As Filed With the Securities and Exchange Commission on November 12, 1997
Registration No. 333-38773
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------
SCICLONE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
California 94-3116852
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
-------------------
901 Mariners Island Boulevard
San Mateo, California 94404
(650) 358-3456
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-------------------
Donald R. Sellers
President and Chief Executive Officer
SciClone Pharmaceuticals, Inc.
901 Mariners Island Boulevard
San Mateo, California 94404
(650) 358-3456
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
Copies to:
J. HOWARD CLOWES, ESQ. JAMES R. TANENBAUM, ESQ.
DIANNE B. SALESIN, ESQ. Stroock & Stroock & Lavan LLP
JOHN M. FOGG, ESQ. 180 Maiden Lane
Gray Cary Ware & Freidenrich New York, New York 10038
A Professional Corporation
400 Hamilton Avenue
Palo Alto, California 94301
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
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: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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: [ ]
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
PROSPECTUS ____________, 1997
- --------------------------------------------------------------------------------
1,500,000 Shares
SCICLONE PHARMACEUTICALS, INC.
Common Stock
SciClone Pharmaceuticals, Inc. ("SciClone" or the "Company") is offering
1,500,000 shares (the "Shares") of its Common Stock, no par value (the "Common
Stock"). The Common Stock is traded on the Nasdaq National Market under the
symbol "SCLN." On November 10, 1997, the last sale price of the Common Stock, as
reported on the Nasdaq National Market, was $5.03 per share.
----------------
See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by prospective purchasers of the Shares offered
hereby.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Proceeds to
Price to Public Placement Agent Fees(1) Company(2)(3)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
-----------------------------------------------------------------------------------------------------------------
Total....................................... $ $ $
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<FN>
(1) The Shares are being offered by the Company principally to selected
institutional investors. EVEREN Securities, Inc. (the "Placement Agent")
has been retained to act, on a best efforts basis, as placement agent for
the Company in connection with the arrangement of this transaction. The
Company has agreed (i) to pay the Placement Agent a fee in connection with
the arrangement of this financing, (ii) to reimburse the Placement Agent
for certain out-of-pocket expenses, and (iii) to indemnify the Placement
Agent against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See "Plan of
Distribution."
(2) The termination date of this offering of Shares is , 1997 (the "Termination
Date"). Prior to the closing of this best efforts offering, all investor
funds will be placed promptly in escrow with Citibank, N.A., as escrow
agent (the "Escrow Agent"), in an escrow account established for the
benefit of the investors. Upon receipt of notice from the Escrow Agent that
investors have affirmed purchase of the Shares and deposited the requisite
funds in the escrow account, the Company will deposit with The Depository
Trust Company the Shares to be credited to the accounts of the investors
and will collect the investor funds from the Escrow Agent. In the event
that investor funds are not received in an amount sufficient to satisfy the
requirements of this offering on or before the Termination Date, all funds
deposited in the escrow account will be returned promptly to the investors.
See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $225,000.
</FN>
</TABLE>
EVEREN Securities, Inc.
<PAGE>
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE
TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY THE PLACEMENT AGENT THAT WOULD
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED,
OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS
COMES ARE REQUIRED BY THE COMPANY AND THE PLACEMENT AGENT TO INFORM THEMSELVES
ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE SHARES AND THE
DISTRIBUTION OF THIS PROSPECTUS.
IN THIS PROSPECTUS REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS, AND THE TERMS "UNITED STATES" AND "U.S." MEAN THE UNITED STATES OF
AMERICA, ITS STATES, ITS TERRITORIES, ITS POSSESSIONS AND ALL AREAS SUBJECT TO
ITS JURISDICTION.
THE SHARES MAY NOT BE OFFERED OR SOLD IN THE UNITED KINGDOM OTHER THAN TO
PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING
OR DISPOSING OR INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR
BUSINESS OR OTHERWISE IN CIRCUMSTANCES THAT DO NOT CONSTITUTE AN OFFER TO THE
PUBLIC IN THE UNITED KINGDOM WITHIN THE MEANING OF THE PUBLIC OFFERS OF
SECURITIES REGULATION 1995.
THIS PROSPECTUS IS FOR DISTRIBUTION IN THE UNITED KINGDOM ONLY TO PERSONS
WHO ARE OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1986
(INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996. IT MAY NOT BE COPIED OR
DISTRIBUTED OR OTHERWISE MADE AVAILABLE BY ANY RECIPIENT IN THE UNITED KINGDOM
WITHOUT THE EXPRESS CONSENT OF EVEREN SECURITIES, INC.
The names ZADAXIN, SCICLONE and the SCICLONE logo are registered
trademarks of the Company in the U.S. These trademarks have also been registered
in numerous foreign countries and applications to register these trademarks have
been filed in certain other foreign countries. All other trademarks appearing in
this Prospectus are the property of their respective owners.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following Regional Offices of the Commission: Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material may be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a web site that contains reports,
proxy and information statements, and other information regarding registrants
that file electronically with the Commission. The Commission web site address is
(http//www.sec.gov). The Company's Common Stock is traded on the Nasdaq National
Market. Reports and other information concerning the Company can also be
inspected at the offices of the Nasdaq Stock Market at 1735 K Street N.W.,
Washington D.C. 20006-1500.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act, of which this Prospectus constitutes a part, with
respect to the Shares offered hereby. The Registration Statement, including
exhibits and schedules thereto, may be obtained from the Commission's principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20459, upon
payment of the fees prescribed by the Commission. Statements contained in this
Prospectus as to the contents of any document referred to are not necessarily
complete and in each instance reference is made to the copy of the appropriate
document filed as an exhibit to, or incorporated by reference into, the
Registration Statement, each statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are hereby incorporated by reference into this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997.
(c) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997.
(d) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997.
(e) The Company's Current Report on Form 8-K filed on October 14, 1997.
(f) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A dated January 31, 1992.
(g) The description of the Company's Preferred Stock Purchase Rights
attached to each share of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A dated October 14, 1997.
All documents filed by the Company after the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
the termination of the offering hereunder shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request, a copy of any or all
of the documents incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to SciClone
Pharmaceuticals, Inc. at 901 Mariners Island Boulevard, San Mateo, California
94404 (telephone number (650) 358-3456), Attention: Secretary.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus or incorporated herein by reference. The material
herein contains certain forward-looking statements, including; (i) statements
regarding the application of ZADAXIN thymosin alpha 1 in disease areas beyond
chronic hepatitis B; (ii) the use of CPX as a potential chronic therapy for
cystic fibrosis; (iii) the potential for regulatory approvals of ZADAXIN and the
launching of ZADAXIN in additional markets; (iv) the Company's expectations
regarding increases in revenues from ZADAXIN and increases in marketing and
research and development expense levels; and (v) the Company's intent to
commence preclinical development of certain compounds. These statements are
subject to certain risks and uncertainties. These risks and uncertainties
include: (i) reliance by the Company on a single product, ZADAXIN, for its
revenues; (ii) the absence of regulatory approval for ZADAXIN in significant
markets; (iii) the expensive, time consuming and uncertain regulatory approval
process; (iv) risks associated with the manufacture and supply of ZADAXIN; (v)
competition from competing therapies; and (vi) uncertainties regarding the
outcome of the Company's efforts to commercialize additional products, as well
as other risks and uncertainties described herein and in the Company's reports
filed with the Commission.
The Company
The Company is an emerging pharmaceutical company that acquires, develops,
and commercializes specialist-oriented (e.g., hepatologists, oncologists and
pulmonologists), proprietary drugs for treating chronic and life-threatening
diseases for which there are no adequate treatment modalities, including chronic
hepatitis B, chronic hepatitis C, cancer, immune system disorders and cystic
fibrosis. The Company currently has two products in clinical development,
ZADAXIN thymosin alpha 1 and CPX, as well as several preclinical candidates.
ZADAXIN, a synthetic immunomodulator (i.e., immune system regulator), is
the Company's lead product. In the United States and Europe, the Company is
developing ZADAXIN in combination with interferon for the treatment of chronic
hepatitis C. The Company is currently exploring collaborative arrangements for
the development of ZADAXIN in these territories. In Japan, the Company has
licensed exclusive rights to ZADAXIN to Schering-Plough K.K. ("SPKK"), the
Japanese subsidiary of Schering-Plough Corporation, the world's leading marketer
of viral hepatitis therapies. SPKK has completed phase 1 and phase 2 clinical
studies of ZADAXIN for the treatment of chronic hepatitis B. SPKK is expected to
commence a pivotal phase 3 study of ZADAXIN in chronic hepatitis B in the fourth
quarter of 1997. In November 1997, the Company announced that SPKK has commenced
the enrollment of patients in a phase 2 study of thymosin alpha 1 as a
monotherapy for hepatitis C, as required by the Japanese Ministry of Health and
Welfare (MOHW) for approval of the drug for the treatment of hepatitis C. SPKK
is also working to satisfy MOHW requirements to begin a clinical program to
study the use of its INTRON A(R) (interferon alfa - 2b) and ZADAXIN as a
combination therapy for hepatitis C. ZADAXIN is currently approved and being
marketed for chronic hepatitis B in China, the Philippines and Singapore.
Furthermore, the Company has filed for approval to market ZADAXIN for this
indication in 14 additional countries in Asia, Latin America and the Middle
East. SciClone licensed thymosin alpha 1 from Alpha 1 Biomedicals ("Alpha 1")
and has worldwide marketing, development and manufacturing rights with the
exception of Japan, Italy, Spain and Portugal, where rights have been
sublicensed. Chronic hepatitis B is the second most common chronic infectious
disease worldwide. The World Health Organization estimates that approximately
350 million individuals worldwide, or 5% of the world's population, are carriers
of the virus, the majority of whom are located in Asia.
CPX, the Company's second product in clinical development, is an orally
administered synthetic compound discovered by the United States National
Institutes of Health ("NIH") as a potential treatment for cystic fibrosis
("CF"). CF is caused by a mutation in the cystic fibrosis transmembrane
conductance regulator ("CFTR") gene. CPX is an orally administered compound that
targets the biochemical abnormality at the root cause of CF, the malfunctioning
CFTR protein. In vitro studies from the NIH have shown that CPX binds to the
CFTR and permits the CFTR to enhance the performance of its chloride secretion
function. In October 1997, Dr. Harvey Pollard of the Uniform Services University
of Health Services and formerly of the NIH, presented preclinical data
demonstrating that CPX is the only CF drug in clinical development that can
correct the two fundamental problems caused by the most common genetic defect in
CF patients, abnormal trafficking and impaired chloride ion transport. The
Company obtained orphan drug status for CPX from the United States Food and Drug
Administration ("FDA") in April 1997 and was awarded a phase 1 Orphan Drug
4
<PAGE>
Grant from the FDA in October 1997. The Company is currently conducting a
multicenter phase 1 clinical study in the U.S. involving patients with CF.
SciClone's phase 1 program for CPX is the first to attempt to measure both sweat
chloride and nasal epithelial transmembrane potential difference ("NEPD") in a
multicenter trial. The Cystic Fibrosis Foundation supported SciClone in its
Investigational New Drug ("IND") filing with the FDA to gain approval to begin
the testing of CPX directly in CF patients rather than the normal process of
testing first in healthy, normal volunteers.
The Company has additional compounds under license. During the first
quarter of 1998, the Company plans to commence preclinical development of one of
these compounds. Targeted indications for this compound include epilepsy, to be
studied at the NIH, and multiple drug resistance in cancer, to be studied at the
U.S. National Cancer Institute. The Company also plans to evaluate activity of
certain of its other preclinical candidates in 1998.
Internationally, SciClone has entered into over 25 exclusive distribution
arrangements to register and market ZADAXIN. The Company intends to out-license
its products where a collaborative arrangement will materially enhance the
prospects for a drug's commercial success, such as the Company's license with
SPKK for exclusive rights to develop and market ZADAXIN in Japan. The Company is
currently seeking a collaborative arrangement in the U.S. and Europe for the
phase 3 development of ZADAXIN in chronic hepatitis C. The Company intends to
source ZADAXIN, CPX and any future products through contract manufacturing and
supply agreements. The Company has entered into supply agreements in the U.S.
and Europe for the supply of bulk and finished product thymosin alpha 1. The
Company currently contracts with a major U.S. pharmaceutical company for the
supply of bulk CPX and another U.S. pharmaceutical manufacturer for the
finishing of CPX.
The Company was incorporated in California in 1990. Its principal
executive offices are located at 901 Mariners Island Boulevard, San Mateo,
California 94404, and its telephone number is (650) 358-3456. The Company's
international operating subsidiary, SciClone Pharmaceuticals International Ltd.
("SciClone International"), is incorporated in the Cayman Islands and
headquartered in Hong Kong. The Company also has office locations in Singapore,
Taiwan and Japan.
5
<PAGE>
<TABLE>
The Offering
<CAPTION>
<S> <C>
Common Stock offered hereby................................... 1,500,000 shares
Common Stock outstanding after this offering.................. 18,539,486 shares (1) (4)
Use of Proceeds............................................... For the continued development of ZADAXIN and
CPX. See "Use of Proceeds."
Nasdaq National Market Symbol................................. SCLN
</TABLE>
<TABLE>
Summary Consolidated Financial Data
(In thousands, except per share data)
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------- ---------------------
1994 1995 1996 1996 1997
---------- --------- --------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations
Data:
Product sales.......................... $ --- $ 273 $ 703 $ 401 $ 1,967
Cost of product sales.................. --- 737 740 555 788
---------- --------- --------- ---------- ----------
Gross profit .......................... --- (464) (37) (154) 1,179
Operating expenses:
Research and development............ 9,282 10,387 9,904 7,613 6,469
Special research and development
charges(2)......................... 3,470 --- --- --- ---
Marketing........................... 4,375 4,323 4,240 3,148 2,997
General and administrative.......... 3,811 2,904 3,183 2,341 2,650
---------- --------- --------- ---------- ----------
Total operating expenses...... 20,938 17,614 17,327 13,102 12,116
---------- --------- --------- ---------- ----------
Interest and investment income, net.... 3,057 3,303 2,618 2,016 1,205
---------- --------- --------- ---------- ----------
Net loss............................... $ (17,881) $ (14,775) $ (14,746) $ (11,240) $ (9,732)
=========== ========== ========== =========== ===========
Net loss per share..................... $ (1.02) $ (0.88) $ (0.85) $ (0.65) $ (0.56)
========== ========== ========== ========== ==========
Weighted average shares used in
computing per share amounts......... 17,508 16,882 17,421 17,360 17,245
========== ========== ========== ========== ==========
</TABLE>
September 30, 1997
------------------------------
Actual As Adjusted(3)
------ --------------
(Unaudited)
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments............ $15,205 $21,999
Working capital................................... 8,032 14,826
Total assets...................................... 22,000 28,794
Accumulated deficit............................... (81,084) (81,084)
Total shareholders' equity........................ 18,608 25,402 (4)
(1) Based upon 17,039,486 shares outstanding as of September 30, 1997. Excludes
options and warrants outstanding as of September 30, 1997 to purchase
3,109,236 shares of Common Stock at a weighted average exercise price of
$5.76 per share.
(2) Special research and development charges in fiscal 1994 represent
in-process technology charges related to the acquisition of the U.S. and
European rights to thymosin alpha 1 from Alpha 1.
(3) Adjusted to reflect the sale by the Company of 1,500,000 Shares offered
hereby at an assumed price of $5.03 per share, the last sale price of the
Common Stock as reported by the Nasdaq National Market on November 10,
1997, after deduction of commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."
(4) Pursuant to a July 1997 agreement between the Company and a principal
shareholder of the Company, such shareholder pledged 1,882,500 shares of
Common Stock (the "Pledged Shares") as security for a $5,944,000 loan from
the Company (the "Shareholder Loan") which has been recorded as an offset
to shareholders' equity at September 30, 1997. Immediately prior to the
consummation of any offering, the Company may elect to cancel, through a
non-cash exchange, a number of the Pledged Shares in partial or complete
satisfaction of the Shareholder Loan, including accrued interest. The
number of the Pledged Shares to be so canceled would be determined by
reference to the price of the shares to be sold in such offering less
permitted discounts. If the Company elects to exercise such option,
immediately prior to the closing of this offering, in full satisfaction of
the Shareholder Loan and accrued interest then, assuming a price of $5.03
per share less permitted discounts, the Company would cancel 1,547,157 of
the Pledged Shares, and Common Stock outstanding after this offering and
total shareholders' equity, as adjusted, would be 16,992,329 and
$25,355,000, respectively. See "Recent Developments."
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider the following risk factors in evaluating the Company
and its business before purchasing any of the Shares offered hereby. The
material herein contains certain forward-looking statements, including: (i)
statements regarding the application of ZADAXIN in disease areas beyond chronic
hepatitis B; (ii) the use of CPX as a therapeutic treatment for cystic fibrosis;
(iii) the potential for regulatory approvals of ZADAXIN and the launching of
ZADAXIN in additional markets; (iv) the Company's expectations regarding
increases in revenues from ZADAXIN and increases in marketing and research and
development expense levels; and (v) the Company's intent to commence preclinical
development of certain compounds. These statements are subject to certain risks
and uncertainties. These risks and uncertainties include: (i) reliance on a
single product, ZADAXIN, for its revenues; (ii) the absence of regulatory
approval for ZADAXIN in significant markets; (iii) the expensive, time consuming
and uncertain regulatory approval process; (iv) risks associated with the
manufacture and supply of ZADAXIN; (v) competition from competing therapies; and
(vi) uncertainties regarding the outcome of the Company's efforts to
commercialize additional products, as well as other risks and uncertainties
described herein and in the Company's reports filed with the Commission.
Dependence on ZADAXIN and CPX. The Company's principal development efforts
are currently focused primarily on ZADAXIN. Clinical trials of thymosin alpha 1
sponsored by the Company and/or other parties are currently in progress or
planned and favorable results from such trials will be necessary to gain
regulatory approval in significant markets. Sales of ZADAXIN commenced in 1997
but are not significant at this time. While ZADAXIN has been approved for
commercial sale for treatment of chronic hepatitis B in China, the Philippines
and Singapore, no assurance can be given that ZADAXIN approvals will be obtained
in additional countries or for the treatment of additional indications, such as
chronic hepatitis C, in a timely fashion or at all. The Company's launch of
ZADAXIN in China, the Philippines and Singapore is the first commercial
introduction of ZADAXIN by the Company, and no assurance can be given that
commercialization of ZADAXIN will prove successful. Future sales of the product
will depend on market acceptance and successful distribution. In particular,
while China is the largest potential market for ZADAXIN, the low average income
and poorly developed distribution infrastructure present ongoing challenges to
successful development of the market. Because the Company currently relies on
ZADAXIN as its sole source of revenue, the failure to demonstrate the drug's
efficacy in future clinical trials, to obtain additional marketing approvals or
to successfully commercialize the drug would have a material adverse effect on
the Company.
The Company may experience delays and encounter difficulties in clinical
trials of CPX. In addition, there can be no assurance that any clinical trials,
including those currently underway, will provide statistically significant
evidence of the efficacy of CPX in treating any of the target diseases. A
failure to demonstrate the efficacy of CPX in ongoing clinical trials, to obtain
additional approvals or to successfully commercialize such product would have a
material adverse effect on the Company.
No Significant Revenues; Continuing Operating Losses. The Company has
never generated significant revenues from the commercialization of its products,
and there is substantial uncertainty regarding the timing and amount of any
future revenues. The Company cannot predict when or if marketing approvals for
CPX will be obtained or additional marketing approvals for ZADAXIN will be
obtained. Even if such approvals are obtained, there can be no assurance that
ZADAXIN and CPX will be successfully commercialized. The Company has experienced
significant operating losses since its inception and, as of September 30, 1997,
had an accumulated deficit of approximately $81.1 million. The Company expects
its operating expenses to increase over the next several years as it expands its
development, clinical testing and marketing capabilities. The Company's ability
to achieve a profitable level of operations is dependent in large part on
successful expansion of the Asian market for ZADAXIN, obtaining additional
regulatory approvals for its ZADAXIN product and/or future products, entering
into agreements for product development and commercialization, where
appropriate, and continuing to expand from development into successful
marketing. There can be no assurance that the Company will ever achieve a
profitable level of operations.
Future Capital Needs; Uncertainty of Additional Financing. The Company
anticipates that the net proceeds from this offering, together with the
Company's available cash and expected interest income thereon will be adequate
to satisfy its capital requirements until mid-1999. However, the Company will
need additional financing to support its long-term product development programs.
The Company's future capital requirements will depend on many factors, including
7
<PAGE>
progress with preclinical testing and clinical trials, the time and cost
involved in obtaining regulatory approvals, patent costs, competing
technological and market developments, changes in existing collaborative
relationships, the Company's ability to establish development, sales,
manufacturing and marketing arrangements. No assurance can be given that
adequate financing will be available to the Company on a timely basis or at all.
Dependence on Third Parties. The Company's strategy contemplates that it
will enter into various arrangements with other entities. To date, the Company
has acquired rights to ZADAXIN and certain other drugs but is only actively
pursuing development of ZADAXIN and CPX. Failure to license or otherwise acquire
rights to additional drugs would result in a shortage of products for
development. In addition, the Company has licensed exclusive rights to the
development and commercialization of ZADAXIN in Japan to SPKK. SPKK has a
substantial commitment to alpha interferon, which is an approved therapy for
chronic hepatitis B and chronic hepatitis C in Japan. There can be no assurance
that either of these arrangements will prove successful or that the Company will
be able to negotiate additional arrangements in the future. The amount and
timing of resources that collaborators devote to their activities with the
Company will not be within the control of the Company and may be affected by
financial difficulties or other factors affecting these third parties. There can
be no assurance that such parties will perform their obligations as expected.
Moreover, the Company's ability to obtain regulatory approval in one country may
be delayed or adversely affected by the timing of regulatory activities and
approvals in one or more other countries, particularly if the Company does not
participate in the regulatory approval process in such other countries. See
"Business -- Manufacturing" and "-- Marketing and Sales."
Foreign Sales and Operations. The Company's financial condition in the
near term will be highly dependent on sales in foreign jurisdictions, where
sales and operations are subject to inherent risks, including difficulties and
delays in obtaining pricing approvals and reimbursement, unexpected changes in
regulatory requirements, tariffs and other barriers, political instability,
difficulties in staffing and managing foreign operations, longer payment cycles,
greater difficulty in accounts receivable collection, currency fluctuations and
potential adverse tax consequences. Certain foreign countries regulate pricing
of pharmaceuticals and such regulation may result in prices significantly below
those that would prevail in a free market. The majority of the Company's current
sales are to customers in China where the Company's accounts receivable
collections are typically 180 days or greater. Such collections to date have
been slower than anticipated and the Company is currently monitoring the
situation. If collection of outstanding accounts receivable does not improve by
year-end, it may become necessary to increase the related allowances for bad
debts or slow the rate of sales to this market.
Patents and Proprietary Rights. Certain composition of matter patents for
thymosin alpha 1 expired in October 1997. The Company may in the future have
only limited composition of matter patents for thymosin alpha 1 or other
products. However, the Company owns or has exclusive licenses for use and
process patents or patent applications in the U.S. and other jurisdictions for
thymosin alpha 1 and CPX and will seek to protect such products from competition
through such patent protection and through other means. See "Business -- Patents
and Proprietary Rights." The Company's success is significantly dependent on its
ability to obtain patent protection for its products and technologies and to
preserve its trade secrets and operate without infringing on the proprietary
rights of third parties. No assurance can be given that the Company's pending
patent applications will result in the issuance of patents or that any patents
will provide competitive advantages or will not be invalidated or circumvented
by its competitors. Moreover, no assurance can be given that patents are not
issued to, or patent applications have not been filed by, other companies which
would have an adverse effect on the Company's ability to use, manufacture or
market its products or maintain its competitive position with respect to its
products. Numerous patents and patent applications relating to thymosin alpha 1
are held under exclusive license and the breach by the Company of the terms of
such license could result in the loss of the Company's rights to such patents
and patent applications. Other companies obtaining patents claiming products or
processes useful to the Company may bring infringement actions against the
Company and such litigation is typically costly and time-consuming. As a result,
the Company may be required to obtain licenses from others or not be able to
use, manufacture or market its products. Such licenses may not be available on
commercially reasonable terms, if at all.
The patent positions of biotechnology firms generally are highly uncertain
and involve complex legal and factual questions. No consistent policy has
emerged regarding the validity and scope of claims in biotechnology patents, and
courts have issued varying interpretations in the recent past, and legal
standards concerning validity, scope and
8
<PAGE>
interpretations of claims in biotechnology patents may continue to evolve. Even
issued patents may later be modified or revoked by the U.S. Patent and Trademark
Office, the European Patent Office or the courts in proceedings instituted by
third parties. Moreover, the issuance of a patent in one country does not assure
the issuance of a patent with similar claims in another country and claim
interpretation and infringement laws vary among countries, so the extent of any
patent protection is uncertain and may vary in different countries.
Pharmaceuticals are not patentable in certain countries in SciClone's
ZADAXIN territory, or have only recently become patentable, and enforcement of
intellectual property rights in many countries in such territory has been
limited or non-existent. Future enforcement of patents and proprietary rights in
many countries in SciClone's ZADAXIN territory can be expected to be problematic
or unpredictable. There can be no assurance that any patents issued or licensed
to the Company will provide it with competitive advantages or will not be
challenged by others. No assurance can be given that holders of patents licensed
to the Company will file, prosecute, extend or maintain their patents in
countries where the Company has rights. Furthermore, there can be no assurance
that others will not independently develop similar products or will not design
around patents issued or licensed to the Company.
Government Regulation and Product Approvals. The research, preclinical
development, clinical trials, manufacturing, marketing and sales of
pharmaceuticals, including ZADAXIN and CPX, are subject to extensive regulation
by governmental authorities. Products developed by the Company cannot be
marketed commercially in any jurisdiction in which they have not been approved.
The process of obtaining regulatory approvals is lengthy and requires the
expenditure of substantial resources. In some countries where the Company
contemplates marketing ZADAXIN, the regulatory approval process for drugs not
previously approved in countries that have established clinical trial review
procedures is uncertain and this uncertainty may result in delays in granting
regulatory approvals. In addition, in certain countries such as Japan, the
process for obtaining regulatory approval is time consuming and costly because
all clinical trials and most preclinical studies must be conducted there. The
Company is currently sponsoring clinical trials and pursuing regulatory
approvals of ZADAXIN in a number of countries and of CPX in the U.S., but there
can be no assurance that the Company will be able to complete such trials, that
such trials, if completed, will fulfill regulatory approval criteria or that the
Company will ultimately obtain approvals in such countries. Adverse results in
such program could result in the placement of restrictions on the use of ZADAXIN
and CPX or revocation of the approval. The marketing approval for ZADAXIN in
Singapore requires a patient surveillance program to continue study of the
drug's safety and efficacy. Adverse results in such program could result in the
placement of restrictions on the use of ZADAXIN or revocation of the approval in
Singapore. Failure to comply with the applicable regulatory requirements can,
among other things, result in fines, suspensions of regulatory approvals,
product recalls or seizures, operating restrictions, injunctions and criminal
prosecutions. Further, additional government regulation may be established or
imposed which could prevent or delay regulatory approval of ZADAXIN, CPX or any
future products of the Company.
Manufacturing. The Company has entered into contract manufacturing and
supply agreements to source ZADAXIN and CPX. The Company has experienced delays
of supply of thymosin alpha l bulk drug in the past and could do so again in the
future. To be successful, the Company's products must be manufactured in
commercial quantities in compliance with regulatory requirements and at an
acceptable cost. While the Company believes it has and will be able in the
future to establish manufacturing relationships with experienced suppliers
capable of meeting the Company's needs, there can be no assurance that the
Company will establish long term manufacturing relationships with suppliers or
that these suppliers will prove satisfactory. The Company currently has vialing
and packaging supply agreements in effect and has a sufficient supply of
finished thymosin alpha l for the near term and is currently negotiating a new
vialing and packaging supply agreement. No assurances can be given that such new
agreement will be reached. Production interruptions, if they occur, could
significantly delay clinical development of potential products, reduce third
party or clinical researcher interest and support of proposed clinical trials.
Such interruptions could also delay commercialization of the Company's products
and impair their competitive position, which would have a material adverse
effect on the business and financial condition of the Company. See "Business --
Manufacturing."
Marketing and Sales. The Company has established distribution arrangements
with local pharmaceutical distribution companies in over 25 countries, in Asia,
Latin America and the Middle East. However, no assurance can be given that any
such distribution arrangements will remain in place or prove successful. See
"Business -- Marketing and Sales."
9
<PAGE>
Technological Change and Competition. Rapid technological development may
result in the Company's products becoming obsolete before they are marketed or
before the Company recovers a significant portion of the related development and
commercialization expenses. Competition in the pharmaceutical field is intense
and the Company expects that competition will increase. The Company's
competitors include major pharmaceutical companies, biotechnology firms and
universities and other research institutions, both in the U.S. and abroad, that
are actively engaged in research and development of products in the therapeutic
areas being pursued by the Company. Many of these companies and institutions
have substantially greater financial, technical, manufacturing, marketing and
human resource capabilities than the Company and extensive experience in
undertaking clinical testing and obtaining regulatory approvals necessary to
market drugs. Principal competitive factors in the pharmaceutical field include
efficacy, safety, and therapeutic regimen. Where comparable products are
marketed by other companies price is also a competitive factor.
Uncertainty of Third Party Reimbursement; Resources of Patient
Populations. The Company's ability to successfully commercialize its products
may depend in part on the extent to which reimbursement for the cost of such
products will be available from government health administration authorities,
private health insurers and other organizations. Significant uncertainty exists
as to the reimbursement status of new therapeutic products and there can be no
assurance that third party reimbursement will be available for therapeutic
products the Company might develop. In many of the foreign countries in which
the Company intends to operate, reimbursement of ZADAXIN under government or
private health insurance programs will not be available. In the U.S., health
care reform is an area of increasing national attention and a priority of many
governmental officials. Certain reform proposals, if adopted, could impose
limitations on the prices the Company will be able to charge in the U.S. for its
products or the amount of reimbursement for the Company's products from
governmental agencies or third party payors. In many countries where the Company
has marketing rights for ZADAXIN, government resources and per capita income
levels may be so low that the Company's products will be prohibitively expensive
for a large percentage of the population. In such countries, there can be no
assurance that the Company will be successful in marketing its products on
economically favorable terms, if at all.
Dependence on Qualified Personnel and Key Individuals. Because of the
specialized scientific nature of the Company's business, the Company is highly
dependent upon its ability to continue to attract and retain qualified
management, scientific and technical personnel. There is intense competition for
qualified personnel in the areas of the Company's activities, and there can be
no assurance that the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its business. In addition,
many key responsibilities within the Company have been assigned to a relatively
small number of individuals. Loss of the services of any of these individuals
unless they were promptly replaced could be significantly detrimental to the
Company's development. The Company does not maintain key person life insurance
on the lives of any of its key personnel.
Product Liability; Absence of Insurance. The Company's business will
expose it to potential product liability risks which are inherent in the
testing, manufacturing, marketing and sale of pharmaceutical products, and there
can be no assurance that product liability claims will not be asserted against
the Company. Product liability insurance for the pharmaceutical industry
generally is expensive to the extent that it is available at all. The Company
has product liability insurance coverage for clinical trials and commercial
sales. However, there can be no assurance that a product liability claim would
not adversely affect the business or financial condition of the Company.
Possible Volatility of Stock Price. The market price of the Common Stock
has in the past and may in the future fluctuate over a wide range. In addition,
the stock market has from time to time experienced significant price and volume
fluctuations that may be unrelated to the operating performance of particular
companies. The market prices of the common stock of many publicly traded
biotechnology companies have in the past been, and can in the future be, highly
volatile. Progress in clinical trials by the Company, its partners, or its
competitors, announcements of technological innovations or new products,
developments or disputes concerning patents or proprietary rights or
collaborative agreements, availability of supply, publicity regarding actual or
potential medical results relating to products under development by the Company
or its competitors, regulatory developments in both the U.S. and foreign
countries, public concern as to the safety of the biotechnology products and
economic and other external factors, period-to-period fluctuations in the
Company's financial results, as well as any shortfalls in revenue or earnings
from levels expected by securities analysts, among other factors, have in the
past and may have in the future a significant impact on the market price of the
Common Stock.
10
<PAGE>
Control by Existing Shareholder. As of September 30, 1997, a principal
shareholder of the Company beneficially owned approximately 19.2% of the
outstanding shares of Common Stock. This shareholder may have significant
influence over all matters requiring approval by the shareholders of the
Company, and will have the ability to elect a member of the Board of Directors.
Further, any significant sale of shares by such shareholder could adversely
affect the market price of the Common Stock. However, the Company has the option
to cancel up to that number of Pledged Shares necessary to completely satisfy
the outstanding balance, as of the date of this Prospectus, of the Shareholders
Loan, including accrued interest, made by the Company to such shareholder in a
non-cash exchange. If the Company elects to exercise this option in full
immediately prior to the closing of this offering, 1,547,157 Pledged Shares
(based on an assumed price of $5.03 less permitted discounts) would be canceled,
thereby reducing such shareholder's beneficial ownership to 10.2%, as adjusted
to reflect the sale of the Shares in this offering. See "Recent Developments."
Dilution. Purchasers of the Common Stock offered hereby will incur
immediate and substantial net tangible book value dilution of $3.66 per share,
and, to the extent outstanding options and warrants to purchase the Company's
Common Stock are exercised, there will be further dilution. See "Dilution."
Blank Check Preferred Stock. The Company's Board of Directors has the
authority to issue Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, without any
further vote or action by the Company's shareholders. The rights of the holders
of the 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.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company has no current plans
to issue shares of Preferred Stock.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered hereby
are estimated to be approximately $6.8 million assuming the sale of 1,500,000
Shares at an assumed price of $5.03 per share, the last sale price of the Common
Stock as reported by the Nasdaq National Market on November 10, 1997, and after
deducting the Placement Agent's fee and estimated expenses of the offering. The
Company currently intends to use the net proceeds from the offering for the
continued development of ZADAXIN and CPX. See "Business--ZADAXIN thymosin alpha
1" and "--CPX." Pending such uses, the net proceeds will be invested in
short-term, interest bearing investment grade securities.
Based on its current operating plan, the Company anticipates that the net
proceeds of this offering, together with the Company's available cash and
expected interest income thereon, should be sufficient to finance the Company's
current research and development and other working capital requirements until
mid-1999. This estimate is based on certain assumptions which could be
negatively impacted by the matters discussed in "Risk Factors."
12
<PAGE>
DILUTION
The Company's net tangible book value at September 30, 1997 was
approximately $18,607,537 or $1.09 per share. Net tangible book value per share
represents the amount of the Company's shareholders' equity, less intangible
assets, divided by 17,039,486, the number of shares of Common Stock outstanding
as of September 30, 1997.
<TABLE>
After giving effect to the sale of the Shares in this offering at an
assumed price of $5.03 per share, the last sale price of the Common Stock as
reported by the Nasdaq National Market on November 10, 1997, and after deducting
commissions and estimated offering expenses payable by the Company, the net
tangible book value of the Company as of September 30, 1997 would have been
$25,401,131, or $1.37 per share. This represents an immediate increase in net
tangible book value of $0.28 per share to existing shareholders and an immediate
dilution in net tangible book value of $3.66 per share to purchasers of Common
Stock in this offering, as illustrated in the following table:
<CAPTION>
<S> <C> <C>
Assumed price per share.................................................... $5.03
Net tangible book value per share as of September 30, 1997............ $1.09
Increase per share attributable to new investors...................... .28
----
Net tangible book value per share after this offering...................... 1.37
-----------
Dilution per share to new investors........................................ $ 3.66
===========
</TABLE>
<TABLE>
Utilizing the foregoing assumptions, the following table summarizes the
total consideration paid to the Company and the average price per share paid by
the existing shareholders and by purchasers of the Shares in this offering:
<CAPTION>
Shares Purchased Total Consideration
---------------- ------------------- Average Price
Number Percentage Amount Percentage Per Share
-------- ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders . . . 17,039,486 92% $ 105,820,235 93% $6.21
New investors . . . . . . . 1,500,000 8 7,546,875 7 5.03
------------ ----- -------------- -------
Total . . . . . . 18,539,486 100% $ 113,367,110 100%
============ ===== ============== ======
</TABLE>
The foregoing table excludes options and warrants outstanding as of
September 30, 1997 to purchase 3,109,236 shares of Common Stock at a weighted
average exercise price of $5.76 per share. In the event such options and
warrants are exercised, investors may experience further dilution.
Pursuant to a July 1997 agreement between the Company and a principal
shareholder of the Company, such shareholder pledged 1,882,500 shares of Common
Stock as security for the Shareholder Loan which has been recorded as an offset
to shareholders' equity at September 30, 1997. Immediately prior to the
consummation of any offering, the Company may elect to cancel, through a
non-cash exchange, a number of the Pledged Shares in partial or complete
satisfaction of the Shareholder Loan, including accrued interest. The number of
the Pledged Shares to be so canceled would be determined by reference to the
price of the shares to be sold in such offering less permitted discounts. If the
Company elects to exercise such option, immediately prior to the closing of this
offering, in full satisfaction of the Shareholder Loan and accrued interest
then, assuming price of $5.03 per share less permitted discounts, the Company
would cancel 1,547,157 of the Pledged Shares, and the dilution per share to new
investors would be $3.54. See "Recent Developments."
13
<PAGE>
<TABLE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of September 30, 1997, and (ii) as adjusted to reflect the sale
of 1,500,000 Shares offered hereby, and the receipt of the estimated net
proceeds therefrom, at an assumed price of $5.03, the last sale price of the
Common Stock as reported by the Nasdaq National Market on November 10, 1997. See
"Use of Proceeds." This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto and other
financial information incorporated herein by reference.
<CAPTION>
September 30, 1997
----------------------------
Actual As Adjusted
-----------------------------
(Unaudited)
(In thousands)
<S> <C> <C>
Shareholders' equity:
Preferred stock, no par value: 10,000,000 shares authorized, no shares
issued and outstanding, actual and as adjusted......................... $ --- $ ---
Common stock, no par value: 75,000,000 shares authorized; 17,039,486
issued and outstanding, actual, and 18,539,486 issued and outstanding,
as adjusted(1)(2)....................................................... 105,820 112,614 (2)
Note receivable from former officer......................................... (6,024) (6,024)(2)
Net unrealized loss on available-for-sale securities........................ (104) (104)
Accumulated deficit......................................................... (81,084) (81,084)
---------- -----------
Total shareholders' equity............................................. 18,608 25,402 (2)
--------- ----------
Total capitalization................................................... $ 18,608 $ 25,402
========= ===========
<FN>
- ---------------------------
(1) Excludes options and warrants outstanding as of September 30, 1997 to
purchase 3,109,236 shares of Common Stock at a weighted average exercise
price of $5.76 share.
(2) Pursuant to a July 1997 agreement between the Company and a principal
shareholder of the Company, such shareholder pledged 1,882,500 shares of
Common Stock as security for the Shareholder Loan which has been recorded
as an offset to shareholders' equity at September 30, 1997. Immediately
prior to the consummation of any offering, the Company may elect to cancel,
through a non-cash exchange, a number of the Pledged Shares in partial or
complete satisfaction of the Shareholder Loan, including accrued interest.
The number of the Pledged Shares to be so canceled would be determined by
reference to the price of the shares to be sold in such offering less
permitted discounts. If the Company elects to exercise such option
immediately prior to the closing of this offering, in full satisfaction of
the Shareholder Loan and accrued interest then, assuming price of $5.03 per
share less permitted discounts, the Company would cancel 1,547,157 of the
Pledged Shares, and Common Stock issued and outstanding, as adjusted,
Common Stock, as adjusted, note receivable from former officer, as
adjusted, and total shareholders' equity, as adjusted, would be 16,992,329,
$106,542,000, $0 and $25,355,000, respectively. See "Recent Developments."
</FN>
</TABLE>
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"SCLN." The following table sets forth the high and low sale prices per share of
the Common Stock for the periods indicated, as reported by the Nasdaq National
Market. The quotations shown represent inter-dealer prices without adjustment
for retail markups, markdowns, or commissions, and may not necessarily reflect
actual transactions.
High Low
---- ----
1997
4th quarter (through November 10, 1997)...... $ 7 11/32 $ 4
3rd quarter.................................. 6 1/2 3 7/16
2nd quarter.................................. 7 15/32 4 3/8
1st quarter.................................. 10 5 1/8
1996
4th quarter.................................. 13 7 5/8
3rd quarter.................................. 14 3/4 6 7/8
2nd quarter.................................. 15 1/8 11 1/4
1st quarter.................................. 16 1/8 4 3/4
1995
4th quarter.................................. 8 7/8 3 3/4
3rd quarter.................................. 9 3/4 5 3/4
2nd quarter.................................. 7 3/4 4 3/8
1st quarter.................................. 8 5/8 5 1/2
On November 10, 1997, the last sale price of the Common Stock, as reported
on the Nasdaq National Market, was $5.03 per share. As of September 30, 1997,
there were approximately 253 holders of record and more than 5,000 beneficial
holders of the Company's Common Stock.
The Company has not paid any dividends on its Common Stock and currently
intends to retain any future earnings for use in its business.
15
<PAGE>
BUSINESS
Overview
The Company is an emerging pharmaceutical company that acquires, develops,
and commercializes specialist-oriented (e.g., hepatologists, oncologists and
pulmonologists), proprietary drugs for treating chronic and life-threatening
diseases for which there are no adequate treatment modalities, including chronic
hepatitis B, chronic hepatitis C, cancer, immune system disorders and cystic
fibrosis. The Company currently has two products in clinical development,
ZADAXIN thymosin alpha 1 and CPX, as well as several preclinical candidates.
ZADAXIN, a synthetic immunomodulator (i.e., immune system regulator), is
the Company's lead product. In the United States and Europe, the Company is
developing ZADAXIN in combination with interferon for the treatment of chronic
hepatitis C. The Company is currently exploring collaborative arrangements for
the development of ZADAXIN in these territories. In Japan, the Company has
licensed exclusive rights to ZADAXIN to SPKK. SPKK has completed phase 1 and
phase 2 clinical studies of ZADAXIN for the treatment of chronic hepatitis B.
SPKK is expected to commence a pivotal phase 3 study of ZADAXIN in chronic
hepatitis B in the fourth quarter of 1997. In November 1997, the Company
announced that SPKK has commenced the enrollment of patients in a phase 2 study
of thymosin alpha 1 as a monotherapy for hepatitis C, as required by the
Japanese Ministry of Health and Welfare (MOHW) for approval of the drug for the
treatment of hepatitis C. SPKK is also working to satisfy MOHW requirements to
begin a clinical program to study the use of its INTRON A(R) (interferon alfa -
2b) and ZADAXIN as a combination therapy for hepatitis C. ZADAXIN is currently
approved and being marketed for chronic hepatitis B in China, the Philippines
and Singapore. Furthermore, the Company has filed for approval to market ZADAXIN
for this indication in 14 additional countries in Asia, Latin America and the
Middle East. SciClone licensed thymosin alpha 1 from Alpha 1 and has worldwide
marketing, development and manufacturing rights with the exception of Japan,
Italy, Spain and Portugal, where rights have been sublicensed. Chronic hepatitis
B is the second most common chronic infectious disease worldwide. The World
Health Organization estimates that approximately 350 million individuals
worldwide, or 5% of the world's population, are carriers of the virus, the
majority of whom are located in Asia.
CPX, the Company's second product in clinical development, is an orally
administered synthetic compound discovered by the NIH as a potential treatment
for CF. CF is caused by a mutation in the CFTR gene. CPX is an orally
administered compound that targets the biochemical abnormality at the root cause
of CF, the malfunctioning CFTR protein. In vitro studies from the NIH have shown
that CPX binds to the CFTR and permits the CFTR to enhance the performance of
its chloride secretion function. In October 1997, Dr. Harvey Pollard of the
Uniform Services University of Health Services and formerly of the NIH,
presented preclinical data demonstrating that CPX is the only CF drug in
clinical development that can correct the two fundamental problems caused by the
most common genetic defect in CF patients, abnormal trafficking and impaired
chloride ion transport. The Company obtained orphan drug status for CPX from the
FDA in April 1997 and was awarded a phase 1 Orphan Drug Grant from the FDA in
October 1997. The Company is currently conducting a multicenter phase 1 clinical
study in the U.S. involving patients with CF. SciClone's phase 1 program for CPX
is the first to attempt to measure both sweat chloride and NEPD in a multicenter
trial. The Cystic Fibrosis Foundation supported SciClone in its IND filing with
the FDA to gain approval to begin the testing of CPX directly in CF patients
rather than the normal process of testing first in healthy, normal volunteers.
The Company has additional compounds under license. During the first
quarter of 1998, the Company plans to commence preclinical development of one of
these compounds. Targeted indications for this compound include epilepsy, to be
studied at the NIH, and multiple drug resistance in cancer, to be studied at the
U.S. National Cancer Institute. The Company also plans to evaluate activity of
certain of its other preclinical candidates in 1998.
Internationally, SciClone has entered into over 25 exclusive distribution
arrangements to register and market ZADAXIN. The Company intends to out-license
its products where a collaborative arrangement will materially enhance the
prospects for a drug's commercial success, such as the Company's license with
SPKK for exclusive rights to develop and market ZADAXIN in Japan. The Company is
currently seeking a collaborative arrangement in the U.S. and Europe for the
phase 3 development of ZADAXIN in chronic hepatitis C. The Company intends to
source ZADAXIN, CPX and any future products through contract manufacturing and
supply agreements. The Company has entered into supply agreements in the U.S.
and Europe for the supply of bulk and finished product thymosin alpha 1. The
Company currently contracts with a major U.S. pharmaceutical company for the
supply of bulk CPX and another U.S. pharmaceutical manufacturer for the
finishing of CPX.
16
<PAGE>
Strategy
SciClone's corporate objective is to become a leader in the acquisition,
development and commercialization of specialist-oriented proprietary drugs for
the treatment of chronic and life threatening diseases. The Company's strategy
to achieve this objective is as follows:
Expand Product Pipeline. The Company focuses its resources on the
development and commercialization of drugs; not drug discovery. SciClone
evaluates new compounds for acquisition or in-license from various sources,
including government agencies, universities, pharmaceutical companies and
biotechnology companies. The Company seeks development stage compounds that are
specialist-oriented, novel and patented. Management believes that this will
enable the Company to lower its expected time-to-market and risk profile
relative to competitors engaged in both drug discovery and development.
Optimize Resources. The Company does not own or maintain any manufacturing
facilities for finished products or raw materials. Instead, SciClone, using its
own manufacturing and quality assurance staff, out-sources these functions to
third parties that are capable of supplying current Good Manufacturing Practices
("cGMP") bulk product and finished goods as needed. Management believes that
this strategy will lower the Company's capital requirements and enable the
Company to concentrate its resources on drug development.
Capitalize on Commercial Capabilities. SciClone is equipped to manage
clinical development, regulatory submissions and pharmaceutical marketing in the
U.S., Europe and other international markets. The Company plans to continue to
use these capabilities aggressively to commercialize new and existing products
in markets around the world. Management believes that this strategy will enable
the Company to penetrate markets in an accelerated and profitable manner.
Enhance Product Portfolio Patent Position. SciClone plans to broaden the
protection of its intellectual property and trade secrets by actively developing
and expanding the patent filings for method of use and composition of matter
patents. Management believes that this strategy will enable the Company to
further protect the increased use of its product portfolio.
17
<PAGE>
Product Development Activities
<TABLE>
The following table summarizes the Company's current significant product
development activities:
<CAPTION>
- ------------------------- ----------------------- ----------------------- ------------------- ----------------------------
Product Location Indication Status Estimated Number of
Carriers/Patients(1)
- ------------------------- ----------------------- ----------------------- ------------------- ----------------------------
<S> <C> <C> <C> <C>
ZADAXIN China, Philippines, Chronic Hepatitis B Currently Marketed 130 million carriers
thymosin alpha 1 Singapore
----------------------- ----------------------- ------------------- ----------------------------
Argentina, Brunei, Chronic Hepatitis B Registrations 75 million carriers
Cyprus, Egypt, Hong Filed(2)
Kong, India,
Indonesia, Kuwait,
Lebanon, Malaysia,
Mexico, Nepal,
Pakistan, Turkey
----------------------- ----------------------- ------------------- ----------------------------
Taiwan Chronic Hepatitis B Completed phase 3 3.5 million carriers
----------------------- ----------------------- ------------------- ----------------------------
U.S./Europe Chronic Hepatitis C phase 3(3) 8.0 million carriers
----------------------- ----------------------- ------------------- ----------------------------
Japan(4) Chronic Hepatitis B Completed phase 2 2.6 million carriers
----------------------- ----------------------- ------------------- ----------------------------
Japan(4) Chronic Hepatitis C phase 2 1.0 million carriers
- ------------------------- ----------------------- ----------------------- ------------------- ----------------------------
CPX U.S./Europe Cystic Fibrosis phase 1 55,000 patients
- ------------------------- ----------------------- ----------------------- ------------------- ----------------------------
<FN>
(1) Source: World Health Organization, Cystic Fibrosis Foundation and National
Organization of Rare Disorders, Inc.
(2) The Company is in the process of filing applications in the following
countries: Brazil, Chile, Colombia, Israel, New Zealand, Oman, South Korea,
Taiwan, Thailand, United Arab Emirates and Venezuela.
(3) A successful, non-pivotal U.S. phase 3 study has been completed. Subsequent
meetings have been held with the FDA, the United Kingdom Medicines Control
Agency, the Netherlands Medicines Evaluation Board and the Denmark Danish
Medicines Agency. From these meetings, a protocol for phase 3 pivotal
trials has been proposed and refined in a workshop with leading
international hepatologists.
(4) Clinical trial conducted by SPKK.
</FN>
</TABLE>
ZADAXIN thymosin alpha 1
ZADAXIN thymosin alpha 1 is a naturally occurring 28 amino acid peptide
that is produced for therapeutic use through chemical synthesis. Its simplified
or common chemical name is thymosin alpha 1. The generic name in the U.S. for
thymosin alpha 1 is thymalfasin. The Company believes that thymosin alpha 1 has
significant immunomodulatory properties. Data demonstrates that the drug has
raised lymphocyte (white blood cell) counts and enhanced multiple immune
response parameters in a substantial number of patients. The drug appears to act
on cells of the immune system that have been stimulated by infection or other
agents. Additionally, the drug does not appear to produce the side effects
associated with other immunomodulatory molecules, such as interferon,
particularly fever, headache, chills, fatigue, nausea and inflammation. To date,
over 1,500 patients have received thymosin alpha 1 with no significant drug
related side effects. Based on more than 70 clinical trials conducted to date,
the Company believes that thymosin alpha 1, either alone or in combination with
other therapies, may have application across a broad spectrum of diseases,
including chronic hepatitis B, chronic hepatitis C, cancer and other immune
system diseases.
Pursuant to the license agreement with Alpha 1, the Company obtained
worldwide marketing, development and manufacturing rights to thymosin alpha 1,
with the exception of Italy, Spain and Portugal. In April 1997, SciClone entered
into an arrangement with Alpha 1 to administer the sublicense activities of the
Alpha 1 license for Italy, Spain and Portugal. Under the Alpha 1 agreement, the
Company also acquired control of Alpha 1's patent portfolio for thymosin alpha
1.
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<PAGE>
Chronic Hepatitis B
Chronic hepatitis B is the second most common chronic infectious disease
worldwide. It is transmitted through blood transfusions, contaminated needles,
sexual contact and perinatally. In addition, a large number of people are
infected by unknown means. The World Health Organization estimates that
approximately 350 million individuals worldwide or 5% of the world's population
are carriers of the virus. Among carriers of the chronic hepatitis B virus, many
have asymptomatic or minimal disease with no clinically evident symptoms.
Carriers of the chronic hepatitis B virus have a 200-fold increased chance of
developing primary liver cancer, the single largest cause of cancer mortality
globally, and a significant number develop cirrhosis of the liver.
Meta Analysis
Meta analysis is the statistical pooling of data derived from two or more
clinical trials. By using data from two or more studies, the play of random
chance is reduced and precision of estimates will increase as sample size
increases. A valuable use of meta analysis is to assess the efficacy of a drug
in the treatment of a particular disease across many studies. The Company
commissioned a meta analysis of chronic hepatitis B randomized and controlled
trials of ZADAXIN. The meta analysis was performed by MetaWorks, Inc. and
included two U.S. trials and a Taiwan trial. A statistically significant benefit
(p=0.04) was demonstrated in the meta analysis with a ZADAXIN overall response
rate of 36% compared to 19% for the control group. The results also showed no
indications of drug toxicity and no significant drug related side effects in the
trials.
The Company believes ZADAXIN is an effective new therapy for the treatment
of chronic hepatitis B with a superior side effect profile and efficacy equal to
or better than interferon, the primary existing therapy for chronic hepatitis B.
ZADAXIN has shown in clinical studies to be statistically significant in
efficacy with twice weekly administration for six months. ZADAXIN has shown
proven long term durable efficacy at five years of patient follow up. ZADAXIN
has shown virtually no drug related side effects in over 1,500 patients.
Interferon is an immunomodulatory protein that is produced commercially
using recombinant DNA technology and other techniques. Interferon is approved
for treatment of chronic hepatitis B in the United States and Europe, as well as
in Hong Kong, Taiwan, China, Japan and other countries. Other agents under
development, but not yet registered for the treatment of chronic hepatitis B,
include nucleoside analogs such as lamivudine, famciclovir and others. Unlike
thymosin alpha 1, data reported in the October 1997 supplement to Hepatology
reflect that nucleoside analogs are associated with rebound viral hepatitis and
viral mutation.
Set forth below is more detailed information regarding the status of
development of ZADAXIN as a therapy for chronic hepatitis B in certain key
markets.
China. In January 1997, the Company launched ZADAXIN for the treatment of
chronic hepatitis B in The People's Republic of China. This product launch
marked the first introduction of ZADAXIN by the Company anywhere in the world.
The Ministry of Public Health (MOPH) approval was based on a regulatory package
assembled from U.S. and European data in addition to a locally required
controlled clinical trial to evaluate the efficacy of ZADAXIN for patients
suffering from chronic hepatitis B. Sales and distribution in The People's
Republic of China are managed by SciClone International based in Hong Kong.
SciClone International has focused its initial sales efforts on the southern
province of Guangjou, the capitol city of Beijing and Shanghai. More than four
local distribution teams are used to steadily increase sales in China and to
place ZADAXIN on the formularies of city and provincial hospitals.
Japan. In Japan, the world's largest hepatitis market, the Company has
licensed exclusive thymosin alpha 1 rights to SPKK. SPKK has completed a phase 1
single and multiple dose safety and pharmacokinetics trial. SPKK has
successfully completed a dose ranging phase 2 safety and efficacy trial
involving approximately 60 patients. SPKK is expected to commence a pivotal
phase 3 study in chronic hepatitis B in the fourth quarter of 1997. Certain
costs of these clinical studies will be shared by the Company and SPKK. In
October 1996, the Company expanded and amended its license agreement with SPKK.
The Company agreed to transfer exclusive Japanese rights for thymosin alpha 1 to
SPKK and SPKK agreed to pay the Company certain fees upon achievement of
milestones and committed to invest additional
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<PAGE>
funds to develop and commercialize ZADAXIN in Japan. Upon approval in Japan,
SPKK is obligated to purchase thymosin alpha 1 from the Company. The Company
agreed to provide certain funding for development expenses.
Taiwan. The Company has completed the Plant Master File required by
Taiwanese law. This file will complement existing regulatory documents and allow
the Company to file for registration in Taiwan. The Company sponsored a phase 3
chronic hepatitis B trial of ZADAXIN in Taiwan. The audited results of this
trial showed 37% of patients responded to ZADAXIN, compared to 25% for patients
taking a placebo. The Company believes this trial produced the best results of
any randomized and controlled chronic hepatitis B trial in Taiwan. The Company
knows of no randomized and controlled chronic hepatitis B clinical trial
conducted in Taiwan, including SciClone's trial, using medically accepted end
points of both hepatitis B virus DNA and hepatitis B e-antigen negativity that
has produced statistically significant results, including clinical trials of
alpha interferon, the leading chronic hepatitis B therapy approved in Taiwan.
The results also showed no indications of drug toxicity and no significant drug
related side effects in the trial.
Chronic Hepatitis C
The Centers for Disease Control estimate that 3.9 million Americans were
infected with the chronic hepatitis C virus, and the American Liver Foundation
estimates that an additional 170,000 new cases are reported each year. The
prevalence of chronic hepatitis C in Europe is approximately 4 million.
Interferon is the only current effective therapy approved for chronic hepatitis
C. The prevalence of chronic hepatitis C is not yet fully known, but an article
in the Annals of Internal Medicine indicates that in Japan alone there are more
than l million cases of chronic hepatitis C. Chronic hepatitis C can be
transmitted by blood transfusions and contaminated needles. The mode of
transmission in many cases is unknown. Approximately 10% to 20% of chronic
hepatitis C carriers may develop cirrhosis, and up to 40% of these individuals
may develop liver cancer.
Phase 3 Chronic Hepatitis C Combination Trial (United States). In 1996, a
randomized, placebo-controlled, multicenter study in chronic hepatitis C was
completed. The trial compared thymosin alpha 1 and alpha interferon 2b
combination treatment to alpha interferon 2b alone or a placebo. The primary end
point of the trial was normalization of alanine transaminase (ALT), a
measurement of liver inflammation, and secondary end points were improvement in
liver histology, the condition of the cellular structure of the liver, and
reduction in hepatitis C serum viral RNA (HCV RNA) viral titer levels, the
amount of virus in the blood. The thymosin alpha 1 and alpha interferon 2b
combination treatment had a statistically significant (p=0.022) improvement over
alpha interferon 2b alone.
A complete response was defined as a normal ALT level present on the last
two study visits while a partial response was defined as a 50% decrease in ALT.
Based on 103 patients who completed the six-month treatment period, the
combination group showed a statistically significant greater partial and/or
complete response (41.9%) as compared to alpha interferon 2b alone (16.6%), and
to placebo (2.7%). Ten patients who did not respond to alpha interferon alone
were subsequently treated for six months with the combination regimen. Four of
the 10 (40%) showed normalization of ALT levels after the six-month retreatment
period. The histologic data showed that only combination therapy demonstrated
statistically significant higher efficacy than placebo at reducing histologic
activity. Patients treated with combination therapy were the only group to
achieve significant reduction in HCV RNA viral titer levels in contrast with
patients treated with single-agent alpha interferon 2b or placebo who failed to
show a significant reduction in viral titer levels.
Thymosin alpha 1 Combination Therapy with Alpha Interferon in Chronic
Hepatitis C Phase 2 Combination Trial (Italy). A 15 patient, 12 month chronic
hepatitis C open-label study was completed in Italy using a combination of
thymosin alpha 1 and lymphoblastoid interferon. Sustained response to the
combination therapy after 12 months of therapy and six months of observation was
40% (6/15) with loss of serum HCV RNA. This is dramatically higher than
historical sustained response levels to monotherapy interferons.
Patients were treated with the combination for one year and followed for
an additional six months after conclusion of treatment. Of the 15 patients
entered into the study, four had previously failed standard alpha interferon
therapy. Thirteen of the 15 patients were of genotype 1b, the genotype least
responsive to interferon therapy. At the end of treatment, 11 (73%) patients,
including two previous alpha interferon failures, were negative for serum HCV
RNA measured by polymerase chain reaction (PCR). Of the 13 genotype lb patients,
nine (69%) responded to therapy and five
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<PAGE>
of these 13 patients (39%) were still negative for serum HCV RNA six months
after treatment ended. The overall sustained response after 18 months was 40%
(6/15) with loss of serum HCV RNA. Five of these six HCV RNA negative patients
also had normalization of ALT levels. Histological improvement was observed in
the post-treatment liver biopsy specimens of 12 patients for whom paired samples
were available
Set forth below is more detailed information regarding the status of
development of ZADAXIN as a therapy for chronic hepatitis C in selected
countries.
Japan. In Japan, the world's largest hepatitis market, SciClone has
licensed exclusive thymosin alpha 1 rights to SPKK. In November 1997, the
Company announced that SPKK has commenced the enrollment of patients in a phase
2 study of thymosin alpha 1 as a monotherapy for hepatitis C, as required by the
Japanese Ministry of Health and Welfare (MOHW) for approval of the drug for the
treatment of hepatitis C. SPKK is also working to satisfy MOHW requirements to
begin a clinical program to study the use of its INTRON A(R) (interferon alfa -
2b) and ZADAXIN as a combination therapy for hepatitis C.
U.S./Europe. In the United States and Europe, the Company is developing
ZADAXIN in combination with interferon for the treatment of chronic hepatitis C.
After meeting with U.S. and European regulatory authorities, the Company has
prepared a protocol outline for the required pivotal phase 3 chronic hepatitis C
studies, which has been refined with several leading international
hepatologists. The Company is currently exploring collaborative arrangements for
the development of ZADAXIN in these territories.
CPX
Cystic Fibrosis. CF is the most common fatal genetic disorder in the U.S.
today. CF affects approximately 30,000 children and young adults in the U.S. and
approximately 25,000 in Europe. In the U.S., CF occurs in approximately one of
every 3,300 live births and approximately 1,000 new cases are diagnosed each
year, usually by the age of three. The median age of survival for a person with
CF is 31 years. CF is caused by a mutation in the CFTR gene. This basic genetic
defect in CF cells results in the faulty transport of chloride and sodium (salt)
within epithelial cells (which line organs such as the lungs and pancreas) to
the cells' outer surfaces. This faulty transport causes the body to produce an
abnormally thick, sticky mucus which clogs the lungs and leads to fatal
infections. This thick, sticky mucus also obstructs the pancreas, preventing
enzymes from reaching the intestines to digest food. Most CF patients die from
lung disease. One in 29 Americans, more than 10 million people, is an unknowing,
symptomless carrier of the defective gene. A child must inherit two defective
copies of the CF gene, one from each parent, to have CF. Each time two carriers
conceive a child, there is a 25% chance that the child will have CF, a 50%
chance that the child will be a carrier, and a 25% chance that the child will be
a non-carrier.
CF has a variety of symptoms. The most common are: very salty-tasting
skin; persistent coughing, wheezing or pneumonia; excessive appetite but poor
weight gain; and bulky, foul-smelling stools. Currently, approved treatments for
CF only address the symptoms of CF and not the underlying biochemical
abnormality at the root cause of the disease that results in the faulty
transport of chloride and sodium across epithelial cells and to their outer
surfaces. The treatment of CF depends upon the stage of the disease and which
organs are involved. One means of treatment, postural drainage (also called
chest physical therapy), requires vigorous percussion (by using cupped hands) on
the back and chest to dislodge the thick, sticky mucus from the lungs.
Antibiotics are also used to treat lung infections and are administered
intravenously, orally and/or in medicated vapors which are inhaled to open up
clogged airways. In addition, mucolytic (mucus-thinning) drugs are also used to
thin the viscosity of the mucus. When CF affects the digestive system, the body
does not absorb enough nutrients. Therefore, people with CF may need to eat an
enriched diet and take both replacement vitamins and enzymes. The annual average
cost of care of a CF patient has been estimated by the Cystic Fibrosis
Foundation to be approximately $50,000 per patient.
CPX. CPX is an orally available xanthine derivative that is produced for
therapeutic use through chemical synthesis. CPX targets the biochemical
abnormality at the root cause of CF, the malfunctioning CFTR protein that
results in the buildup of thick, sticky mucus. CPX use in CF was discovered by
Harvey Pollard, M.D., Ph.D., and Kenneth Jacobson, Ph.D., while at the National
Institute of Diabetes and Digestive and Kidney Disorders (NIDDK) of the NIH.
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<PAGE>
Previous NIH preclinical data indicated that CPX interacts directly with the
malfunctioning CFTR protein to enhance the performance of its chloride secretion
function. Thus, the Company believes CPX could prevent the buildup of thick,
sticky mucus and become a unique therapy correcting the protein defect, the
malfunctioning CFTR, in all organs affected by CF.
Consistent with the Company's strategy, SciClone licensed CPX from the NIH
in April 1996. In January 1997, the Company's IND was approved by the FDA to
begin clinical studies of CPX in the U.S. directly in CF patients rather than
normal, healthy volunteers. The Cystic Fibrosis Foundation supported SciClone in
its IND filing with the FDA to gain approval to begin testing of CPX directly in
patients. In April 1997, the Company obtained orphan drug status for CPX from
the FDA. In May 1997, the Company initiated a multicenter phase 1 trial of CPX
directly in CF patients. In October 1997, the FDA awarded SciClone a $100,000
Orphan Drug Grant for phase 1 development of CPX as a treatment for CF. In
October 1997, Dr. Harvey Pollard presented preclinical data demonstrating that
CPX is the only CF drug in clinical development that can correct the two
fundamental problems caused by the most common genetic defect in CF patients,
abnormal trafficking and impaired chloride ion transport. Trafficking refers to
the ability of the CFTR protein to traverse the cell cytoplasm and reach the
proper location on the cell membrane.
Phase 1 CPX trial in CF Patients (United States). The Company is currently
conducting its phase 1 clinical study of CPX at five CF centers in the U.S. The
five participating CF centers are: Stanford CF Center, Lucille Packard
Children's Hospital in Palo Alto, California; University of Washington and
Children's Hospital CF Center in Seattle, Washington; University of Iowa
Hospitals and Clinics CF Center in Iowa City, Iowa; The LeRoy Matthews CF
Center, Rainbow Babies and Children's Hospital in Cleveland, Ohio; and The Emory
University CF Center, Egleston Children's Hospital in Atlanta, Georgia. The
study is evaluating the safety and pharmacokinetic profile of CPX, that is its
ability to be orally absorbed, determining the best dose to use and determining
how often it should be taken. In addition, the study is the first ever to
attempt to measure both sweat chloride and NEPD in a multicenter trial. Sweat
chloride and NEPD are surrogate markers of efficacy and are abnormal in CF
patients. The phase 1 trial may provide an early indication of CPX effectiveness
if it demonstrates improvement of sweat chloride and NEPD tests.
Marketing and Sales
In general, the Company plans to market and sell its products in the U.S.
by establishing its own marketing and sales organization. Outside of the U.S.,
the Company currently plans to market and sell its products through
collaborative or distribution arrangements, which may include co-marketing and
sales agreements.
In the U.S., CPX is still in clinical development. Currently, the Company
plans to market and sell CPX in the U.S. through the establishment of its own
marketing and sales organization. In Europe, the Company is evaluating its plans
for marketing and selling CPX.
In the U.S. and Europe, thymosin alpha 1 is still in clinical development.
In Europe, SciClone is currently exploring various collaborative arrangements
with major pharmaceutical companies for the development of thymosin alpha 1 in
combination with interferon for the treatment of chronic hepatitis C. Such
collaborative arrangements may include marketing and sales cooperation. In the
U.S., the Company may consider collaborative arrangements for ZADAXIN.
SciClone's non-U.S./non-European thymosin alpha 1 marketing and sales
strategy, apart from Japan, is to establish its own proprietary regional sales
and marketing capabilities to commercialize thymosin alpha 1. Consistent with
this strategy, SciClone focuses on educating the medical opinion leaders in each
country and targeting the leading specialists and teaching hospitals, tactics
consistent with the successful introduction of specialist-oriented medicines
targeted at patients who have the ability to purchase them. SciClone manages the
intellectual processes of marketing, medical education and the running of
clinical trial and clinical experience programs. Distributors assist SciClone
with local regulatory submissions to the ministries of health as well as import,
inventory, physically distribute and invoice ZADAXIN. SciClone International is
based in Hong Kong and has international offices in Singapore, Taiwan and Japan.
SciClone International also manages a distribution center in Hong Kong which is
the source for all ZADAXIN exported to the non-U.S. markets. SciClone has
established distribution arrangements with local pharmaceutical distribution
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<PAGE>
companies in over 25 countries outside of the U.S., Europe and Japan. In its
three approved Asian ZADAXIN markets (China, the Philippines and Singapore),
SciClone has established a marketing program including the positioning and
pricing of the drug. Local sales are managed by dedicated distributor employees
nominated and supported by SciClone. In Japan, as previously discussed, SciClone
has licensed SPKK to develop and market thymosin alpha 1.
Manufacturing
The Company has entered into contract manufacturing and supply agreements
to source ZADAXIN and CPX. SciClone has a European cGMP third party source for
bulk thymosin alpha 1 peptide for the European, Asian (except Japan), Middle
Eastern and Latin American markets. This bulk peptide is turned into finished
sterile injectable form by a separate European cGMP manufacturer. This finished
product is shipped to Hong Kong for labeling and redistribution worldwide. For
the U.S. and Japanese markets, an alternative U.S. located cGMP bulk
manufacturer and a separate cGMP finishing plant are utilized. CPX is
manufactured for SciClone in the U.S. by a major U.S. pharmaceutical company and
turned into finished form by a separate U.S. pharmaceutical manufacturer. The
Company directly monitors production runs of its products and manages its own
Quality Assurance programs. The Company is constantly managing the manufacturing
processes and participating in production and quality testing upgrades. SciClone
has established an inventory sufficient to fulfill its expected requirements in
the near term.
Patents and Proprietary Rights
The Company is the exclusive licensee of composition of matter, process
and use patents and pending applications related to thymosin alpha 1, in the
U.S. and abroad.
The Company is the exclusive licensee (with limited exceptions) of a
number of foreign patents directed to the thymosin alpha 1 composition of matter
which is owned by Hoffman-La Roche AG and the Board of Regents of the University
of Texas System. Certain of these foreign composition of matter patents expired
in October 1997. However, the Company is the exclusive licensee of a number of
composition of matter patents and applications directed to analogs and
derivatives of thymosin alpha 1. The Company is also the exclusive licensee and
is directing prosecution of use and process patents related to the method of
making and therapeutic uses of thymosin alpha 1. Consistent with its strategy,
the Company also has filed its own use patents for thymosin alpha 1.
Process patents owned by Alpha 1 and exclusively licensed to SciClone are
directed to methods of making thymosin alpha 1 and have issued in the U.S., a
majority of European countries, Hong Kong and Taiwan.
SciClone also has exclusively licensed patents and pending applications
covering numerous uses of thymosin alpha 1, including treatment of chronic
hepatitis C which has issued in a majority of European countries, Taiwan,
Australia and South Africa. Patents under which SciClone is exclusively licensed
have additionally issued in the U.S. and Australia covering the use of thymosin
alpha 1 to treat small cell and non-small cell lung cancer; in the U.S., South
Africa and Taiwan covering the use of thymosin alpha 1 to treat autoimmune
hepatitis; in Japan covering the treatment of chronic hepatitis B using thymosin
alpha 1; in the U.S., Taiwan and South Africa covering the use of thymosin alpha
1 to treat septic shock; and in the U.S., Australia, Taiwan and South Africa
covering the treatment of infertility in mammalian males using thymosin alpha 1.
Patents which SciClone owns have issued in the United States, Taiwan and South
Africa covering the use of thymosin alpha 1 to treat chronic hepatitis B
carriers with minimal disease. Numerous corresponding additional patent
applications in other countries are pending for each of the above named
indications.
The Company is the exclusive licensee of an issued U.S. patent covering
the use of CPX to treat CF, as well as other pending domestic and foreign patent
applications covering CPX analogs and their use in treating CF.
In addition to patent protection, the Company intends to use other means
to protect its proprietary rights. A type of marketing exclusivity period may be
available under regulatory provisions in certain countries including the United
States, European Union countries, Japan and Taiwan, which benefits the holder of
the first marketing approval for new chemical entities or their equivalents for
a given indication. Orphan drug protection will be sought where available
granting additional market exclusivity. The Company is the holder of an orphan
drug product designation for thymosin alpha 1 for chronic hepatitis B in the
United States. Recognition and protection of trademarks for thymosin alpha 1 is
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being accomplished through a worldwide filing of trademark applications for
ZADAXIN and other trademarks which appear on the commercial packaging of the
product and are used in promotional literature. Copyrights for the commercial
packaging may provide SciClone with means to take advantage of procedures
available in certain countries to exclude counterfeit products or genuine but
unauthorized products from entering a particular country by parallel
importation. The Company has also implemented anti-counterfeiting measures on
commercial packaging and plans to register the packaging with customs
departments in countries where such procedures exist.
The Company is pursuing similar types of protection for CPX, where
applicable. The Company is the holder of an orphan drug product designation for
CPX to treat CF in the U.S.
The Company also relies upon trade secrets, which it seeks to protect, in
part, by confidentiality agreements with employees, consultants, suppliers and
licenses. There can be no assurance that these agreements will not be breached,
that SciClone would have adequate remedies for any breach or that SciClone's
trade secrets will not otherwise become known or independently developed by
competitors.
RECENT DEVELOPMENTS
On July 23, 1997, Thomas E. Moore, then Chairman of the Board and one of
the founders of the Company, pledged 1,882,500 shares of Common Stock as
security for the Shareholder Loan which has been recorded as an offset to
shareholders' equity at September 30, 1997. Interest on the principal amount of
the Shareholder Loan accrues at a rate of 7% per annum and the Shareholder Loan
is repayable in July 1999. While the Shareholder Loan remains outstanding,
immediately prior to the closing of any offering of the Company's securities,
the Company may elect to cancel, through a non-cash exchange, a number of the
Pledged Shares in partial or complete satisfaction of the Shareholder Loan,
including accrued interest. The number of the Pledged Shares to be so canceled
would be determined by reference to the price of the shares of Common Stock to
be sold in the then-pending offering less permitted discounts. To date, the
Company has not cancelled any of the Pledged Shares. If, immediately prior to
the closing of this offering, the Company elects to exercise such option in full
satisfaction of the Shareholder Loan and accrued interest, then assuming a price
of $5.03 per share, the last sale price of the Common Stock as reported by the
Nasdaq National Market on November 10, 1997 less permitted discounts, the
Company would cancel 1,547,157 of the Pledged Shares. Effective July 24, 1997
Mr. Moore resigned from the Board of Directors to pursue other interests. See
"Management."
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MANAGEMENT
On July 2, 1997, the Company appointed Rolf H. Henel to its Board of
Directors and on July 25, 1997 the Company appointed Jere E. Goyan, Ph.D., a
director of the Company, as Chairman of the Board. Thomas E. Moore, Chairman of
the Board of Directors and a director of the Company, resigned effective July
24, 1997.
Alfred R. Rudolph, M.D. joined the Company in April 1997 as Chief
Technical Officer and was promoted to Chief Operating Officer in August 1997.
David A. Karlin, M.D. joined the Company in June 1995 as Vice President and
Medical Director. David Horwitz, M.D., Ph.D., Executive Vice President of
Medical, Regulatory and Scientific Affairs, resigned as an officer of the
Company effective August 29, 1997.
<TABLE>
The following table sets forth certain information with respect to each of
the executive officers and directors of the Company:
<CAPTION>
Name Age Position
--------------------------------------------- --------- ----------------------------------------
<S> <C> <C>
Donald R. Sellers......................... 53 President, Chief Executive Officer and
Director
Alfred R. Rudolph, M.D.................... 50 Chief Operating Officer
David A. Karlin, M.D...................... 54 Vice President and Medical Director
Mark A. Culhane........................... 37 Vice President, Finance and
Administration and Chief Financial
Officer, Secretary
Jere E. Goyan, Ph.D....................... 67 Chairman of the Board of Directors
John D. Baxter, M.D....................... 57 Director
Edwin C. Cadman, M.D...................... 52 Director
Rolf H. Henel............................. 60 Director
</TABLE>
Donald R. Sellers has served as the Company's Chief Executive Officer
since April 1996 and as President and Director since January 1996. From May 1993
to present, he has also served as Managing Director, SciClone Pharmaceuticals
International Ltd., the international arm of the Company. From 1990 to 1993, Mr.
Sellers was Corporate Vice President of Getz Bros., a U.S.-based international
trading company, as well as President of one of their Japanese operations. From
1983 to 1990, Mr. Sellers was employed by Sterling Drug International, initially
as Vice President of Marketing and Operations in Asia and later as President of
their Latin American Andina Group. Mr. Sellers began his pharmaceutical career
in 1973 with Pfizer as Country Manager, Vietnam and Hong Kong, and he later
worked with the Revlon Healthcare Group as Director of Worldwide Exports and
Pacific Area Director.
Alfred R. Rudolph, M.D. joined the Company in April 1997 as Chief
Technical Officer and was promoted to Chief Operating Officer in August 1997.
From January 1995 to September 1995, Dr. Rudolph was President and Chief
Operating Officer of Neptune Pharmaceuticals, Inc., a marine-based natural
product screening company. Dr. Rudolph was Senior Vice President of T Cell
Sciences, Inc., a biotechnology company, from December 1991 to September 1994
and was Vice President, Medical Affairs from March 1990 to December 1991.
David A. Karlin, M.D. has been a Medical Director since June 1995 and a
Vice President since July 1996 and was appointed an executive officer in May
1997. From December 1992 to June 1995 Dr. Karlin was a Clinical Team Leader at
Syntex USA, Inc. ("Syntex"), a pharmaceutical company, after serving as Senior
Clinical Research Physician at Syntex from May 1990 to December 1992.
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Mark A. Culhane has been the Company's Vice President, Finance and
Administration and Chief Financial Officer since May 1994 and its Secretary
since November 1993. From June 1992 to May 1994, Mr. Culhane served in other
financial positions with the Company. From July 1982 to June 1992, Mr. Culhane
was employed by Price Waterhouse, an international public accounting firm, where
his last position was Senior Manager.
Jere E. Goyan, Ph.D. has been a director of the Company since January 1992
and has been Chairman of the Board since July 1997. Since July 1993, Dr. Goyan
has been President and Chief Operating Officer and director of Alteon, Inc., a
biotechnology company where he served as Senior Vice President for Research and
Development from January 1993 through July 1993 and as Acting Chief Executive
Officer from July 1993 through May 1994. Dr. Goyan was Dean of the School of
Pharmacy and Professor of Pharmacy and Pharmaceutical Chemistry at the
University of California, San Francisco from 1967 through 1992, and was a
Professor there from 1965 through 1992. From 1979 to 1981, Dr. Goyan was the
Commissioner of the United States Food and Drug Administration. Dr. Goyan also
currently serves as a director of Emisphere Technologies, Inc. and Atrix
Laboratories, both biotechnology companies, and Boehringer Ingelheim
Pharmaceuticals Corporation and Penwest Pharmaceuticals, both pharmaceutical
companies.
John D. Baxter, M.D. joined the Company as a director and Chairman of its
Scientific Advisory Board in June 1991. Dr. Baxter has been associated with the
University of California, San Francisco since 1970. He has been Professor of
Medicine since 1979 and Director of the Metabolic Research Unit since 1981. Dr.
Baxter was a founder and served as a director of Scios Nova Inc., a
biotechnology company, from its inception in 1982 to 1991.
Edwin C. Cadman, M.D. has been a director and member of the Company's
Scientific Advisory Board since November 1991. Since January 1994, Dr. Cadman
has been Senior Vice President of Medical Affairs and Chief of Staff at Yale New
Haven Hospital, where he was Chief of the Medical Service from 1987 through
December 1993. Since 1987, Dr. Cadman has also been Professor of Medicine at
Yale University, where he was Chairman of the Department of Medicine from 1987
through December 1993. Prior to these positions, he was Director of the Cancer
Research Institute at the University of California, San Francisco. Dr. Cadman
also currently serves as a director of CytoTherapeutics, Inc., a biotechnology
company.
Rolf H. Henel joined the Company as a director in July 1997. Mr. Henel has
been a partner at Naimark & Associates, Inc., a health care consulting firm,
since September 1993. Mr. Henel has been Executive Director of Performance
Effectiveness Corporation, Inc., a pharmaceutical consulting and education
company, since April 1993. From 1978 to 1993, Mr. Henel was with Cyanamid, a
chemical company, most recently as President of Cyanamid International Lederele
Division. Mr. Henel is also a director of Penwest Pharmaceuticals.
Directors serve one year terms or until their successors are elected and
qualified. Executive officers serve at the discretion of the Board of Directors.
There are no family relationships among any of the directors or executive
officers of the Company.
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<PAGE>
PLAN OF DISTRIBUTION
The Shares are being offered for sale by the Company on a best efforts
basis principally to selected institutional investors. EVEREN Securities, Inc.
(the "Placement Agent") has been retained, pursuant to a placement agency
agreement, to act as the exclusive agent for the Company in connection with the
arrangement of such offers and sales on a best efforts basis.
The Placement Agent is not obligated to and does not intend to itself take
(or purchase) any of the Shares. It is anticipated that the Placement Agent will
obtain indications of interest from potential investors for the amount of the
offering and that effectiveness of the Registration Statement will not be
requested and no investor funds will be accepted until indications of interest
have been received for all of the Shares. Confirmations and definitive
prospectuses will be distributed to all investors at the time of pricing,
informing investors of the closing date, which will be scheduled for three
business days after pricing. No investor funds will be accepted prior to
effectiveness of the Registration Statement. After the Registration Statement is
declared effective and prior to the closing date, all investor funds will be
placed promptly, and in any event no later than noon Pacific Standard Time of
the next business day following receipt, in escrow with the Escrow Agent in an
escrow account established for the benefit of the investors. The Escrow Agent
will invest such funds in accordance with Rule 15c2-4 promulgated under the
Exchange Act. Prior to the closing date, the Escrow Agent will advise the
Company whether the investors have deposited the requisite funds in the escrow
account at the Escrow Agent. If the requisite funds have been deposited, the
Company will deposit with The Depository Trust Company the Shares to be credited
to the respective accounts of the investors. Investor funds, together with
interest thereon, if any, will be collected by the Company through the
facilities of the Escrow Agent on the scheduled closing date. The offering will
not continue after the closing date. In the event that investor funds are not
received, all funds deposited in the escrow account will promptly be returned in
the full amount necessary to satisfy the requirements of the offering.
The Company has agreed (i) to pay the Placement Agent ___% of the proceeds
of the offering as the selling commission, (ii) to indemnify the Placement Agent
against certain liabilities, including liabilities under the Securities Act, and
(iii) to reimburse the Placement Agent up to $__________ for certain of its
out-of-pocket expenses in connection with the offering.
The Placement Agent has provided, and may provide in the future,
investment banking and/or other advisory services to the Company for which it
received customary compensation.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Gray Cary Ware & Freidenrich, A Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Placement Agent by Stroock & Stroock & Lavan LLP, New York,
New York.
EXPERTS
The consolidated financial statements of SciClone Pharmaceuticals, Inc. at
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, incorporated by reference into this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
27
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company, the Placement Agent or
any other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Shares of Common
Stock offered hereby, nor does it constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby to any person in any
jurisdiction in which it is unlawful to make such offer or solicitation to such
person. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create an implication that the information
contained herein is correct as of any date subsequent to the date hereof.
------------------
TABLE OF CONTENTS
Page
----
Available Information ..................................................... 3
Incorporation of Certain Documents by
Reference ............................................................... 3
Prospectus Summary ........................................................ 4
Risk Factors .............................................................. 7
Use of Proceeds ........................................................... 12
Dilution .................................................................. 13
Capitalization ............................................................ 14
Price Range of Common Stock ............................................... 15
Business .................................................................. 16
Recent Developments ....................................................... 24
Management ................................................................ 25
Plan of Distribution ...................................................... 27
Legal Matters ............................................................. 27
Experts ................................................................... 27
------------------
================================================================================
================================================================================
1,500,000 Shares
SciClone Pharmaceuticals, Inc.
Common Stock
PROSPECTUS
EVEREN Securities, Inc.
_____________, 1997
===============================================================================
<PAGE>
II-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
Placement Agent's fee. All amounts shown are estimates except the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
Item Amount
- ---- ------
Securities and Exchange Commission registration fee......... $ 2,814
NASD filing fee............................................. 1,429
Nasdaq National Market listing fee.......................... 17,500
Blue sky qualification fees and expenses.................... 3,000
Accounting fees and expenses................................ 20,000
Legal fees and expenses..................................... 160,000
Printing and engraving expenses............................. 10,000
Transfer agent and registrar fees........................... 2,000
Miscellaneous expenses...................................... 8,257
--------
Total.............................................. $225,000
========
Item 15. Indemnification of Directors and Officers
The Company's Restated Articles of Incorporation, as amended, provide that
the liability of the directors for monetary damages shall be eliminated to the
fullest extent permissible under California law. Pursuant to California law, the
Company's directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty of care to the Company and its shareholders. However,
this provision in the Restated Articles of Incorporation does not eliminate the
duty of care, and in appropriate circumstances equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available under
California law. In addition, each director will continue to be subject to
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Company or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard for
the director's duty to the Company or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the Company or
its shareholders, (v) for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
Company or its shareholders, (vi) for any transaction that constitutes an
illegal distribution or dividend under California law, and (vii) for any
transaction involving an unlawful conflict of interest between the director and
the Company under California law. The provision also does not affect a
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws.
In addition, the Company's Restated Articles of Incorporation, as amended,
provide that the Company is authorized to provide indemnification of agents (as
defined under California law) for breach of duty to the Company and its
shareholders through bylaw provisions, agreements with the agents, vote of
shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by California law, subject to the limits on
such excess indemnification set forth in California law.
The Company's Bylaws provide that the Company will indemnify its directors
and officers to the maximum extent and in the manner permitted by California law
and may indemnify its employees and other agents to the maximum extent and in
the manner permitted by California law. Such indemnification is intended to
provide the
II-1
<PAGE>
full flexibility available under California law and may, under certain
circumstances, include indemnification for negligence, gross negligence and
certain types of recklessness. Under California law and the Company's Bylaws,
the Company will be permitted to indemnify its directors, officers, employees
and other agents, within the limits established by law and public policy,
pursuant to an express contract, bylaw provision, shareholder vote or otherwise,
any or all of which could provide indemnification rights broader than those
expressly available under California law. The Company has entered into
agreements with its directors and certain of its officers, including all of its
executive officers, that require the Company to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
an officer of the Company or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The form of Placement Agent Agreement filed as Exhibit 1.1 hereto sets
forth certain provisions with respect to the indemnification of certain
controlling persons, directors and officers against certain losses and
liabilities, including certain liabilities under the Securities Act.
Item 16. Exhibits
See Exhibit Index.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant, pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that:
(1) For purposes of determining any liability under the Securities act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 4340A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) of (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 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-2
<PAGE>
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 Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Mateo, State of California, on the 11th day
of November, 1997.
SCICLONE PHARMACEUTICALS, INC.
By: /s/ MARK A. CULHANE
----------------------------------------------
Mark A. Culhane
Vice President, Finance and Administration and
Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
DONALD R. SELLERS* President, Chief Executive Officer, November 11, 1997
- ---------------------------------------- and Director (Principal Executive Officer)
Donald R. Sellers
/s/ MARK A. CULHANE Vice President, Finance and November 11, 1997
- --------------------------------------- Administration, Chief Financial Officer
Mark A. Culhane and Secretary
(Principal Financial and Accounting Officer)
JERE E. GOYAN* Chairman of the Board and Director November 11, 1997
- ---------------------------------------
Jere E. Goyan, Ph.D
JOHN D. BAXTER* Director November 11, 1997
- ---------------------------------------
John D. Baxter, M.D.
EDWIN C. CADMAN* Director November 11, 1997
- ---------------------------------------
Edwin C. Cadman, M.D.
ROLF H. HENEL* Director November 11, 1997
- ---------------------------------------
Rolf H. Henel
*By /s/ MARK A. CULHANE
- ---------------------------------------
Mark A. Culhane, Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
1.1 Form of Placement Agency Agreement between EVEREN Securities,
Inc. and the Company.
4.1 Rights Agreement, dated as of July 25, 1997, between SciClone
and ChaseMellon Shareholder Services, LLC. (incorporated by
reference to the Company's Current Report on Form 8-K filed on
October 14, 1997).
5.1* Opinion of Gray Cary Ware & Freidenrich.
10.1* Purchase and Sale, Pledge and Security Agreement; Release dated
as of July 23, 1997 by Thomas Moore, in favor of SciClone
Pharmaceuticals, Inc.
10.2 Form of Escrow Agreement among the Company, the Placement Agent
and the Escrow Agent (included in Exhibit 1.1)
23.1* Consent of Gray Cary Ware & Freidenrich (included in Exhibit
5.1).
23.2 Consent of Ernst & Young LLP, independent auditors.
24.1* Power of Attorney.
- ----------------------
* Previously filed.
II-4
SCICLONE PHARMACEUTICALS, INC.
1,500,000 Shares of Common Stock, no par value
PLACEMENT AGENCY AGREEMENT
__________________, 1997
EVEREN SECURITIES, INC.
77 West Wacker Drive
Chicago, Illinois 60601-1994
as Placement Agent
Dear Sir or Madam:
SciClone Pharmaceuticals, Inc., a California corporation (the
"Company"), proposes to issue and sell 1,500,000 shares (the "Shares") of common
stock, no par value (the "Common Stock"), to certain investors (collectively,
the "Investors"). The Company desires to engage you as its exclusive placement
agent (the "Placement Agent") in connection with such issuance and sale. The
Common Stock is more fully described in the Registration Statement (as
hereinafter defined).
The Company hereby confirms as follows its agreements with the
Placement Agent.
1. Agreement to Act as Placement Agent. On the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions of this Agreement, the Placement Agent
agrees to act as the Company's exclusive placement agent in connection with the
issuance and sale, on a best efforts basis, by the Company of the Shares to the
Investors. The Company shall pay to the Placement Agent _____% of the gross
proceeds received by the Company from the sale of the Shares as set forth on the
cover page of the Prospectus (as hereinafter defined).
2. Delivery and Payment. Concurrently with the execution and
delivery of this Agreement, the Company, the Placement Agent and Citibank, N.A.,
as escrow agent (the "Escrow Agent"), shall enter into an Escrow Agreement
substantially in the form of Exhibit A attached hereto (the "Escrow Agreement"),
pursuant to which an escrow account will be established, at the Company's
expense, for the benefit of the Investors (the "Escrow Account"). Prior to the
Closing Date (as defined below), (i) each of the Investors will deposit an
amount
<PAGE>
equal to the Price to Public per Share as shown on the cover page of the
Prospectus multiplied by the number of Shares purchased by it in the Escrow
Account, and (ii) the Escrow Agent will notify the Company and the Placement
Agent in writing whether the Investors have deposited in the Escrow Account
funds in the amount equal to the proceeds of the sale of all of the Shares
offered hereby (the "Requisite Funds") into the Escrow Account. At 10:00 a.m.,
New York City time, on _____________, 1997, or at such other time on such other
date as may be agreed upon by the Company and the Placement Agent but in no
event prior to the date on which the Escrow Agent shall have received all of the
Requisite Funds (such date is hereinafter referred to as the "Closing Date"),
the Escrow Agent will release the Requisite Funds from the Escrow Account for
collection by the Company and the Placement Agent as provided in the Escrow
Agreement and the Company shall deliver the Shares to the Investors, which
delivery may be made through the facilities of The Depository Trust Company. The
closing (the "Closing") shall take place at the office of Stroock & Stroock &
Lavan LLP, 180 Maiden Lane, New York, New York 10038. All actions taken at the
Closing shall be deemed to have occurred simultaneously.
Certificates evidencing the Shares shall be in definitive form
and shall be registered in such names and in such denominations as the Placement
Agent shall request by written notice to the Company. For the purpose of
expediting the checking and packaging of certificates for the Shares, the
Company agrees to make such certificates available for inspection at least 24
hours prior to delivery to the Investors.
3. Representations and Warranties of the Company. The Company
represents and warrants and covenants to the Placement Agent that:
(a) A registration statement (Registration No.
333-______) on Form S-3 relating to the Shares, including a preliminary
prospectus relating to the Shares and such amendments to such registration
statement as may have been required to the date of this Agreement, has been
prepared by the Company, under the provisions of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (collectively referred to as
the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The Commission
has not issued any order preventing or suspending the use of the Prospectus or
the Preliminary Prospectus (as defined below). The term "Preliminary Prospectus"
as used herein means a preliminary prospectus relating to the Shares as
contemplated by Rule 430 or Rule 430A ("Rule 430A") of the Rules and Regulations
included at any time as part of the registration statement. Copies of such
registration statement and amendments and of each related Preliminary Prospectus
have been delivered to the Placement Agent. If such registration statement has
not become effective, a further amendment to such registration statement,
including a form of final prospectus, necessary to permit such registration
statement to become effective will be filed promptly by the Company with the
Commission. If such registration statement has become effective, a final
prospectus relating to the Shares containing information permitted to be omitted
at the time of effectiveness by Rule 430A will be filed by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations promptly
after execution and delivery of this Agreement. The term "Registration
Statement" means the registration statement as amended at
-2-
<PAGE>
the time it becomes or became effective (the "Effective Date"), including all
material incorporated by reference therein and any information deemed to be
included by Rule 430A. The term "Prospectus" means the prospectus relating to
the Shares as first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations or, if no such filing is required, the form of final
prospectus relating to the Shares included in the Registration Statement at the
Effective Date, in either case, including all material, if any, incorporated by
reference therein.
(b) On the date that any Preliminary Prospectus was
filed with the Commission, the date the Prospectus is first filed with the
Commission pursuant to Rule 424(b) (if required), at all times subsequent to and
including the Closing Date and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement, each
Preliminary Prospectus and the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment or supplement
thereto), including the financial statements included in the Prospectus, did or
will comply with all applicable provisions of the Act and the Rules and
Regulations and did or will contain all statements required to be stated therein
in accordance with the Act and the Rules and Regulations. On the Effective Date
and when any post-effective amendment to the Registration Statement becomes
effective, no part of the Registration Statement or any such amendment did or
will 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
therein not misleading. At the Effective Date, at the date the Prospectus or any
amendment or supplement to the Prospectus is filed with the Commission and at
the Closing Date the Prospectus did not or will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company has not distributed any offering material in
connection with the offering or sale of the Common Stock, other than the
Registration Statement, the Preliminary Prospectus, the Prospectus, the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the
"Annual Report"), the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997 and June 30, 1997 (the "Quarterly Reports"), the
Company's Current Report on Form 8-K filed on October 14, 1997 (the "Current
Report"), the Company's registration statement on Form 8-A dated January 31,
1992 and the Company's registration statement on Form 8-A dated October 14,
1997.
(c) The Company is, and at the Closing Date will be,
a corporation duly organized, validly existing and in good standing under the
laws of California. The Company has, and at the Closing Date will have, full
corporate power and authority to conduct all the activities conducted by it, to
own or lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The Company is, and
at the Closing Date will be, duly licensed or qualified to conduct its business
and in good standing as a foreign organization in all jurisdictions in which the
nature of the activities conducted by it or the character of the assets owned or
leased by it makes such licensing or qualification necessary, except where
failure to so license or qualify does not have a material adverse effect on the
business, prospects, properties, condition (financial or
-3-
<PAGE>
otherwise), net worth or results of operations of the Company and the
Subsidiaries (as defined herein), taken as a whole. Except for the stock of the
Subsidiaries and as disclosed in the Registration Statement, the Company does
not own, and at the Closing Date will not own, directly or indirectly, any
shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity. Complete and correct copies of the articles or
certificate of incorporation and of the bylaws of the Company and the
Subsidiaries, and all amendments thereto have been delivered to the Placement
Agent, and no changes therein will be made subsequent to the date hereof and
prior to the Closing Date.
(d) Each of the Company's subsidiaries (as defined in
the Act) are identified on Exhibit 23.1 of the Annual Report, which such Annual
Report is incorporated by reference into the Registration Statement, and is
referred to herein as a "Subsidiary" and collectively as the "Subsidiaries".
Each Subsidiary is, and at the Closing Date will be, duly organized, validly
existing and in good standing in the jurisdiction of its incorporation. Each
Subsidiary has, and at the Closing Date will have, full corporate power and
authority to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described in the
Registration Statement or Prospectus. Each Subsidiary is, and at the Closing
Date will be, duly licensed or qualified to conduct its business and in good
standing as a foreign organization in all jurisdictions in which the nature of
the activities conducted by it or the character of the assets owned or leased by
it makes such licensing or qualification necessary, except where failure to so
license or qualify does not have a material adverse effect on the business,
prospects, properties, condition (financial or otherwise), net worth or results
of operations of the Company and the Subsidiaries, taken as a whole. All the
outstanding shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable, and are wholly
owned by the Company directly, free and clear of any lien, adverse claim,
security interest, equity or other encumbrance, except as described in the
Registration Statement or Prospectus.
(e) The issued and outstanding shares of capital
stock of the Company have been duly authorized, validly issued, are fully paid
and nonassessable and are not subject to any preemptive or similar rights. The
Company has an authorized, issued and outstanding capitalization as of June 30,
1997 as set forth under the caption "Capitalization" in the Prospectus. The
description of the securities of the Company incorporated by reference into the
Registration Statement and the Prospectus is, and at the Closing Date will be,
complete and accurate in all respects. Except as set forth in the Registration
Statement and the Prospectus, and except for options to purchase shares of the
Company's Common Stock granted under the Company's stock option plans and shares
of Common Stock issued under the Company's Employee Stock Purchase Plan, neither
the Company nor the Subsidiaries has outstanding, and at the Closing Date will
not have outstanding, any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or
exchangeable for, or any contracts or commitments to issue or sell, any shares
of capital stock or other securities.
(f) This Agreement has been duly authorized and
validly executed and delivered by the Company and is a legal, valid and binding
agreement of the Company
-4-
<PAGE>
enforceable against the Company in accordance with its terms, subject to the
effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar
laws relating to or affecting creditors' rights generally and court decisions
with respect thereto. The Escrow Agreement has been duly authorized and validly
executed and delivered by the Company and is a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, subject to the effect of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights generally
and court decisions with respect thereto.
(g) The issuance and sale of the Shares have been
duly authorized by the Company, and the Shares, when issued and paid for in
accordance with this Agreement, will be duly and validly issued, fully paid and
nonassessable and will not be subject to preemptive or similar rights. The
holders of the Shares will not be subject to personal liability by reason of
being such holders. The Shares, when issued, will conform to the description
thereof set forth in the Prospectus.
(h) The consolidated financial statements and the
related notes and schedules incorporated by reference into the Registration
Statement and the Prospectus present fairly the consolidated financial condition
of the Company and the Subsidiaries as of the respective dates thereof and the
results of operations, shareholder's equity (deficit) and cash flows at the
respective dates and for the respective periods covered thereby, all in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the entire period involved, except as otherwise
disclosed therein. No other financial statements or schedules of the Company,
the Subsidiaries, or any other entity are required by the Act or the Rules and
Regulations to be included in the Registration Statement or the Prospectus.
Ernst & Young LLP (the "Accountants"), who have reported on such financial
statements and schedules, are independent accountants with respect to the
Company and the Subsidiaries as required by the Act and the Rules and
Regulations. Such financial statements and the related notes and schedules
incorporated by reference into the Registration Statement and the Prospectus
have been prepared in conformity with the requirements of the Act and the Rules
and Regulations and present fairly the information presented therein; the pro
forma financial information set forth under the headings "Prospectus Summary -
The Offering" and "Capitalization" in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) has been prepared in
conformity with the applicable published rules and regulations of the Commission
with respect to pro forma financial information, and the assumptions used in
preparing such information are reasonable; and the other financial and
statistical information and data included in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) are accurately presented
and prepared on a basis consistent with such financial statements and the books
and records of the Company and the Subsidiaries.
(i) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
-5-
<PAGE>
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(j) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been any
change in the capitalization of the Company or the Subsidiaries other than
non-material changes in the ordinary course of business, or any material adverse
change in the business, prospects, properties, condition (financial or
otherwise), net worth or results of operations of the Company or the
Subsidiaries arising for any reason whatsoever, (ii) the Company and the
Subsidiaries have not incurred nor will any of them incur any material
liabilities or obligations, direct or contingent, nor has the Company or the
Subsidiaries entered into nor will any of them enter into any material
transactions other than pursuant to this Agreement, the Registration Statement
and the transactions referred to herein and therein and (iii) the Company has
not and will not have paid or declared any dividends or other distributions of
any kind on any class of its capital stock.
(k) Any real property and buildings held under lease
to the Company or the Subsidiaries are held or leased by them under valid,
binding and enforceable leases conforming to the description thereof
incorporated by reference into the Registration Statement and the Prospectus,
with such exceptions as do not interfere with the use made and proposed to be
made of such property and buildings by the Company or the Subsidiaries, as the
case may be.
(l) The Company is not an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act") and is not required to be registered under the
Investment Company Act.
(m) Except as set forth or referred to in the
Registration Statement and the Prospectus, there are no actions, suits or
proceedings pending, or to the Company's knowledge, threatened, against or
affecting the Company or the Subsidiaries or any of their respective officers in
their capacity as such, before or by any Federal or state court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding might materially
adversely affect the business, prospects, properties, condition (financial or
otherwise), net worth or results of operations of the Company and the
Subsidiaries, taken as a whole.
(n) The Company and each Subsidiary has, and at the
Closing Date will have, (i) all governmental licenses, permits, consents,
orders, approvals and other authorizations necessary to carry on its business as
contemplated in the Prospectus (or if the Prospectus is not in existence, the
most recent Preliminary Prospectus), (ii) complied with all laws, regulations
and orders applicable to either it or its business, where the failure to so
comply would have a material adverse effect on the business, prospects,
properties, condition
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<PAGE>
(financial or otherwise), net worth or results of operations of the Company and
the Subsidiaries, taken as a whole, and (iii) performed all its obligations
required to be performed, and is not, and at the Closing Date will not be in
default, under any indenture, mortgage, deed of trust, voting trust agreement,
loan agreement, bond, debenture, note agreement, lease, contract or other
agreement or instrument (collectively, a "contract or other agreement") to which
it is a party or by which its property is bound or affected, except as otherwise
set forth in the Registration Statement and the Prospectus and except where such
default would not have a material adverse effect on the business, prospects,
properties, condition (financial or otherwise), net worth or results of
operations of the Company, and, to the Company's knowledge, no other party under
any contract or other agreement to which it is a party is in default in any
respect thereunder. Neither the Company nor the Subsidiaries are in violation of
any provision of its organizational or governing documents.
(o) The Company has all corporate power and authority
to enter into this Agreement and the Escrow Agreement, and to carry out the
provisions and conditions hereof and thereof, and all consents, authorizations,
approvals and orders of any court, government, or governmental agency or body
having jurisdiction over the Company or its properties or operations required in
connection herewith and therewith have been obtained, except such as may be
required under state securities or Blue Sky laws or the by-laws and rules of the
National Association of Securities Dealers, Inc. (the "NASD").
(p) Neither (i) the issuance, offering and sale of
the Shares pursuant hereto, nor (ii) the compliance by the Company with the
other provisions hereof require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except such
as have been obtained, such as may be required under state securities or Blue
Sky laws or the bylaws and rules of the NASD and, if the Registration Statement
is not effective under the Act as of the time of execution hereof, such as may
be required (and shall be obtained as provided in this Agreement) under the Act.
(q) Neither the execution of this Agreement or the
Escrow Agreement, nor the issuance, offering or sale of the Shares, nor the
consummation of any of the transactions contemplated herein or in the Escrow
Agreement, nor the compliance by the Company with the terms and provisions
hereof or thereof will conflict with, or will result in a breach of, any of the
terms and provisions of, or has constituted or will constitute a default under,
or has resulted in or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or the
Subsidiaries pursuant to the terms of any contract or other agreement to which
the Company or the Subsidiaries may be bound or to which any of the property or
assets of the Company or the Subsidiaries is subject; nor will such action
result in any violation of the provisions of the Company's or the Subsidiaries'
organizational or governing documents, or any statute or any order, rule or
regulation applicable to the Company or the Subsidiaries or of any court or of
any federal, state or other regulatory authority or other government body having
jurisdiction over the Company or the Subsidiaries, except for such conflicts,
breaches, defaults, liens, charges, encumbrances or violations which will not
have a material adverse effect on business, prospects, properties,
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<PAGE>
condition (financial or otherwise), net worth or results of operations of the
Company and the Subsidiaries, taken as a whole.
(r) There is no document or contract of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement which is not described or
filed as required. All such contracts to which the Company or the Subsidiaries
is a party have been duly authorized, executed and delivered by the Company or
the Subsidiaries, constitute valid and binding agreements of the Company or the
Subsidiaries, as the case may be, and are enforceable against the Company or the
Subsidiaries in accordance with the terms thereof, subject to the effect of
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and equitable principles of general applicability.
(s) No statement, representation or warranty made by
the Company in this Agreement or made in any certificate or document required by
this Agreement or the Escrow Agreement to be delivered to the Placement Agent,
the Investors or the Escrow Agent was or will be, when made, inaccurate, untrue
or incorrect in any material respect.
(t) The Company and its directors, officers or
controlling persons have not taken, directly or indirectly, any action intended,
or which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Common Stock.
(u) No holder of securities of the Company has rights
to the registration of any securities of the Company as a result of the filing
of the Registration Statement.
(v) The Common Stock is currently listed on the
Nasdaq National Market (the "NNM").
(w) Neither the Company nor the Subsidiaries are
involved in any material labor dispute nor is any such dispute threatened.
(x) None of the Company or the Subsidiaries or any of
their respective employees or agents have made any payment of funds of the
Company or the Subsidiaries, or received or retained any such funds in violation
of any law, rule or regulation where such actions are of a character required to
be disclosed in the Prospectus.
(y) The Company 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 the Subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
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<PAGE>
(z) The Company, either directly or indirectly
through the Subsidiaries, has sufficient patent rights, trademarks, trade names,
copyrights, licenses, approvals and governmental authorizations to conduct its
business as described in the Prospectus; except as described in the Prospectus,
the expiration of any patent rights, trademarks, trade names, copyrights,
licenses, approvals or governmental authorizations would not have a material
adverse effect on the business, prospects, properties, condition (financial or
otherwise), net worth or results of operations of the Company and the
Subsidiaries taken as a whole; and the Company has no knowledge of any material
infringement by it of patent rights, trademark, trade name rights, copyrights,
licenses, trade secrets or other similar rights of others, and there is no claim
being made against the Company or any of the Subsidiaries regarding patents,
trademark, trade names, copyright, license, trade secrecy or other infringement
which could have a material adverse effect on the business, prospects,
properties, condition (financial or otherwise), net worth or results of
operations of the Company and the Subsidiaries, taken as a whole.
(aa) The business, operations and properties of the
Company and the Subsidiaries have been and are being conducted in compliance
with all applicable laws, ordinances, rules, regulations, licenses, permits,
approvals, plans, authorizations or requirements relating to occupational safety
and health, or pollution, or protection of health or the environment (including,
without limitation, those relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous or toxic
substances, materials or wastes into ambient air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of chemical substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, whether
solid, gaseous or liquid in nature) of any governmental department, commission,
board, bureau, agency or instrumentality of the United States, any state or
political subdivision thereof, or any foreign jurisdiction, and all applicable
judicial or administrative agency or regulatory decrees, awards, judgments and
orders relating thereto, and neither the Company nor the Subsidiaries has
received any notice from any governmental instrumentality or any third party
alleging any violation thereof or liability thereunder (including, without
limitation, liability for costs of investigating or remediating sites containing
hazardous substances and/or damages to natural resources).
(bb) The information contained in the following
documents, which are incorporated by reference into the Registration Statement,
is true and correct in all material respects as of their respective final dates:
(i) the Annual Report;
(ii) the Quarterly Reports;
(iii) the Current Report;
(iv) the Company's registration statement on
Form 8-A dated January 31, 1992; and
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<PAGE>
(v) the Company's registration statement on
Form 8-A dated October 14, 1997.
4. Agreements of the Company. The Company covenants and agrees
with the Placement Agent as follows:
(a) The Company will not, either prior to the
Effective Date or thereafter during such period as the Prospectus would be
required by law to be delivered in connection with sales of the Shares by an
underwriter or dealer, file any amendment or supplement to the Registration
Statement or the Prospectus, unless a copy thereof shall first have been
submitted to the Placement Agent within a reasonable period of time prior to the
filing thereof and the Placement Agent shall not have objected thereto in good
faith.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective, and will notify the Placement
Agent promptly, and will confirm such advice in writing, (1) when the
Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (2) of any request by the securities or
other governmental authority (including, without limitation, the Commission) of
any jurisdiction for amendments or supplements to the Registration Statement or
the Prospectus or for additional information, (3) of the issuance by any
securities or other governmental authority (including, without limitation, the
Commission) of any jurisdiction of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose or the threat thereof, (4) of the happening of any event during the
period mentioned in Section 4(a) that in the judgment of the Company makes any
statement made in the Registration Statement or the Prospectus untrue or that
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances in which they are made, not misleading and (5) of receipt by the
Company or any representative or attorney of the Company of any other
communication from the securities or other governmental authority (including,
without limitation, the Commission) of any jurisdiction relating to any of the
Registration Statement, any Preliminary Prospectus or the Prospectus. If at any
time any securities or other governmental authority (including, without
limitation, the Commission) of any jurisdiction shall issue any order suspending
the effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible moment. If the Company has omitted any information from the
Registration Statement, pursuant to Rule 430A, it will use its best efforts to
comply with the provisions of and make all requisite filings with the Commission
pursuant to said Rule 430A and to notify the Placement Agent promptly of all
such filings.
(c) If, at any time when a Prospectus relating to the
Shares is required to be delivered under the Act, any event occurs as a result
of which the Prospectus, as then amended or supplemented, would, in the judgment
of counsel to the Company or counsel to the Placement Agent, include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
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<PAGE>
under which they were made, not misleading, or the Registration Statement, as
then amended or supplemented, would, in the judgment of counsel to the Company
or counsel to the Placement Agent, include any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein
not misleading, or if for any other reason it is necessary, in the judgment of
counsel to the Company or counsel to the Placement Agent, at any time to amend
or supplement the Prospectus or the Registration Statement to comply with the
Act or the Rules and Regulations, the Company will promptly notify the Placement
Agent and, subject to Section 4(a) hereof, will promptly prepare and file with
the Commission, at the Company's expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus that corrects such
statement or omission or effects such compliance and will deliver to the
Placement Agent, without charge, such number of copies thereof as the Placement
Agent may reasonably request. The Company consents to the use of the Prospectus
or any amendment or supplement thereto by the Placement Agent.
(d) The Company will furnish to the Placement Agent
and its counsel, without charge, (i) two copies of the registration statement
described in Section 3(a) hereof and each pre-effective amendment thereto,
including financial statements and schedules, and all exhibits thereto and (ii)
so long as a prospectus relating to the Shares is required to be delivered under
the Act, as many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Placement Agent may reasonably request.
(e) The Company will comply with all the undertakings
contained in the Registration Statement.
(f) Prior to the sale of the Shares to the Investors,
the Company will cooperate with the Placement Agent and its counsel in
connection with the registration or qualification of the Shares for offer and
sale under the state securities or Blue Sky laws of such jurisdictions as the
Placement Agent may request; provided, that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject.
(g) During the period of three years commencing on
the Effective Date, the Company will furnish to the Placement Agent copies of
such financial statements and other periodic and special reports as the Company
may from time to time distribute generally to the holders of any class of its
capital stock, and will furnish to the Placement Agent a copy of each annual or
other report it shall be required to file with the Commission.
(h) The Company will make generally available to
holders of its securities, as soon as may be practicable, but in no event later
than the last day of the fifteenth full calendar month following the calendar
quarter in which the Effective Date falls, a consolidated earnings statement
(which need not be audited but shall be in reasonable detail) for a period of 12
months ended commencing after the Effective Date, and satisfying the provisions
of Section 11(a) of the Act (including Rule 158 of the Rules and Regulations).
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<PAGE>
(i) The Company will not at any time, directly or
indirectly, take any action intended, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
Shares to facilitate the sale or resale of any of the Shares.
(j) The Company will apply the net proceeds from the
offering and sale of the Shares in the manner set forth in the Prospectus under
the caption "Use of Proceeds."
5. Expenses. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, the Company will
pay all costs and expenses incident to the performance of the obligations of the
Company under this Agreement, including but not limited to costs and expenses of
or relating to (1) the preparation, printing and filing of the Registration
Statement (including each pre- and post-effective amendment thereto) and
exhibits thereto, each Preliminary Prospectus, the Prospectus and any amendment
or supplement to the Prospectus, including all fees, disbursements and other
charges of counsel to the Company, (2) the preparation and delivery of
certificates representing the Shares, (3) furnishing (including costs of
shipping and mailing) such copies of the Registration Statement (including all
pre- and post-effective amendments thereto), the Prospectus and any Preliminary
Prospectus, and all amendments and supplements to the Prospectus, as may be
requested for use in connection with the direct placement of the Shares, (4) the
listing of the Shares on the NNM, (5) any filings required to be made by the
Placement Agent with the NASD and the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 4(f), including the reasonable
fees, disbursements and other charges of counsel to the Placement Agent in
connection therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (6) fees, disbursements and other
charges of counsel to the Company and (7) the fees of the Escrow Agent. The
Company shall reimburse the Placement Agent for all its travel, legal and other
out-of-pocket expenses incurred in connection with the engagement hereunder, up
to a maximum of $___________.
6. Conditions of the Obligations of the Placement Agent. The
obligations of the Placement Agent hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has
become effective shall be received by the Placement Agent not later than 4:00
p.m., New York City time, on the date of this Agreement or at such later date
and time as shall be consented to in writing by the Placement Agent and all
filings required by Rule 424 of the Rules and Regulations and Rule 430A shall
have been made.
(b) (i) No stop order suspending the effectiveness of
the Registration Statement shall have been issued, and no proceedings for that
purpose shall be pending or threatened by any securities or other governmental
authority (including, without limitation, the Commission), (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or
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<PAGE>
threatened or contemplated by any securities or other governmental authority
(including, without limitation, the Commission), (iii) any request for
additional information on the part of the staff of any securities or other
governmental authority (including, without limitation, the Commission) shall
have been complied with, and, to the Company's knowledge, to the satisfaction of
the staff of the Commission or such authorities and (iv) after the date hereof
no amendment or supplement to the Registration Statement or the Prospectus shall
have been filed unless a copy thereof was first submitted to the Placement Agent
and the Placement Agent did not object thereto in good faith, and the Placement
Agent shall have received certificates, dated the Closing Date and signed by the
President and Chief Executive Officer or the Chairman of the Board of Directors
of the Company, and the Chief Financial Officer of the Company (who may, as to
proceedings threatened, rely upon their information and belief), to the effect
of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, (i) there
shall not have been a material adverse change in the general affairs, business,
business prospects, properties, management, condition (financial or otherwise),
net worth or results of operations of the Company or the Subsidiaries, whether
or not arising from transactions in the ordinary course of business, in each
case other than as set forth in or contemplated by the Registration Statement
and the Prospectus and (ii) neither the Company nor the Subsidiaries shall have
sustained any material loss or interference with its business or properties from
fire, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or any court or legislative or other governmental
action, order or decree, which is not set forth in the Registration Statement
and the Prospectus, if in the sole judgment of the Placement Agent any such
development makes it impracticable or inadvisable to consummate the sale and
delivery of the Shares to Investors at the offering price.
(d) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall have been no litigation or other proceeding instituted against the Company
or the Subsidiaries or any of its officers or directors in their capacities as
such, before or by any Federal, state or local court, commission, regulatory
body, administrative agency or other governmental body, domestic or foreign, in
which litigation or proceeding an unfavorable ruling decision or finding would
materially and adversely affect the business, prospects, properties, condition
(financial or otherwise), net worth or results of operations of the Company or
its Subsidiaries.
(e) Each of the representations and warranties of the
Company contained herein shall be true and correct in all material respects at
the Closing Date, as if made on such date, and all covenants and agreements
herein contained to be performed on the part of the Company and all conditions
herein contained to be fulfilled or complied with by the Company at or prior to
the Closing Date shall have been duly performed, fulfilled or complied with.
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<PAGE>
(f) The Placement Agent shall have received an
opinion, dated the Closing Date, of Gray Cary Ware & Freidenrich ("Gray Cary"),
counsel to the Company, in form and substance satisfactory to the Placement
Agent, to the effect that:
(i) each of the Company and the Subsidiaries has been
duly organized and is validly existing in good standing under the laws
of its jurisdiction of incorporation and is duly qualified to transact
business as a foreign corporation and is in good standing under the
laws of all other jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified or in good standing would
not have a material adverse effect on the business, prospects,
properties, condition (financial or otherwise), net worth or results of
operations of the Company and the Subsidiaries, taken as a whole;
(ii) each of the Company and the Subsidiaries has
full power and authority to own or lease all the assets owned or leased
by it and to conduct its business as described in the Registration
Statement and the Prospectus; and the Company has all corporate power
and authority to enter into this Agreement and the Escrow Agreement,
and to carry out the provisions and conditions hereof and thereof, and
all consents, authorizations, approvals and orders required in
connection herewith and therewith have been obtained;
(iii) the Company has an authorized capitalization as
of June 30, 1997 as set forth under the caption "Capitalization" in the
Prospectus; all of the issued shares of capital stock of the Company
have been duly authorized and validly issued, and are fully paid and
nonassessable and free of preemptive or other similar rights; the
Shares have been duly authorized by all necessary action of the Company
and, when issued by the Company will be validly issued and outstanding;
to such counsel's knowledge, no holders of outstanding shares of
capital stock of the Company are entitled as such to any preemptive or
other rights to subscribe for any of the Shares; to such counsel's
knowledge, no holders of securities of the Company are entitled to have
such securities registered under the Registration Statement; and, to
the best of such counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of, and no
commitment, plan or arrangement to, issue or register any shares of
capital stock or other securities of the Company or the Subsidiaries
other than as disclosed in the Registration Statement and the
Prospectus;
(iv) the issuance and sale of the Shares have been
duly authorized by the Company, and the Shares, when issued and paid
for in accordance with this Agreement, will be duly and validly issued,
fully paid and nonassessable and will not be subject to preemptive or
other similar rights; the holders of the Shares will not be subject to
personal liability by reason of being such holders; and the Shares,
when issued, will conform to the description thereof set forth in the
Prospectus;
(v) the statements set forth under the headings
["Description of Capital Stock" and "________"] in the Company's
registration statement on Form 8-A
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dated January 31, 1992 and in the Company's registration statement on
Form 8-A dated October 14, 1997 each of which is incorporated by
reference into the Registration Statement, insofar as such statements
purport to summarize certain provisions of the securities of the
Company, constitute a fair summary of such provisions, and inasmuch as
such statements constitute matters of law or legal conclusions, have
been reviewed by such counsel and are accurate in all material
respects;
(vi) the execution and delivery of this Agreement and
the Escrow Agreement have been duly authorized by all necessary action
of the Company and each has been duly executed and delivered by the
Company, and each is the legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity and, in
the case of this Agreement, except as rights to indemnity and
contribution may be limited by federal or state securities laws or the
public policy underlying such laws;
(vii) to such counsel's knowledge, no legal or
governmental proceedings are pending to which the Company or the
Subsidiaries or to which the property of the Company or the
Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not described therein,
and, to such counsel's knowledge, no such proceedings have been
threatened against the Company or the Subsidiaries or with respect to
any of their respective assets; and no contract or other document is
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
that is not described therein or filed as required;
(viii) the Registration Statement is effective under
the Act; any required filing of the Prospectus pursuant to Rule 424(b)
has been made in the manner and within the time period required by Rule
424(b); and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereto and no order directed at any amendment or supplement
thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or are contemplated by the Commission;
(ix) the Company is not an "investment company" as
such term is defined under the Investment Company Act, and is not
required to be registered under the Investment Company Act;
(x) the statements set forth in the Prospectus under
the captions "Risk Factors" and "Business" and in Part III of the
Annual Report (which report is incorporated by reference into the
Registration Statement), insofar as such statements constitute matters
of law or legal conclusions, have been reviewed by such counsel and are
accurate in all material respects (it being understood that such
counsel need express
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<PAGE>
no opinion with respect to statements set forth under the captions
"Risk Factors -- Patents and Proprietary Rights," and "Business --
Patents and Proprietary Rights");
(xi) the registration statement described in Section
3(a) hereof as originally filed with respect to the Shares and each
amendment thereto and the Prospectus (in each case, not including the
financial statements and other financial and statistical information
contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable
requirements of the Act and the Rules and Regulations;
(xii) neither the issuance, offering and sale of the
Shares pursuant hereto nor the compliance by the Company with the other
provisions of this Agreement and with the provisions of the Escrow
Agreement require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as
have been obtained (it being understood that such counsel need express
no opinion with respect to state securities or Blue Sky Laws or the
bylaws and rules of the NASD);
(xiii) neither the execution or delivery of this
Agreement or the Escrow Agreement, nor the issuance, offering or sale
of the Shares, nor the compliance by the Company with the terms and
provisions hereof or thereof will conflict with, or result in a breach
or violation of, any of the terms and provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or of
the Subsidiaries pursuant to the terms of, (A) any material contract or
other agreement to which the Company or the Subsidiaries is a party or
by which the Company or the Subsidiaries or any of their respective
properties or assets are subject, (B) the organizational or governing
documents of the Company or the Subsidiaries, (C) any statute, rule or
regulation applicable to the Company or the Subsidiaries, or (D) any
judgment, decree or order of any court or other governmental authority
or any arbitrator known to such counsel and applicable to the Company
or the Subsidiaries; and
(xiv) the Shares have been authorized for quotation
on the NNM.
Gray Cary shall also state that in the course of the
preparation of the Registration Statement and the Prospectus, such counsel has
participated in conferences with officers and representatives of the Company and
with the Accountants, at which conferences the contents of the Registration
Statement and the Prospectus were discussed and, on the basis of the foregoing,
that they have no reason to believe that the Registration Statement, as of its
effective date and as of the date of such opinion, contained or contains any
untrue statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus, as of its date and the date of such
opinion, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (other than
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financial statements and schedules and other financial and statistical data
included therein, as to which such counsel need express no view).
In rendering any such opinion, Gray Cary may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials and, as to matters
involving the application of laws of any jurisdictions in which such counsel are
not admitted to practice, to the extent satisfactory in form and substance to
counsel for the Placement Agent, upon the opinion of local counsel. The
foregoing opinion shall also state that the Placement Agent is justified in
relying upon such opinions of local counsel, and copies of such opinions shall
be delivered to the Placement Agent and their counsel.
References to the Registration Statement and the Prospectus in
this paragraph (f) shall include any amendment or supplement thereto at the date
of such opinion.
(g) The Placement Agent shall have received an
opinion, dated the Closing Date, of __________________, special intellectual
property counsel to the Company, in form and substance satisfactory to the
Placement Agent, to the effect that:
(i) to the best of such counsel's knowledge after due
and diligent inquiry, there are no legal or governmental proceedings
pending relating to patent rights, trade secrets, trademarks, service
marks or other proprietary information or materials of the Company, and
to the best of such counsel's knowledge no such proceedings are
threatened or contemplated by governmental authorities or others;
(ii) such counsel do not know of any contracts or
other documents relating to governmental regulation affecting the
Company or the Company's patents, trade secrets, trademarks, service
marks or other proprietary information or materials, of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the
Prospectus that are not filed or described as required;
(iii) to the best of such counsel's knowledge after
due and diligent inquiry, the Company is not infringing or otherwise
violating any patents, trade secrets, trademarks, service marks or
other proprietary information or materials, of others, and to the best
of such counsel's knowledge there are no infringements by others of any
of the Company's patents, trade secrets, trademarks, service marks or
other proprietary information or materials which in the judgment of
such counsel could affect materially the use thereof by the Company;
(iv) to the best of counsel's knowledge after due and
diligent inquiry, the Company is not aware of any claims that the
technology developed by Company's scientists while employed by or
associated with the Company was first discovered when they were
employed at any other companies; and
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(v) to the best of counsel's knowledge after due and
diligent inquiry, the Company is not aware of any claims of ownership
or misappropriation of the Company's technology by third parties as a
result of previous employments or associations of the Company's
scientists with others.
_______________ shall also state that in the course of the preparation
of the Registration Statement and the Prospectus, such counsel has participated
in conferences with officers and representatives of the Company, at which
conferences the contents of the Registration Statement and the Prospectus were
discussed and, on the basis of the foregoing, that they have no reason to
believe that the Registration Statement or the Prospectus (A) contains any
untrue statement of a material fact with respect to patents, trade secrets,
trademarks, service marks or other proprietary information or materials owned or
used by the Company, or the manner of its use thereof, or any allegation on the
part of any person that the Company is infringing any patent rights, trade
secrets, trademarks, service marks or other proprietary information or materials
of any such person or (B) omits to state any material fact relating to patents,
trade secrets, trademarks, service marks or other proprietary information or
materials owned or used by the Company, or the manner of its use thereof, or any
allegation of which such counsel have knowledge, that is required to be stated
in the Registration Statement or the Prospectus or is necessary to make the
statements therein not misleading.
References to the Registration Statement and the Prospectus in
this paragraph (g) shall include any amendment or supplement thereto at the date
of such opinion.
(h) Concurrently with the execution and delivery of
this Agreement, or, if the Company elects to rely on Rule 430A, on the date of
the Prospectus, the Accountants shall have furnished to the Placement Agent a
letter, dated the date of its delivery (the "Original Letter"), addressed to the
Placement Agent and in form and substance satisfactory to the Placement Agent,
confirming that (i) they are independent public accountants with respect to the
Company and the Subsidiaries within the meaning of the Act and the Rules and
Regulations; (ii) in their opinion, the financial statements and any
supplementary financial information and schedules (and pro forma financial
information) included in the Registration Statement and examined by them comply
as to form in all material respects with the applicable accounting requirements
of the Act and the Rules and Regulations; (iii) on the basis of procedures, not
constituting an examination in accordance with generally accepted auditing
standards, set forth in detail in the Original Letter, a reading of the latest
available interim financial statements of the Company and the Subsidiaries,
inspections of the minute books of the Company and the Subsidiaries since the
latest audited financial statements included in the Prospectus, inquiries of
officials of the Company responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in the Original Letter
to a date not more than five days prior to the date of the Original Letter,
nothing came to their attention that caused them to believe that: (A) the
unaudited financial statements and schedules of the Company and the Subsidiaries
included in the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Rules and
Regulations, or are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with the basis
for the audited financial
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<PAGE>
statements included in the Prospectus; (B) any other unaudited income statement
data and balance sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited financial statements from which such data
and items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited financial statements included in the
Prospectus; (C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited financial statements
referred to in clause (A) and any unaudited income statement data and balance
sheet items included in the Prospectus and referred to in clause (B) were to be
determined on a basis substantially consistent with the basis for the audited
financial statements included in the Prospectus; (D) as of a specified date not
more than five days prior to the date of the Original Letter, there have been
any changes in the capital stock of the Company or any increase in the long-term
debt of the Company, or any decreases in net current assets or net assets or
other items specified by the Placement Agent, or any increases in any items
specified by the Placement Agent, in each case as compared with amounts shown in
the latest balance sheet included in the Prospectus, except in each case for
changes, increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in the Original Letter; and (E) for the period
from the date of the latest financial statements included in the Prospectus to
the specified date referred to in Clause (D), there were any decreases in
revenues or the total or per share amounts of net income or other items
specified by the Placement Agent, or any increases in any items specified by the
Placement Agent, in each case as compared with the comparable period of the
preceding year and with any other period of corresponding length specified by
the Placement Agent, except in each case for decreases or increases which the
Prospectus discloses have occurred or may occur or which are described in the
Original Letter; and (iv) in addition to the examination referred to in their
reports included in the Prospectus and the procedures referred to in clause
(iii) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Placement Agent, which are derived from the general
accounting, financial or other records of the Company or the Subsidiaries, as
the case may be, which appear in the Prospectus or in Part II of, or in exhibits
or schedules to, the Registration Statement, and have compared such amounts,
percentages and financial information with such accounting, financial and other
records and have found them to be in agreement. At the Closing Date, the
Accountants shall have furnished to the Placement Agent a letter, dated the date
of its delivery, which shall confirm, on the basis of a review in accordance
with the procedures set forth in the Original Letter, that nothing has come to
their attention during the period from the date of the Original Letter referred
to in the prior sentence to a date (specified in the letter) not more than five
days prior to the Closing Date which would require any change in the Original
Letter if it were required to be dated and delivered at the Closing Date.
(i) At the Closing Date, there shall be furnished to
the Placement Agent a certificate, dated the date of its delivery, signed by
each of the Chief Executive Officer and the Chief Financial Officer of the
Company, in form and substance satisfactory to the Placement Agent, to the
effect that:
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(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A) as of
the date of such certificate, (x) the Registration Statement does not
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 therein not misleading and (y) the Prospectus does
not 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 therein, in light of the circumstances under which
they were made, not misleading and (B) since the Effective Date no
event has occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein not
untrue or misleading in any material respect.
(ii) Each of the representations and warranties of
the Company contained in this Agreement were, when originally made, and
are, at the time such certificate is delivered, true and correct in all
material respects.
(iii) Each of the covenants required herein to be
performed by the Company on or prior to the date of such certificate
has been duly, timely and fully performed and each condition herein
required to be complied with by the Company on or prior to the delivery
of such certificate has been duly, timely and fully complied with.
(iv) No stop order suspending the effectiveness of
the Registration Statement or of any part thereof has been issued and
are pending or, to the knowledge of each signer, threatened by the
Commission.
(v) Subsequent to the date of the most recent
financial statements in the Prospectus, there has been no material
adverse change in the financial position or results of operations of
the Company or the Subsidiaries, except as set forth in or contemplated
by the Prospectus.
(j) The Shares shall be qualified for sale in such
states as the Placement Agent may reasonably request, each such qualification
shall be in effect and not subject to any stop order or other proceeding on the
Closing Date.
(k) The Shares shall have been authorized for
quotation, subject only to official notice of issuance, on the NNM.
(l) The Company shall have furnished to the Placement
Agent such certificates, in addition to those specifically mentioned herein, as
the Placement Agent may have reasonably requested as to the accuracy and
completeness at the Closing Date of any statement in the Registration Statement
or the Prospectus, as to the accuracy at the Closing Date of the representations
and warranties of the Company as to the performance by the Company of its
obligations hereunder, or as to the fulfillment of the conditions concurrent and
precedent to the obligations hereunder of the Placement Agent.
7. Indemnification.
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(a) The Company shall indemnify and hold harmless the
Placement Agent, the directors, officers, employees and agents of the Placement
Agent and each person, if any, who controls the Placement Agent within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), from and against any and all losses,
claims, liabilities, expenses and damages, joint or several, (including any and
all investigative, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which it, or any of them, may become subject under the
Act or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on (i) any untrue statement or alleged untrue
statement made by the Company in Section 3 of this Agreement, (ii) any untrue
statement or alleged untrue statement of any material fact contained in (A) any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus, (B) any
document incorporated by reference into the Registration Statement and (C) any
application or other document, or any amendment or supplement thereto, executed
by the Company based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify the Shares under the
securities or Blue Sky laws thereof or filed with the Commission or any
securities association or securities exchange (each, an "Application") or (iii)
the omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any supplement to the Registration
Statement or the Prospectus or any document incorporated by reference into the
Registration Statement or any Application 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; provided, however, that
the Company will not be liable to the extent that such loss, claim, liability,
expense or damage arises from the sale of the Shares in the public offering to
any person and is based solely on an untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information relating to the Placement Agent furnished in writing to the Company
by the Placement Agent expressly for inclusion in the Registration Statement,
any Preliminary Prospectus or the Prospectus; and provided further, that such
indemnity with respect to any Preliminary Prospectus shall not inure to the
benefit of any indemnified person where the person asserting any such loss,
claim, damage, liability or action purchased Shares which are the subject
thereof to the extent that any such loss, claim, damage or liability (i) results
from the fact that such Placement Agent failed to send or give a copy of the
Prospectus (as amended or supplemented) to such person at or prior to the
confirmation of the sale of such Shares to such person in any case where such
delivery is required by the Act and (ii) arises out of or is based upon an
untrue statement or omission of a material fact contained in such Preliminary
Prospectus that was corrected in the Prospectus (or any amendment or supplement
thereto), unless such failure to deliver the Prospectus (as amended or
supplemented) was the result of noncompliance by the Company with Section 4(d).
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
In addition to its other obligations under this paragraph (a),
the Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or
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<PAGE>
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company in this Agreement or failure to perform its
obligations in this Agreement, all as described in this paragraph (a), it will
reimburse the Placement Agent on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's obligation, to reimburse the Placement Agent for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Placement Agent
shall promptly return it to the Company together with interest, compounded
daily, determined on the basis of the Prime Rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Bank of America National Trust and Savings Association, San Francisco,
California (the "Prime Rate"). Any such interim reimbursement payments which are
not made to the Placement Agent within 30 days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
(b) The Placement Agent will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
director of the Company and each officer of the Company who signs the
Registration Statement to the same extent as the foregoing indemnity from the
Company to the Placement Agent, but only insofar as losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to the Placement Agent furnished in writing
to the Company by the Placement Agent expressly for use in the Registration
Statement, any Preliminary Prospectus or the Prospectus. This indemnity
agreement will be in addition to any liability that the Placement Agent might
otherwise have. The Company acknowledges that, for all purposes under this
Agreement, the first, third and fourth legends on the inside front cover page
and the statements set forth under the caption "Plan of Distribution" in any
Preliminary Prospectus and the Prospectus constitute the only information
relating to the Placement Agent furnished in writing to the Company by the
Placement Agent expressly for inclusion in the Registration Statement, any
Preliminary Prospectus or the Prospectus.
(c) Any party that proposes to assert the right to be
indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 7, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section 7 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by, or otherwise prejudices, the indemnifying party. If any such action is
brought against any indemnified party and it notifies the indemnifying party of
its commencement, the indemnifying party will be entitled to participate in and,
to the extent that it elects by delivering written notice to the indemnified
party promptly
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<PAGE>
after receiving notice of the commencement of the action from the indemnified
party, jointly with any other indemnifying party similarly notified, to assume
the defense of the action, with counsel satisfactory to the indemnified party,
and after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation incurred by the indemnified
party in connection with the defense. The indemnified party will have the right
to employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(1) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based on advice of counsel) that a conflict exists (based on advice
of counsel to the indemnified party) between the indemnified party and the
indemnifying party that would prevent the counsel selected by the indemnifying
party from representing the indemnified party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf of
the indemnified party) or (3) the indemnifying party has not in fact employed
counsel to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred. The Company will not,
without the prior written consent of the Placement Agent, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification has been sought
hereunder (whether or not the Placement Agent or any person who controls the
Placement Agent within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of the
Placement Agent and each such controlling person from all liability arising out
of such claim, action, suit or proceeding. An indemnifying party will not be
liable for any settlement of any action or claim effected without its written
consent (which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 7 is applicable in accordance with its
terms but for any reason is held to be unavailable from the Company or the
Placement Agent, the Company and the Placement Agent will contribute to the
total losses, claims, liabilities, expenses and damages (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted, but after deducting any contribution received by the Company
from persons other than the Placement Agent such as persons who control the
Company within the meaning of the Act or the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company, who
also may be liable for contribution) to which the Company and the Placement
Agent may
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be subject in such proportion as shall be appropriate to reflect the relative
benefits received by the Company on the one hand and the Placement Agent on the
other. The relative benefits received by the Company on the one hand and the
Placement Agent on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting Company expenses)
received by the Company as set forth in the table on the cover page of the
Prospectus bear to the fee received by the Placement Agent hereunder. If, but
only if, the allocation provided by the foregoing sentence is not permitted by
applicable law, the allocation of contribution shall be made in such proportion
as is appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one hand,
and the Placement Agent on the other, with respect to the statements or
omissions which resulted in such loss, claim, liability, expense or damage, or
action in respect thereof, as well as any other relevant equitable
considerations with respect to such offering. Such relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Placement Agent, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Placement
Agent agree that it would not be just and equitable if contributions pursuant to
this Section 7(d) were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 7(d) shall be deemed to
include, for purpose of this Section 7(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), the Placement Agent shall not be required to contribute any amount
in excess of the fee received by it, and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7(d), any person who controls a
party to this Agreement within the meaning of the Act or the Exchange Act will
have the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions hereof. Any
party entitled to contribution, promptly after receipt of notice of commencement
of any action against such party in respect of which a claim for contribution
may be made under this Section 7(d), will notify any such party or parties from
whom contribution may be sought, but the omission so to notify will not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have under this Section 7(d). No party will be liable
for contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
8. Termination.
(a) The obligations of the Placement Agent under this
Agreement may be terminated at any time prior to the Closing Date, by notice to
the Company from the Placement Agent, without liability on the part of the
Placement Agent to the Company if, prior to delivery and payment for the Shares,
in the sole judgment of the Placement Agent (i) trading
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in the Common Stock of the Company shall have been suspended by the Commission
or by the NNM, (ii) trading in securities generally on the New York Stock
Exchange or the NNM shall have been suspended or limited or minimum or maximum
prices shall have been generally established on any of such exchanges, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by any
of such exchanges or by order of the Commission or any court or other
governmental authority, (iii) a general banking moratorium shall have been
declared by Federal or New York State authorities or (iv) any material adverse
change in the financial or securities markets in the United States or any
outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or war or other calamity or crisis shall have
occurred, the effect of any of which is such as to make it, in the sole judgment
of the Placement Agent, impracticable or inadvisable to market the Shares on the
terms and in the manner contemplated by the Prospectus.
(b) The obligations of the parties under this
Agreement shall be automatically terminated in the event that the Requisite
Funds have not been deposited by the Investors into the Escrow Account by the
close of business on the date scheduled for the Closing.
9. Notices. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 901
Mariners Island Boulevard, San Mateo, California, 94404, Attention: President or
(b) if to the Placement Agent, at the office of EVEREN Securities, Inc., 77 West
Wacker Drive, Chicago, Illinois, 60601-1994, Attention: Kathryn B. Hyer. Any
such notice shall be effective only upon receipt. Any notice under Section 7 may
be made by facsimile or telephone, but if so made shall be subsequently
confirmed in writing.
10. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Placement Agent set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Placement Agent or any
controlling person referred to in Section 7 hereof and (ii) delivery of and
payment for the Shares. The respective agreements, covenants, indemnities and
other statements set forth in Sections 5 and 7 hereof shall remain in full force
and effect, regardless of any termination or cancellation of this Agreement.
11. Successors. This Agreement shall inure to the benefit of
and shall be binding upon the Placement Agent, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnification and contribution contained in Sections 7(a) and (d) of this
Agreement shall also be for the benefit of the directors, officers, employees
and agents of the Placement Agent and any person or persons who control the
Placement Agent within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnification and contribution contained in Sections
7(b) and (d) of this Agreement shall also be for the
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benefit of the directors of the Company, the officers of the Company who have
signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No Investor shall be deemed a successor because of such purchase.
12. Headings. Section headings in this Agreement are for
convenience of reference only, do not constitute a part of this Agreement, and
shall not affect its interpretation.
13. Changes. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and the
Placement Agent.
14. Applicable Law; Severability. The validity and
interpretations of this Agreement, and the terms and conditions set forth
herein, shall be governed by and construed in accordance with the laws of the
State of New York, without giving effect to any provisions relating to conflicts
of laws.
Whenever possible each provision and term of this Agreement will be
interpreted in a manner to be effective and valid but if any provision or term
of this agreement is held to be prohibited or invalid, then such provision or
term will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement.
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicate hereof,
whereupon it will become a binding agreement between the Company and the
Placement Agent in accordance with its terms.
Very truly yours,
SCICLONE PHARMACEUTICALS, INC.
By:___________________________________
Name:
Title:
The foregoing Placement Agency
Agreement is hereby confirmed
and accepted as of the date
first above written.
EVEREN SECURITIES INTERNATIONAL, INC.
By: _________________________________________
Name:
Title:
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<PAGE>
EXHIBIT A
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of ______________, 1997, by and
among SCICLONE PHARMACEUTICALS, INC., a California corporation (the "Company"),
EVEREN SECURITIES, INC. (the "Placement Agent") and ____________, a national
banking institution incorporated under the laws of the United States of America
(the "Escrow Agent").
WHEREAS, the Company proposes to sell an aggregate of
1,500,000 shares of its common stock, no par value (the "Shares"), for an
aggregate of $_______, all as described in the Company's registration statement
on Form S-3 (Registration No. 333-_____)(which, together with all amendments or
supplements thereto is referred to herein as the "Registration Statement");
WHEREAS, the Shares are being offered by the Company to
investors whom the Placement Agent has introduced to the Company, pursuant to
registration under the Securities Act of 1933, as amended, and pursuant to
registration or exemptions from registration under state securities laws;
WHEREAS, the offering of the Shares will terminate on
_________, 1997 (the "Final Closing Date") and, if subscriptions for the total
number of Shares being offered pursuant to the Registration Statement have not
been received by the Company on or before the Final Closing Date, no Shares will
be sold and all payments made by subscribers will be refunded by the Escrow
Agent with interest earned thereon, if any; and
WHEREAS, with respect to all subscription payments received
from subscribers, the Company proposes to establish an escrow account with the
Escrow Agent at the office of its Escrow Administration, [street address].
NOW, THEREFORE, it is agreed as follows:
1. Establishment of Escrow. The Escrow Agent hereby agrees to
receive and disburse the proceeds from the offering of the Shares and any
interest earned thereon in accordance herewith.
2. Deposit of Escrowed Property. The Placement Agent, on
behalf of the subscribers for the Shares, shall from time to time, but in no
event later than 12:00 noon on the date following receipt by the Placement
Agent, cause to be wired to or deposited with, or, cause the subscribers for the
Shares to wire or deposit with, the Escrow Agent funds or checks of the
subscribers delivered in payment for Shares (the "Escrowed Property"). Any
checks delivered to the Escrow Agent pursuant to the terms hereof shall be made
payable to or endorsed to the order of the Escrow Agent. The Escrow Agent upon
receipt of such checks shall present such checks for
<PAGE>
payment to the drawee-bank under such checks. Any checks not honored by the
drawee-bank thereunder after the first presentment for payment shall be returned
to the Placement Agent, on behalf of such subscriber, in the same manner notices
are delivered pursuant to Section 6. Upon receipt of funds or checks from the
Placement Agent, the Escrow Agent shall credit such funds and the amount of such
checks to a non-interest-bearing account (the "Escrow Account") held by the
Escrow Agent. If following the credit of the amount of any check to the Escrow
Account such check is dishonored, the Escrow Agent, if such dishonored check
amount shall have been invested pursuant to Section 3, shall liquidate to the
extent of such dishonored check amount such investments and debit the Escrow
Account for the amount of such dishonored check plus, if any, the amount of
interest and other income earned with respect to any investment of such
dishonored check amount.
3. Investment of Escrowed Property. The Escrow Agent on the
second business day ("business day" defined for purposes of this Escrow
Agreement as any day which is not a Saturday, a Sunday or a day on which banks
or trust companies in the City and State of New York are authorized or obligated
by law, regulation or executive order to remain closed) succeeding (unless such
deposit is made in federal or other immediately available or "same day" funds,
in which case, on the business day next succeeding) the credit of any
subscription proceeds to the Escrow Account pursuant to Section 2 and until
release of such proceeds in accordance with the terms hereof, shall deposit such
proceeds in a __________ Money Market Deposit Account, pursuant to Rule 15c2-4
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, in accordance with the terms set forth on
Exhibit A hereto (made a part of this Escrow Agreement as if herein set forth).
The Escrow Agent shall in no event be liable for any loss resulting from any
change in interest rates applicable to proceeds invested pursuant to this
Section. Interest on proceeds invested pursuant to this Section shall accrue
from the date of investment of such proceeds until the termination of such
investment pursuant to the terms hereof and shall be paid as set forth in
Section 5.
The parties recognize that in authorizing the Escrow Agent to
invest principal and income cash balances held as Escrowed Property into money
market instruments or deposits that are obligations of __________ or related
entities, in addition to the fees provided for herein, the Escrow Agent or a
related entity may also receive a benefit or profit from the use of such
obligations. The parties hereby authorize the receipt of such benefit or profit
and expressly waive any special computation or accounting. The Escrow Agent
hereby agrees to provide the parties with periodic statements describing such
obligations and reporting the interest earned thereon so that the parties may
review and evaluate the transactions effected by the Escrow Agent pursuant to
this authorization.
4. List of Subscribers. The Placement Agent shall furnish or
cause to be furnished to the Escrow Agent, at the time of each deposit of funds
or checks pursuant to Section 2, a list, substantially in the form of Exhibit B
hereto, containing the name of, the address of, the number of Shares subscribed
for by, the subscription amount delivered to the Escrow Agent on behalf of, and
the social security or taxpayer identification number, if applicable, of, each
subscriber
-2-
<PAGE>
whose funds are being deposited, and to which is attached a completed W-9 form
(or, in the case of any subscriber who is not a United States citizen or
resident, a W-8 form) for each listed subscriber. The Escrow Agent shall notify
the Placement Agent and the Company of any discrepancy between the subscription
amounts set forth on any list delivered pursuant to this Section 4 and the
subscription amounts received by the Escrow Agent. The Escrow Agent is
authorized to revise such list to reflect the actual subscription amounts
received and the release of any subscription amounts pursuant to Section 5.
5. Withdrawal of Subscription Amounts. (a) If the Escrow Agent
shall receive a notice, substantially in the form of Exhibit C hereto (an
"Offering Termination Notice"), from the Company, the Escrow Agent shall (i)
promptly after receipt of such Offering Termination Notice and the clearance of
all checks received by the Escrow Agent as Escrowed Property, liquidate any
investments that shall have been made pursuant to Section 3 and send to each
subscriber listed on the list held by the Escrow Agent pursuant to Section 4
whose total subscription amount shall not have been released pursuant to
paragraph (b) or (c) of this Section 5, in the manner set forth in paragraph (d)
of this Section 5, a check to the order of such subscriber in the amount of the
remaining subscription amount held by the Escrow Agent as set forth on such list
held by the Escrow Agent, and (ii) promptly after the fourth business day of the
month immediately following the month in which the investments made pursuant to
Section 3 were terminated pursuant to this paragraph, send, in the manner set
forth in paragraph (e) of this Section 5, a check to the order of each such
subscriber in the amount of interest and other income earned and not yet paid
with respect to any investment of such subscriber's funds. The Escrow Agent
shall notify the Company and the Placement Agent of the distribution of such
funds to the subscribers.
(b) In the event that (i) the Shares have been
subscribed for and funds in respect thereof shall have been deposited with the
Escrow Agent on or before the Final Closing Date and (ii) no Offering
Termination Notice shall have been delivered to the Escrow Agent, the Company
and the Placement Agent, shall deliver to the Escrow Agent a joint notice,
substantially in the form of Exhibit D hereto (a "Closing Notice"), designating
the date on which Shares are to be sold and delivered to the subscribers thereof
(the "Closing Date"), which date shall not be earlier than the clearance of any
checks received by the Escrow Agent as Escrowed Property, the proceeds of which
are to be distributed on such Closing Date, and identifying the subscribers and
the number of Shares to be sold to each thereof on such Closing Date, not less
than two (2) nor more than seven (7) business days prior to such Closing Date.
The Escrow Agent, after receipt of such Closing Notice and the clearance of such
checks:
(i) on or prior to the Closing Date identified in
such Closing Notice, shall liquidate any investments that shall have
been made pursuant to Section 3 to the extent of the subscription
amount to be distributed pursuant to the immediately succeeding clause
(ii);
(ii) on such Closing Date, pay to the Company and the
Placement Agent, in federal or other immediately available funds and
otherwise in the manner specified by the Company in such Closing
Notice, an amount equal to the aggregate of the subscription
-3-
<PAGE>
amounts paid by the subscribers identified in such Closing Notice for
the Shares to be sold on such Closing Date as set forth on the list
held by the Escrow Agent pursuant to Section 4; and
(iii) promptly after the fourth business day of the
month immediately following the month in which the investments made
pursuant to Section 3 were terminated pursuant to such Closing Notice,
shall send, in the manner set forth in paragraph (e) of this Section 5,
a check to the order of each subscriber identified in such Closing
Notice in the amount of interest and other income earned and not yet
paid with respect to any investment of each such subscriber's funds
distributed on such Closing Date. At the time of such transfer, the
Escrow Agent shall identify in writing to the Company and the Placement
Agent the amount of the interest earned for the account of each
subscriber and the date such subscription was received.
(c) If at any time and from time to time prior to the
release of any subscriber's total subscription amount pursuant to paragraph (a)
or (b) of this Section 5 from escrow, the Company shall deliver to the Escrow
Agent a notice, substantially in the form of Exhibit E hereto (a "Subscription
Termination Notice"), to the effect that any or all of the subscriptions of such
subscriber have been rejected by the Company (a "Rejected Subscription"), the
Escrow Agent (i) promptly after receipt of such Subscription Termination Notice
and, if such subscriber delivered a check in payment of its Rejected
Subscription, after the clearance of such check, shall liquidate, to the extent
of the sum of such subscriber's Rejected Subscription amount as set forth in the
Subscription Termination Notice, any investments that shall have been made
pursuant to Section 3 and send to such subscriber, in the manner set forth in
paragraph (e) of this Section 5, a check to the order of such subscriber in the
amount of such Rejected Subscription amount, and (ii) promptly after the fourth
business day of the month immediately following the month in which the
investments made pursuant to Section 3 were terminated pursuant to this
paragraph, shall send to such subscriber, in the manner set forth in paragraph
(e) of this Section 5, a check to the order of such subscriber in the amount of
interest and other income earned and not yet paid with respect to any investment
of such subscriber's Rejected Subscription amount. At the time of such transfer,
the Escrow Agent shall identify in writing to the Company and the Placement
Agent the amount of the interest earned for the account of each subscriber and
the date such subscription was received.
(d) On a date following the transfer of any interest
earned for the account of each subscriber pursuant to Section 5(a), (b) or (c),
but not later than _________, 199_, the Escrow Agent shall provide each
subscriber with tax form 1099 setting forth the amount of such interest.
(e) For the purposes of this Section 5, any check
that the Escrow Agent shall be required to send to any subscriber shall be sent
to such subscriber by first class mail, postage prepaid, at such subscriber's
address furnished to the Escrow Agent pursuant to Section 4.
-4-
<PAGE>
6. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be (a) delivered
by hand or (b) sent by mail, registered or certified, with proper postage
prepaid, and addressed as follows:
if to the Company, to:
SciClone Pharmaceuticals, Inc.
901 Mariner's Island Boulevard
San Mateo, California 94404
Attention: President
with a copy to:
Gray Cary Ware & Freidenrich
A Professional Corporation
400 Hamilton Avenue
Palo Alto, California 94301
Attention: J. Howard Clowes, Esq.
if to the Placement Agent, to:
EVEREN Securities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601-6289
Attention: Kathryn B. Hyer
with a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: James R. Tanenbaum, Esq.
if to the Escrow Agent, to:
--------------------
--------------------
--------------------
Attention: ________
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in the above-referenced manner. All such
notices and communications, if mailed, shall
-5-
<PAGE>
be effective when deposited in the mails, except that notices and communications
to the Escrow Agent and notices of changes of address shall not be effective
until received.
7. Concerning the Escrow Agent. To induce the Escrow Agent to
act hereunder, it is further agreed by the Company and Placement Agent that:
(a) The Escrow Agent shall not be under any duty to
give the Escrowed Property held by it hereunder any greater degree of care than
it gives its own similar property and shall not be required to invest any funds
held hereunder except as directed in this Escrow Agreement. Uninvested funds
held hereunder shall not earn or accrue interest.
(b) This Escrow Agreement expressly sets forth all
the duties of the Escrow Agent with respect to any and all matters pertinent
hereto. No implied duties or obligations shall be read into this Escrow
Agreement against the Escrow Agent. The Escrow Agent shall not be bound by the
provisions of any agreement among the other parties hereto except this Escrow
Agreement.
(c) The Escrow Agent shall not be liable, except for
its own gross negligence or willful misconduct, and, except with respect to
claims based upon such gross negligence or willful misconduct that are
successfully asserted against the Escrow Agent, and the other parties hereto
shall jointly and severally indemnify and hold harmless the Escrow Agent (and
any successor Escrow Agent) from and against any and all losses, liabilities,
claims, actions, damages and expenses, including reasonable attorneys' fees and
disbursements, arising out of and in connection with this Escrow Agreement.
Without limiting the foregoing, the Escrow Agent shall in no event be liable in
connection with its investment or reinvestment of any cash held by it hereunder
in good faith, in accordance with the terms hereof, including without limitation
any liability for any delays (not resulting from gross negligence or willful
misconduct) in the investment or reinvestment of the Escrowed Property, or any
loss of interest incident to any such delays.
(d) The Escrow Agent shall be entitled to rely upon
any order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder without being required to determine the authenticity
or the correctness of any fact stated therein or the propriety or validity of
the service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it in good faith to be genuine and may assume, if in good
faith, that any person purporting to give notice or receipt or advice or make
any statement or execute any document in connection with the provisions hereof
has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice
of counsel with respect to any matter relating to this Escrow Agreement and
shall not be liable for any action taken or omitted in good faith and in
accordance with such advice.
(f) The Escrow Agent does not have any interest in
the Escrowed Property deposited hereunder but is serving as escrow holder only.
Any payments of income from
-6-
<PAGE>
the Escrow Account shall be subject to withholding regulations then in force
with respect to United States taxes. The parties hereto will provide the Escrow
Agent with appropriate W-9 forms for tax I.D., number certification, or
non-resident alien certifications.
This paragraph (f) and paragraph (c) of this Section
7 shall survive notwithstanding any termination of this Escrow Agreement or the
resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as to
the validity, value, genuineness or the collectibility of any security or other
document or instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to
advise any party as to the wisdom of selling or retaining or taking or
refraining from any action with respect to any securities or other property
deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent)
at any time may be discharged from its duties and obligations hereunder by the
delivery to it of notice of termination signed by both the Company and the
Placement Agent or at any time may resign by giving written notice to such
effect to the Company and the Placement Agent. Upon any such termination or
resignation, the Escrow Agent shall deliver the Escrowed Property to any
successor escrow agent jointly designated by the other parties hereto in
writing, or to any court of competent jurisdiction if no such successor escrow
agent is agreed upon, whereupon the Escrow Agent shall be discharged of and from
any and all further obligations arising in connection with this Escrow
Agreement. The termination or resignation of the Escrow Agent shall take effect
on the earlier of (i) the appointment of a successor (including a court of
competent jurisdiction) or (ii) the day that is 30 days after the date of
delivery: (A) to the Escrow Agent of the other parties' notice of termination or
(B) to the other parties hereto of the Escrow Agent's written notice of
resignation. If at that time the Escrow Agent has not received a designation of
a successor escrow agent, the Escrow Agent's sole responsibility after that time
shall be to keep the Escrowed Property safe until receipt of a designation of
successor escrow agent or a joint written disposition instruction by the other
parties hereto or any enforceable order of a court of competent jurisdiction.
(j) The Escrow Agent shall have no responsibility for
the contents of any writing of any third party contemplated herein as a means to
resolve disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement among or between
the other parties hereto and/or the subscribers of the Shares resulting in
adverse claims or demands being made in connection with the Escrowed Property,
or in the event that the Escrow Agent in good faith is in doubt as to what
action it should take hereunder, the Escrow Agent shall be entitled to retain
the Escrowed Property until the Escrow Agent shall have received (i) a final and
non-appealable order of a court of competent jurisdiction directing delivery of
the Escrowed Property or (ii) a written agreement executed by the other parties
hereto and consented to by the subscribers directing
-7-
<PAGE>
delivery of the Escrowed Property, in which event the Escrow Agent shall
disburse the Escrowed Property in accordance with such order or agreement. Any
court order referred to in (i) above shall be accompanied by a legal opinion by
counsel for the presenting party satisfactory to the Escrow Agent to the effect
that said court order is final and non-appealable. The Escrow Agent shall act on
such court order and legal opinion without further question.
(l) As consideration for its agreement to act as
Escrow Agent as herein described, the Company agrees to pay the Escrow Agent the
fee set forth on Exhibit F hereto (made a part of this Escrow Agreement as if
herein set forth). In addition, the Company agrees to reimburse the Escrow Agent
for all reasonable expenses, disbursements and advances incurred or made by the
Escrow Agent in performance of its duties hereunder (including reasonable fees,
expenses and disbursements of its counsel).
(m) All parties hereto irrevocably (i) submit to the
jurisdiction of any New York State or federal court sitting in New York City in
any action or proceeding arising out of or relating to this Escrow Agreement,
(ii) agree that all claims with respect to such action or proceeding shall be
heard and determined in such New York State or federal court and (iii) waive, to
the fullest extent possible, the defense of an inconvenient forum. The other
parties hereby consent to and grant any such court jurisdiction over the persons
of such parties and over the subject matter of any such dispute and agree that
delivery or mailing of process or other papers in connection with any such
action or proceeding in the manner provided hereinabove, or in such other manner
as may be permitted by law, shall be valid and sufficient service thereof.
(n) No printed or other matter in any language
(including, without limitation, the Registration Statement, the Prospectus,
notices, reports and promotional material) which mentions the Escrow Agent's
name or the rights, powers, or duties of the Escrow Agent shall be issued by the
other parties hereto or on such parties' behalf unless the Escrow Agent shall
first have given its specific written consent thereto. The Escrow Agent hereby
consents to the use of its name and the reference to the escrow arrangement in
the Registration Statement and in the Prospectus.
8. Miscellaneous.
(a) This Escrow Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their respective
successors and assigns, heirs, administrators and representatives, and the
subscribers of the Shares and shall not be enforceable by or inure to the
benefit of any other third party except as provided in paragraph (i) of Section
7 with respect to the termination of, or resignation by, the Escrow Agent. No
party may assign any of its rights or obligations under this Escrow Agreement
without the written consent of the other parties.
(b) This Escrow Agreement shall be construed in
accordance with and governed by the internal law of the State of New York
(without reference to its rules as to conflicts of law).
-8-
<PAGE>
(c) This Escrow Agreement may only be modified by a
writing signed by all of the parties hereto and consented to by the subscribers
of the Shares adversely affected by such modifications. No waiver hereunder
shall be effective unless in a writing signed by the party to be charged.
(d) This Escrow Agreement shall terminate upon the
payment pursuant to Section 5 of all amounts held in the Escrow Account.
(e) The section headings herein are for convenience
only and shall not affect the construction thereof. Unless otherwise indicated,
references to Sections are to Sections contained herein.
(f) This Escrow Agreement may be executed in one or
more counterparts but all such separate counterparts shall constitute but one
and the same instrument; provided that, although executed in counterparts, the
executed signature pages of each such counterpart may be affixed to a single
copy of this Agreement which shall constitute an original.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed as of the day and year first above written.
SCICLONE PHARMACEUTICALS, INC.
By:________________________________
Name:
Title:
EVEREN SECURITIES, INC.
By:________________________________
Name:
Title:
[escrow agent]
By:________________________________
Name:
Title:
-10-
<PAGE>
EXHIBIT A
____________ Insured Money Market Deposit Accounts
Deposits/Withdrawals may be made to the __________ Money
Market Deposit Account ("MMDA") established under the Escrow Agreement to which
this Exhibit is attached only through the Escrow Account. All transaction and
balance reporting of the MMDA will be included as part of the Escrow Account
Statement. Activity in the MMDA will be reflected as the equivalent of dollars
on deposit in a __________ Money Market Deposit Account. Deposits/Withdrawals to
the MMDA will be made only as permitted by the Escrow Agreement to which this
Exhibit is attached. The MMDA has certain regulatory restrictions as well as
some minimum requirements:
1. By regulation, _____________ is required to reserve the
right to require seven days' prior notice of any withdrawals of funds from an
account; provided, however, that, if _______ elects to exercise its right to
require seven days' prior notice, it shall exercise such right as to all such
accounts established.
2. Rates will be determined by __________ and can be
determined by calling your custody account officer.
3. Balances up to $100,000 (total on deposit at ___________)
are FDIC-insured.
A-1
<PAGE>
EXHIBIT B
SUMMARY OF CASH RECEIVED
NEW PARTICIPANT DEPOSIT
<TABLE>
Date:
Deposit Date: List Number:
Investment Date: Page of
Batch Number: Approved By:
JOB#:
For Bank use only
<CAPTION>
TITLE:
- --------------------------------------------------------------------------------------------
* *AMOUNT OF * *TAX ID NO./| | FOR BANK
NAME * DEPOSIT * SHARES * ADDRESS |SOC.SEC. NO.* * USE ONLY * * *
- ---------------------------- --------- -------------------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
* * *TAX CODE
* * * * * * * EXEMPT(Y/N)
* * * * * * * W-9(YR) NRA
* * * * * * * W-8(YR)
* * * * * * * 1008(87)
* * * * * * *
- --------------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * * Misc. II * Misc. III | TAX CODE
* * * * * * * EXEMPT(Y/N)
* * * * * * * W-2(YR) NRS
* * * * * * * W-8(YR)
* * * * * * * 1008(87)
* * * * * * *
- --------------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * * Misc. II * Misc. III | TAX CODE
* * * * * * * EXEMPT(Y/N)
* * * * * * * W-2(YR) NRS
* * * * * * * W-8(YR)
* * * * * * * 1008(87)
* * * * * * *
- --------------------------------------------------------------------------------------------------------------------
B-1
<PAGE>
Broker Misc. * * * * * Misc. II * Misc. III | TAX CODE
* * * * * * * EXEMPT(Y/N)
* * * * * * * W-2(YR) NRS
* * * * * * * W-8(YR)
* * * * * * * 1000(87)
* * * * * * *
- --------------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * * Misc. II * Misc. III |*
</TABLE>
B-2
<PAGE>
EXHIBIT C
[Form of Offering Termination Notice]
_________, 1997
[escrow agent]
Corporate Trust
Escrow Administration
______________
______________
Attention: ______________
Dear __________:
Pursuant to Section 5(a) of the Escrow Agreement dated as of
________, 1997 (the "Escrow Agreement") among SciClone Pharmaceuticals, Inc.,
(the "Company"), EVEREN Securities, Inc. and you, the Company hereby notifies
you of the termination of the offering of the Shares (as that term is defined in
the Escrow Agreement) and directs you to make payments to subscribers as
provided for in Section 5(a) of the Escrow Agreement.
Very truly yours,
SCICLONE PHARMACEUTICALS, INC.
By: _______________________________
Name:
Title:
C-1
<PAGE>
EXHIBIT D
[Form of Closing Notice]
_____________, 1997
[escrow agent]
______________
______________
Attention: _____________
Ladies and Gentlemen:
Pursuant to Section 5(b) of the Escrow Agreement dated as of
_______, 1997, (the "Escrow Agreement") among SciClone Pharmaceuticals, Inc.
(the "Company"), EVEREN Securities, Inc. and you, the Company hereby certifies
that it has received subscriptions for the Shares (as that term is defined in
the Escrow Agreement) and the Company will sell and deliver Shares to the
subscribers thereof at a closing to be held on ___________, 1997 (the "Closing
Date"). The names of the subscribers concerned, the number of Shares subscribed
for by each of such subscribers and the related subscription amounts are set
forth on Schedule I annexed hereto.
Please accept these instructions as standing instructions for
the closing to be held on the Closing Date. The parties hereto certify that they
do not wish to have a call back regarding these instructions.
We hereby request that the aggregate subscription amount be
paid to you, the Placement Agent and us as follows:
1. To the Company, $_________;
2. To EVEREN Securities, Inc., $_________; and
3. To the Escrow Agent, $_____.
D-1
<PAGE>
These instructions may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
Very truly yours,
SCICLONE PHARMACEUTICALS, INC.
By: _____________________________
Name:
Title:
EVEREN SECURITIES, INC.
By: ______________________________
Name:
Title:
D-2
<PAGE>
SCHEDULE I
Name of Number of Subscription
Subscriber Shares Amount
D-3
<PAGE>
EXHIBIT E
[Form of Subscription Termination Notice]
[escrow agent]
______________
______________
Attention: _____________
Dear __________:
Pursuant to Section 5(c) of the Escrow Agreement dated as of
__________, 1997 (the "Escrow Agreement") among SciClone Pharmaceuticals, Inc.
(the "Company"), EVEREN Securities, Inc. and you, the Company hereby notifies
you that the following subscription(s) have been rejected:
Dollar
Name of Amount of Subscribed Amount of
Subscriber Shares Rejected Rejected Subscription
- ---------- --------------- ---------------------
Very truly yours,
SCICLONE PHARMACEUTICALS, INC.
By: ____________________________
Name:
Title:
E-1
<PAGE>
EXHIBIT F
Fee to [escrow agent]: $__________
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-3) and related Prospectus
of SciClone Pharmaceuticals, Inc. for the registration of 1,500,000 shares of
its common stock and to the incorporation by reference therein of our report
dated January 23, 1997, with respect to the consolidated financial statements of
SciClone Pharmaceuticals, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1996, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
November 10, 1997
Palo Alto, California
