
"comfort" letters incident to or required by any such registration, fees for
listing the shares on securities exchanges and/or the Nasdaq Stock Market, NASD
fees, costs of any insurance which might be obtained, fees and expenses of one
counsel for the Purchaser, and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but excluding underwriting
discounts and commissions.
5.3 Registration Procedures.
(a) The Company will promptly:
(i) not later than 30 business days after the
execution of this Stock Purchase Agreement file a registration statement or
amend an existing effective registration statement (in either case, the "Resale
Registration Statement") with the Commission to register under the Act the
resale by the Purchaser of the Shares;
10
<PAGE> 11
(ii) use its best efforts to cause the Resale
Registration Statement to become effective under the Act as expeditiously as
possible after the Resale Registration Statement is filed;
(iii) use its best efforts to cause such
Registration Statement to remain effective until such time as the Purchaser
becomes eligible to resell the Shares pursuant to Rule 144(k) under the Act or
until all of the Shares have been sold, whichever occurs first;
(iv) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Act with respec
to the disposition of the Shares until the Shares have been disposed of in
accordance with the intended methods of disposition by the Purchaser set forth
in such registration statement and will furnish, upon request, to the Purchaser
prior to the filing thereof a copy of any amendment or supplement to such
registration statement or prospectus;
(v) furnish to the Purchaser such number of
copies of the prospectus included in such registration statement (including eac
preliminary prospectus and all amendments or supplements), in conformity with
the requirements of the Act and such other documents as the Purchaser may
reasonably request to facilitate the public offering of the Shares;
(vi) use its best efforts to register or qualify
the Shares covered by such registration statement under such other securities
or "blue sky" laws of such jurisdiction as the Purchaser shall reasonably
request, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this Section 5.3 be obligated
to be so qualified;
(vii) immediately notify the Purchaser at any
time when a prospectus relating thereto is required to be delivered under the
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, 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 not misleading in the light of the circumstances then existing and to,
as expeditiously as reasonably practicable, correct such untrue statement or
omission;
(viii) cause the Shares to be listed on the Nasdaq
National Market or any securities exchange or quoted on each quotation service
on which the Common Stock of the Company is then listed or quoted.
(b) The Purchaser shall furnish the Company with such
information regarding the Purchaser and the distribution of the Shares as the
Company may from time to time reasonably request in writing and as shall be
required by law or by the Commission in connection therewith. The Company shall
not be obligated to register the Shares if the Purchaser does not comply with
this paragraph.
11
<PAGE> 12
(c) At any time the Company may refuse to permit the
Purchaser to resell any Shares pursuant to the Resale Registration Statement;
provided, however, that in order to exercise this right, the Company must
deliver a certificate in writing to the Purchaser to the effect that withdrawal
of such Resale Registration Statement is necessary because a sale pursuant to
the Resale Registration Statement in its then-current form could constitute a
violation of the federal securities laws. In such an event, the Company shall
use its best efforts to amend the Resale Registration Statement if necessary and
take all other actions necessary to allow such sale under the federal securities
laws as expeditiously as reasonably practicable, and shall notify the Purchaser
promptly after it has determined that such sale has become permissible under the
federal securities laws. The Purchaser hereby covenants and agrees that it will
not sell any Shares pursuant to the Resale Registration Statement during the
periods the Resale Registration Statement is withdrawn as set forth in this
Section 5.3(c).
5.4 Indemnification.
(a) The Purchaser understands the meaning and legal
consequences of the representations and warranties made by the Purchaser in this
Stock Purchase Agreement, and agrees to indemnify and hold harmless the Company
and each of the Company's directors, each of its officers who sign the Resale
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Act from and against any and all loss, damage, liability or
expenses (including, without limitation, attorneys' fees), as and when incurred
(including in settlement of any litigation, if such settlement is effected with
the written consent of the Purchaser, which may not be unreasonably withheld),
due to or arising out of (in such case in whole or in part) any breach of any
representation or warranty made by the Purchaser set forth herein or in any
other agreement or other document furnished by the Purchaser to any of the
foregoing in connection with the sale of the Shares, any failure by the
Purchaser to fulfill any of its covenants or agreements set forth herein, or
arising out of the resale or distribution by the Purchaser of the Shares or any
portion thereof in violation of the Act or any applicable foreign or state
securities or "blue sky" law.
(b) The Company understands the meaning and legal
consequences of the representations and warranties made by it in this Stock
Purchase Agreement, and agrees to indemnify and hold harmless the Purchaser and
each of the Purchaser's directors, officers, and each person, if any, who
controls the Purchaser within the meaning of the Act from and against any and
all loss, damage, liability or expense (including, without imitation, attorneys'
fees), as and when incurred (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company, which may not be
unreasonably withheld), due to or arising out of (in each case in whole or in
part) any breach of any representation or warranty made by the Company set forth
herein, or any failure by the Company to fulfill any of its covenants or
agreements set forth herein.
(c) To the extent permitted by law, the Company will
indemnify and hold harmless each holder of Shares included in the Resale
Registration Statement (a "Holder"), the directors, if any, of such Holder, the
officers, if any, of such Holder, and each person, if any, who controls such
Holder within the meaning of the Act or the Exchange Act, against any losses,
claims, damages, expenses or liabilities to which any of them may become
subject, under the
12
<PAGE> 13
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages,
expenses or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof, including in settlement of any litigation, if
such settlement is effected with the written consent of the Company, which may
not be unreasonably withheld) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Resale Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or (iii) any violation or
alleged violation by the Company of the Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Act, the Exchange
Act or any state securities law; and the Company will reimburse the Holders and
each such controlling person, promptly as such expenses are incurred, for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding.
(d) To the extent permitted by law, each Holder, severally
and not jointly, will indemnify and hold harmless, to the same extent and in the
same manner set forth in Section 5.4(c), the Company, each of its directors and
officers who have signed the Resale Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act or the Exchange Act,
against any losses, claims, damages or liabilities to which any of them may
become subject, under the Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened in respect thereof, including in settlement of any
litigation, if such settlement is effected with the written consent of the
Purchaser, which may not be unreasonably withheld) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with the
Resale Registration Statement; and such Holder will reimburse such persons for
any legal or other expenses reasonably incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability or
action.
(e) With respect to the indemnification set forth in
Section 5.4, to the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under said Sections 5.4(c) or (d) to the extent permitted by law; provided that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in said
Sections 5.4(c) or (d), and (ii) no party guilty of fraudulent misrepresentation
(within the meaning of Section 11 of the Act) shall be entitled to contribution
from any party who was not guilty of such fraudulent misrepresentation The
Purchaser's and Holder's aggregate indemnification and contribution obligations
under this Section 5 shall be limited in amount to the net amount of proceeds
received by the Purchaser or such Holder from the sale of Shares under the
Resale Registration Statement.
5.5 Information Available. So long as the Resale
Registration Statement is effective covering the resale of the Shares owned by
the Purchaser, the Company will furnish to the Purchaser:
13
<PAGE> 14
(a) as soon as practicable after available (but in the
case of the Company's Annual Report to Stockholders, within 120 days after the
end of each fiscal year of the Company), one copy of (I) its Annual Report to
Stockholders (which Annual Report shall contain financial statements audited in
accordance with generally accepted accounting principles by a national firm of
certified public accountants), (II) if not included in substance in the Annual
Report to Stockholders, its SEC Filings, and (III) a full copy of the particular
Resale Registration Statement covering the Shares (the foregoing, in each case,
excluding exhibits);
(b) upon the reasonable request of the Purchaser, all
exhibits excluded by the parenthetical to subparagraph (a)(III) of this Section
5.5;
(c) upon the reasonable request of the Purchaser, a
reasonable number of copies of the prospectuses to supply to any other party
requiring such prospectuses; and
(d) upon the reasonable request of the Purchaser, the
Company will meet with the Purchaser or a representative thereof at the
Company's headquarters to discuss information relevant for disclosure in the
Resale Registration Statement, subject to appropriate confidentiality
limitations as the Company may reasonable require.
6. Conditions Precedent to Obligations of the Company.
The obligations of the Company to consummate the transactions
contemplated by this Agreement are subject, in the discretion of the Company, to
the satisfaction at or prior to the Closing of each of the following conditions:
6.1 Accuracy of Representations and Warranties. All
representations and warranties of the Purchaser contained herein shall be true
in all respects on and as of the date of Closing, with the same force and effect
as though made on and as of the date of Closing.
6.2 Performance of Agreements. The Purchaser shall have
performed all obligations and agreements, and complied with all covenants and
conditions contained in this Agreement to be performed or complied with by it
prior to or at the Closing.
6.3 Officer's Certificate. The Company shall have received a
certificate of the Purchaser dated the date of Closing, signed by an authorized
officer the Purchaser, to the effect that the conditions specified in Sections
6.1 and 6.2 above have been fulfilled.
6.4 Purchase Price. The Company shall have received the
Purchase Price as set forth in Section 1.2.
7. Conditions Precedent to the Obligations of the Purchaser.
The obligations of the Purchaser to consummate the transactions
contemplated by this Agreement are subject, in the discretion of the Purchaser,
to the satisfaction at or prior to the Closing of each of the following
conditions:
14
<PAGE> 15
7.1 Accuracy of Representations and Warranties. All
representations and warranties of the Company contained herein shall be true in
all material respects on and as of the date of Closing, with the same force and
effect as though made on and as of the date of Closing.
7.2 Performance of Agreements. The Company shall have
performed all obligations and agreements, and complied with all covenants and
conditions, contained in this Agreement to be performed or complied with by it
prior to or at the Closing.
7.3 Officer's Certificate. The Purchaser shall have
received a certificate of the Company, dated as of the date of Closing, signed
by an officer of the Company, to the effect that the conditions specified in
Sections 7.1 and 7.2 above, have been fulfilled.
7.4 Opinion of Counsel for the Company. The Purchaser shall
have received an opinion of counsel for the Company, dated as of the date of
Closing, in form and substance reasonably satisfactory to the Purchaser, to the
effect that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey
and has all requisite corporate power and authority to carry on its business as
now being conducted, to enter into this Agreement, and to perform its
obligations hereunder.
(b) The execution, delivery and performance by the
Company of thisAgreement and the consummation by the Company of the transactions
contemplated hereby have been duly and effectively authorized by all necessary
corporate action on the part of the Company and this Agreement has been duly
executed and delivered by the Company and, assuming due and effective
authorization, execution and delivery by the Purchaser, constitutes a legal,
valid and binding obligation of the Company, enforceable against it in
accordance with the terms of such agreement, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies, including specific performance, and the
enforceability of the indemnification obligations under Section 5.4 are subject
to the discretion of the court before which any proceeding therefor may be
brought.
(c) The Shares to be issued hereby have been
duly authorized by all necessary corporate action of the Company and, when
certificates therefor are countersigned by the Company's transfer agent and
issued and delivered to and paid for by the Purchaser pursuant to this
Agreement, will be validly issued, fully paid and non-assessable.
(d) The offer and sale of the Shares by the
Company pursuant to the Stock Purchase Agreement are exempt from the
registration requirements of Section 5 of the Act. (e) No stop order shall have
been received on or prior to the date of Closing from the Commission or any or
state governmental authority on the part of the Company with respect to the
Shares to be delivered to the Purchaser.
7.5 Effectiveness of Resale Registration Statement.
The Commission shall have declared the effectiveness of the Resale Registration
Statement prior to the Closing.
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<PAGE> 16
If the Resale Registration Statement has not been declared effective by the
Commission within 105 days of the filing thereof, then the Purchaser shall have
the right, but not the obligation, to terminate this Stock Purchase Agreement
without consummating the purchase of the Shares.
7.6 Certificates. The Purchaser shall have received one or
more certificates representing the Shares.
8. The Purchaser's Obligations at Closing.
At the Closing, and concurrently with performance by the Company of its
obligations under Section 9, the Purchaser shall deliver or cause to be
delivered to the Company the following:
(a) The Officer's certificate described in Section 6.3.
(b) The certified check or funds to be delivered pursuant
to Section 1.2.
(c) Such other certificates, documents and agreements which
may be called for under this Stock Purchase Agreement.
9. The Company's Obligations at Closing.
At the Closing, and concurrently with performance by the Purchaser of
its obligations under Section 8, the Company shall deliver or cause to be
delivered the following:
(a) The Officer's certificate described in Section 7.3.
(b) Share certificates, which shall be registered in the
Purchaser's respective names in the following amounts:
(c) Such other certificates, documents and agreements which
may be called for under this Agreement (including the
Commission's declaration of the effectiveness of the
Resale Registration Statement).
10. Applicable Law.
This Agreement shall be construed in accordance with and governed by
the laws of the State of New Jersey.
11. Entire Agreement.
This Agreement, when accepted by the parties, will constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. This Agreement may not be amended other than by a
writing executed by all the parties hereto.
16
<PAGE> 17
12. Assignability.
The Purchaser acknowledges that it may not assign any of its rights to
or interest in or under this Agreement without the prior written consent of the
Company, and any attempted assignment without such consent shall be void and
without effect.
13. Binding Agreement; Succession.
This Agreement shall be binding upon and shall inure to the benefit of
the parties and their respective successors and permitted assigns.
14. Waiver or Modification.
Any of the terms or conditions of this Agreement may be waived or
modified at any time and from time to time by the party entitled to the benefit
of such term or condition; however, no party shall be deemed to have waived any
right hereunder unless such waiver shall be in writing and signed by the party
or the party's representative. No delay or omission on the part of any party in
exercising any right shall operate as a waiver or modification of such right or
any other right. A waiver or modification by any party of a breach of a
provision of this Agreement shall not constitute a waiver of or prejudice the
party's right otherwise to demand strict subsequent compliance with that
provision or any other provision.
15. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts together shall constitute one
and the same instrument.
16. Notices.
Any notice or other communication required or permitted hereunder shall
be in writing and shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid, to the address of each party set forth herein. Any such notice shall be
deemed given when delivered personally, telegraphed, telexed, sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails to:
the Company: Dr. D. Geoffrey Shulman
DUSA Pharmaceuticals, Inc.
25 Upton Drive
Wilmington, Massachusetts 01887
with a copy to: Nanette W. Mantell, Esq.
Lane and Mantell
991 Route 22 West
PO Box 8539
Somerville, NJ 08876
17
<PAGE> 18
the Purchaser: Mr. John Schroer
Invesco Funds Group
7800 East Union Avenue, Suite 1100
Denver, Colorado 80237
with a copy to: Mark Heimlich, Esq.
Greenberg Traurig
The Tabor Center
1200 17th Street, Suite 880
Denver, Colorado 80202
17. Interpretation.
17.1 When the context in which words are used in this
Agreement indicates that such is the intent, singular words shall include the
plural, and vice versa, and masculine words shall include the feminine and
neuter genders, and vice versa.
17.2 Captions are inserted for convenience only, are not a
part of this Agreement, and shall not be used in the interpretation of this
Agreement.
17.3 In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not effect any other provision hereof, but this Agreement shall be
construed as if such invalid or illegal or unenforceable provision had never
been contained herein.
18. Further Documents. The undersigned agrees that it will execute such
other documents as may be necessary or desirable in connection with the
transactions contemplated hereby.
19. Confidential Disclosure Agreement. Notwithstanding the provisions
of Section 6 of the Confidential Disclosure Agreement dated February 14, 2000,
between the Company and Purchaser (the "Confidential Disclosure Agreement"), the
parties hereto hereby agree that Purchaser (a) has not violated the provisions
of Section 6 of the Confidential Disclosure Agreement by entering into or
performing its obligations under this Agreement or purchasing the Shares and (b)
will not violate the provisions of Section 6 of the Confidential Disclosure
Agreement by selling the Shares at any time and in any manner permitted in this
Agreement.
20. Legal Fees. The Company shall pay its own expenses, including legal
fees and expenses, incurred with respect to this Stock Purchase Agreement and
the transactions contemplated hereby. Unless this Stock Purchase Agreement is
terminated by the Purchaser other than for a breach by the Company or a failure
by the Company to meet all of the conditions to Closing, whether or not the
Closing is effected, the Company will pay an amount not to exceed $20,000 for
the Purchaser's expenses for legal fees for counsel to the Purchaser and out of
pocket due diligence expenses.
18
<PAGE> 19
IN WITNESS WHEREOF, the Purchaser parties have hereby executed this
Agreement as of the date set forth above.
Invesco Global Health Sciences Fund DUSA PHARMACEUTICALS, INC.
By: By: /s/ D. Geoffrey Shulman
--------------------- --------------------------
D. Geoffrey Shulman, MD, FRCPC
President and CEO
<PAGE> 20
SCHEDULE 2.2
<TABLE>
<S> <C>
Parteq Research and Development Innovations - 85,323 Shares underlying options
Mid-Ocean Investments Ltd. - 30,000 Shares underlying options
Nanette W. Mantell, Esq. - 40,000 Shares underlying options
Underwriter's Options and - 39,684 Shares underlying options
Placement Agent Warrants
(currently subject to a Registration Statement)
</TABLE>
<PAGE> 21
INVESCO HEALTH SCIENCES FUND
/s/Ronald L. Grooms
- ----------------------------
Name
Ronald L. Grooms
- ----------------------------
Printed Name
Treasurer
- ----------------------------
Title
INVESCO GLOBAL HEALTH SCIENCES FUND
/s/Ronald L. Grooms
- ----------------------------
Name
Ronald L. Grooms
- ----------------------------
Printed Name
Treasurer
- ----------------------------
Title
INVESCO VIF-HEALTH SCIENCES FUND
/s/Ronald L. Grooms
- ----------------------------
Name
Ronald L. Grooms
- ----------------------------
Printed Name
Treasurer
- ----------------------------
Title
AIM FUNDS MANAGEMENT INC., AS MANAGER, ON BEHALF OF
AIM GLOBAL HEALTH SCIENCES FUND
/s/Susan J. Han
- ----------------------------
Name
Susan J. Han
- ----------------------------
Printed Name
Secretary
- ----------------------------
Title
<PAGE> 22
AIM FUNDS MANAGEMENT INC., AS MANAGER, ON BEHALF OF
AIM GLOBAL HEALTH CARE CLASS
/s/Susan J. Han
- ----------------------------
Name
Susan J. Han
- ----------------------------
Printed Name
Secretary
- ----------------------------
Title
INVESCO SMALL COMPANY GROWTH FUND
/s/Ronald L. Grooms
- ----------------------------
Name
Ronald L. Grooms
- ----------------------------
Printed Name
Treasurer
- ----------------------------
Title
INVESCO VIF-SMALL COMPANY GROWTH FUND
/s/Ronald L. Grooms
- ----------------------------
Name
Ronald L. Grooms
- ----------------------------
Printed Name
Treasurer
- ----------------------------
Title
IRT SMALL CAP GROWTH FUND
/s/Linda Evans
- ----------------------------
Name
Linda Evans
- ----------------------------
Printed Name
Corporate Secretary
- ----------------------------
Title
<PAGE> 23
MAXIM INVESCO SMALL-CAP GROWTH FUND
/s/David McLeod
- ----------------------------
Name
David McLeod
- ----------------------------
Printed Name
Treasurer
- ----------------------------
Title
INVESCO ENDEAVOR FUND
/s/Ronald L. Grooms
- ----------------------------
Name
Ronald L. Grooms
- ----------------------------
Printed Name
Treasurer
- ----------------------------
Title
<PAGE> 24
SCHEDULE 2.6
Options Proposed by Management of the Company but not yet Granted:
D. Geoffrey Shulman, President/CEO 60,000 plus 125,000(bonus)
Ron Carroll,Exec. VP/COO 30,000
Stuart Marcus, Senior VP/CSO 25,000
Scott Lundahl,VP, Technology 15,000
Mark Carota, VP,Operations 10,000
Nanette W. Mantell,Secretary 2,500
Jacquie Kuritzky 2,500
Anna Houlihan 2,000
Donna Brown 1,000
Evelyn Juma 1,500
Caroline Hayde 1,000
Shari Lovell 2,500
Janet Kwiecien 1,500
Jim Mazzola 2,500
Tom Fallon 10,000
Michelle Clarke 5,000
Non-Executive Directors 10,000 x 4 = 40,000
<PAGE> 25
SCHEDULE A
Invesco Global Health Sciences Fund 308,000
Invesco Health Sciences Fund 682,500
Invseco VIF-Health Sciences Fund 19,500
AIM Global Health Sciences Fund 195,000
AIM GT Global Health Care Class 95,000
Invesco Small Company Growth Fund 81,430
Invesco VIF-Small Company Growth Fund 500
IRT Small Cap Growth Fund 1,850
Maxim Invesco Small-Cap Growth Fund 16,220
Invesco Endeavor Fund 100,000
<PAGE> 1
Exhibit 99.2
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 30th day of September, 1991 between
DEPRENYL USA, INC., a corporation incorporated under the laws of the State of
New Jersey (hereinafter referred to as the "Company") and PARTEQ Research &
Development Innovations, with offices at (hereinafter referred to as the
"Participant").
WITNESSETH:
WHEREAS, the Board of Directors of the Company has determined that in
consideration for services rendered on the Company's behalf and in order to
provide an inducement to the Participant to acquire a proprietary interest in
the Company, it is in the Company's best interest to grant an option to the
Participant to purchase shares of the Company's common stock ("Shares") on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
expressed herein, it is agreed by and between the parties as follows:
1.1 DEFINITIONS
In this Agreement:
"Board of Directors" means the board of directors of the Company;
"Exercise Price" means CDN. $6.79;
"Expiration Date" means 5:00 p.m. (Eastern Standard Time) on the later
of the dates provided in Section 2.2;
"Optioned Shares" means that number of Shares which are subject to the
option granted by the Company to the Participant pursuant to this
Agreement;
"Services" means consulting or other services provided by the
Participant to the Company, as requested from time to time by the Board
of Directors, at its sole discretion; and
"Shares" means shares of common stock, without par value, of the
Company.
2.1 GRANT OF OPTION
The Company hereby grants to the Participant an option to purchase, in
accordance with the vesting rights outlined in Sections 2.6 and 2.7
hereof, up to 20,000 Shares for an amount per Share equal to the
Exercise Price, upon the terms and subject to the conditions herein
contained.
2.2 Subject to Sections 2.6, 2.7 and 3.1 hereof, the Participant shall have
the right, at any time prior to 5:00 p.m. (Eastern Standard Time) on
the fifth anniversary date hereof, being September 30, 1996 (provided
that if such day is not a day on which the Company is open for business
then on the first following day on which the Company is open for
business) to exercise this option for any number of the Optioned Shares
up to the maximum number of Shares specified in Section 2.1 above.
<PAGE> 2
2.3 The option may be exercised by the Participant by providing to the
Company notice in writing in the form of Schedule A hereto setting out
the number of Optioned Shares with respect to which the option is being
exercised. The notice must be accompanied by a certified check,
official bank cashier's check or money order in an amount equal to the
Exercise Price multiplied by the number of Shares requested and a duly
executed copy of this Agreement.
2.4 The Company shall cause its registrar and transfer agent to deliver to
the Participant as soon as practicable after receipt of such notice and
payment a certificate or certificates registered in the name of the
Participant or as the Participant may direct for the number of Shares
with respect to which the option is duly exercised.
2.5 Nothing contained in this Agreement or action taken pursuant hereto
shall obligate the Participant to purchase and/or pay for, or the
Company to issue, any Shares except those Optioned Shares with respect
to which the Participant shall have duly exercised the option to
purchase in accordance with this Agreement.
2.6 Subject to Section 2.7 hereof, the option granted hereunder shall vest
in the following manner:
(a) one-quarter of the option on the first anniversary of the day
immediately preceding the date hereof, being September 29,
1992;
(b) one-quarter of the option on the second anniversary of the day
immediately preceding the date hereof, being September 29,
1993;
(c) one-quarter of the option on the third anniversary of the day
immediately preceding the date hereof, being September 29,
1994; and
(d) one-quarter of the option on the fourth anniversary of the day
immediately preceding the date hereof, being September 29,
1995;
and, except as provided by Section 4.1, the Participant shall only be
entitled to exercise this option in the amounts set out above and from
and after the dates so specified.
2.7 Notwithstanding anything contained in Section 2.6 hereof, the option
shall continue to vest only so long as the Participant continues to
provide Services to the Company. Should the Participant cease to
provide such Services ("Termination"), no further vesting of the option
shall occur unless the Board of Directors determines otherwise and the
provisions of Section 3.1 shall apply with respect to the exercise of
the option to the extent that it has vested and has not yet been
exercised.
3.1 EXPIRATION ON TERMINATION
Upon Termination, such part of the option as is then vested but
unexercised may be exercised by the Participant for a period of ninety
(90) days after Termination or such later date as the Board of
Directors may approve after which time this option shall expire;
provided, however, that in no event may this option be exercised after
the Expiration Date.
4.1 SUBDIVISION, CONSOLIDATION OR REORGANIZATION
(a) In the event of any subdivision, redivision or change of the Shares
of the Company into a greater number of Shares at any time after the
date of this Agreement and prior to the Expiration Date of this option,
the Company shall deliver at the time of exercise of this
2
<PAGE> 3
option, but for the same aggregate consideration payable therefor, such
additional number of Shares as the Participant would have been entitled
to receive as a result of such subdivision, redivision or change if on
the record date thereof the Participant had been the registered holder
of the number of such Shares with respect to which the option is later
exercised.
(b) In the event of any consolidation or change of the Shares of the
Company into a lesser number of Shares at any time after the date of
this Agreement and prior to the expiration of this option, the Company
shall deliver at the time of exercise of this option, but for the same
aggregate consideration payable therefor, such reduced number of
Shares, as the Participant would have been entitled to receive upon
such consolidation or change if on the record date thereof the
Participant had been the registered holder of the number of such Shares
with respect to which the option is later exercised.
(c) If at any time after the date of this Agreement and prior to the
expiration of this option, the Shares shall be reclassified or
reorganized, otherwise than as specified in Sections 4.1(a) and (b),
the Participant shall be entitled to receive upon the exercise of this
option and shall accept in lieu of the number of Shares then subscribed
for, but for the same aggregate consideration payable therefor, the
same aggregate number of shares of the appropriate class of shares that
the Participant would have been entitled to receive as a result of such
reclassification or other reorganization of Shares if on the record
date thereof the Participant had been the registered holder of the
number of such Shares with respect to which the option is later
exercised.
5.1 TAKE-OVER BID
If an offeror makes an offer to purchase 50% or more of the outstanding
Shares to substantially all holders of the Shares or, if an insider of
the Company makes an offer to purchase Shares to substantially all
holders of the Shares, and the Board of Directors recommends acceptance
of such offer to the shareholders of the Company and the offer price is
greater than the Exercise Price, then this option, whether or not it
has vested in whole or in part, shall become immediately exercisable.
The Participant shall be bound to exercise this option and to tender
the Optioned Shares issued upon exercise of this option into the offer
upon receipt of notice from the Company if the Company provides an
interest-free loan to the Participant in the amount of the Exercise
Price for all of the Optioned Shares issuable upon exercise of this
option, subject to the execution of a security agreement by the
Participant in favor of the Company securing repayment of the loan.
6.1 NO ASSIGNMENT
The Participant may not assign, transfer, pledge or hypothecate any of
its rights hereunder in any way (whether by operation of law or
otherwise). The option granted herein shall not be subject to
execution, attachment or similar process. Upon any attempt to assign,
transfer, pledge, hypothecate or otherwise dispose of this option
contrary to the provisions hereof, or upon the levy of any attachment
or similar process upon the option granted herein, such option shall
immediately become void.
7.1 GENERAL
(a) Time shall be of the essence of this Agreement.
(b) In this Agreement, words importing the singular number include the
plural and vice versa and words importing the masculine gender include
the feminine and neuter genders.
3
<PAGE> 4
(c) All notices which may be or are required to be given by one party
to the other party pursuant to this Agreement shall be in writing and
shall be mailed by first class or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery as follows:
If to the Company: Deprenyl USA, Inc.
378 Roncesvalles Ave.
Toronto, ON M6R 2M7
CANADA
Attention: Dr. D. Geoffrey Shulman
with a copy to: Nanette W. Mantell, Esq., Corporate Secretary
Lane and Mantell
991 Route 22 West
PO Box 8539 Somerville, NJ
08876 U.S.A.
If to the Participant: at the address of the Participant from time to
time in the records of the Company,
or such other address as to which either party may from time to time
notify the other as aforesaid.
8.1 RESTRICTIONS ON TRANSFER
The Participant understands and acknowledges that the option and Shares
underlying the option have not been registered and that they are
subject to certain restrictions on transfer under the Securities Act of
1933 of the United States, as amended, (the "1933 Act"); such
restrictions provide that the Shares may not be sold without
registration or exemption from registration under the 1933 Act; and,
for purposes of the Securities Act (Ontario) (the "Ontario Act"), the
first trade of the Shares issued pursuant to the exercise of the
option, other than a trade exempted by the Ontario Act, will be a
distribution unless the Company has been a reporting issuer for at
least twelve (12) months and the Company is not in default of any
requirement of the Ontario Act, disclosure has been made to the Ontario
Securities Commission of the exempt trade, no unusual effort is made to
prepare the market or create a demand for the Shares, and no
extraordinary commission or consideration is paid with respect to the
trade, provided that such first trade is not from the holdings of a
so-called "control block".
4
<PAGE> 5
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto.
Attest: DEPRENYL USA, INC.
a New Jersey corporation
/s/ Edward L. Foster By: /s/ D. Geoffrey Shulman
- ---------------------------- ------------------------------------------
Edward L. Foster, Treasurer Dr. D. Geoffrey Shulman, President
Attest: PARTEQ RESEARCH & DEVELOPMENT
INNOVATIONS
By: /s/ John Molloy
------------------------------------------
John P. Molloy, Acting Executive Director
5
<PAGE> 6
SCHEDULE A
SUBSCRIPTION FORM
To: The Secretary of Deprenyl USA, Inc.
Pursuant to the terms and subject to the conditions set forth in the
Stock Option Agreement (the "Agreement") dated , between Deprenyl USA, Inc. and
the undersigned, I hereby elect to purchase shares of Common Stock of Deprenyl
USA, Inc. I understand that such purchase is subject to all the terms and
conditions of the Agreement. I request that the certificates for such shares of
Common Stock shall be issued in the name of:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
In full payment of the purchase price with respect to the Optioned
Shares exercised, the undersigned hereby tenders payment of $___________ by
certified check or official bank cashier's check or money order payable in
Canadian currency to the order of Deprenyl USA, Inc.
Dated: X
----------------------------------------
(Signature)
-------------------------------------
Name (Please Print)
-------------------------------------
(Address)
-------------------------------------
Taxpayer Identification Number
6
<PAGE> 1
Exhibit 99.3
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made and entered into as of the 21ST day of OCTOBER, 1997, by
and between DUSA Pharmaceuticals, Inc., a corporation incorporated under the
laws of the State of New Jersey (the "Company"), and PARTEQ RESEARCH AND
DEVELOPMENT INNOVATIONS, a corporation incorporated under the laws of Ontario,
CANADA (the "Grantee").
WHEREAS, the Company has determined that its interests will be advanced
by providing an incentive to the Grantee to acquire a proprietary interest in
the Company and, as a shareholder, to share in its success, with added incentive
to work effectively for and in the Company's interest; and
WHEREAS, the Company granted to PARTEQ on October 21, 1991 (the "Grant
Date") stock options for 85,000 shares of the Company's common stock, without
par value ("Common Stock"), in connection with the agreement to amend a certain
License Agreement dated August 27, 1991 (the "Original License"); and
WHEREAS, PARTEQ has determined to assign a certain number of said
options to the individuals who have provided services to the Company and the
Company has determined to acknowledge such assignments;
NOW THEREFORE, in consideration of the agreement to amend the Original
License and other mutual promises and covenants contained herein, the parties
agree as follows:
SECTION 1
GRANT
1.1 The Company hereby acknowledges its grant to the Grantee, as
partial consideration for the amendment of the Original
License, the right and option (the "Option") to purchase, in
accordance with the vesting rights outlined in Section 3.1
hereof, up to 58,489 shares of authorized but unissued Common
Stock, of the Company on the terms and conditions herein set
forth in this Nonqualified Stock Option Agreement.
SECTION 2
PRICE
2.1 The purchase price of the shares of Common Stock subject to
this Option shall be the fair market value of the shares of
Common Stock on the Grant Date ($10.875 per share)(the
"Exercise Price").
SECTION 3
WHEN EXERCISABLE
<PAGE> 2
3.1 The aggregate number of shares of Common Stock of the Company
optioned by this Agreement (the "Optioned Shares") shall vest
in the Grantee as follows:
(a) 25% of the Option on the first anniversary of the day
of the grant, being October 21, 1998;
(b) 25% of the Option on the second anniversary of the
day of grant, being October 21, 1999;
(c) 25% of the Option on the third anniversary of the day
of the grant, being October 21, 2000;
(d) 25% of the Option on the fourth anniversary of the
day of the grant, being October 21,2001; and
and, except as provided by Section 6.3 hereof, the Grantee shall only
be entitled to exercise this Option, in whole or in part, in the
amounts set out above and from and after the dates so specified.
3.2 Subject to Sections 3.1 hereof, the Grantee shall have the
right, at any time prior to 5:00 p.m. (Eastern Standard Time)
on the date prior to the tenth anniversary date of the grant,
being October 20, 2007, provided that if such day is not a day
on which the Company is open for business then on the first
following day on which the Company is open for business, to
exercise this Option for any number of the Optioned Shares up
to the maximum number of shares specified in Section 1.1
above.
3.3 No less than one thousand (1,000) shares may be purchased upon
any one exercise of the Option granted hereby unless the
number of shares purchased at such time is the total number of
shares in respect of which the Option hereby granted is then
exercisable.
3.4 In no event shall any Option granted hereby be exercisable for
a fractional share.
3.5 From time to time, in its discretion, the Company's Stock
Option Committee (the "Committee") may offer the Grantee the
right to cancel any Option granted hereunder in exchange for
such consideration as the Committee shall determine.
SECTION 4
HOW EXERCISABLE
4.1 Subject to such administrative regulations as the Committee
may from time to time adopt, the Grantee or beneficiary shall,
in order to exercise this Option give to the Company at its
principal office notice in writing in the form of Schedule A
hereto setting out the number of Optioned Shares with respect
to which the Option is being exercised. The notice must be
accompanied by payment of a certified check, official bank
cashier's check or money order in an amount equal to the
Exercise Price multiplied by the number of shares requested
and a duly
2
<PAGE> 3
executed copy of this Agreement. At the discretion of the
Committee, the Grantee may pay all or a portion of the
purchase price by tender of Common Stock or a combination of
stock and cash or other means determined by the Committee.
4.2 Any notice under this Section shall include an undertaking to
furnish or execute such documents as the Committee in its
discretion shall deem necessary (i) to evidence such exercise,
in whole or in part, of the Option evidenced by this
Agreement, (ii) to determine whether registration is then
required under the Securities Act of 1933, or any other law,
as then in effect, and (iii) to comply with or satisfy the
requirements of the Securities Act of 1933, or any other law,
as then in effect.
4.3 The Grantee agrees that all shares purchased by it under the
Option will be acquired for investment, not distribution, and
that any notice of exercise of the Option must be accompanied
by a written representation to that effect, signed by the
Grantee.
SECTION 5
TERMINATION OF OPTION
5.1 The Option granted hereby shall terminate and be of no force
or effect upon the expiration of ten years from the date of
the Grant unless terminated prior to such time as provided
below.
5.2 If the Amended and Restated License Agreement is terminated by
PARTEQ, the Option may be exercised, to the extent
exercisable, for a period of three months after the date of
such termination or such later date as the Company's Board of
Directors may approve; and if such Agreement is terminated by
DUSA, the Option shall continue to vest in the Grantee as
provided in Section 3.1 above.
5.3 Any determination made by the Committee with respect to any
matter referred to in this Section 5 shall be final and
conclusive on all persons affected thereby.
SECTION 6
ADJUSTMENTS TO OPTION
6.1 Subject to any required action by the Committee and
shareholders, the number of shares provided for in the Option,
and the price per share thereof shall be proportionately
adjusted for any increase or decrease in the number of issued
shares of the Company resulting from the payment of a share
dividend, a share split or any transaction which is a
"corporate transaction" (as defined in the Treasury
regulations promulgated under Section 424 of the Code.
6.2 Subject to any required action by the Committee and
shareholders, if the Company shall be the surviving entity in
any merger or consolidation, or after
3
<PAGE> 4
a consolidation of the Company and one or more entities in
which the resulting entity is an independent entity, the
Option shall pertain to and apply to the securities of the
surviving entity in an amount that the board of directors of
the surviving entity, at its sole discretion, determines to be
equivalent, as nearly as practicable, to the nearest whole
number and class of shares that were subject to the Option.
These shares of stock or other securities shall, after such
merger or consolidation, be deemed to be shares for all
purposes hereof. The aforesaid adjustments, when applicable,
shall be made by the Committee, and the Committee's
determination shall be final, binding and conclusive.
6.3 In the event of a Change of Control (as defined below), any
and all outstanding Options not fully vested shall
automatically vest in full and shall be immediately
exercisable. The date on which such accelerated vesting and
immediate exercisability shall occur shall be the date of the
occurrence of the Change of Control.
A "Change of Control" shall be deemed to have taken place upon
(i) the acquisition by a third person, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, of shares of the Company having 50% or more
of the total number of votes that may be cast for the election
of Directors of the Company; (ii) shareholder approval of a
transaction for the acquisition of the Company, or
substantially all of its assets by another entity or for a
merger, reorganization, consolidation or other business
combination to which the Company is a part; or (iii) the
election during any period of 24 months or less of 50% or more
of the Directors of the Company where such Directors were not
in office immediately prior to such period provided, however,
that no "Change of Control" shall be deemed to have taken
place if the Directors of the Company in office on the date of
adoption of the Plan, or their successors in office nominated
by such Directors, affirmatively approve a resolution to such
effect.
Except as provided with respect to a Grantee in its stock
option agreement or other controlling agreement between it and
the Company, to the extent that the acceleration,
exercisability or parachute payment attributable to the Option
following a Change of Control would result in "excess
parachute payments"(1) when the former are aggregated with
other payments or benefits to the Grantee, such parachute
payments or benefits provided to a Grantee under this
Agreement shall be reduced to the extent necessary so that no
portion thereof shall be subject to the excise tax imposed by
Section 4999 of the Code. This reduction will only be made if
it will cause the Grantee's net after-tax benefit to exceed
the net after-tax benefit that would have existed if such
reduction were not made. "Net after-tax benefit" shall be the
sum of (i) all payments and benefits which a Grantee receives
or is entitled to receive that would constitute a "parachute
payment" under Section 280G of the Code, less (ii) the amount
of federal income taxes payable with respect to the payments
and benefits described in (i) above,
- ----------------------
1"Excess parachute payments" are defined in Section 280G of the Code
and are determined by tax counsel of the Company.
4
<PAGE> 5
calculated at the maximum marginal income tax rate(2) for the
year in which such payments and benefits shall be paid to the
Grantee, less (iii) the amount of excise taxes imposed with
respect to the payments and benefits described in (i) above by
Section 4999 of the Code.
6.4 In the event of a change in the Company's shares which is
limited to a change of all of its authorized shares with par
value into the same number of shares with a different par
value or without par value, the shares resulting from any such
change shall be deemed to be shares within the meaning of this
Agreement.
6.5 Except as herein before expressly provided in Paragraphs 6.1,
6.2, 6.3 and 6.4 of this Section 6, the Grantee shall have no
rights by reason of any subdivision or consolidation of shares
of any class or payment of any share dividend or any other
increase or decrease in the number of shares of any class or
by reason of any dissolution, liquidation, merger,
consolidation or spin-off of assets or stock of another
corporation and any issuance by the Company of shares of any
class, or securities convertible into shares of any class,
shall not affect the Option, and no adjustment by reason
thereof shall be made with respect to the number or price of
the Company's shares subject to the Option. The grant of the
Option shall not affect in any way the right or power of the
Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 7
TRANSFER
7.1 This Option shall not be transferable by the Grantee in any
way. During the existence of the Grantee, the Option shall be
exercisable only by it. Any other attempted assignment,
transfer, pledge, hypothecation or other disposition of the
Option shall be void and have no effect unless in accordance
with the terms set forth herein.
SECTION 8
WITHHOLDING TAXES
8.1 The Company shall have the right to retain and withhold from
any payment, under the Option granted, any amount that is to
be withheld or otherwise deducted and paid with respect to
such payment. At its discretion, the Company may require the
Grantee, if it receives shares under a nonqualified stock
option grant, to reimburse the Company for any taxes that are
required to be withheld by the Company, and may withhold any
distribution in whole or in part until the Company is so
reimbursed. In lieu thereof, the Company shall have the right
to
- ------------------------
2"This rate is based on the rate for the year set forth in the Code at
the time of the first payment to the participant.
5
<PAGE> 6
withhold from any other cash amounts due (or to become due) to
the Grantee an amount equal to such taxes required to be
withheld by the Company to reimburse the Company for any such
taxes, or the Company may retain and withhold a number of
shares of Common Stock having a market value not less than the
amount of such taxes and cancel (in whole or in part) any
shares of Common Stock so withheld in order to reimburse the
Company for any such taxes.
6
<PAGE> 7
SECTION 9
IMPACT ON OTHER BENEFITS
9.1 The value of the Option (either on the date of grant of the
Option or at the time the shares are vested) shall not be
includable as compensation or earnings for purposes of any
other benefit plan offered by the Company.
SECTION 10
ADMINISTRATION
10.1 The Committee shall have full authority and discretion to
decide all matters relating to the administration and
interpretation of this Agreement. All such Committee
determinations shall be final, conclusive and binding upon the
Company, the Grantee and any and all interested parties.
SECTION 11
AMENDMENT(S)
11.1 This Agreement may not in any way be amended without the
Grantee's written consent.
SECTION 12
FORCE AND EFFECT
12.1 The various provisions of this Agreement are severable in
their entirety. Any determination of invalidity or
unenforceability of any one provision shall have no effect on
the continuing force and effect of the remaining provisions.
SECTION 13
NOTICE OF DISPOSITION OF SHARES
13.1 The Grantee agrees that if it should dispose of any shares of
Common Stock acquired on the exercise of the Option, including
a disposition by sale, exchange, gift or transfer of legal
title within twelve (12) months of the date such shares are
transferred to the Grantee, the Grantee will notify the
Company promptly of such disposition.
SECTION 14
NOTICES
14.1 All notices which may be or are required to be given by one
party to the other party pursuant to this Agreement shall be
in writing and shall be mailed by first class or certified
mail, return receipt requested, postage prepaid, or
transmitted by hand delivery as follows:
7
<PAGE> 8
If to the Company: DUSA Pharmaceuticals, Inc.
181 University Avenue
Suite 1208
Toronto, ON M5H 3M7
CANADA
Attention: Dr. D. Geoffrey Shulman
If to the Grantee: PARTEQ Research and Development Innovations
Queen's University
BioSciences Complex
Room 1625
Kingston, Ontario
K7L 3N6
or such other addre as to which either party may from time
to time notify the other as aforesaid.
SECTION 15
RESTRICTIONS ON TRANSFER
15.1 The Grantee understands and acknowledges that it is subject to
certain restrictions on transfer under the Securities Act of
1933 of the United States, as amended, (the "1933 Act") of the
shares issued pursuant to the exercise of the Option; such
restrictions provide that the shares may not be sold without
registration or exemption from registration under the 1933
Act.
SECTION 16
REPORTING REQUIREMENTS
16.1 The Grantee understands and acknowledges that it may be
subject to certain reporting requirements upon its receipt and
exercise of the Option, and in connection therewith, upon the
receipt and exercise of the Option, the Grantee agrees to
timely file with the Securities and Exchange Commission, the
National Association of Securities Dealers, Inc., and any
appropriate Canadian securities regulatory authorities, the
appropriate documentation regarding his ownership of the
Company's securities.
8
<PAGE> 9
SECTION 17
GOVERNING LAW
17.1 This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto.
Attest: DUSA PHARMACEUTICALS, INC.,
a New Jersey corporation
/s/ Nanette W. Mantell By: /s/ D. Geoffrey Shulman
- ------------------------------- -------------------------------------
Nanette W. Mantell, Secretary Dr. D. Geoffrey Shulman, President
GRANTEE
PARTEQ RESEARCH AND
DEVELOPMENT INNOVATIONS
By: /s/ John Molloy
-------------------------------------
John P. Molloy, Acting Executive Director
9
<PAGE> 10
SCHEDULE A
SUBSCRIPTION FORM
To: The Secretary of DUSA Pharmaceuticals, Inc.
Pursuant to the terms and subject to the conditions set forth in the
Nonqualified Stock Option Agreement (the "Agreement") dated , between DUSA
Pharmaceuticals, Inc. and the undersigned, and the Option granted to the
undersigned by such Agreement, I hereby elect to purchase shares of Common Stock
of DUSA Pharmaceuticals, Inc. which were the subject of such Option. I
understand that such purchase is subject to all the terms and conditions of the
Agreement. I request that the certificates for such shares of Common Stock shall
be issued in the name of:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
The undersigned hereby represents and warrants to, and agrees with the
Company as follows:
(a) The shares are being purchased for the undersigned's own account,
for investment purposes only, and not for the account of any other person, and
not with a view to distribution, assignment, or resale to others, or to
fractionalization in whole or in part and that the offering and sale of the
shares is intended to be exempt from registration under the Securities Act of
1933 (the "Act"). In furtherance thereof, the undersigned represents, warrants
and agrees as follows: (i) no other person has or will have a direct or indirect
beneficial interest in such shares and the undersigned will not sell,
hypothecate, or otherwise transfer his shares except in accordance with the Act
and applicable state securities laws or unless in the opinion of counsel for the
Company, an exemption from the registration requirements of the Act and such
laws is available; and (ii) the Company is under no obligation to register the
shares on behalf of the undersigned or to assist the undersigned in complying
with any exemption from registration.
10
<PAGE> 11
(b) The undersigned has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of investment in the Company and of making an informed investment
decision.
In full payment of the purchase price with respect to the Option
exercised, the undersigned hereby tenders payment of $___________ by certified
check or official bank cashier's check or money order payable in Canadian or
United States currency to the order of DUSA Pharmaceuticals, Inc.
Dated: X
------------------------------------
(Signature)
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Name (Please Print)
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(Address)
-------------------------------------
Taxpayer Identification Number
<PAGE> 1
Exhibit 99.4
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER THE DUSA PHARMACEUTICALS, INC. 1996 OMNIBUS PLAN
AGREEMENT made and entered into as of the 23rd day of June, 1999, by
and between DUSA Pharmaceuticals, Inc., a corporation incorporated under the
laws of the State of New Jersey (the "Company"), and PARTEQ RESEARCH &
DEVELOPMENT INNOVATIONS, with offices in the Province of Ontario, CANADA (the
"Grantee").
WHEREAS, pursuant to the DUSA Pharmaceuticals, Inc. 1996 Omnibus Plan,
as amended, (the "Plan"), the Company has determined that its interests will be
advanced by providing an incentive to the Grantee to acquire a proprietary
interest in the Company and, as a shareholder, to share in its success, with
added incentive to work effectively for and in the Company's interest; and
WHEREAS, the Board of Directors of the Company approved a resolution,
effective June 23, 1999, directing the officers of the Company to grant
non-qualified stock options for 10,000 shares of the Company's common stock
without par value ("Common Stock") to the Grantee; and
WHEREAS, PARTEQ has determined to assign a certain number of said
options to the individuals providing services to the Company and the Company has
determined to acknowledge such assignments;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereby agree as follows:
SECTION 1
GRANT
1.1 The Company hereby grants to the Grantee, as partial consideration
for services under an Extension of Research Agreement dated June 22,
1999, the right and option (the "Option") to purchase, in accordance
with the vesting rights outlined in Sections 3.1 and 3.6 hereof, up to
6,834 shares of authorized but unissued Common Stock of the Company on
the terms and conditions herein set forth in this Agreement.
SECTION 2
PRICE
2.1 The purchase price of the shares of Common Stock subject to this
Option shall be the fair market value of the shares of Common Stock on
the date of the grant ($9.25 per share)(the "Exercise Price").
<PAGE> 2
SECTION 3
WHEN EXERCISABLE
3.1 The aggregate number of shares of Common Stock of the Company
optioned by this Agreement (the "Optioned Shares") shall vest in the
Grantee as follows:
(a) one-quarter of the Option on the first anniversary of
the day of the grant, being June 23, 2000;
(b) one-quarter of the Option on the second anniversary
of the day of the grant, being June 23, 2001;
(c) one-quarter of the Option on the third anniversary of
the day of the grant, being June 23, 2002; and
(d) one-quarter of the Option on the fourth anniversary
of the day of the grant, being June 23, 2003;
and, except as provided by Sections 3.6 and 6.3 hereof, the Grantee
shall only be entitled to exercise this Option, in whole or in part, in
the amounts set out above and from and after the dates so specified.
3.2 Subject to Sections 3.1 and 3.6 hereof, the Grantee shall have the
right, at any time prior to 5:00 p.m. (Eastern Standard Time) on the
date prior to the tenth anniversary date hereof, being June 22, 2009,
provided that if such day is not a day on which the Company is open for
business then on the first following day on which the Company is open
for business, to exercise this Option for any number of the Optioned
Shares up to the maximum number of shares specified in Section 1.1
above.
3.3 No less than one thousand (1,000) shares may be purchased upon any
one exercise of the Option granted hereby unless the number of shares
purchased at such time is the total number of shares in respect of
which the Option hereby granted is then exercisable.
3.4 In no event shall any Option granted hereby be exercisable for a
fractional share.
3.5 From time to time, in its discretion, the Committee may offer the
Grantee the right to cancel any Option granted hereunder in exchange
for such consideration as the Committee shall determine.
3.6 Notwithstanding anything contained in Sections 1 and 3.1 hereof,
the Option shall continue to vest in the Grantee only so long as the
Grantee shall continue to provide research services to the Company.
Should the Grantee cease to provide services in all such capacities,
the Option shall not further vest or become exercisable.
SECTION 4
HOW EXERCISABLE
4.1 Subject to such administrative regulations as the Committee may
from time to time adopt, the Grantee or beneficiary shall, in order to
exercise this Option give to the Company at its principal office notice
in writing in the form of Schedule A hereto setting out the number of
Optioned Shares with respect to which the Option is being exercised.
The notice must be accompanied by payment of a certified check,
official bank cashier's check or money
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<PAGE> 3
order in an amount equal to the Exercise Price multiplied by the number
of shares requested and a duly executed copy of this Agreement.
4.2 Any notice under this Section shall include an undertaking to
furnish or execute such documents as the Committee in its discretion
shall deem necessary (i) to evidence such exercise, in whole or in
part, of the Option evidenced by this Agreement, (ii) to determine
whether registration is then required under the Securities Act of 1933,
or any other law, as then in effect, and (iii) to comply with or
satisfy the requirements of the Securities Act of 1933, or any other
law, as then in effect.
4.3 The Grantee agrees that all shares purchased by him or her under
the Option will be acquired for investment, not distribution, and that
any notice of exercise of the Option must be accompanied by a written
representation to that effect, signed by the Grantee.
SECTION 5
TERMINATION OF OPTION
5.1 The Option granted hereby shall terminate and be of no force or
effect upon the expiration of ten years from the date of the Grant
unless terminated prior to such time as provided in Section 3.6 hereof.
5.2 Any determination made by the Committee with respect to any matter
referred to in this Section 5 shall be final and conclusive on all
persons affected thereby. Service to the Company shall be deemed to
include service to any subsidiary of the Company by the Grantee.
SECTION 6
ADJUSTMENTS TO OPTION
6.1 Subject to any required action by the Committee and the Company's
shareholders, the number of shares provided for in the Option, the
price per share thereof and the number of shares provided for in the
Plan shall be proportionately adjusted for any increase or decrease in
the number of issued shares of the Company resulting from the payment
of a share dividend, a share split or any transaction which is a
"corporate transaction" (as defined in the Treasury regulations
promulgated under Section 424 of the Code.
6.2 Subject to any required action by the Committee and the Company's
shareholders, if the Company shall be the surviving entity in any
merger or consolidation, or after a consolidation of the Company and
one or more entities in which the resulting entity is an independent
entity, the Option shall pertain to and apply to the securities of the
surviving entity in an amount that the board of directors of the
surviving entity, at its sole discretion, determines to be equivalent,
as nearly as practicable, to the nearest whole number and class of
shares that were subject to the Option. These shares of stock or other
securities shall, after such merger or consolidation, be deemed to be
shares for all purposes of the Plan. The aforesaid adjustments, when
applicable, shall be made by the Committee, and the Committee's
determination shall be final, binding and conclusive.
6.3 In the event of a Change of Control (as defined below), any and all
outstanding Options not fully vested shall automatically vest in full
and shall be immediately exercisable. The date on which such
accelerated vesting and immediate exercisability shall occur shall be
the date of the occurrence of the Change of Control.
-3-
<PAGE> 4
A "Change of Control" shall be deemed to have taken place upon
(i) the acquisition by a third person, including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
of shares of the Company having 50% or more of the total number of
votes that may be cast for the election of Directors of the Company;
(ii) shareholder approval of a transaction for the acquisition of the
Company, or substantially all of its assets by another entity or for a
merger, reorganization, consolidation or other business combination to
which the Company is a part; or (iii) the election during any period of
24 months or less of 50% or more of the Directors of the Company where
such Directors were not in office immediately prior to such period
provided, however, that no "Change of Control" shall be deemed to have
taken place if the Directors of the Company in office on the date of
adoption of the Plan, or their successors in office nominated by such
Directors, affirmatively approve a resolution to such effect.
Except as provided with respect to a Grantee in his or her
stock option agreement or other controlling agreement between him or
her and the Company, to the extent that the acceleration,
exercisability or parachute payment attributable to the Option
following a Change of Control would result in "excess parachute
payments"1 when the former are aggregated with other payments or
benefits to the Grantee (whether or not payable by the Plan), such
parachute payments or benefits provided to a Grantee under this
Agreement shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of
the Code. This reduction will only be made if it will cause the
Grantee's net after-tax benefit to exceed the net after-tax benefit
that would have existed if such reduction were not made. "Net after-tax
benefit" shall be the sum of (i) all payments and benefits which a
Grantee receives or is entitled to receive that would constitute a
"parachute payment" under Section 280G of the Code, less (ii) the
amount of federal income taxes payable with respect to the payments and
benefits described in (i) above, calculated at the maximum marginal
income tax rate2 for the year in which such payments and benefits shall
be paid to the Grantee, less (iii) the amount of excise taxes imposed
with respect to the payments and benefits described in (i) above by
Section 4999 of the Code.
6.4 In the event of a change in the Company's shares which is limited
to a change of all of its authorized shares with par value into the
same number of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to be shares
within the meaning of the Plan.
6.5 Except as herein before expressly provided in Paragraphs 6.1, 6.2,
6.3 and 6.4 of this Section 6, the Grantee shall have no rights by
reason of any subdivision or consolidation of shares of any class or
payment of any share dividend or any other increase or decrease in the
number of shares of any class or by reason of any dissolution,
liquidation, merger, consolidation or spin-off of assets or stock of
another corporation and any issuance by the Company of shares of any
class, or securities convertible into shares of any class, shall not
affect the Option, and no adjustment by reason thereof shall be made
with respect to the number or price of the Company's shares subject to
the Option. The grant of the Option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to
merge, consolidate, dissolve, liquidate, sell or transfer all or any
part of its business or assets.
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1"Excess parachute payments" are defined in Section 280G of the Code
and are determined by tax counsel of the Company.
2This rate is based on the rate for the year set forth in the Code at
the time of the first payment to the participant.
-4-
<PAGE> 5
SECTION 7
TRANSFER
7.1 This Option shall not be transferable by any individual Grantee in
any way other than by will and the laws of descent and distribution.
During the lifetime of any individual Grantee, or the existence of any
other Grantee, the Option shall be exercisable only by him, her or it.
Any other attempted assignment, transfer, pledge, hypothecation or
other disposition of the Option by any Grantee shall be void and have
no effect unless in accordance with the terms set forth herein.
SECTION 8
WITHHOLDING TAXES
8.1 The Company shall have the right to retain and withhold from any
payment, under the Option granted, any amount that is to be withheld or
otherwise deducted and paid with respect to such payment. At its
discretion, the Company may require the Grantee, if he or she receives
shares under a nonqualified stock option grant, to reimburse the
Company for any taxes that are required to be withheld by the Company,
and may withhold any distribution in whole or in part until the Company
is so reimbursed. In lieu thereof, the Company shall have the right to
withhold from any other cash amounts due (or to become due) to the
Grantee an amount equal to such taxes required to be withheld by the
Company to reimburse the Company for any such taxes, or the Company may
retain and withhold a number of shares of Common Stock having a market
value not less than the amount of such taxes and cancel (in whole or in
part) any shares of Common Stock so withheld in order to reimburse the
Company for any such taxes.
SECTION 9
IMPACT ON OTHER BENEFITS
9.1 The value of the Option (either on the date of grant of the Option
or at the time the shares are vested) shall not be includable as
compensation or earnings for purposes of any other benefit plan offered
by the Company.
SECTION 10
ADMINISTRATION
10.1 The Committee shall have full authority and discretion (subject
only to the express provisions of the 1996 Omnibus Plan, as amended) to
decide all matters relating to the administration and interpretation of
the Plan and this Agreement. All such Committee determinations shall be
final, conclusive and binding upon the Company, the Grantee and any and
all interested parties.
SECTION 11
AGREEMENT TO CONTINUE IN EMPLOYMENT
OR SERVICE AS A CONSULTANT
11.1 Nothing in the Plan or this Agreement shall confer on a Grantee
any right to continue in the employ of the Company or in the service of
the Company as a consultant or interfere in any way with the right of
the Company to terminate its employment or consultantship at any time.
-5-
<PAGE> 6
SECTION 12
AMENDMENT(S)
12.1 This Agreement shall be subject to the terms of the Plan as
amended except that the Option that is the subject of this Agreement
may not in any way be amended or terminated without the Grantee's
written consent.
SECTION 13
FORCE AND EFFECT
13.1 The various provisions of this Agreement are severable in their
entirety. Any determination of invalidity or unenforceability of any
one provision shall have no effect on the continuing force and effect
of the remaining provisions.
SECTION 14
NOTICE OF DISPOSITION OF SHARES
14.1 The Grantee agrees that if it, he or she should dispose of any
shares of Common Stock acquired on the exercise of the Option,
including a disposition by sale, exchange, gift or transfer of legal
title within six months of the date such shares are transferred to the
Grantee, the Grantee will notify the Company promptly of such
disposition.
SECTION 15
NOTICES
15.1 All notices which may be or are required to be given by one party
to the other party pursuant to this Agreement shall be in writing and
shall be mailed by first class or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery as follows:
If to the Company: DUSA Pharmaceuticals, Inc.
181 University Avenue, Suite 1208
Toronto, Ontario, M5H 3M7
CANADA
Attention: Dr. D. Geoffrey Shulman
If to the Grantee: PARTEQ RESEARCH & DEVELOPMENT INNOVATIONS
Queen's University
BioSciences Complex, Room 1625
Kingston, Ontario K7L 3N6
CANADA
Attention: Mr. John P. Molloy,
Acting Executive Director
or such other address as to which either party may from time
to time notify the other as aforesaid.
SECTION 16
RESTRICTIONS ON TRANSFER
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<PAGE> 7
16.1 The Grantee understands and acknowledges that it, he or she is
subject to certain restrictions on transfer under the Securities Act of
1933 of the United States, as amended, (the "1933 Act") of the shares
issued pursuant to the exercise of the Option; such restrictions
provide that the shares may not be sold without registration or
exemption from registration under the 1933 Act; and, for purposes of
the Securities Act (Ontario) (the "Ontario Act"), the first trade of
such shares, other than a trade exempted by the Ontario Act, will be a
distribution unless the Company has been a reporting issuer for at
least twelve (12) months and the Company is not in default of any
requirement of the Ontario Act, disclosure has been made to the Ontario
Securities Commission of the exempt trade, no unusual effort is made to
prepare the market or create a demand for the shares, and no
extraordinary commission or consideration is paid with respect to the
trade, provided that such first trade is not from the holdings of a
so-called "control block".
SECTION 17
REPORTING REQUIREMENTS
17.1 The Grantee understands and acknowledges that it, he or she may be
subject to certain reporting requirements upon his receipt and exercise
of the Option, and in connection therewith, upon the receipt and
exercise of the Option, the Grantee agrees to timely file with the
Securities and Exchange Commission, the National Association of
Securities Dealers, Inc., and any appropriate Canadian securities
regulatory authorities, the appropriate documentation regarding his
ownership of the Company's securities.
SECTION 18
GOVERNING LAW
18.1 This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto.
Attest: DUSA PHARMACEUTICALS, INC.,
a New Jersey corporation
/s/ Nanette W. Mantell By: /s/D. Geoffrey Shulman
- ------------------------------- -------------------------------
Nanette W. Mantell, Secretary Dr. D. Geoffrey Shulman, President
PARTEQ RESEARCH & DEVELOPMENT
INNOVATIONS
By: /s/ John Molloy
-------------------------------
John P. Molloy, Acting Executive
Director
-7-
<PAGE> 8
SCHEDULE A
SUBSCRIPTION FORM
To: The Secretary of DUSA Pharmaceuticals, Inc.
Pursuant to the terms and subject to the conditions set forth in the
Nonqualified Stock Option Agreement (the "Agreement") dated as of JUNE 23, 1999,
between DUSA Pharmaceuticals, Inc. and the undersigned, and the Option granted
to the undersigned by such Agreement, I hereby elect to purchase shares of
Common Stock of DUSA Pharmaceuticals, Inc. which were the subject of such
Option. I understand that such purchase is subject to all the terms and
conditions of the Agreement. I request that the certificates for such shares of
Common Stock shall be issued in the name of:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(please print or type name and address)
The undersigned hereby represents and warrants to, and agrees with the
Company as follows:
(a) The shares are being purchased for the undersigned's own account,
for investment purposes only, and not for the account of any other person, and
not with a view to distribution, assignment, or resale to others, or to
fractionalization in whole or in part and that the offering and sale of the
shares is intended to be exempt from registration under the Securities Act of
1933 (the "Act"). In furtherance thereof, the undersigned represents, warrants
and agrees as follows: (i) no other person has or will have a direct or indirect
beneficial interest in such shares and the undersigned will not sell,
hypothecate, or otherwise transfer his shares except in accordance with the Act
and applicable state securities laws or unless in the opinion of counsel for the
Company, an exemption from the registration requirements of the Act and such
laws is available; and (ii) the Company is under no obligation to register the
shares on behalf of the undersigned or to assist the undersigned in complying
with any exemption from registration.
(b) The undersigned has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of investment in the Company and of making an informed investment
decision.
In full payment of the purchase price with respect to the Option
exercised, the undersigned hereby tenders payment of $___________ by certified
check or official bank cashier's check or
-8-
<PAGE> 9
money order payable in Canadian or United States currency to the order of DUSA
Pharmaceuticals, Inc.
Dated: X
------------------------------------
(Signature)
-------------------------------------
Name (Please Print)
-------------------------------------
(Address)
-------------------------------------
Taxpayer Identification Number
<PAGE> 1
Exhibit 99.5
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made and entered into as of the 26TH day of SEPTEMBER, 1997,
by and between DUSA Pharmaceuticals, Inc., a corporation incorporated under the
laws of the State of New Jersey (the "Company"), and MID-OCEAN INVESTMENTS
LIMITED, a corporation incorporated under the laws of Bermuda (the "Grantee").
WHEREAS, the Company has determined that its interests will be advanced
by providing an incentive to the Grantee to acquire a proprietary interest in
the Company and, as a shareholder, to share in its success, with added incentive
to work effectively for and in the Company's interest;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereby agree as follows:
SECTION 1
GRANT
1.1 The Company hereby grants to the Grantee, as partial
consideration for services to be rendered under a certain
Consulting Agreement, subject to the execution thereof by both
parties, (the "Consulting Agreement"), the right and option
(the "Option") to purchase, in accordance with the vesting
rights outlined in Section 3.1 hereof, up to 30,000 shares of
authorized but unissued Common Stock, without par value
("Common Stock"), of the Company on the terms and conditions
herein set forth in this Agreement.
SECTION 2
PRICE
2.1 The purchase price of the shares of Common Stock subject to
this Option shall be the fair market value of the shares of
Common Stock on the date of the grant ($7.4375 per share)(the
"Exercise Price").
SECTION 3
WHEN EXERCISABLE
3.1 The aggregate number of shares of Common Stock of the Company
optioned by this Agreement (the "Optioned Shares") shall vest
in the Grantee as follows:
(a) 25% of the Option on the first anniversary of the day
of the grant, being September 26, 1998;
(b) 25% of the Option on the second anniversary of the
day of grant, being September 26, 1999;
(c) 25% of the Option on the third anniversary of the day
of the grant, being September 26, 2000;
<PAGE> 2
(d) 25% of the Option on the fourth anniversary of the
day of the grant, being September 26, 2001; and
and, except as provided by Sections 3.6 and 6.3 hereof, the Grantee
shall only be entitled to exercise this Option, in whole or in part, in
the amounts set out above and from and after the dates so specified.
3.2 Subject to Sections 3.1 and 3.6 hereof, the Grantee shall have
the right, at any time prior to 5:00 p.m. (Eastern Standard
Time) on the date prior to the tenth anniversary date of the
grant, being September 25, 2007, provided that if such day is
not a day on which the Company is open for business then on
the first following day on which the Company is open for
business, to exercise this Option for any number of the
Optioned Shares up to the maximum number of shares specified
in Section 1.1 above.
3.3 No less than one thousand (1,000) shares may be purchased upon
any one exercise of the Option granted hereby unless the
number of shares purchased at such time is the total number of
shares in respect of which the Option hereby granted is then
exercisable.
3.4 In no event shall any Option granted hereby be exercisable for
a fractional share.
3.5 From time to time, in its discretion, the Company's Stock
Option Committee (the "Committee") may offer the Grantee the
right to cancel any Option granted hereunder in exchange for
such consideration as the Committee shall determine.
3.6 The Board of Directors shall be entitled to determine if and
when service to the Company has ceased with respect to the
Grantee.
SECTION 4
HOW EXERCISABLE
4.1 Subject to such administrative regulations as the Committee
may from time to time adopt, the Grantee or beneficiary shall,
in order to exercise this Option give to the Company at its
principal office notice in writing in the form of Schedule A
hereto setting out the number of Optioned Shares with respect
to which the Option is being exercised. The notice must be
accompanied by payment of a certified check, official bank
cashier's check or money order in an amount equal to the
Exercise Price multiplied by the number of shares requested
and a duly executed copy of this Agreement. At the discretion
of the Committee, the Grantee may pay all or a portion of the
purchase price by tender of Common Stock or a combination of
stock and cash or other means determined by the Committee.
4.2 Any notice under this Section shall include an undertaking to
furnish or execute such documents as the Committee in its
discretion shall deem necessary (i) to evidence such exercise,
in whole or in part, of the Option evidenced by this
Agreement, (ii) to determine whether registration is then
required under the Securities Act of 1933, or any other law,
as then in effect, and (iii) to comply with
2
<PAGE> 3
or satisfy the requirements of the Securities Act of 1933, or
any other law, as then in effect.
4.3 The Grantee agrees that all shares purchased by it under the
Option will be acquired for investment, not distribution, and
that any notice of exercise of the Option must be accompanied
by a written representation to that effect, signed by the
Grantee.
SECTION 5
TERMINATION OF OPTION
5.1 The Option granted hereby shall terminate and be of no force
or effect upon the expiration of ten years from the date of
the Grant unless terminated prior to such time as provided
below.
5.2 Subject to Section 3.6 hereof, if the Grantee's service to the
Company is terminated pursuant to the Consulting Agreement,
the Option may be exercised, to the extent exercisable, for a
period of three months after the date of such termination of
service or such later date as the Board of Directors may
approve.
5.3 Any determination made by the Committee with respect to any
matter referred to in this Section 5 shall be final and
conclusive on all persons affected thereby. Service to the
Company shall be deemed to include service to any subsidiary
of the Company by the Grantee.
SECTION 6
ADJUSTMENTS TO OPTION
6.1 Subject to any required action by the Committee and
shareholders, the number of shares provided for in the Option,
and the price per share thereof shall be proportionately
adjusted for any increase or decrease in the number of issued
shares of the Company resulting from the payment of a share
dividend, a share split or any transaction which is a
"corporate transaction" (as defined in the Treasury
regulations promulgated under Section 424 of the Code.
6.2 Subject to any required action by the Committee and
shareholders, if the Company shall be the surviving entity in
any merger or consolidation, or after a consolidation of the
Company and one or more entities in which the resulting entity
is an independent entity, the Option shall pertain to and
apply to the securities of the surviving entity in an amount
that the board of directors of the surviving entity, at its
sole discretion, determines to be equivalent, as nearly as
practicable, to the nearest whole number and class of shares
that were subject to the Option. These shares of stock or
other securities shall, after such merger or consolidation, be
deemed to be shares for all purposes hereof. The aforesaid
adjustments, when applicable, shall be made by the Committee,
and the Committee's determination shall be final, binding and
conclusive.
6.3 In the event of a Change of Control (as defined below), any
and all outstanding Options not fully vested shall
automatically vest in full and shall be immediately
3
<PAGE> 4
exercisable. The date on which such accelerated vesting and
immediate exercisability shall occur shall be the date of the
occurrence of the Change of Control.
A "Change of Control" shall be deemed to have taken place upon
(i) the acquisition by a third person, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, of shares of the Company having 50% or more
of the total number of votes that may be cast for the election
of Directors of the Company; (ii) shareholder approval of a
transaction for the acquisition of the Company, or
substantially all of its assets by another entity or for a
merger, reorganization, consolidation or other business
combination to which the Company is a part; or (iii) the
election during any period of 24 months or less of 50% or more
of the Directors of the Company where such Directors were not
in office immediately prior to such period provided, however,
that no "Change of Control" shall be deemed to have taken
place if the Directors of the Company in office on the date of
adoption of the Plan, or their successors in office nominated
by such Directors, affirmatively approve a resolution to such
effect.
Except as provided with respect to a Grantee in its stock
option agreement or other controlling agreement between it and
the Company, to the extent that the acceleration,
exercisability or parachute payment attributable to the Option
following a Change of Control would result in "excess
parachute payments"1 when the former are aggregated with other
payments or benefits to the Grantee, such parachute payments
or benefits provided to a Grantee under this Agreement shall
be reduced to the extent necessary so that no portion thereof
shall be subject to the excise tax imposed by Section 4999 of
the Code. This reduction will only be made if it will cause
the Grantee's net after-tax benefit to exceed the net
after-tax benefit that would have existed if such reduction
were not made. "Net after-tax benefit" shall be the sum of (i)
all payments and benefits which a Grantee receives or is
entitled to receive that would constitute a "parachute
payment" under Section 280G of the Code, less (ii) the amount
of federal income taxes payable with respect to the payments
and benefits described in (i) above, calculated at the maximum
marginal income tax rate2 for the year in which such payments
and benefits shall be paid to the Grantee, less (iii) the
amount of excise taxes imposed with respect to the payments
and benefits described in (i) above by Section 4999 of the
Code.
6.4 In the event of a change in the Company's shares which is
limited to a change of all of its authorized shares with par
value into the same number of shares with a different par
value or without par value, the shares resulting from any such
change shall be deemed to be shares within the meaning of this
Agreement.
- ------------------------
1"Excess parachute payments" are defined in Section 280G of the Code
and are determined by tax counsel of the Company.
2"This rate is based on the rate for the year set forth in the Code at
the time of the first payment to the participant.
4
<PAGE> 5
6.5 Except as herein before expressly provided in Paragraphs 6.1,
6.2, 6.3 and 6.4 of this Section 6, the Grantee shall have no
rights by reason of any subdivision or consolidation of shares
of any class or payment of any share dividend or any other
increase or decrease in the number of shares of any class or
by reason of any dissolution, liquidation, merger,
consolidation or spin-off of assets or stock of another
corporation and any issuance by the Company of shares of any
class, or securities convertible into shares of any class,
shall not affect the Option, and no adjustment by reason
thereof shall be made with respect to the number or price of
the Company's shares subject to the Option. The grant of the
Option shall not affect in any way the right or power of the
Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 7
TRANSFER
7.1 This Option shall not be transferable by the Grantee in any
way. During the existence of the Grantee, the Option shall be
exercisable only by it. Any other attempted assignment,
transfer, pledge, hypothecation or other disposition of the
Option shall be void and have no effect unless in accordance
with the terms set forth herein.
SECTION 8
WITHHOLDING TAXES
8.1 The Company shall have the right to retain and withhold from
any payment, under the Option granted, any amount that is to
be withheld or otherwise deducted and paid with respect to
such payment. At its discretion, the Company may require the
Grantee, if it receives shares under a nonqualified stock
option grant, to reimburse the Company for any taxes that are
required to be withheld by the Company, and may withhold any
distribution in whole or in part until the Company is so
reimbursed. In lieu thereof, the Company shall have the right
to withhold from any other cash amounts due (or to become due)
to the Grantee an amount equal to such taxes required to be
withheld by the Company to reimburse the Company for any such
taxes, or the Company may retain and withhold a number of
shares of Common Stock having a market value not less than the
amount of such taxes and cancel (in whole or in part) any
shares of Common Stock so withheld in order to reimburse the
Company for any such taxes.
SECTION 9
IMPACT ON OTHER BENEFITS
9.1 The value of the Option (either on the date of grant of the
Option or at the time the shares are vested) shall not be
includable as compensation or earnings for purposes of any
other benefit plan offered by the Company.
5
<PAGE> 6
SECTION 10
ADMINISTRATION
10.1 The Committee shall have full authority and discretion to
decide all matters relating to the administration and
interpretation of this Agreement. All such Committee
determinations shall be final, conclusive and binding upon the
Company, the Grantee and any and all interested parties.
SECTION 11
AGREEMENT TO CONTINUE IN EMPLOYMENT
OR SERVICE AS A CONSULTANT
11.1 Nothing in this Agreement shall confer on a Grantee any right
to continue in the employ of the Company or in the service of
the Company as a consultant or interfere in any way with the
right of the Company to terminate such consulting relationship
at any time.
SECTION 12
AMENDMENT(S)
12.1 This Agreement may not in any way be amended or terminated
without the Grantee's written consent.
SECTION 13
FORCE AND EFFECT
13.1 The various provisions of this Agreement are severable in
their entirety. Any determination of invalidity or
unenforceability of any one provision shall have no effect on
the continuing force and effect of the remaining provisions.
SECTION 14
NOTICE OF DISPOSITION OF SHARES
14.1 The Grantee agrees that if it should dispose of any shares of
Common Stock acquired on the exercise of the Option, including
a disposition by sale, exchange, gift or transfer of legal
title within twelve (12) months of the date such shares are
transferred to the Grantee, the Grantee will notify the
Company promptly of such disposition.
SECTION 15
NOTICES
15.1 All notices which may be or are required to be given by one
party to the other party pursuant to this Agreement shall be
in writing and shall be mailed by first class or certified
mail, return receipt requested, postage prepaid, or
transmitted by hand delivery as follows:
6
<PAGE> 7
If to the Company: DUSA Pharmaceuticals, Inc.
181 University Avenue
Suite 1208
Toronto, ON M5H 3M7
CANADA
Attention: Dr. D. Geoffrey Shulman
If to the Grantee: Mid-Ocean Investments Limited
73 Front Street, 4th Floor
Hamilton, Bermuda
or such other address as to which either party may from time
to time notify the other as aforesaid.
SECTION 16
RESTRICTIONS ON TRANSFER
16.1 The Grantee understands and acknowledges that it is subject to
certain restrictions on transfer under the Securities Act of
1933 of the United States, as amended, (the "1933 Act") of the
shares issued pursuant to the exercise of the Option; such
restrictions provide that the shares may not be sold without
registration or exemption from registration under the 1933
Act.
SECTION 17
REPORTING REQUIREMENTS
17.1 The Grantee understands and acknowledges that it may be
subject to certain reporting requirements upon its receipt and
exercise of the Option, and in connection therewith, upon the
receipt and exercise of the Option, the Grantee agrees to
timely file with the Securities and Exchange Commission, the
National Association of Securities Dealers, Inc., and any
appropriate Canadian securities regulatory authorities, the
appropriate documentation regarding his ownership of the
Company's securities.
SECTION 18
GOVERNING LAW
18.1 This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of New Jersey.
7
<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto.
Attest: DUSA PHARMACEUTICALS, INC.,
a New Jersey corporation
/s/ Nanette W. Mantell By: /s/ D. Geoffrey Shulman
- -------------------------------- -------------------------------------
Nanette W. Mantell, Secretary Dr. D. Geoffrey Shulman,
President
GRANTEE
MID-OCEAN INVESTMENTS LIMITED
By: /s/ Tor Boswick
-------------------------------
Tor Boswick
President
8
<PAGE> 9
SCHEDULE A
SUBSCRIPTION FORM
To: The Secretary of DUSA Pharmaceuticals, Inc.
Pursuant to the terms and subject to the conditions set forth in the
Nonqualified Stock Option Agreement (the "Agreement") dated , between DUSA
Pharmaceuticals, Inc. and the undersigned, and the Option granted to the
undersigned by such Agreement, I hereby elect to purchase shares of Common Stock
of DUSA Pharmaceuticals, Inc. which were the subject of such Option. I
understand that such purchase is subject to all the terms and conditions of the
Agreement. I request that the certificates for such shares of Common Stock shall
be issued in the name of:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(please print or type name and address)
The undersigned hereby represents and warrants to, and agrees with the
Company as follows:
(a) The shares are being purchased for the undersigned's own account,
for investment purposes only, and not for the account of any other person, and
not with a view to distribution, assignment, or resale to others, or to
fractionalization in whole or in part and that the offering and sale of the
shares is intended to be exempt from registration under the Securities Act of
1933 (the "Act"). In furtherance thereof, the undersigned represents, warrants
and agrees as follows: (i) no other person has or will have a direct or indirect
beneficial interest in such shares and the undersigned will not sell,
hypothecate, or otherwise transfer his shares except in accordance with the Act
and applicable state securities laws or unless in the opinion of counsel for the
Company, an exemption from the registration requirements of the Act and such
laws is available; and (ii) the Company is under no obligation to register the
shares on behalf of the undersigned or to assist the undersigned in complying
with any exemption from registration.
9
<PAGE> 10
(b) The undersigned has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of investment in the Company and of making an informed investment
decision.
In full payment of the purchase price with respect to the Option
exercised, the undersigned hereby tenders payment of $___________ by certified
check or official bank cashier's check or money order payable in Canadian or
United States currency to the order of DUSA Pharmaceuticals, Inc.
Dated: X
------------------------------------
(Signature)
-------------------------------------
Name (Please Print)
-------------------------------------
(Address)
-------------------------------------
Taxpayer Identification Number
10
<PAGE> 1
EXHIBIT 99.6
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 18th day of February, 1992 between
DEPRENYL USA, INC., a corporation incorporated under the laws of the State of
New Jersey (hereinafter referred to as the "Company") and NANETTE W. MANTELL, an
individual residing at 827 Star View Way, Bridgewater, New Jersey 08807
(hereinafter referred to as the "Participant").
WITNESSETH:
WHEREAS, the Board of Directors of the Company has determined that in
consideration for services rendered and to be rendered on the Company's behalf
and in order to provide an inducement to the Participant to acquire a
proprietary interest in the Company, it is in the Company's best interest to
grant an option to her to purchase shares of the Company's common stock
("Shares") on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
expressed herein, it is agreed by and between the parties as follows:
1.1 DEFINITIONS
In this Agreement:
"Board of Directors" means the board of directors of the Company;
"Exercise Price" means U.S. $13.375;
"Expiration Date" means 5:00 p.m. (Eastern Standard Time) on the later
of the dates provided in Section 2.2;
"Optioned Shares" means that number of Shares which are subject to the
option granted by the Company to the Participant pursuant to this
Agreement; and
"Shares" means shares of common stock, without par value, of the
Company.
2.1 GRANT OF OPTION
The Company hereby grants to the Participant an option to purchase, in
accordance with the vesting rights outlined in Sections 2.6 and 2.7
hereof, up to 10,000 Shares for an amount per Share equal to the
Exercise Price, upon the terms and subject to the conditions herein
contained.
2.2 Subject to Sections 2.6, 2.7 and 3.1 hereof, the Participant shall have
the right, at any time prior to 5:00 p.m. (Eastern Standard Time) on
the fifth anniversary date hereof, being February 18, 1997 (provided
that if such day is not a day on which the Company is open for business
then on the first following day on which the Company is open for
business) to exercise this option for any number of the Optioned Shares
up to the maximum number of Shares specified in Section 2.1 above.
2.3 The option may be exercised by the Participant or by her executors or
personal representatives in the circumstances described in Section 4.1
by providing to the Company notice in writing in the form of Schedule A
hereto setting out the number of Optioned Shares with respect to which
the option is being exercised. The notice must be accompanied by a
certified check, official bank cashier's check or money order in an
amount equal to the
1
<PAGE> 2
Exercise Price multiplied by the number of Shares requested and a duly
executed copy of this Agreement.
2.4 The Company shall cause its registrar and transfer agent to deliver to
the Participant as soon as practicable after receipt of such notice and
payment a certificate or certificates registered in the name of the
Participant or as the Participant may direct for the number of Shares
with respect to which the option is duly exercised.
2.5 Nothing contained in this Agreement or action taken pursuant hereto
shall obligate the Participant to purchase and/or pay for, or the
Company to issue, any Shares except those Optioned Shares with respect
to which the Participant shall have duly exercised the option to
purchase in accordance with this Agreement.
2.6 Subject to Section 2.7 hereof, the option granted hereunder shall vest
in the following manner:
(a) one-quarter of the option on the first anniversary of the day
immediately preceding the date hereof, being February 17,
1993;
(b) one-quarter of the option on the second anniversary of the day
immediately preceding the date hereof, being February 17,
1994;
(c) one-quarter of the option on the third anniversary of the day
immediately preceding the date hereof, being February 17,
1995; and
(d) one-quarter of the option on the fourth anniversary of the day
immediately preceding the date hereof, being February 17,
1996;
and, except as provided by Section 6.1, the Participant shall only be
entitled to exercise this option in the amounts set out above and from
and after the dates so specified.
2.7 Notwithstanding anything contained in Section 2.6 hereof, the option
shall continue to vest only so long as the Participant continues to
serve the Company as an officer. Should the Participant cease to serve
in such capacity ("Termination"), no further vesting of the option
shall occur and the provisions of Section 3.1 shall apply with respect
to the exercise of the option to the extent that it has vested and has
not yet been exercised.
2
<PAGE> 3
3.1 EXPIRATION ON TERMINATION
Subject to Section 4.1 hereof, upon Termination, such part of the
option as is then vested but unexercised may be exercised by the
Participant for a period of ninety (90) days after Termination or such
later date as the Board of Directors may approve after which time this
option shall expire; provided, however, that in no event may this
option be exercised after the Expiration Date.
4.1 DEATH OR PERMANENT DISABILITY
In the event that on or prior to the Expiration Date, the Participant
dies or becomes totally and permanently disabled while serving the
Company as an officer, this option, to the extent then vested but
unexercised, may be exercised by the Participant for a period of up to
six (6) months after the death or disability of the Participant;
provided, however, that in no event may this option be exercised after
the Expiration Date. Disability shall be defined as in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended. For the purposes of
this provision only, reference to the Participant in this Agreement
shall be construed as including the executors or personal
representatives of a deceased Participant. In the event that this
option is not exercised within the period of six (6) months set out
above, this option shall expire.
5.1 SUBDIVISION, CONSOLIDATION OR REORGANIZATION
(a) In the event of any subdivision, redivision or change of the Shares
of the Company into a greater number of Shares at any time after the
date of this Agreement and prior to the Expiration Date of this option,
the Company shall deliver at the time of exercise of this option, but
for the same aggregate consideration payable therefor, such additional
number of Shares as the Participant would have been entitled to receive
as a result of such subdivision, redivision or change if on the record
date thereof the Participant had been the registered holder of the
number of such Shares with respect to which the option is later
exercised.
(b) In the event of any consolidation or change of the Shares of the
Company into a lesser number of Shares at any time after the date of
this Agreement and prior to the expiration of this option, the Company
shall deliver at the time of exercise of this option, but for the same
aggregate consideration payable therefor, such reduced number of
Shares, as the Participant would have been entitled to receive upon
such consolidation or change if on the record date thereof the
Participant had been the registered holder of the number of such Shares
with respect to which the option is later exercised.
(c) If at any time after the date of this Agreement and prior to the
expiration of this option, the Shares shall be reclassified or
reorganized, otherwise than as specified in Sections 5.1(a) and (b),
the Participant shall be entitled to receive upon the exercise of this
option and shall accept in lieu of the number of Shares then subscribed
for, but for the same aggregate consideration payable therefor, the
same aggregate number of shares of the appropriate class of shares that
the Participant would have been entitled to receive as a result of such
reclassification or other reorganization of Shares if on the record
date thereof the Participant had been the registered holder of the
number of such Shares with respect to which the option is later
exercised.
6.1 TAKE-OVER BID
If an offeror makes an offer to purchase 50% or more of the outstanding
Shares to substantially all holders of the Shares or, if an insider of
the Company makes an offer to purchase Shares to substantially all
holders of the Shares, and the Board of Directors
3
<PAGE> 4
recommends acceptance of such offer to the shareholders of the Company
and the offer price is greater than the Exercise Price, then this
option, whether or not it has vested in whole or in part, shall become
immediately exercisable. The Participant shall be bound to exercise
this option and to tender the Optioned Shares issued upon exercise of
this option into the offer upon receipt of notice from the Company if
the Company provides an interest-free loan to the Participant in the
amount of the Exercise Price for all of the Optioned Shares issuable
upon exercise of this option, subject to the execution of a security
agreement by the Participant in favor of the Company securing repayment
of the loan.
7.1 NO ASSIGNMENT
The Participant may not assign, transfer, pledge or hypothecate any of
her rights hereunder in any way (whether by operation of law or
otherwise) except by will or by the laws of succession on intestacy
which may apply to the estate of the Participant upon her death. The
option granted herein shall not be subject to execution, attachment or
similar process. Upon any attempt to assign, transfer, pledge,
hypothecate or otherwise dispose of this option contrary to the
provisions hereof, or upon the levy of any attachment or similar
process upon the option granted herein, such option shall immediately
become void.
8.1 GENERAL
(a) Time shall be of the essence of this Agreement.
(b) In this Agreement, words importing the singular number include
the plural and vice versa and words importing the masculine gender
include the feminine and neuter genders.
(c) All notices which may be or are required to be given by one
party to the other party pursuant to this Agreement shall be in writing
and shall be mailed by first class or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery as follows:
4
<PAGE> 5
If to the Company: Deprenyl USA, Inc.
378 Roncesvalles Ave.
Toronto, ON M6R 2M7
CANADA
Attention: Dr. D. Geoffrey Shulman
With a copy to the Corporate Secretary,
c/o Lane and Mantell
991 Route 22 West
Post Office Box 8539
Somerville, New Jersey 08876
If to the Participant: at the address of the Participant from
time to time in the records of the
Company,
or such other address as to which either party may from time to time
notify the other as aforesaid.
9.1 RESTRICTIONS ON TRANSFER
The Participant understands and acknowledges that the option and Shares
underlying the option have not been registered and that they are
subject to certain restrictions on transfer under the Securities Act of
1933 of the United States, as amended, (the "1933 Act"); such
restrictions provide that the Shares may not be sold without
registration or exemption from registration under the 1933 Act; and,
for purposes of the Securities Act (Ontario) (the "Ontario Act"), the
first trade of the Shares issued pursuant to the exercise of the
option, other than a trade exempted by the Ontario Act, will be a
distribution unless the Company has been a reporting issuer for at
least twelve (12) months and the Company is not in default of any
requirement of the Ontario Act, disclosure has been made to the Ontario
Securities Commission of the exempt trade, no unusual effort is made to
prepare the market or create a demand for the Shares, and no
extraordinary commission or consideration is paid with respect to the
trade, provided that such first trade is not from the holdings of a
so-called "control block".
10.1 REPORTING REQUIREMENTS
The Participant understands and acknowledges that she will be subject
to certain reporting requirements upon her receipt and exercise of the
option, and in connection therewith, upon the receipt and exercise of
the option, the Participant agrees to timely file with the Securities
and Exchange Commission, the National Association of Securities
Dealers, Inc., and any appropriate Canadian securities regulatory
authorities, the appropriate documentation regarding her ownership of
the Company's securities.
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto.
Attest: DEPRENYL USA, INC.
a New Jersey corporation
/s/ Edward L. Foster By: /s/ D. Geoffrey Shulman
- -------------------------- ---------------------------------
Edward L. Foster, Treasurer Dr. D. Geoffrey Shulman, President
PARTICIPANT
/s/ Nanette W. Mantell
--------------------------------
Nanette W. Mantell
6
<PAGE> 7
SCHEDULE A
SUBSCRIPTION FORM
To: The Secretary of Deprenyl USA, Inc.
Pursuant to the terms and subject to the conditions set forth in the
Stock Option Agreement (the "Agreement") dated , between Deprenyl USA, Inc. and
the undersigned, I hereby elect to purchase shares of Common Stock of Deprenyl
USA, Inc. I understand that such purchase is subject to all the terms and
conditions of the Agreement. I request that the certificates for such shares of
Common Stock shall be issued in the name of:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
In full payment of the purchase price with respect to the Optioned
Shares exercised, the undersigned hereby tenders payment of $___________ by
certified check or official bank cashier's check or money order payable in
United States or Canadian currency to the order of Deprenyl USA, Inc.
Dated: X
---------------------------------
(Signature)
-------------------------------------
Name (Please Print)
-------------------------------------
(Address)
-------------------------------------
Taxpayer Identification Number
7
<PAGE> 1
Exhibit 99.7
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 1st day of February, 1993 between
DEPRENYL USA, INC., a corporation incorporated under the laws of the State of
New Jersey (hereinafter referred to as the "Company") and NANETTE W. MANTELL, an
individual residing at 827 Star View Way, Bridgewater, New Jersey 08807
(hereinafter referred to as the "Participant").
WITNESSETH:
WHEREAS, the Board of Directors of the Company has determined that in
consideration for services rendered and to be rendered on the Company's behalf
and in order to provide an inducement to the Participant to acquire a
proprietary interest in the Company, it is in the Company's best interest to
grant an option to her to purchase shares of the Company's common stock
("Shares") on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
expressed herein, it is agreed by and between the parties as follows:
1.1 DEFINITIONS
In this Agreement:
"Board of Directors" means the board of directors of the Company;
"Exercise Price" means U.S. $8.375;
"Expiration Date" means 5:00 p.m. (Eastern Standard Time) on the later
of the dates provided in Section 2.2;
"Optioned Shares" means that number of Shares which are subject to the
option granted by the Company to the Participant pursuant to this
Agreement; and
"Shares" means shares of common stock, without par value, of the
Company.
2.1 GRANT OF OPTION
The Company hereby grants to the Participant an option to purchase, in
accordance with the vesting rights outlined in Sections 2.6 and 2.7
hereof, up to 10,000 Shares for an amount per Share equal to the
Exercise Price, upon the terms and subject to the conditions herein
contained.
2.2 Subject to Sections 2.6, 2.7 and 3.1 hereof, the Participant shall have
the right, at any time prior to 5:00 p.m. (Eastern Standard Time) on
the fifth anniversary date hereof, being February 1, 1998 (provided
that if such day is not a day on which the Company is open for business
then on the first following day on which the Company is open for
business) to exercise this option for any number of the Optioned Shares
up to the maximum number of Shares specified in Section 2.1 above.
2.3 The option may be exercised by the Participant or by her executors or
personal representatives in the circumstances described in Section 4.1
by providing to the Company notice in writing in the form of Schedule A
hereto setting out the number of Optioned Shares with respect to which
the option is being exercised. The notice must be accompanied by a
certified check, official bank cashier's check or money order in an
amount equal to the
<PAGE> 2
Exercise Price multiplied by the number of Shares requested and a duly
executed copy of this Agreement.
2.4 The Company shall cause its registrar and transfer agent to deliver to
the Participant as soon as practicable after receipt of such notice and
payment a certificate or certificates registered in the name of the
Participant or as the Participant may direct for the number of Shares
with respect to which the option is duly exercised.
2.5 Nothing contained in this Agreement or action taken pursuant hereto
shall obligate the Participant to purchase and/or pay for, or the
Company to issue, any Shares except those Optioned Shares with respect
to which the Participant shall have duly exercised the option to
purchase in accordance with this Agreement.
2.6 Subject to Section 2.7 hereof, the option granted hereunder shall vest
in the following manner:
(a) one-quarter of the option on the first anniversary of the day
immediately preceding the date hereof, being January 31, 1994;
(b) one-quarter of the option on the second anniversary of the day
immediately preceding the date hereof, being January 31, 1995;
(c) one-quarter of the option on the third anniversary of the day
immediately preceding the date hereof, being January 31, 1996;
and
(d) one-quarter of the option on the fourth anniversary of the day
immediately preceding the date hereof, being January 31, 1997;
and, except as provided by Section 6.1, the Participant shall only be
entitled to exercise this option in the amounts set out above and from
and after the dates so specified.
2.7 Notwithstanding anything contained in Section 2.6 hereof, the option
shall continue to vest only so long as the Participant continues to
serve the Company as an officer. Should the Participant cease to serve
in such capacity ("Termination"), no further vesting of the option
shall occur and the provisions of Section 3.1 shall apply with respect
to the exercise of the option to the extent that it has vested and has
not yet been exercised.
2
<PAGE> 3
3.1 EXPIRATION ON TERMINATION
Subject to Section 4.1 hereof, upon Termination, such part of the
option as is then vested but unexercised may be exercised by the
Participant for a period of ninety (90) days after Termination or such
later date as the Board of Directors may approve after which time this
option shall expire; provided, however, that in no event may this
option be exercised after the Expiration Date.
4.1 DEATH OR PERMANENT DISABILITY
In the event that on or prior to the Expiration Date, the Participant
dies or becomes totally and permanently disabled while serving the
Company as an officer, this option, to the extent then vested but
unexercised, may be exercised by the Participant for a period of up to
six (6) months after the death or disability of the Participant;
provided, however, that in no event may this option be exercised after
the Expiration Date. Disability shall be defined as in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended. For the purposes of
this provision only, reference to the Participant in this Agreement
shall be construed as including the executors or personal
representatives of a deceased Participant. In the event that this
option is not exercised within the period of six (6) months set out
above, this option shall expire.
5.1 SUBDIVISION, CONSOLIDATION OR REORGANIZATION
(a) In the event of any subdivision, redivision or change of the Shares
of the Company into a greater number of Shares at any time after the
date of this Agreement and prior to the Expiration Date of this option,
the Company shall deliver at the time of exercise of this option, but
for the same aggregate consideration payable therefor, such additional
number of Shares as the Participant would have been entitled to receive
as a result of such subdivision, redivision or change if on the record
date thereof the Participant had been the registered holder of the
number of such Shares with respect to which the option is later
exercised.
(b) In the event of any consolidation or change of the Shares of the
Company into a lesser number of Shares at any time after the date of
this Agreement and prior to the expiration of this option, the Company
shall deliver at the time of exercise of this option, but for the same
aggregate consideration payable therefor, such reduced number of
Shares, as the Participant would have been entitled to receive upon
such consolidation or change if on the record date thereof the
Participant had been the registered holder of the number of such Shares
with respect to which the option is later exercised.
(c) If at any time after the date of this Agreement and prior to the
expiration of this option, the Shares shall be reclassified or
reorganized, otherwise than as specified in Sections 5.1(a) and (b),
the Participant shall be entitled to receive upon the exercise of this
option and shall accept in lieu of the number of Shares then subscribed
for, but for the same aggregate consideration payable therefor, the
same aggregate number of shares of the appropriate class of shares that
the Participant would have been entitled to receive as a result of such
reclassification or other reorganization of Shares if on the record
date thereof the Participant had been the registered holder of the
number of such Shares with respect to which the option is later
exercised.
6.1 TAKE-OVER BID
If an offeror makes an offer to purchase 50% or more of the outstanding
Shares to substantially all holders of the Shares or, if an insider of
the Company makes an offer to purchase Shares to substantially all
holders of the Shares, and the Board of Directors
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<PAGE> 4
recommends acceptance of such offer to the shareholders of the Company
and the offer price is greater than the Exercise Price, then this
option, whether or not it has vested in whole or in part, shall become
immediately exercisable. The Participant shall be bound to exercise
this option and to tender the Optioned Shares issued upon exercise of
this option into the offer upon receipt of notice from the Company if
the Company provides an interest-free loan to the Participant in the
amount of the Exercise Price for all of the Optioned Shares issuable
upon exercise of this option, subject to the execution of a security
agreement by the Participant in favor of the Company securing repayment
of the loan.
7.1 NO ASSIGNMENT
The Participant may not assign, transfer, pledge or hypothecate any of
her rights hereunder in any way (whether by operation of law or
otherwise) except by will or by the laws of succession on intestacy
which may apply to the estate of the Participant upon her death. The
option granted herein shall not be subject to execution, attachment or
similar process. Upon any attempt to assign, transfer, pledge,
hypothecate or otherwise dispose of this option contrary to the
provisions hereof, or upon the levy of any attachment or similar
process upon the option granted herein, such option shall immediately
become void.
8.1 GENERAL
(a) Time shall be of the essence of this Agreement.
(b) In this Agreement, words importing the singular number include the
plural and vice versa and words importing the masculine gender include
the feminine and neuter genders.
(c) All notices which may be or are required to be given by one party
to the other party pursuant to this Agreement shall be in writing and
shall be mailed by first class or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery as follows:
4
<PAGE> 5
If to the Company: Deprenyl USA, Inc.
378 Roncesvalles Ave.
Toronto, ON M6R 2M7
CANADA
Attention: Dr. D. Geoffrey Shulman
With a copy to the Corporate Secretary,
c/o Lane and Mantell
991 Route 22 West
Post Office Box 8539
Somerville, New Jersey 08876
If to the Participant: at the address of the Participant from time
to time in the records of the Company,
or such other address as to which either party may from time to time
notify the other as aforesaid.
9.1 RESTRICTIONS ON TRANSFER
The Participant understands and acknowledges that the option and Shares
underlying the option have not been registered and that they are
subject to certain restrictions on transfer under the Securities Act of
1933 of the United States, as amended, (the "1933 Act"); such
restrictions provide that the Shares may not be sold without
registration or exemption from registration under the 1933 Act; and,
for purposes of the Securities Act (Ontario) (the "Ontario Act"), the
first trade of the Shares issued pursuant to the exercise of the
option, other than a trade exempted by the Ontario Act, will be a
distribution unless the Company has been a reporting issuer for at
least twelve (12) months and the Company is not in default of any
requirement of the Ontario Act, disclosure has been made to the Ontario
Securities Commission of the exempt trade, no unusual effort is made to
prepare the market or create a demand for the Shares, and no
extraordinary commission or consideration is paid with respect to the
trade, provided that such first trade is not from the holdings of a
so-called "control block".
10.1 REPORTING REQUIREMENTS
The Participant understands and acknowledges that she will be subject
to certain reporting requirements upon her receipt and exercise of the
option, and in connection therewith, upon the receipt and exercise of
the option, the Participant agrees to timely file with the Securities
and Exchange Commission, the National Association of Securities
Dealers, Inc., and any appropriate Canadian securities regulatory
authorities, the appropriate documentation regarding her ownership of
the Company's securities.
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<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto.
Attest: DEPRENYL USA, INC.
a New Jersey corporation
/s/ Edward L. Foster By: /s/ D. Geoffrey Shulman
- ---------------------------------- ----------------------------------
Edward L. Foster, Treasurer Dr. D. Geoffrey Shulman, President
PARTICIPANT
/s/ Nanette W. Mantell
---------------------------
Nanette W. Mantell
6
<PAGE> 7
SCHEDULE A
SUBSCRIPTION FORM
To: The Secretary of Deprenyl USA, Inc.
Pursuant to the terms and subject to the conditions set forth in the
Stock Option Agreement (the "Agreement") dated , between Deprenyl USA, Inc. and
the undersigned, I hereby elect to purchase shares of Common Stock of Deprenyl
USA, Inc. I understand that such purchase is subject to all the terms and
conditions of the Agreement. I request that the certificates for such shares of
Common Stock shall be issued in the name of:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
In full payment of the purchase price with respect to the Optioned
Shares exercised, the undersigned hereby tenders payment of $___________ by
certified check or official bank cashier's check or money order payable in
United States or Canadian currency to the order of Deprenyl USA, Inc.
Dated: X
------------------------------------
(Signature)
-------------------------------------
Name (Please Print)
-------------------------------------
(Address)
-------------------------------------
Taxpayer Identification Number
<PAGE> 1
EXHIBIT 99.8
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 2nd day of August, 1994 between DUSA
PHARMACEUTICALS, INC., a corporation incorporated under the laws of the State of
New Jersey (hereinafter referred to as the "Company") and NANETTE W. MANTELL,
ESQ., an individual residing in the State of New Jersey (hereinafter referred to
as the "Participant").
WITNESSETH:
WHEREAS, the Board of Directors of the Company has determined that in
consideration for services rendered on the Company's behalf and in order to
provide an inducement to the Participant to acquire a proprietary interest in
the Company, it is in the Company's best interest to grant him an option to
purchase Shares on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
expressed herein, it is agreed by and between the parties as follows:
1.1 DEFINITIONS
In this Agreement:
"Board of Directors" means the board of directors of the Company;
"Exercise Price" means U.S.$3.375;
"Expiration Date" means 5:00 p.m. (Eastern Standard Time) on the later
of the dates provided in Section 2.2;
"Optioned Shares" means that number of Shares which are subject to the
option granted by the Company to the Participant pursuant to this
Agreement; and
"Shares" means shares of Common Stock in the share capital of the
Company.
2.1 GRANT OF OPTION
Subject to shareholder approval, the Company hereby grants to the
Participant an option to purchase, in accordance with the vesting
rights outlined in Sections 2.6 and 2.7 hereof, up to 10,000 Shares for
an amount per Share equal to the Exercise Price, upon the terms and
subject to the conditions herein contained. This grant is automatic
pursuant to the Company's Restricted Stock Option Plan and Rule
16b-3(c)(2)(ii) of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended from time to time.
2.2 Subject to Sections 2.6, 2.7 and 3.1 hereof, the Participant shall have
the right, at any time prior to 5:00 p.m. (Eastern Standard Time) on
the tenth anniversary date hereof, being August 2, 2004, provided that
if such day is not a day on which the Company is open for business then
on the first following day on which the Company is open for business,
to exercise this option for any number of the Optioned Shares up to the
maximum number of Shares specified in Section 2.1 above.
2.3 The option may be exercised by the Participant or by his executors or
personal representatives in the circumstances described in Section 4.1
by giving to the Company at
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<PAGE> 2
its registered office notice in writing in the form of Schedule A
hereto setting out the number of Optioned Shares with respect to which
the option is being exercised. The notice must be accompanied by a
certified check, official bank cashier's check or money order in an
amount equal to the Exercise Price multiplied by the number of Shares
requested and a duly executed copy of this Agreement.
2.4 The Company shall cause its registrar and transfer agent to deliver to
the Participant as soon as practicable after receipt of such notice and
payment a certificate or certificates registered in the name of the
Participant or as the Participant may direct for the number of Shares
with respect to which the option is duly exercised.
2.5 Nothing contained in this Agreement or done pursuant hereto shall
obligate the Participant to purchase and/or pay for, or the Company to
issue, any Shares except those Optioned Shares with respect to which
the Participant shall have duly exercised the option to purchase in
accordance with this Agreement.
2.6 Subject to Sections 2.1 and 2.7 hereof, the option granted hereunder
shall vest in the Participant in the following manner:
(a) one-quarter of the option on the first anniversary of the day
immediately preceding the date hereof, being August 1, 1995;
(b) one-quarter of the option on the second anniversary of the
day immediately preceding the date hereof, being August 1,
1996;
(c) one-quarter of the option on the third anniversary of the day
immediately preceding the date hereof, being August 1, 1997;
and
(d) one-quarter of the option on the fourth anniversary of the day
immediately preceding the date hereof, being August 1, 1998;
and, except as provided by Section 6.1, the Participant shall only be
entitled to exercise this option in the amounts set out above and from
and after the dates so specified.
2.7 Notwithstanding anything contained in Sections 2.1 and 2.6 hereof,
options shall continue to vest in the Participant only so long as the
Participant shall continue to serve the Company as a director and/or
officer. Should the Participant cease to serve in such capacity (the
"Termination"), no further options shall vest or become exercisable,
except at the discretion of the Board of Directors, and the provisions
of Section 3.1 shall apply with respect to the exercise of those
options which have already vested in the Participant and have not yet
been exercised. The Board of Directors shall be entitled to determine
if and when Termination has occurred with respect to the Participant.
3.1 EXPIRATION ON TERMINATION
Subject to Section 4.1 hereof, upon Termination, such part of the
option as is then exercisable but unexercised may be exercised by the
Participant for a period of ninety (90) days after Termination or such
later date as the Board of Directors may approve after which time this
option shall expire; provided, however, that in no event may this
option be exercised after the Expiration Date.
4.1 DEATH OR PERMANENT DISABILITY OF EMPLOYEE
In the event that on or prior to the Expiration Date, the Participant
dies or becomes totally and permanently disabled while serving the
Company as a director or officer, this option, to
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<PAGE> 3
the extent then exercisable but unexercised, may be exercised by the
Participant for a period of six (6) months after the death or
disability of the Participant, notwithstanding the Expiration Date. The
Board of Directors shall be entitled to determine if and when a
Participant has become permanently disabled. For the purposes of this
provision only, reference to the Participant in this Agreement shall be
construed as including the executors or personal representatives of a
deceased Participant. In the event that this option is not exercised
within the period of six (6) months set out above, this option shall
expire.
5.1 SUBDIVISION, CONSOLIDATION OR REORGANIZATION
(a) In the event of any subdivision, redivision or change of the Shares
of the Company into a greater number of Shares at any time after the
date of this Agreement and prior to the Expiration Date of this option,
the Company shall deliver at the time of exercise of this option, but
for the same aggregate consideration payable therefor, such additional
number of Shares as the Participant would have been entitled to receive
as a result of such subdivision, redivision or change if on the record
date thereof the Participant had been the registered holder of the
number of such Shares with respect to which the option is later
exercised.
(b) In the event of any consolidation or change of the Shares of the
Company into a lesser number of Shares at any time after the date of
this Agreement and prior to the expiration of this option, the Company
shall deliver at the time of exercise of this option, but for the same
aggregate consideration payable therefor, such reduced number of
Shares, as the Participant would have been entitled to receive upon
such consolidation or change if on the record date thereof the
Participant had been the registered holder of the number of such Shares
with respect to which the option is later exercised.
(c) If at any time after the date of this Agreement and prior to the
expiration of this option, the Shares shall be reclassified or
reorganized, otherwise than as specified in Sections 5.1(a) and (b),
the Participant shall be entitled to receive upon the exercise of this
option and shall accept in lieu of the number of Shares then subscribed
for, but for the same aggregate consideration payable therefor, the
same aggregate number of shares of the appropriate class of shares that
the Participant would have been entitled to receive as a result of such
reclassification or other reorganization of Shares if on the record
date thereof the Participant had been the registered holder of the
number of such Shares with respect to which the option is later
exercised.
6.1 TENDER OFFER
If an offeror makes an offer to purchase 50% or more of the outstanding
Shares to substantially all holders of the Shares or, if an insider of
the Company makes an offer to purchase Shares to substantially all
holders of the Shares, and the Board of Directors recommends acceptance
of such offer to the shareholders of the Company and the offer price is
greater than the Exercise Price, then this option, whether or not it
has vested in whole or in part in the Participant, shall become
immediately exercisable. The Participant shall be bound to exercise
this option and to tender the Optioned Shares issued upon exercise of
this option into the offer upon receipt of notice from the Company if
the Company provides an interest-free loan to the Participant in the
amount of the Exercise Price for all of the Optioned Shares issuable
upon exercise of this option, subject to the execution of a security
agreement by the Participant in favor of the Company securing repayment
of the loan.
7.1 NO ASSIGNMENT
The Participant may not assign, transfer, pledge or hypothecate any of
his rights hereunder in any way (whether by operation of law or
otherwise) except by will or by the laws of
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<PAGE> 4
succession on intestacy which may apply to the estate of the
Participant upon his death. The option granted herein shall not be
subject to execution, attachment or similar process. Upon any attempt
to assign, transfer, pledge, hypothecate or otherwise dispose of this
option contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon the option granted herein, such
option shall immediately become void.
8.1 GENERAL
(a) Time shall be of the essence of this Agreement.
(b) In this Agreement, words importing the singular number include
the plural and vice versa and words importing the masculine gender
include the feminine and neuter genders.
(c) All notices which may be or are required to be given by one
party to the other party pursuant to this Agreement shall be in writing
and shall be mailed by first class or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery as follows:
If to the Company: DUSA Pharmaceuticals, Inc.
6870 Goreway Drive
Mississauga, ON L4V 1P1
CANADA
Attention: Dr. D. Geoffrey Shulman
If to the Participant: Nanette W. Mantell, Esq.
at the address of the Participant
from time to time in the records of
the Company,
or such other address as to which either party may from time to time
notify the other as aforesaid.
9.1 RESTRICTIONS ON TRANSFER
The Participant understands and acknowledges that he is subject to
certain restrictions on transfer under the Securities Act of 1933 of
the United States, as amended, (the "1933 Act") of the Shares issued
pursuant to the exercise of the option; such restrictions provide that
the Shares may not be sold without registration or exemption from
registration under the 1933 Act; and, for purposes of the Securities
Act (Ontario) (the "Ontario Act"), the first trade of such Shares,
other than a trade exempted by the Ontario Act, will be a distribution
unless the Company has been a reporting issuer for at least twelve (12)
months and the Company is not in default of any requirement of the
Ontario Act, disclosure has been made to the Ontario Securities
Commission of the exempt trade, no unusual effort is made to prepare
the market or create a demand for the Shares, and no extraordinary
commission or consideration is paid with respect to the trade, provided
that such first trade is not from the holdings of a so-called "control
block".
10.1 REPORTING REQUIREMENTS
The Participant understands and acknowledges that he may be subject to
certain reporting requirements upon his receipt and exercise of the
option, and in connection therewith, upon the receipt and exercise of
the option, the Participant agrees to timely file with the Securities
and Exchange Commission, the National Association of Securities
Dealers, Inc., and any
4
<PAGE> 5
appropriate Canadian securities regulatory authorities, the appropriate
documentation regarding his ownership of the Company's securities.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto.
Attest: DUSA PHARMACEUTICALS, INC.,
a New Jersey corporation
s/ Edward L. Foster By: /s/ D. Geoffrey Shulman
Edward L. Foster, Treasurer Dr. D. Geoffrey Shulman, President
PARTICIPANT
/s/ Nanette W. Mantell
NANETTE W. MANTELL, ESQ.
5
<PAGE> 6
SCHEDULE A
SUBSCRIPTION FORM
To: The Secretary of DUSA Pharmaceuticals, Inc.
Pursuant to the terms and subject to the conditions set forth in the
Stock Option Agreement (the "Agreement") dated , between DUSA Pharmaceuticals,
Inc. and the undersigned, and Stock Options granted to the undersigned by such
Agreement, I hereby elect to purchase
shares of Common Stock of DUSA Pharmaceuticals, Inc. which were the subject
of such Stock Options. I understand that such purchase is subject to all the
terms and conditions of the Agreement. I request that the certificates for such
shares of Common Stock shall be issued in the name of:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
The undersigned hereby represents and warrants to, and agrees with the
Company as follows:
(a) The Shares are being purchased for the undersigned's own account,
for investment purposes only, and not for the account of any other person, and
not with a view to distribution, assignment, or resale to others, or to
fractionalization in whole or in part and that the offering and sale of the
Shares is intended to be exempt from registration under the Securities Act of
1933 (the "Act"). In furtherance thereof, the undersigned represents, warrants
and agrees as follows: (i) no other person has or will have a direct or indirect
beneficial interest in such Share and the undersigned will not sell,
hypothecate, or otherwise transfer his shares except in accordance with the Act
and applicable state securities laws or unless in the opinion of counsel for the
Company, an exemption from the registration requirements of the Act and such
laws is available; and (ii) the Company is under no obligation to register the
Shares on behalf of the undersigned or to assist the undersigned in complying
with any exemption from registration.
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<PAGE> 7
(b) The undersigned has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of investment in the Company and of making an informed investment
decision.
In full payment of the purchase price with respect to the Stock Options
exercised, the undersigned hereby tenders payment of $___________ by certified
check or official bank cashier's check or money order payable in Canadian or
United States currency to the order of DUSA Pharmaceuticals, Inc.
Dated: X
-----------------------------------
(Signature)
-------------------------------------
Name (Please Print)
-------------------------------------
(Address)
-------------------------------------
Taxpayer Identification Number
7
<PAGE> 1
Exhibit 99.9
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER THE DUSA PHARMACEUTICALS, INC. 1996 OMNIBUS PLAN
THIS AGREEMENT made and entered into as of the 7th day of June, 1996,
by and between DUSA Pharmaceuticals, Inc., a corporation incorporated under the
laws of the State of New Jersey (the "Company"), and NANETTE W. MANTELL, ESQ.,
an individual residing in the State of New Jersey (the "Grantee").
WHEREAS, pursuant to the DUSA Pharmaceuticals, Inc. 1996 Omnibus Plan
(the "Plan"), the Company has determined that its interests will be advanced by
providing an incentive to the Grantee to acquire a proprietary interest in the
Company and, as a shareholder, to share in its success, with added incentive to
work effectively for and in the Company's interest;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereby agree as follows:
SECTION 1
GRANT
1.1 The Company hereby grants to the Grantee, as a matter of
separate agreement and not in lieu of salary or any other
compensation for services, the right and option (the "Option")
to purchase, in accordance with the vesting rights outlined in
Sections 3.1 and 3.6 hereof, up to 10,000 shares of authorized
but unissued Common Stock, without par value ("Common Stock"),
of the Company on the terms and conditions herein set forth in
this Agreement. This grant is automatic pursuant to the Plan.
SECTION 2
PRICE
2.1 The purchase price of the shares of Common Stock subject to
this Option shall be the fair market value of the shares of
Common Stock on the date of the grant ($9.875 PER SHARE)(the
"Exercise Price").
SECTION 3
WHEN EXERCISABLE
3.1 The aggregate number of shares of Common Stock of the Company
optioned by this Agreement (the "Optioned Shares") shall vest
in the Grantee as follows:
(a) one-quarter of the Option on the first anniversary of
the day of the grant, being June 7, 1997;
<PAGE> 2
(b) one-quarter of the Option on the second anniversary
of the day of the grant, being June 7, 1998;
(c) one-quarter of the Option on the third anniversary of
the day of the grant, being June 7, 1999; and
(d) one-quarter of the Option on the fourth anniversary
of the day of the grant, being June 7, 2000;
and, except as provided by Sections 3.6 and 6.3 hereof, the Grantee
shall only be entitled to exercise this Option, in whole or in part, in
the amounts set out above and from and after the dates so specified.
3.2 Subject to Sections 3.1 and 3.6 hereof, the Grantee shall have
the right, at any time prior to 5:00 p.m. (Eastern Standard
Time) on the date prior to the tenth anniversary date hereof,
being June 7, 2006, provided that if such day is not a day on
which the Company is open for business then on the first
following day on which the Company is open for business, to
exercise this Option for any number of the Optioned Shares up
to the maximum number of shares specified in Section 1.1
above.
3.3 No less than one thousand (1,000) shares may be purchased upon
any one exercise of the Option granted hereby unless the
number of shares purchased at such time is the total number of
shares in respect of which the Option hereby granted is then
exercisable.
3.4 In no event shall any Option granted hereby be exercisable for
a fractional share.
3.5 From time to time, in its discretion, the Committee may offer
the Grantee the right to cancel any Option granted hereunder
in exchange for such consideration as the Committee shall
determine.
3.6 Notwithstanding anything contained in Sections 1 and 3.1
hereof, the Option shall continue to vest in the Grantee only
so long as the Grantee shall continue to serve the Company as
an officer or director. Should the Grantee cease to serve in
all such capacities, the provisions of Section 5.2 shall apply
with respect to the vesting and exercise of the Option. The
Board of Directors shall be entitled to determine if and when
employment or service to the Company has ceased with respect
to the Grantee.
2
<PAGE> 3
SECTION 4
HOW EXERCISABLE
4.1 Subject to such administrative regulations as the Committee
may from time to time adopt, the Grantee or beneficiary shall,
in order to exercise this Option give to the Company at its
principal office notice in writing in the form of Schedule A
hereto setting out the number of Optioned Shares with respect
to which the Option is being exercised. The notice must be
accompanied by payment of a certified check, official bank
cashier's check or money order in an amount equal to the
Exercise Price multiplied by the number of shares requested
and a duly executed copy of this Agreement.
4.2 Any notice under this Section shall include an undertaking to
furnish or execute such documents as the Committee in its
discretion shall deem necessary (i) to evidence such exercise,
in whole or in part, of the Option evidenced by this
Agreement, (ii) to determine whether registration is then
required under the Securities Act of 1933, or any other law,
as then in effect, and (iii) to comply with or satisfy the
requirements of the Securities Act of 1933, or any other law,
as then in effect.
4.3 The Grantee agrees that all shares purchased by him or her
under the Option will be acquired for investment, not
distribution, and that any notice of exercise of the Option
must be accompanied by a written representation to that
effect, signed by the Grantee.
SECTION 5
TERMINATION OF OPTION
5.1 The Option granted hereby shall terminate and be of no force
or effect upon the expiration of ten years from the date of
the Grant unless terminated prior to such time as provided
below.
5.2 Subject to Section 3.6 hereof, should the Grantee cease to
serve the Company as an officer or director, the Grantee's
Option shall be exercised as follows:
(a) If the Grantee's termination of employment or service is
other than for Cause, the Option may be exercised, to the
extent exercisable, for a period of three months after the
date of such termination of employment;
(b) If the Grantee's termination of employment or service is
by reason of retirement or disability, the Option may be
exercised, to the extent exercisable, for a period of 12
months after the date of such termination;
(c) In the event of death of the Grantee after termination of
employment or service pursuant to (b) or (c) above, the person
or persons to whom the Grantee's rights are transferred by
will or the laws of descent and distribution shall have a
period of three years from the date of termination of the
Grantee's employment or service to exercise the Option which
could have been
3
<PAGE> 4
exercised during such period; and
(d) In the event of death of the Grantee while employed, the
Option shall become fully and immediately exercisable and may
be exercised by the person or persons to whom the Grantee's
rights are transferred by will or the laws of descent and
distribution for a period of three years after the Grantee's
death, subject to exercise during the remaining term of the
Option;
5.3 Any determination made by the Committee with respect to any
matter referred to in this Section 5 shall be final and
conclusive on all persons affected thereby. Employment by, or
service to, the Company shall be deemed to include employment
by, or service to, any subsidiary of the Company by the
Grantee.
SECTION 6
ADJUSTMENTS TO OPTION
6.1 Subject to any required action by the Committee and
shareholders, the number of shares provided for in the Option,
the price per share thereof and the number of shares provided
for in the Plan shall be proportionately adjusted for any
increase or decrease in the number of issued shares of the
Company resulting from the payment of a share dividend, a
share split or any transaction which is a "corporate
transaction" (as defined in the Treasury regulations
promulgated under Section 424 of the Code.
6.2 Subject to any required action by the Committee and
shareholders, if the Company shall be the surviving entity in
any merger or consolidation, or after a consolidation of the
Company and one or more entities in which the resulting entity
is an independent entity, the Option shall pertain to and
apply to the securities of the surviving entity in an amount
that the board of directors of the surviving entity, at its
sole discretion, determines to be equivalent, as nearly as
practicable, to the nearest whole number and class of shares
that were subject to the Option. These shares of stock or
other securities shall, after such merger or consolidation, be
deemed to be shares for all purposes of the Plan. The
aforesaid adjustments, when applicable, shall be made by the
Committee, and the Committee's determination shall be final,
binding and conclusive.
6.3 In the event of a Change of Control (as defined below), any
and all outstanding Options not fully vested shall
automatically vest in full and shall be immediately
exercisable. The date on which such accelerated vesting and
immediate exercisability shall occur shall be the date of the
occurrence of the Change of Control.
A "Change of Control" shall be deemed to have taken place upon
(i) the acquisition by a third person, including a "group" as
defined in Section
4
<PAGE> 5
13(d)(3) of the Securities Exchange Act of 1934, as amended,
of shares of the Company having 50% or more of the total
number of votes that may be cast for the election of Directors
of the Company; (ii) shareholder approval of a transaction for
the acquisition of the Company, or substantially all of its
assets by another entity or for a merger, reorganization,
consolidation or other business combination to which the
Company is a part; or (iii) the election during any period of
24 months or less of 50% or more of the Directors of the
Company where such Directors were not in office immediately
prior to such period provided, however, that no "Change of
Control" shall be deemed to have taken place if the Directors
of the Company in office on the date of adoption of the Plan,
or their successors in office nominated by such Directors,
affirmatively approve a resolution to such effect.
Except as provided with respect to a Grantee in his or her
stock option agreement or other controlling agreement between
him or her and the Company, to the extent that the
acceleration, exercisability or parachute payment attributable
to the Option following a Change of Control would result in
"excess parachute payments"1 when the former are aggregated
with other payments or benefits to the Grantee (whether or not
payable by the Plan), such parachute payments or benefits
provided to a Grantee under this Agreement shall be reduced to
the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 4999 of the Code.
This reduction will only be made if it will cause the
Grantee's net after-tax benefit to exceed the net after-tax
benefit that would have existed if such reduction were not
made. "Net after-tax benefit" shall be the sum of (i) all
payments and benefits which a Grantee receives or is entitled
to receive that would constitute a "parachute payment" under
Section 280G of the Code, less (ii) the amount of federal
income taxes payable with respect to the payments and benefits
described in (i) above, calculated at the maximum marginal
income tax rate2 for the year in which such payments and
benefits shall be paid to the Grantee, less (iii) the amount
of excise taxes imposed with respect to the payments and
benefits described in (i) above by Section 4999 of the Code.
6.4 In the event of a change in the Company's shares which is
limited to a change of all of its authorized shares with par
value into the same number of shares with a different par
value or without par value, the shares resulting from any such
change shall be deemed to be shares within the meaning of the
Plan.
6.5 Except as herein before expressly provided in Paragraphs 6.1,
6.2, 6.3, and 6.4 of this Section 6, the Grantee shall have no
rights by reason of any subdivision or consolidation of shares
of any class or payment of any share dividend or any other
increase or decrease in the number of shares of any class or
by reason of any dissolution, liquidation, merger,
consolidation or
- ------------------------
1"Excess parachute payments" are defined in Section 280G of the Code
and are determined by tax counsel of the Company.
2"This rate is based on the rate for the year set forth in the Code at
the time of the first payment to the participant.
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spin-off of assets or stock of another corporation and any
issuance by the Company of shares of any class, or securities
convertible into shares of any class, shall not affect the
Option, and no adjustment by reason thereof shall be made with
respect to the number or price of the Company's shares subject
to the Option. The grant of the Option shall not affect in any
way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any part of its business or
assets.
SECTION 7
TRANSFER
7.1 This Option shall not be transferable by the Grantee in any
way other than by will and the laws of descent and
distribution. During the lifetime of the Grantee, the Option
shall be exercisable only by him or her. Any other attempted
assignment, transfer, pledge, hypothecation or other
disposition of the Option shall be void and have no effect
unless in accordance with the terms set forth herein.
SECTION 8
WITHHOLDING TAXES
8.1 The Company shall have the right to retain and withhold from
any payment, under the Option granted, any amount that is to
be withheld or otherwise deducted and paid with respect to
such payment. At its discretion, the Company may require the
Grantee, if he or she receives shares under a nonqualified
stock option grant, to reimburse the Company for any taxes
that are required to be withheld by the Company, and may
withhold any distribution in whole or in part until the
Company is so reimbursed. In lieu thereof, the Company shall
have the right to withhold from any other cash amounts due (or
to become due) to the Grantee an amount equal to such taxes
required to be withheld by the Company to reimburse the
Company for any such taxes, or the Company may retain and
withhold a number of shares of Common Stock having a market
value not less than the amount of such taxes and cancel (in
whole or in part) any shares of Common Stock so withheld in
order to reimburse the Company for any such taxes.
SECTION 9
IMPACT ON OTHER BENEFITS
9.1 The value of the Option (either on the date of grant of the
Option or at the time the shares are vested) shall not be
includable as compensation or earnings for purposes of any
other benefit plan offered by the Company.
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SECTION 10
ADMINISTRATION
10.1 The Committee shall have full authority and discretion
(subject only to the express provisions of the 1996 Omnibus
Plan) to decide all matters relating to the administration and
interpretation of the Plan and this Agreement. All such
Committee determinations shall be final, conclusive and
binding upon the Company, the Grantee and any and all
interested parties.
SECTION 11
AGREEMENT TO CONTINUE IN EMPLOYMENT
OR SERVICE AS A CONSULTANT
11.1 Nothing in the Plan or this Agreement shall confer on a
Grantee any right to continue in the employ of the Company or
in the service of the Company as a consultant or interfere in
any way with the right of the Company to terminate his or her
employment or consultantship at any time.
SECTION 12
AMENDMENT(S)
12.1 This Agreement shall be subject to the terms of the Plan as
amended except that the Option that is the subject of this
Agreement may not in any way be amended or terminated without
the Grantee's written consent.
SECTION 13
FORCE AND EFFECT
13.1 The various provisions of this Agreement are severable in
their entirety. Any determination of invalidity or
unenforceability of any one provision shall have no effect on
the continuing force and effect of the remaining provisions.
SECTION 14
NOTICE OF DISPOSITION OF SHARES
14.1 The Grantee agrees that if he or she should dispose of any
shares of Common Stock acquired on the exercise of the Option,
including a disposition by sale, exchange, gift or transfer of
legal title within six months of the date such shares are
transferred to the Grantee, the Grantee will notify the
Company promptly of such disposition.
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SECTION 15
NOTICES
15.1 All notices which may be or are required to be given by one
party to the other party pursuant to this Agreement shall be
in writing and shall be mailed by first class or certified
mail, return receipt requested, postage prepaid, or
transmitted by hand delivery as follows:
If to the Company: DUSA Pharmaceuticals, Inc.
6870 Goreway Drive
Mississauga, ON L4V 1P1
CANADA
Attention: Dr. D. Geoffrey Shulman
If to the Grantee: Nanette W. Mantell
at the address of the Participant from
time to time in the records of the
Company,
or such other address as to which either party may from time
to time notify the other as aforesaid.
SECTION 16
RESTRICTIONS ON TRANSFER
16.1 The Grantee understands and acknowledges that he is subject to
certain restrictions on transfer under the Securities Act of
1933 of the United States, as amended, (the "1933 Act") of the
shares issued pursuant to the exercise of the Option; such
restrictions provide that the shares may not be sold without
registration or exemption from registration under the 1933
Act; and, for purposes of the Securities Act (Ontario) (the
"Ontario Act"), the first trade of such shares, other than a
trade exempted by the Ontario Act, will be a distribution
unless the Company has been a reporting issuer for at least
twelve (12) months and the Company is not in default of any
requirement of the Ontario Act, disclosure has been made to
the Ontario Securities Commission of the exempt trade, no
unusual effort is made to prepare the market or create a
demand for the shares, and no extraordinary commission or
consideration is paid with respect to the trade, provided that
such first trade is not from the holdings of a so-called
"control block".
SECTION 17
REPORTING REQUIREMENTS
17.1 The Grantee understands and acknowledges that he may be
subject to certain reporting requirements upon his receipt and
exercise of the Option, and in connection therewith, upon the
receipt and exercise of the Option, the Grantee agrees to
timely file with the Securities and Exchange Commission, the
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National Association of Securities Dealers, Inc., and any
appropriate Canadian securities regulatory authorities, the
appropriate documentation regarding his ownership of the
Company's securities.
SECTION 18
GOVERNING LAW
18.1 This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto.
Attest: DUSA PHARMACEUTICALS, INC.,
a New Jersey Corporation
/s/ Anthony Schincariol By: /s/ D. Geoffrey Shulman
- ---------------------------------- ------------------------------
Anthony Schincariol, Dr. D. Geoffrey Shulman,
Vice President President
GRANTEE
/s/ Nanette W. Mantell
------------------------------------
Nanette W. Mantell
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<PAGE> 10
SCHEDULE A
SUBSCRIPTION FORM
To: The Secretary of DUSA Pharmaceuticals, Inc.
Pursuant to the terms and subject to the conditions set forth in the
Nonqualified Stock Option Agreement (the "Agreement") dated , between DUSA
Pharmaceuticals, Inc. and the undersigned, and the Option granted to the
undersigned by such Agreement, I hereby elect to purchase shares of Common Stock
of DUSA Pharmaceuticals, Inc. which were the subject of such Option. I
understand that such purchase is subject to all the terms and conditions of the
Agreement. I request that the certificates for such shares of Common Stock shall
be issued in the name of:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
The undersigned hereby represents and warrants to, and agrees with the
Company as follows:
(a) The shares are being purchased for the undersigned's own account,
for investment purposes only, and not for the account of any other person, and
not with a view to distribution, assignment, or resale to others, or to
fractionalization in whole or in part and that the offering and sale of the
shares is intended to be exempt from registration under the Securities Act of
1933 (the "Act"). In furtherance thereof, the undersigned represents, warrants
and agrees as follows: (i) no other person has or will have a direct or indirect
beneficial interest in such shares and the undersigned will not sell,
hypothecate, or otherwise transfer his shares except in accordance with the Act
and applicable state securities laws or unless in the opinion of counsel for the
Company, an exemption from the registration requirements of the Act and such
laws is available; and (ii) the Company is under no obligation to register the
shares on behalf of the undersigned or to assist the undersigned in complying
with any exemption from registration.
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(b) The undersigned has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of investment in the Company and of making an informed investment
decision.
In full payment of the purchase price with respect to the Option
exercised, the undersigned hereby tenders payment of $___________ by certified
check or official bank cashier's check or money order payable in Canadian or
United States currency to the order of DUSA Pharmaceuticals, Inc.
Dated: X
----------------------------------------
(Signature)
-----------------------------------------
Name (Please Print)
-----------------------------------------
(Address)
-----------------------------------------
Taxpayer Identification Number
12
