As filed with the Securities and Exchange Commission on February 11, 1999
Registration Statement No. 333-64393
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT No. 1
To
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IMMTECH INTERNATIONAL, INC.
(Exact name of Small Business Issuer as specified in its charter)
Delaware 8733 39-1523370
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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T. Stephen Thompson, President
1890 Maple Avenue, Suite 110
Evanston, Illinois 6020
(847) 869-0033
(Name, address including zip code and telephone number,
including area code of agent for service)
Copies to:
Vincent J. McGill
John P. Goebel Phillips, Nizer, Benjamin, William M. Prifti
Gardner, Carton & Douglas Krim & Ballon LLP Prifti Law Offices
321 North Clark Street, 666 Fifth Avenue 220 Broadway, Suite 204
Suite 3400 New York, New York Lynnfield, Massachusetts
Chicago, Illinois 60610-4795 10103-0084 01940
(312) 245-8747 (212) 841-0566 (781) 593-4525
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount Offering Aggregate Registration
Securities to be Price Offering Fee
To be Registered Registered(1) Per Share(2) Price(2)
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Common Stock, $0.01 par 1,150,000 $11.00 $12,650,000 $3,732
value (3)
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Underwriters' Warrants (4) 100,000 $0.01 $1,000 $1
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Common Stock, $0.01 par 100,000 $13.20 $1,320,000 $390
value, issuable on exercise
of Underwriters' Warrants
(4)(5)
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Total N/A N/A $13,971,000 $4,123(2)
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(1) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the antidilution provisions
of the Underwriters' Warrants.
(2) Estimated solely for the purpose of computing the registration fee. Upon
filing of the Company's original Registration Statement on Form SB-2 on
September 28, 1998, the Company remitted a registration fee of $7,582.
Therefore, no registration fee is due with the filing of this Amendment
No. 1 to such Registration Statement.
(3) Includes 150,000 shares of Common Stock which may be issued subject to the
Underwriters' Over-Allotment Option.
(4) To be sold to the Underwriters upon completion of the offering. Each such
warrant is exercisable to purchase one share of Common Stock.
(5) Issuable upon exercise of the Underwriters' Warrants.
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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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a United States offering of shares of Common Stock (the
"United States Prospectus") and one to be used in connection with a concurrent
international offering of shares of Common Stock (the "International
Prospectus"). The United States Prospectus and the International Prospectus are
identical except that (i) they contain different front and back cover pages and
different descriptions of the plan of distribution (contained under the caption
"Underwriting" in each of the United States and International Prospectuses) and
(ii) the International Prospectus contains an additional section under the
caption "Certain U.S. Tax Considerations Applicable to Non-U.S. Holders of the
Common Stock." The form of United States Prospectus is included herein and is
followed by those pages to be used in the International Prospectus which differ
from, or are in addition to, those in the United States Prospectus. Each of the
pages for the International Prospectus included herein is labeled "Alternate
Page for International Prospectus."
<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 FEBRUARY 11, 1999
P R O S P E C T U S
1,000,000 Shares
[LOGO] IMMTECH INTERNATIONAL, INC.
Common Stock
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Immtech International, Inc. (the "Company" or "Immtech") is offering to
the public 1,000,000 shares (the "Shares") of Common Stock, $0.01 par value (the
"Common Stock"), of which 300,000 shares are being offered hereby in the United
States (the "U.S. Offering") and 700,000 shares are being offered in a
concurrent international offering outside the United States (the "International
Offering" and together with the U.S. Offering, the "Offerings"). The initial
public offering price and the aggregate underwriting discount per share and
non-accountable expense allowance will be identical for both offerings. See
"Underwriting." It is currently estimated that the initial public offering price
will be between $9.00 and $11.00 per Share. For information regarding the
factors considered in determining the initial public offering price of the
Common Stock, see "Risk Factors" and "Underwriting". Prior to the Offerings
there has been no market for the Common Stock and there can be no assurance that
a trading market will develop after the Offerings with respect to the Common
Stock. Application has been made for the Common Stock to be approved for
quotation on the Nasdaq SmallCap Market under the symbol "IMMT." The Company
also plans to make application to list the Common Stock on the Boston Stock
Exchange. See "Risk Factors - Arbitrary Determination of Offering Price; No
Public Market for the Shares."
The Securities offered hereby involve a high degree of risk. See "Risk
Factors" beginning on page 9 for a discussion of certain matters that should be
considered by prospective purchasers of the securities offered hereby.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions(1) Stockholders(1)(2)
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Per Share.................. $ $ $
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Total (3) ................. $ $ $
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(1) In addition, the Company has agreed to the following: (i) it will pay
Westport Resources Investment Services, Inc. (the "U.S. Underwriter") and
The New China Hong Kong Securities Ltd. and China Everbright Securities
(H.K.), Ltd. (the "International Underwriters" and together with the U.S.
Underwriter, the "Underwriters") a 3% non-accountable expense allowance;
(ii) it will issue to the Underwriters, upon the closing of this offering,
warrants (the "Underwriters' Warrants") to purchase up to 100,000 Shares,
which Underwriters' Warrants are exercisable for a period of four years,
commencing twelve months from the date of this Prospectus, at 120% of the
initial public offering price; (iii) it will pay to the Underwriters
certain other items of compensation; and (iv) the Company and the
Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "1933 Act") (see "Underwriting").
(2) Before deducting expenses of the offering payable by the Company estimated
at $850,000, including the non-accountable expense allowance payable to
the Underwriters (see "Underwriting").
(3) The Company has granted the U.S. Underwriter an option for 45 days to
purchase up to an additional 45,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments (the "U.S. Over-Allotment Option"). Additionally, the
Company has granted an over-allotment option with respect to an additional
105,000 shares as part of the International Offering (the "International
Over-Allotment Option" and collectively with the U.S. Over-Allotment
Option, the "Over-Allotment Option"). If such options are exercised in
full, the total initial public offering price, underwriting discount and
proceeds to the Company (before deducting estimated expenses) will be
$__________, $__________ and $____________, respectively. See
"Underwriting."
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The Shares offered by this Prospectus are being offered by the U.S.
Underwriter on a firm commitment basis. The U.S. Underwriter reserves the right
to reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice in accordance with applicable state law. It is expected
that certificates for the shares of Common Stock will be available for delivery
on or about __________, 1999 at the offices of the U.S. Underwriter at 315 Post
Road West, Westport, Connecticut 06880.
WESTPORT RESOURCES
[LOGO]-------------------------
INVESTMENT SERVICES, INC.
The date of this Prospectus is _____________, 1999
<PAGE>
AVAILABLE INFORMATION
The Company is not subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Once the
Company's securities are registered under the Exchange Act, it will file reports
and other information with the Securities and Exchange Commission (the
"Commission"). The Company intends to register its securities under Section
12(g) of the Exchange Act. Such reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by the
commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at the Pacific
Regional Office located at 5670 Wilshire Boulevard, 11th Floor, Los Angeles,
California 90036-3648, the New York Regional Office located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and the Chicago Regional Office
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 ("SEC Regional Offices") and can be reviewed through the
Commission's Electronic Data Gathering Analysis and Retrieval System ("EDGAR")
which is publicly available through the Commission's web site
(http://www.sec.gov).
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by its independent certified public
accountants and quarterly reports containing unaudited interim financial
statements for the first three quarters of each fiscal year.
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission thereunder. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the Commission's public
reference facilities at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, at the SEC Regional Offices and copies of all or any
part thereof may be obtained at prescribed rates from the Public Reference
Section of the Commission. Such reports and other information can be reviewed
through EDGAR.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH OTHERWISE MIGHT PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS
SHOULD CONSIDER CAREFULLY THE INFORMATION PROVIDED UNDER "RISK FACTORS." EXCEPT
WHERE OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
Immtech, a development stage enterprise, is a biopharmaceutical company
focused on the discovery and commercialization of therapeutics for the treatment
of patients afflicted with opportunistic infectious diseases, cancer or
compromised immune systems. The Company has not generated meaningful revenue to
date and does not have any therapeutic products currently available for sale.
The Company has two independent programs for developing drugs. The first is
based on a technology for the design of a class of pharmaceutical compounds
referred to as dications. The Company believes that pharmaceutical dications can
be designed to inhibit the growth of a wide variety of infectious organisms
which cause parasitic, fungal, protozoan, bacterial and viral diseases. The
second is based on biological proteins that work in conjunction with the body's
immune system. These biological proteins are derivatives of C-Reactive Protein
("CRP"), which occurs naturally in the body and which the Company believes can
be used to control the structural environment around cancerous tumors and to
reprogram cancerous cells to stop growing uncontrollably and revert to normal
cell behavior.
Pharmaceutical Products - Dications
The Company's pharmaceutical platform technology for developing dications
is the result of a research program focused on understanding Pentamidine (a drug
marketed by Fujisawa Healthcare, Inc.). Although the drug has reported toxicity,
Pentamidine is effective for the treatment of Pneumocystis carinii pneumonia
("PCP"), a form of pneumonia common in patients with compromised immune systems.
Researchers at the University of North Carolina at Chapel Hill ("UNC")
discovered that most of Pentamidine's toxicity was caused by certain metabolites
formed as the drug breaks down within the body. This discovery led the
researchers to design new compounds with more stable molecular structures which,
the Company believes, do not break down into toxic substances that cause side
effects. These newly designed compounds proved to be significantly less toxic
and more effective in treating PCP than Pentamidine. The methodology used by
these researchers to develop these new compounds evolved into the Company's
platform technology for designing dicationic compounds. The Company intends to
use this technology to design pharmaceutical compounds to treat a wide variety
of infectious diseases.
The Company has two dicationic compounds ready to begin human clinical
trials. The first compound, DAP-092, is for the treatment of Cryptosporidium
parvum, a parasite that causes severe diarrhea and wasting. The second compound,
DB-289, is for the treatment of PCP. These two orally administered drugs are
ideally suited to demonstrate the power of the dicationic technology platform.
DAP-092 was developed to treat a parasite that is found only in the
gastro-intestinal tract ("gut"). Because of its positive charges, DAP-092 cannot
cross the digestive membranes, and stays in the digestive tract. As a result,
potential harmful side-effects are greatly reduced. On the other hand, DB-289
which works in the circulatory system, was developed with a proprietary
(patented) method of temporarily neutralizing the positive charges allowing it
to readily pass through the digestive membranes into the circulatory system
where the dications become activated for treatment of diseases.
DAP-092
DAP-092, administered orally, is designed to treat diarrhea and wasting
syndromes caused by Cryptosporidium parvum, a parasite which is only found in
the gut. Cryptosporidiosis is recognized around the world as one of the most
common infections of the intestinal tract. Currently, no drug is available in
the market to treat this disease. DAP-092 was designed to block a key enzyme
from binding in the minor groove of the Cryptosporidium's DNA, thus inhibiting
or killing the growth of the organism. DAP-092 is unique because it will work
directly in the gut and not be absorbed into the circulatory system,
substantially reducing the possibility of adverse side-effects. The Company has
specifically targeted a drug for the treatment of Cryptosporidiosis in an effort
to take advantage of the fast track Food and Drug Administration ("FDA")
approval process often afforded to drugs which cure diseases for which there is
no acceptable treatment. See "Risk Factors - No Assurance of FDA Approval;
Government Regulation." The Company estimates the worldwide market for DAP-092
to be approximately $100 million per annum.
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3
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DB-289
DB-289 was developed as an oral substitute for the drug Pentamidine,
currently used to treat PCP. Pentamidine is administered via slow I.V. infusion
or inhalation due to its inability to cross membranes and its toxicity; it is
generally administered in a hospital setting at substantial cost. DB-289 is an
analog of Pentamidine in that its positive charges have been neutralized to
enable DB-289 to cross the digestive membranes. Also, DB-289 was designed with a
more stable molecular structure which delivers more drug to the infected site
and reduces toxicity caused by breakdown products. Once DB-289 enters the
circulatory system, naturally occurring enzymes remove the patented masking or
neutralizing charges to expose the active drug. Since DB-289 can be given orally
and does not result in toxic metabolites as it breaks down, it is anticipated
that it will be self-administered at home, making it substantially less
expensive to use than Pentamidine. The Company believes DB-289 will receive a
fast-track approval from the FDA and capture the existing Pentamidine market
shortly after market introduction. The Company estimates that DB-289's market
potential is approximately $200 million annually.
Both DAP-092 and DB-289 will enter Phase I/IIa trials upon completion of
this Offering. The Company also has a series of dication compounds under
development to treat cancer and a variety of fungal infections, malaria and
tuberculosis. The market for drugs currently used to treat these diseases is
greater than one billion dollars in annual sales.
University Consortium Agreement
The Company has an agreement with Pharm-Eco Laboratories, Inc.
("Pharm-Eco") and UNC, acting on behalf of a consortium of universities
including UNC, Duke University, Auburn University and Georgia State University
(the "Consortium"), regarding the continuing development and commercialization
of the technology underlying the Company's dicationic pharmaceutical product
candidates. Pursuant to this Agreement, the Company has obtained rights to the
technology platform for making dicationic pharmaceutical products, and the
exclusive right to treat microbial infections using an existing library of 800
compounds developed by the Consortium and future Compounds designed by the
Consortium. The Company considers its relationship with the Consortium, which
includes many of the world's leading experts in opportunistic infections and
rational drug design, a substantial asset. Members of the Consortium have
laboratory testing systems for screening compounds for activity to specific
micro-organisms (using both laboratory and animal models). Additionally, Georgia
State University has a proprietary computer modeling program which simulates the
binding of dicationic compounds to cellular DNA, which facilitates the work of
research chemists in designing dicationic compounds to treat specific
infections.
Biological Products - Modified CRP
The Company's biological program is focused on strengthening the innate or
natural immune system by (1) improving the structural environment around cells
and (2) reprogramming cancer cells to act normally. The immune system
coordinates the body's responses to injury and infection. It is the body's
primary defense against disease. The Company's scientists discovered that, as
part of the immune system's response to disease, the blood protein CRP is
modified by the body to form modified CRP or mCRP. Modified CRP strengthens
tissues and their interconnective structures which work to increase their
ability to resist disease and improve the effectiveness of the immune system.
Modified CRP is found naturally in healthy tissues surrounding blood vessels, in
the tissues in lymphatic organs, and in cells that have secretory functions. In
contrast, mCRP is absent (or present in greatly reduced amounts) in cancerous
tissues, such as those found in the lung, breast or prostate.
Cancers occur when normal cells grow uncontrollably. Rapidly dividing
cancer cells produce enzymes which attack and weaken surrounding tissues,
allowing cancer cells to grow unrestrained and become tumors. This unrestrained
growth may destroy surrounding organs or impair physiological functions, often
leading to death. The Company's scientists discovered that when cancerous cells
come in contact with mCRP, cell behavior is markedly changed, abnormal rapid
growth ceases and the cell returns to normal activity. The Company's biological
program focuses on replacing mCRP in areas where mCRP is deficient, increasing
barriers between cells to reduce the entry and propagation of disease, and
enhancing immune reactions.
Many scientists believe that although therapies that directly kill
infected or cancerous cells - e.g. chemotherapy, radiation therapy - are the
cornerstone to curing cancer, it is also necessary to develop therapies which
will bolster the immune system during treatment and foster regeneration of a
normal immune system. By combining "killing" therapies with "strengthening"
therapies, the chances for recovery are greatly increased. The Company believes
that its mCRP based biotherapeutic product is such a strengthening therapy. The
Company has developed a synthetic or recombinant form of mCRP (rmCRP) which can
be produced economically. In 1996, the Company conducted a Phase I human
clinical trial of rmCRP in HIV-infected volunteers. The clinical results showed
that the drug was safe to administer and duplicated the positive results seen in
the animal pre-clinical tests. The Company recently entered into an agreement
with the Franklin Research Group, a
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4
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venture capital partnership, to obtain funding to accelerate the Company's
biotherapeutic program for the treatment of cancer and related diseases based on
rmCRP.
Strategy
The Company's pharmaceutical strategy is to utilize the platform
technology developed by the Consortium's scientists for making pharmaceutical
products. The initial two objectives are to (1) commercialize dications in niche
markets by gaining fast-track FDA approvals and (2) demonstrate the power of the
dication platform technology upon which many new drugs can be developed. The
Company will continue to develop other dications which target diseases with
larger patient populations, and hence, larger markets. The Company's biological
strategy is to commercialize its rmCRP products as a primary therapy against
cancer and as an adjuvant for use with chemotherapy in treating cancer and in
the administration of vaccines.
The principal elements of the Company's short-term strategy are to (i)
focus its resources on current core technologies, (principally DAP-092 and
DB-289) and gain FDA acceptance of its dicationic technology; (ii) commence
human clinical trials of DAP-092 and DB-289; (iii) commence human clinical
trials of rmCRP as a primary treatment for cancer; and (iv) leverage its
resources through corporate joint ventures to minimize the cost to the Company
of extended clinical trials and the development of manufacturing procedures for
the production of the Company's products. The current status of the Company's
products planned for clinical trials is summarized below:
Clinical Development Plan
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Clinical Trial Trial Design/Phase Expected Result
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Dication Therapy Against o Phase I/IIa o Shorter diarrhea duration
Opportunistic Diarrhea; o 20-30 HIV-infected o Prevent weight loss
Cryptosporidiosis patients o Safety and efficacy
DAP-092 o Oral dosing established
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Pro-drug Oral o Phase I/IIa o Equivalent/improved anti-
Administration for o 25-50 PCP-infected, microbial effect against
Pneumocystis and tropical HIV-infected patients PCP
diseases DB-289 o Oral dosing o Facilitated drug delivery
o Bioavailability o Reduced side effects
o Safety and efficacy
established
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RmCRP o Phase I/IIa o Tumor growth stopped
Anticancer Therapy; o 30-50 patients - o Reduced metastatic disease
NextEra all cancers o Tumor cells killed
o IV injections
o Dose escalation
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5
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New Government Grant Proposals
The Consortium in the last three months has filed for over $15 million in
grants to support new programs for the continued development of the dication
platform technology. The new NIH programs request include funding for a $5
million NCI grant for using combinatorial chemistry to generate and screen new
anti-cancer dication compounds, a research proposal for approximately $1.2
million for studying the use of dications to inhibit receptors in the brain that
are related to memory, a proposal for $3 million to fund additional research
into anti-fungal compounds, a $4 million extension of the existing NCDDG grant
for tropical disease applications, and a proposal for $0.8 million to fund
additional research into Cryptosporidium. In November 1998, Immtech received a
notice from the NIH that a $0.9 million SBIR II grant to complete the GLP
preclinical studies for DAP-092, a drug to treat Cryptosporidium, had received a
"fundable score". Immtech and the Consortium member will continue in 1999 to
apply for new grants to support applications for expanding the dication platform
technology. However, the process of obtaining grants is extremely competitive
and there can be no assurance that any of the Company's grant applications will
be acted upon favorably.
History
A predecessor of the Company was incorporated under the laws of the State
of Wisconsin on October 15, 1984 and subsequently merged into the current
Delaware corporation on April 1, 1993. The Company's executive offices are
located at 1890 Maple Avenue, Suite 110, Evanston, Illinois 60201, telephone
number 847-869-0033.
Recapitalization, Private Placement and Recent Reverse Stock Split.
As of July 24, 1998 (the "Effective Date"), the Company (with stockholder
approval) completed a recapitalization (the "Recapitalization") pursuant to
which: (i) the Company effected a 0.645260-for-1 reverse stock split of all of
the shares of Common Stock issued and outstanding immediately prior to the
Effective Date, resulting in the reduction in the number of issued and
outstanding shares of Common Stock from 2,305,166 to 1,487,431 (the "First
Reverse Stock Split"); (ii) the Company converted approximately $3,151,000 in
indebtedness (consisting of stockholder advances, notes payable and related
accrued interest and accounts payable) outstanding immediately prior to the
Effective Date into 1,209,962 shares of Common Stock (after giving effect to the
First Reverse Stock Split), (iii) 1,794,550 shares of Series A Preferred Stock
issued and outstanding immediately prior to the Effective Date were converted
into 1,157,931 shares of Common Stock (after giving effect to the First Reverse
Stock Split), (iv) 1,600,000 shares of Series B Preferred Stock issued and
outstanding immediately prior to the Effective Date were converted into
1,232,133 shares of Common Stock (after giving effect to the First Reverse Stock
Split), (v) as a result of the First Reverse Stock Split, options outstanding
immediately prior to the Effective Date and held by employees of or consultants
to the Company to purchase an aggregate of 1,716,815 shares of Common Stock were
automatically converted into options to purchase 1,107,792 shares of Common
Stock and the purchase prices thereof were adjusted proportionately and (vi) the
total number of authorized shares was increased to 35,000,000, consisting of
30,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, $0.01
par value.
Contemporaneously with the completion of the Recapitalization, the Company
issued and sold 1,150,000 shares of Common Stock for $0.87 per share, or
aggregate consideration to the Company (without deducting expenses of the
Private Placement and payments to the Placement Agent thereof) of $1,000,000, to
one or more accredited investors in a transaction exempt from registration under
the Securities Act pursuant to Section 4(2) thereof and Regulation D thereunder
(the "Private Placement"). In connection with the Private Placement, the Company
paid a placement agency fee to The New China Hong Kong Securities Ltd. ("NCHK")
consisting of $50,000 and warrants to purchase an aggregate of 150,000 shares of
Common Stock at an exercise price of $0.05 per share.
On February 5, 1999, the Company effected a 1-for-2 reverse stock split of
all of the shares of Common Stock issued and outstanding immediately prior to
the effectiveness of such stock split, resulting in the reduction in the number
of issued and outstanding shares of Common Stock from 6,491,135 to 3,245,517
(the "Second Reverse Stock Split").
All share and per share amounts contained in this Prospectus other than
those contained in the first two paragraphs of this Section have been restated
to give effect to the First Reverse Stock Split and the Second Reverse Stock
Split.
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The Offerings
Securities offered by the
Company in the Offerings.......... 1,000,000 Shares. An additional 150,000
Shares have been reserved for issuance
pursuant to the Underwriter's Over-allotment
Option.
Offering Price.................... Estimated to be between $9.00 and $11.00 per
Share.
Common Stock Outstanding Prior
to the Offerings (1)(2) .......... 3,884,914 shares
Common Stock Outstanding After
the Offerings (2)................. 4,884,914 shares
Estimated Net Proceeds to the
Company from the Offerings (3).... $8,150,000
Use of Proceeds by the Company.... For research and development, clinical
trials, royalty payments and license fees,
purchase of equipment, working capital and
general corporate purposes. See "Use of
Proceeds."
Risk Factors...................... The Shares being offered hereby involve a
high degree of risk and immediate and
substantial dilution to the purchasers in
the Offerings. See "Risk Factors."
Proposed Nasdaq Symbol (4)........ Common Stock "IMMT".
(1) Includes (i) an aggregate of 611,250 shares of Common Stock subject to
issuance without further consideration to Pharm-Eco and members of the
Consortium upon completion of the Offerings and (ii) shares of Common
Stock to be issued upon completion of the Offerings to satisfy the
interest portion of Immtech's outstanding note payable to the State of
Illinois, which interest portion equals $281,470 currently (and such
amount will not change prior to completion of the Offerings) (based upon
the assumed per Share initial public offering price of $10.00, the number
of shares issued to the State of Illinois in satisfaction of Immtech's
obligation will be 28,147 shares of Common Stock).
(2) Excludes (i) an aggregate of 975,000 shares of Common Stock subject to
purchase and issuance at a price of $.10 per share pursuant to exercise of
outstanding warrants held by RADE Management Corporation ("RADE"); (ii)
outstanding warrants to acquire an aggregate of 850,000 shares of Common
Stock with an exercise price equal to the weighted average market price of
the Company's Common Stock during the first 20 days of trading on any
stock exchange or in any over-the-counter market, which warrants are
exercisable upon reaching certain scientific milestones and are held by
Pharm-Eco and members of the Consortium; (iii) an aggregate of 150,000
shares of Common Stock subject to issuance without further consideration
to Pharm-Eco and members of the Consortium upon the filing by Immtech of
an NDA or an ANDA with the FDA with respect to any product; (iv) an
aggregate of 91,400 shares of Common Stock subject to purchase and
issuance pursuant to exercise of outstanding warrants held by former
holders of the Company's Senior Subordinated Debentures, which warrants
carry an exercise price of 1/2 of the initial public offering price per
Share ($5.00 per Share assuming the initial public offering price is
$10.00 per Share) and are exercisable upon completion of the Offerings
until August 31, 1999; (v) an aggregate of 498,636 shares of Common Stock
subject to purchase and issuance pursuant to exercise of outstanding
options held by certain employees and consultants to the Company, which
options carry a weighted average exercise price of $0.83 per share; (vi)
an aggregate of 75,000 shares of Common Stock subject to purchase and
issuance at a price of $.10 per share pursuant to exercise of outstanding
warrants held by NCHK; (vii) up to 150,000 Shares issuable upon the
possible exercise by the Underwriters of the Over-allotment Option; and
(viii) up to 100,000 Shares issuable upon exercise of the Underwriters'
Warrants.
(3) Assuming an initial public offering price of $10.00 per Share.
(4) Assumes that the Common Stock offered in the Offerings will be eligible
for NASDAQ-SmallCap Market listing and that a viable trading market
therefor will develop, of which there can be no assurance.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Summary Financial Information
The following table sets forth summary financial data derived from the financial
statements of the Company. The data should be read in conjunction with the
financial statements, related notes and other financial information included
herein.
<TABLE>
<CAPTION>
Nine Month
Periods Ended
Years Ended March 31, December 31,
------------------------------------------------ -------------------
1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 260,503 $ 335,000 $ 15,000 $ 19,552 $ -- $ 214,252
Loss from operations (1,353,169) (621,648) (1,062,350) (901,782) (367,438) (2,922,818)
Loss before extraordinary
item (1,432,212) (759,638) (1,350,563) (1,145,697) (548,504) (2,984,856)
Extraordinary gain on
extinguishment of debts 1,427,765
Net loss (1,432,212) (759,638) (1,350,563) (1,145,697) (548,504) (1,557,091)
Conversion of Redeemable
Preferred Stock 3,713,334
Redeemable preferred stock
dividends net of
premium amortization (229,465) (246,324) (267,980) (331,435) (226,225) (137,689)
Net (loss) income
attributable to common
stockholders (1,661,677) (1,005,962) (1,618,543) (1,477,132) (774,729) 2,018,554
Net (loss) income per
common share (2.57) (1.52) (2.44) (2.18) (1.15) 1.07
Shares used in computing
net (loss) income per
share attributable
to common stockholders 646,381 660,833 662,975 676,471 675,498 1,887,222
</TABLE>
December 31, 1998
-------------------------------
Pro Forma
Actual As Adjusted(1)
------------- ---------------
Balance Sheet Data:
Working capital (deficiency) $ (606,677) $7,824,793
Total assets 369,059 8,519,059
Long-term debt due after one year -- --
Common Stockholders' investment
(deficiency in assets) (340,239) 8,091,231
- ------------------
(1) Reflects the sale of 1,000,000 Shares offered by the Company at an
offering price of $10.00 per Share (after deducting estimated cash
offering expenses) and includes the issuance of the shares referred to in
items (i) and (ii) of Footnote 1 to the Capitalization Table. See "Use of
Proceeds" and "Capitalization."
- --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Shares offered hereby. This Prospectus
contains forward-looking statements. Such forward-looking statements include,
but are not limited to, the Company's expectations regarding its future
financial condition and operating results, product development, business and
growth strategy, market conditions and competitive environment. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
in the following risk factors and elsewhere in this Prospectus.
Development Stage Company; No Assurance of Successful Product Development.
The Company is at an early stage of clinical development activities required for
drug approval and commercialization. Since formation in October 1984, the
Company has engaged in organizational and start-up activities, including
developing the research programs described in this Prospectus, recruiting
outside directors, scientific advisors and key scientists, making arrangements
for laboratory facilities and office space and negotiating and consummating
technology licensing agreements. The Company has generated no revenue from
product sales. The Company does not have any therapeutic products currently
available for sale, and none are expected to be commercially available for
several years, if at all. There can be no assurance that the Company's continued
research will lead to the development of commercially viable products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
History of Losses and Accumulated Deficits; Future Profitability
Uncertain. The Company has experienced significant operating losses since its
inception in 1984 and expects to incur operating losses for at least the next
several years as the Company expands its research and development and clinical
trial efforts. As of December 31, 1998, the Company had an accumulated deficit
of $11,243,892.
"Going Concern" Qualification. The report, dated August 29, 1998, provided
by the Company's independent auditors on the Company's balance sheet as of March
31, 1997 and 1998, and the related statements of operations, common stockholder
investment (deficiency in assets) and cash flows for each of the three years in
the period ended March 31, 1998, indicates that the Company is a development
stage enterprise and the deficiency in working capital as of March 31, 1998 and
the Company's operating losses since inception raise substantial doubt about the
Company's ability to continue as a going concern. Although the proceeds from the
Offerings will provide the Company with working capital in order to meet its
cash requirements for approximately the next 20 months, the Company's ability to
continue to operate will ultimately depend upon the Company attaining
profitability and being able to operate profitably on a consistent basis, which
will not occur for some time and may never occur. In such a situation, the
Company will not be able to continue as a going concern.
Need for Substantial Additional Funds. The Company's operations to date
have consumed substantial amounts of cash. The negative cash flow from
operations is expected to continue and to accelerate in the foreseeable future.
The Company will require substantial funds to conduct research and development,
preclinical and clinical testing and to manufacture (or have manufactured) and
market (or have marketed) its product candidates. The Company estimates that its
current cash resources and the net proceeds of the Offerings, not including any
proceeds from any grant the Company may receive, will be sufficient to meet its
operating and capital requirements for 20 months following the closing of the
Offerings. However, the Company's cash requirements may vary materially from
those now planned because of results of research and development, results of
preclinical and clinical testing, responses to the Company's grant requests,
relationships with possible strategic partners, changes in the focus and
direction of the Company's research and development programs, competitive and
technological advances, the FDA regulatory process and other factors. The net
proceeds of the Offerings are not expected to be sufficient to fund the
Company's operations through the commercialization of one or more products
yielding sufficient revenues to support the Company's operations; therefore, the
Company is likely to need to raise additional funds. The Company may seek to
satisfy its future funding requirements through public or private offerings of
securities, by collaborative or other arrangements with major pharmaceutical
companies or from other sources. Additional financing may not be available when
needed or be available on terms acceptable to the Company. If adequate financing
is not available, the Company may not be able to continue as a going concern, or
may be required to delay, scale back or eliminate certain of its research and
development programs, to relinquish rights to certain of its technologies or
product candidates, to forego desired opportunities, or to license third parties
to commercialize products or technologies that the Company would otherwise seek
to develop itself. To the extent the Company raises additional capital by
issuing equity securities, ownership dilution to the investors in the Offerings
will result. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company's research and development plans are dependent upon the
availability of the capital to be raised in the Offering and may depend on the
availability of debt financing. There can be no assurance, however, that such
debt financing will be available or that the funds to be raised in the Offering
in combination with such debt financing will be sufficient to enable the Company
to complete its research and development efforts and successfully introduce
products into the marketplace. In connection
9
<PAGE>
with any such debt financing, the Company may be required to pledge its assets
to a lender, may be restricted in its ability to incur additional obligations or
to make capital expenditures, and/or may be required to abide by certain
financial covenants. Moreover, if the Company defaults on any of its obligations
with respect to any such debt financing, the lender could declare its loan to
become immediately due and payable and subject the Company's assets to
foreclosure.
Early Stage of Experiments; Limited Human Data. The Company's tests of
rmCRP and its pharmaceutical products to date have been conducted primarily in
in vitro and in vivo preclinical animal models. Preclinical in vitro and in vivo
studies do not necessarily predict effectiveness in humans, and there can be no
assurance that the results achieved in the preclinical in vitro and in vivo
animal studies or in the limited human clinical studies conducted to date will
be achieved in more extensive testing of rmCRP in humans, nor can there be any
assurance that rmCRP will not result in adverse side effects when administered
for extended periods of time in humans. Substantial additional research and
development is necessary in order for the Company to develop and obtain
regulatory approval for its pharmaceutical and biological products, and there
can be no assurance that the Company's research and development will lead to
development of products that are commercially viable. In addition to further
research and development, the Company's products will require clinical testing,
regulatory approval and development of marketing and distribution channels, all
of which are expected to require substantial additional investment prior to
commercialization. There can be no assurance that the Company's products will be
successfully developed, prove to be safe and efficacious in clinical trials,
meet applicable regulatory standards, be capable of being produced in commercial
quantities at acceptable costs, be eligible for third party reimbursement from
governmental or private insurers, be successfully marketed or achieve market
acceptance.
Uncertainties Related to Clinical Trials. To obtain required regulatory
approvals for commercial sale of its products, the Company must demonstrate
through clinical trials that such products are safe and efficacious for use in
each target indication. The Company has no experience in conducting clinical
trials in the United States. None of the products under development by the
Company has received regulatory approval for any stage of clinical trials in
humans in the United States. There can be no assurance that such regulatory
approval will be received or that necessary clinical trials will commence.
The Company may find, at any stage of its research and development, that
products which appeared promising in preclinical studies or Phase I and Phase II
clinical trials do not demonstrate efficacy in larger-scale clinical trials and
do not receive regulatory approvals. The results from preclinical testing and
early clinical trials may not be predictive of results obtained in later
clinical trials and large-scale testing. Companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in various stages of
clinical trials, even after promising results had been obtained in earlier
trials. Completion of the Company's clinical trials may be delayed by many
factors, including slower than anticipated patient enrollment, difficulty in
securing sufficient supplies of clinical trial materials or adverse events
occurring during clinical trials. Completion of testing, studies and trials may
take several years, and the length of time varies substantially with the type,
complexity, novelty and intended use of the product. Delays or rejections may be
based upon many factors, including changes in regulatory policy during the
period of product development. No assurance can be given that any of the
Company's development programs will be successfully completed, that any
Investigational New Drug application ("IND") will become effective or that
additional clinical trials will be allowed by the FDA or other regulatory
authorities or that clinical trials will commence as planned. There have been
delays in the Company's testing and development schedules to date and there can
be no assurance that the Company's expected testing and development schedules
will be met. See "Business."
Conflicts of Interests. Criticare, the largest stockholder of the Company,
owns 33.5% of the outstanding shares of Common Stock of the Company. The former
President of Criticare, Gerhard J. Von der Ruhr, serves as Chairman of the
Company's Board of Directors. The Company and Criticare have entered into
various transactions over the course of the Company's existence, most recently
relating to an agreement pursuant to which, in return for Criticare agreeing to
pay $150,000 to the Company, the Company issued 86,207 shares of Common Stock to
Criticare, granted Criticare an option to license the Company's patents and
know-how relating to rmCRP for applications in treating Sepsis, and assigned its
rights to certain diagnostic products relating to diabetes and alcoholism. The
Company believes that the foregoing transactions were in its best interests and
were on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and were in connection with bona fide business
purposes of the Company. See "Certain Transactions."
Limited Manufacturing Capability. The Company's ability to conduct
clinical trials and its ability to commercialize its products will depend in
part upon its ability to manufacture its products either directly or through
third parties at a competitive cost and in accordance with FDA and other
regulatory requirements. The Company currently lacks the facilities and
personnel to manufacture products in accordance with Good Manufacturing
Practices as prescribed by the FDA or to produce an adequate supply of compounds
to meet future requirements for additional clinical trials and
commercialization. There can be no assurance that the Company will be able to
acquire such resources at reasonable costs if it develops commercially viable
products. See "Business Manufacturing."
10
<PAGE>
Dependence on Third Party Relationships. The Company follows a business
strategy of utilizing the expertise and resources of third parties in a number
of areas, including the manufacture of pharmaceuticals and therapeutics, the
conduct of preclinical and clinical trials, and the development and execution of
its corporate strategies. This strategy creates risks to the Company by placing
critical aspects of the Company's business in the hands of third parties whom
the Company may not be able to control. If these third parties do not perform in
a timely and satisfactory manner, the Company may incur additional costs and
lose time in the conduct of its development and clinical programs as it seeks
alternate sources of such products and services, if available. Such costs and
delays may have a material adverse effect on the Company. The Company has formed
a joint venture corporation with Franklin Research Group ("Franklin") by the
name of NextEra Therapeutics, Inc. The Company has also entered into agreements
to secure services and resources from the following additional third parties:
the Consortium, Pharm-Eco and RADE. See "Business - Collaborative Arrangements -
Formation of NextEra Therapeutics, Inc." and "Management and Key Specific
Personnel - Consulting Arrangements."
The Company may seek additional third party relationships in certain
areas, particularly in situations in which the Company believes that the
clinical testing, marketing, manufacturing and other resources of a
pharmaceutical company collaborator will enable the Company to develop
particular products or geographic markets which are otherwise beyond the
Company's resources and/or capabilities. There is no assurance that the Company
will be able to obtain any such collaboration, or any other research and
development, manufacturing, or clinical trial agreement. The inability of the
Company to obtain and maintain satisfactory relationships with third parties may
have a material adverse effect on the Company. See "Business - Collaborative
Arrangements."
Uncertain Ability to Protect Patents and Proprietary Information. The
pharmaceutical and biotechnology fields are characterized by a large number of
patent filings, and a substantial number of patents have already been issued to
other pharmaceutical and biotechnology companies. Third parties may have filed
applications for or have been issued patents and may obtain additional patents
and proprietary rights related to products or processes competitive with or
similar to those of the Company. The Company may not be aware of all of the
patents potentially adverse to the Company's interests that may have been issued
to others. No assurance can be given that patents do not exist, have not been
filed, or could not be filed or issued, which contain claims relating to the
Company's technology, products or processes. If patents have been or are issued
to others containing preclusive or conflicting claims, the Company may be
required to obtain licenses to one or more of such patents or to develop or
obtain alternate technology. There can be no assurance that the licenses that
might be required for the Company's processes or products would be available on
commercially acceptable terms, or at all.
Because of the substantial length of time and expense associated with
bringing new products to the marketplace through the development and regulatory
approval process, the biotechnology industry places considerable importance on
patent and trade secret protection for new technologies, products and processes.
Since patent applications in the United States are maintained in secrecy until
patents are issued and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, the Company cannot be
certain that it (or any licensor) was the first to make the inventions covered
by pending patent applications or that it (or any licensor) was the first to
file patent applications for such inventions. The patent positions of vaccine
and biotechnology companies can be highly uncertain and involve complex legal
and factual questions, and therefore the breadth of claims allowed in vaccine
and biotechnology patents or their enforceability, cannot be predicted. There
can be no assurance that any patents under pending patent applications or any
further patent applications will be issued. Furthermore, there can be no
assurance that the scope of any patent protection will exclude competitors or
provide competitive advantages to the Company, that any of the Company's patents
that have been issued or may be issued will be held valid if subsequently
challenged or that others, including competitors or current or former employers
of the Company's employees, advisors and consultants, will not claim rights in
or ownership to the patents and other proprietary rights held by the Company.
There can be no assurance that others will not independently develop
substantially equivalent proprietary information or otherwise obtain access to
the Company's proprietary information or that others may not be issued patents
that may require licensing and the payment of significant fees or royalties by
the Company.
The Company currently licenses several patents and patent applications and
other technologies from third parties that are integral to the Company's
products and business. The Company's breach of any existing license agreement or
the failure to obtain a license to technology required to commercialize its
products candidates may have a material adverse effect on the Company. See
"Business - Patents and Licenses."
The biotechnology industry has experienced extensive litigation regarding
patent and other intellectual property rights. The Company could incur
substantial costs in defending itself in suits that may be brought against the
Company claiming infringement of the rights of others or in asserting the
Company's patent rights in a suit against another party. The Company may also be
required to participate in interference proceedings declared by the United
States Patent and Trademark Office for the purpose of determining the priority
of inventions in connection with the patent applications of the Company or other
parties.
11
<PAGE>
Adverse determinations in litigation or interference proceedings could require
the Company to seek licenses (which may not be available on commercially
reasonable terms) or subject the Company to significant liabilities to third
parties, and could therefore have a material adverse effect on the Company. Even
if the Company prevails in an interference proceeding or a lawsuit, substantial
resources of the Company, including the time and attention of its officers, will
be required.
The Company also relies on trade secrets, know-how and technological
advancement to maintain its competitive position. Although the Company uses
confidentiality agreements and employee proprietary information and invention
assignment agreements to protect its trade secrets and other unpatented
know-how, these agreements may be breached by the other party thereto or may
otherwise be of limited effectiveness or enforceability.
Competition; Possible Obsolescence Due to Alternative Technologies. The
biopharmaceutical field is characterized by extensive research efforts and rapid
technological progress. Competition from other biotechnology companies,
pharmaceutical companies and research and academic institutions is intense.
Other companies are engaged in research and product development based on the
acute phase response of the immune system; adaptive immune response and
antimicrobial compounds. In addition, new developments in molecular cell
biology, molecular pharmacology, recombinant-DNA technology and other
pharmaceutical processes are expected to continue at a rapid pace in both
industry and academia. There can be no assurance that research and discoveries
by others will not render some or all of the Company's programs or products
noncompetitive or obsolete.
No Assurance of FDA Approval; Government Regulation. All new drugs and
biologics, including the Company's product candidates, are subject to extensive
and rigorous regulation by the federal government, principally the FDA under the
Federal Food, Drug and Cosmetic Act and other laws including, in the case of
biologics, the Public Health Services Act, and by state and local governments.
Such regulations govern, among other things, the development, testing,
manufacture, labeling, storage, premarket clearance or approval, advertising,
promotion, sale and distribution of such products. If drug products are marketed
abroad, they are subject to extensive regulation by foreign governments. Failure
to comply with applicable regulatory requirements may subject the Company to
administrative or judicially imposed sanctions such as civil penalties, criminal
prosecution, injunctions, product seizure or detention, product recalls, total
or partial suspension of production, and FDA refusal to approve pending
applications.
The Company has not received regulatory approval in the United States or
any foreign jurisdiction for the commercial sale of any of its products. The
process of obtaining FDA and other required regulatory approvals, including
foreign approvals, often takes many years and varies substantially based upon
the type, complexity and novelty of the products involved and the indications
being studied. Furthermore, such approval process is extremely expensive and
uncertain. There can be no assurance that the Company's product candidates will
be cleared for marketing by the FDA. The Company does not currently have
sufficient resources to complete the required regulatory review process. The
failure of the Company to receive FDA approval for its product candidates would
preclude the Company from marketing and selling its products in the United
States. Therefore, the failure to receive FDA approval would have a material
adverse effect on the Company. Even if regulatory approval of a product is
granted, there can be no assurance that the Company will be able to obtain the
labeling claims necessary or desirable for the promotion of such product. FDA
regulations prohibit the marketing or promotion of a drug for unapproved
indications. Furthermore, regulatory marketing approval may entail ongoing
requirements for postmarketing studies. If regulatory approval is obtained, the
Company will be subject to ongoing FDA obligations and continued regulatory
review. In particular, the Company or its third party manufacturers will be
required to adhere to regulations setting forth GMPs, which require that the
Company or third party manufacturers manufacture products and maintain records
in a prescribed manner with respect to manufacturing, testing and quality
control activities. Further, the Company or its third party manufacturer must
pass a preapproval inspection of its manufacturing facilities by the FDA before
obtaining marketing approval. Failure to comply with applicable regulatory
requirements may result in penalties such as restrictions on a product's
marketing or withdrawal of the product from the market. In addition,
identification of certain side effects after a drug is on the market or the
occurrence of manufacturing problems could cause subsequent withdrawal of
approval, reformulation of the drug, additional preclinical testing or clinical
trials and changes in labeling of the product.
Prior to the submission of an application for FDA approval, drugs
developed by the Company must undergo rigorous preclinical and clinical testing
which may take several years and the expenditure of substantial resources.
Before commencing clinical trials in humans, the Company must submit to the FDA
and receive clearance of an IND. There can be no assurance that submission of an
IND for future clinical testing of any product under development or other future
products of the Company would result in FDA permission to commence clinical
trials or that the Company will be able to obtain the necessary approvals for
future clinical testing in any foreign jurisdiction. Further, there can be no
assurance that if such testing of products under development is completed, any
such drug compounds will be accepted for formal review by the FDA or any foreign
regulatory body, or approved by the FDA for marketing in the United States or by
any such foreign regulatory bodies for marketing in foreign jurisdictions.
12
<PAGE>
Future federal, state, local or foreign legislation or administrative acts could
also prevent or delay regulatory approval of the Company's products. See
"Business - Government Regulation."
Dependence on Key Personnel. The Company's business depends to a
significant degree on the continuing contributions of its key management,
scientific and technical personnel. There can be no assurance that the loss of
certain members of management and scientists would not prevent the Company from
executing its business plan.
Uncertain Availability of Health Care Reimbursement; Health Care Reform.
The Company's ability to commercialize its product candidates will depend in
part on the extent to which reimbursement for the costs of such product will be
available from government health administration authorities, private health
insurers and others. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. There can be no assurance of the
availability of third-party insurance reimbursement coverage enabling the
Company to establish and maintain price levels sufficient for realization of a
return on its investment in developing vaccines and biological products.
Government and other third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement for
new therapeutic products approved for marketing by the FDA and by refusing, in
some cases, to provide any coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for uses of the Company's products, the market acceptance of these
products would be adversely affected.
Health care reform proposals have been introduced in Congress and in
various state legislatures. It is currently uncertain whether any health care
reform legislation will be enacted at the federal level, or what actions
governmental and private payors may take in response to the suggested reforms.
The Company cannot predict when any proposed reforms will be implemented, if
ever, or the effect of any implemented reforms on the Company's business. There
can be no assurance that any implemented reforms will not have a material
adverse effect on the Company. Such reforms, if enacted, may affect the
availability of third-party reimbursement for products developed by the Company
as well as the price levels at which the Company is able to sell such products.
In addition, if the Company is able to commercialize products in overseas
markets, the Company's ability to achieve success in such markets may depend, in
part, on the health care financing and reimbursement policies of such countries.
Risk of Product Liability, Uncertainty of Availability of Product
Liability Insurance. The Company's business exposes it to substantial product
liability risks. The Company plans to obtain product liability insurance
covering the sale of its products prior to their commercial introduction;
however, there can be no assurance that the Company will be able to obtain or
maintain such insurance on acceptable terms or that any insurance obtained will
provide adequate coverage against potential liabilities. Claims or losses in
excess of any liability insurance coverage now carried or subsequently obtained
by the Company could have a material adverse effect on the Company.
Disclosure Regarding Acquisitions or Business Combinations. Although the
Company has no current intentions to acquire other businesses or merger with or
into other entities, the trend toward consolidating business operations, seeking
economies of scale, diversifying product offerings and pursuing operating
synergies is one that characterizes all industries currently and the
biopharmaceutical industry is no exception. If the Company decides to focus on
these benefits, it may decide to pursue an acquisition of another entity or some
other form of business combination. If the Company does decide to pursue a
transaction of this type, except as otherwise required by law, rules or
regulations, the Company currently does not intend to provide stockholders with
information concerning an acquisition or merger candidate and its business prior
to consummation of the transaction.
Potential Adverse Effect of Shares Eligible for Future Sale. Sales of
Common Stock (including shares issued upon the exercise of outstanding options)
in the public market after this Offering could materially and adversely affect
the market price of the Securities. Such sales also might make it more difficult
for the Company to sell equity securities or equity-related securities in the
future at a time and price that the Company deems appropriate.
Upon the completion of the Offerings, and including the issuance of
611,250 shares of Common Stock to Pharm-Eco and Members of the Consortium and
the issuance of 28,147 shares of Common Stock to the State of Illinois (assuming
an initial public offering price of $10.00 per share), the Company will have
4,884,914 shares of Common Stock outstanding (not including 2,740,036 shares of
Common Stock subject to outstanding options or warrants). Of the shares to be
outstanding, the 1,000,000 shares of Common Stock to be distributed by the
Company will be freely tradeable without restriction. All of the remaining
3,884,914 shares will be restricted securities within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). Pursuant to Rule 144,
,670,517 of such restricted securities will be eligible for resale upon the
effective date (the "Effective Date") of the Registration Statement of which
this Prospectus forms a part. The holders of 2,042,945 of such 2,670,517 shares
to become
13
<PAGE>
eligible for sale on the Effective Date have agreed not to sell any of such
shares for periods ranging from 1 to 2 years after the Effective Date. In
addition to the 2,670,517 shares previously mentioned, 575,000 shares will be
eligible for resale in July 1999 and 639,397 shares will be eligible for resale
one year after the Effective Date. The Company's officers, directors, certain
consultants, including RADE, and those shareholders owning 5% or more of the
shares outstanding, have further agreed not to sell any of their Shares
(representing 1,434,059 of the 2,042,945 Shares subject to "lock-up" agreements
and referred to above) and any of the 975,000 shares issuable upon exercise of
options and warrants held by them, until the market price for the Company's
Common Stock, adjusted for splits and like transactions, closes at or above
$20.00 per share for a period of 20 consecutive trading days.
The Company does not anticipate that an active trading market for the
Common Stock will develop outside the United States. Therefore, any resales of
Common Stock will likely occur on the Nasdaq SmallCap Market or the Boston Stock
Exchange. See "Description of Securities" and "Shares Eligible for Future Sale."
Immediate Substantial Dilution. Purchasers of Shares in the Offerings will
experience immediate and substantial dilution of $8.45 (85%) per share, between
the pro forma net tangible book value of the Shares and the public offering
price of $10.00 per share. See "Dilution."
Potential Adverse Effect of Underwriters' Warrants. At the consummation of
the Offering, the Company will sell to the Underwriters for nominal
consideration the Underwriters' Warrants to purchase up to 100,000 shares of
Common Stock. The Underwriters' Warrants will be exercisable for a period of
four years commencing one year after the effective date of this Offering, at an
exercise price equal to 120% of the initial public offering price. For the term
of the Underwriters' Warrants, the holders thereof will have, at nominal cost,
the opportunity to profit from a rise in the market price of the Securities
without assuming the risk of ownership. As long as the Underwriters' Warrants
remain unexercised, the Company's ability to obtain additional capital might be
adversely affected. Moreover, the Underwriters may be expected to exercise the
Underwriters' Warrants at a time when the Company would, in all likelihood, be
able to obtain any needed capital through a new offering of its securities on
terms more favorable than those provided by the Underwriters' Warrants. See
"Underwriting."
Potential Adverse Effect of Substantial Shares of Common Stock Reserved.
Upon completion of the Offerings there will be reserved a total of 2,740,036
shares of Common Stock for issuance as follows: (i) 100,000 shares for issuance
upon exercise of the Underwriter's Warrants; (ii) 498,636 shares for issuance
upon exercise of stock options granted to employees of or consultants to the
Company; and (iii) 2,141,400 shares for issuance upon the exercise of other
outstanding options and warrants. The exercise prices of the foregoing options
and warrants are substantially below the offering price of the Shares offered
hereby. The existence of the Underwriter's Warrants and any other options or
warrants may adversely affect the Company's ability to consummate future equity
financings. Further, the holders of such warrants and options may exercise them
at a time when the Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company. To the extent any such options
and warrants are exercised, the interests of the Company's stockholders may be
diluted.
Absence of Dividends. The Company has never declared or paid dividends on
its Common Stock and does not intend to pay any dividends in the foreseeable
future. See "Dividend Policy."
Arbitrary Determination of Offering Price; No Public Market for the
Securities. The initial public offering price of the Shares have been determined
arbitrarily by negotiations between the Company and the Underwriters. Factors
considered in such negotiations, in addition to prevailing market conditions,
included the history and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure and certain other factors deemed relevant.
Therefore, the public offering price of the Shares do not necessarily bear any
relationship to established valuation criteria and may not be indicative of
prices that may prevail at any time or from time to time in the public market
for the Common Stock. Prior to the Offerings, there has been no public market
for the Common Stock, and there can be no assurance that an active trading
market will develop in the Common Stock after the Offerings, or, if developed,
be sustained. See "Underwriting."
Price Volatility. The securities markets have from time to time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of particular companies. In addition, the market
prices of the common stock of many publicly traded pharmaceutical or
biotechnology companies have in the past been, and can in the future be expected
to be, especially volatile. Announcements of technological innovations or new
products by the Company or its competitors, developments or disputes concerning
patents or proprietary rights, publicity regarding actual or potential clinical
trial results relating to products under development by the Company or its
competitors, regulatory developments in both the United States and foreign
countries, delays in the Company's testing and development schedules, public
concern as to the safety of vaccines or biological products and economic and
other external factors, as well period-to-period fluctuations in the Company's
financial
14
<PAGE>
results, may have a significant impact on the market price of the Common Stock
and Warrants. The realization of any of the risks described in these "Risk
Factors" could have a significant and adverse impact on such market prices.
International Underwriters' Inability to Influence the Market. Neither of
the International Underwriters is authorized to make a market in securities
listed on the NASDAQ SmallCap Market. There can be no assurance that the
International Underwriters' inability to participate directly in the United
States securities markets will not adversely affect the development of a trading
market for and the liquidity of the Common Stock of the Company. Therefore,
purchasers of the Common Stock offered hereby may suffer a lack of liquidity in
their investment or a material diminution in the value of their investment. The
Company does not intend to list the Common Stock on any stock exchanges outside
the United States. Therefore, the Company does not expect an active trading
market to develop outside the United States.
U.S. Underwriter's Influence on the Market. A significant portion of the
Common Stock offered hereby may be sold to customers of the U.S. Underwriter and
customers of the International Underwriters. In light of the lack of
participation of the International Underwriters in any market which may develop
for the Common Stock, if the U.S. Underwriter elects to participate, it may
exert substantial influence on any market which may develop for the Common
Stock. A determination by the U.S. Underwriter not to participate in the market
for the Common Stock or to stop participating in such market may adversely
effect the price and liquidity of the Common Stock.
Underwriters' Limited Underwriting Experience. The International
Underwriters have been actively engaged in the securities brokerage and
investment banking business since 1994, with respect to The New China Hong Kong
Securities Ltd., and since 1996 with respect to China Everbright Securities
(H.K.) Ltd. However, while the International Underwriters have engaged in
numerous underwriting activities in Asia, each has never underwritten an
offering of securities by a U.S.-based issuer. There can be no assurance that
the International Underwriters' limited experience as an underwriter of public
offerings by U.S. issuers will not adversely affect the proposed public offering
of the Shares, the subsequent development of a trading market, if any, or the
market for and liquidity of the Company's securities. Therefore, purchasers of
the securities offered hereby may suffer a lack of liquidity in their investment
or a material diminution of the value of their investment.
Management's Broad Discretion in Use of Proceeds. Although the Company
intends to apply the net proceeds of the Offerings in the manner described under
"Use of Proceeds," it has broad discretion within such proposed uses as to the
precise allocation of the net proceeds, the timing of expenditures and other
aspects of the use thereof. The Company reserves the right to reallocate the net
proceeds of the Offerings among the various categories set forth under "Use of
Proceeds" as it, in its sole discretion, deems necessary or advisable. See "Use
of Proceeds."
NASDAQ Stock Market; Boston Stock Exchange. Although the Company has
applied for listing of the Common Stock on the Nasdaq SmallCap Market and
intends to make application to list the Common Stock on the Boston Stock
Exchange, there can be no assurance that such applications will be approved or
that a trading market for the Common Stock will develop or, if developed, will
be sustained. Furthermore, there can be no assurance that the securities
purchased by the public hereunder may be resold at their original offering price
or at any other price.
In order to qualify for initial listing on the Boston Stock Exchange, a
company must, among other things, have at least $3.0 million in total assets,
$2.0 million in tangible assets, $1.5 million "public float," and a minimum bid
price for its securities of $2.00 per share. For continued listing on the Boston
Stock Exchange, a company must maintain a $500,000 market value of the public
float, $1 million in total assets and $500,000 in stockholders equity. The
failure to meet these maintenance criteria in the future may result in the
discontinuance of the listing of the Common Stock on the Boston Stock Exchange.
In order to qualify for initial listing on the Nasdaq SmallCap Market, a
company must, among other things, have at least $4.0 million in net tangible
assets, 1,000,000 shares in the "public float," $5.0 million "public float," and
a minimum bid price for its securities of $4.00 per share. For continued listing
on the Nasdaq SmallCap Market, a company must maintain a $200,000 market value
of the public float and $2.0 million in net tangible assets. In addition,
continued inclusion requires two marketmakers and a minimum bid of $1.00 per
share. The failure to meet these maintenance criteria in the future may result
in the discontinuance of the listing of the Common Stock on the Nasdaq SmallCap
Market.
If the Company is or becomes unable to meet the listing criteria (either
initially or on a continued basis) of the Boston Stock Exchange or the Nasdaq
SmallCap Market and is never traded or becomes delisted therefrom, trading, if
any, in the Common Stock would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" or, if then available, "Electronic
Bulletin Board" administered by the National Association of Securities Dealers,
Inc. (the "NASD"). In such an event, the market price of the Common Stock may be
adversely impacted. As a result, an investor may find it difficult to dispose of
or to obtain accurate quotations as to the market value of the Common Stock.
15
<PAGE>
Limitation of Liability and Indemnification. The Company's Certificate of
Incorporation limits, to the maximum extent permitted by the Delaware General
Corporations Law ("Delaware Law"), the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors. The
Company's Bylaws provide that the Company shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest extent
permitted by law. The Company has entered into indemnification agreements with
its officers and directors containing provisions which are in some respects
broader than the specific indemnification provisions contained in Delaware Law.
The indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms. Section 145 of the Delaware Law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Delaware Law does
not permit a corporation to eliminate a director's duty of care, and the
provisions of the Company's Certificate of Incorporation have no effect on the
availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care. See "Management."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,000,000 Shares offered in the Offerings (after deducting estimated offering
expenses payable by the Company) are estimated to be approximately $8,150,000
based on an assumed initial public offering price of $10.00 per Share.
The Company intends to use the net proceeds from the offering in the approximate
amounts and in the order of priority shown below for the purposes listed:
<TABLE>
<CAPTION>
Anticipated Use Approximate Amount Percent of Total
--------------- ------------------ ----------------
<S> <C> <C>
Debt elimination and arrearages in research
support(1) .......................................... $ 250,000 3.07%
Clinical and pre-clinical studies ................... 4,744,000 58.21%
Research and development generally .................. 1,376,000 16.88%
Patent protection ................................... 450,000 5.52%
Marketing ........................................... 375,000 4.60%
Working capital and general corporate purposes ...... 955,000 11.72%
---------- ------
TOTAL ....................................... $8,150,000 100.00%
========== ======
</TABLE>
- ---------------
(1) The Company intends to use $100,000 of such net proceeds to repay amounts
due the State of Illinois, which amount is due pursuant to an unsecured,
non-interest bearing obligation of the Company which matures upon
completion of an initial public offering. 28,147 shares of Common Stock
will be issued to the State of Illinois upon completion of the Offerings
(assuming an initial public offering price of $10.00 per Share) as
consideration for interest accrued under the obligation. Approximately
$150,000 will be used to pay arrearages in research support due pursuant
to the Consortium Agreement, as amended.
The amount and timing of expenditures of the net proceeds of the Offerings
cannot be precisely determined, and will depend on numerous factors, including
the status of the Company's product development efforts, the results of clinical
trials and the regulatory approval process. Pending such uses, the Company plans
to invest the net proceeds from the Offerings in short-term, investment-grade,
interest-bearing securities.
The Company estimates that its current cash resources and the net proceeds
of the Offerings, not including any proceeds from any grant the Company may
receive, will be sufficient to meet its operating and capital requirements for
20 months following the closing of the Offerings. However, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of preclinical and clinical testing, responses
to the Company's grant requests, relationships with possible strategic partners,
changes in the focus and direction of the Company's research and development
programs, competitive and technological advances, the FDA regulatory process and
other factors. Because of these contingencies, there can be no assurance that
the net proceeds of the Offerings will satisfy the Company's requirements for
any particular period of time. The Company anticipates that additional funding
will be required after the use of the net proceeds of the Offerings. No
assurance can be given that such additional financing will be available when
needed on terms acceptable to the Company, if at all. See "Risk Factors - Need
for Substantial Additional Funds."
Proceeds, if any, derived from the exercise of the Underwriters' Warrants
will be added to the Company's working capital.
Although the Company intends to apply the net proceeds of the Offerings in
the manner described herein, it has broad discretion within such proposed uses
as to the precise allocation of the net proceeds, the timing of expenditures and
other aspects of the use thereof. The Company reserves the right to reallocate
the net proceeds of the Offerings among the various categories set forth in this
section as it, in its sole discretion, deems necessary or advisable. Although
the Company does not currently anticipate any material changes to the
allocations set forth, business requirements and market conditions that are not
now able to be anticipated may require that proceeds be allocated in a different
manner. For example, if an acquisition candidate were to become known to the
Company and as analyses of the acquisition indicated that the transaction would
be a benefit to the Company and its stockholders, the Company may pursue such a
transaction and may be required to re-allocate proceeds from this Offering in
order to complete the transaction.
17
<PAGE>
DIVIDEND POLICY
The Company has never declared nor paid dividends on its Common Stock and
does not intend to pay any dividends in the foreseeable future.
DILUTION
The net tangible deficit (i.e., net tangible assets less aggregate
liabilities) of the Company as of December 31, 1998 was $(569,880), or $(0.15)
per share of Common Stock, determined by dividing the net tangible deficit of
the Company by the number of shares of Common Stock outstanding as of such date.
After giving effect to the receipt of the net proceeds of the sale of 1,000,000
Shares offered in the Offerings at an assumed initial public offering price of
$10.00 per Share, the pro forma net tangible book value of the Company on
December 31, 1998 would have been $7,580,120, or $1.55 per share. This
represents an immediate increase in pro forma net tangible book value of $1.70
per share to existing stockholders and an immediate dilution of $8.45 per share
to new investors. The following table, which does not contemplate the exercise
of the Warrants, the Underwriter's Warrants or other warrants or options to
purchase shares of the Company's Common Stock (See "Risk Factors - Potential
Adverse Effect of Substantial Shares of Common Stock Reserved"), illustrates the
per share dilution:
Assumed initial public offering price per share $10.00
Net tangible deficit per share $(0.15)
Increase per share attributable to new stockholders 1.70
------
Pro forma net tangible book value per share after the Offering 1.55
-----
Dilution per share to new stockholders $8.45
=====
The following table summarizes, as of December 31, 1998, the difference
between the number of shares of Common Stock purchased from the Company, the
total cash consideration paid and the average price per share paid by existing
stockholders of Common Stock and by the new investors purchasing shares in this
Offering, assuming the sale of the 1,000,000 Shares offered hereby at an assumed
initial public offering price of $10.00 per Share and before any deduction of
underwriting discounts and estimated offering expenses.
<TABLE>
<CAPTION>
Number Of Total Cash
Shares Purchased Consideration Average
--------------------- ----------------------- Price
Number Percent Amount Percent Per share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders 3,884,914 79.5% $ 6,815,892 43.0% $ 1.75
New investors 1,000,000 20.5% 10,000,000 57.0% $10.00
--------- ----------- ----- ------
Total 4,884,914 100.0% $16,815,892 100.0%
========= ====== =========== =====
</TABLE>
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, (i) the actual
capitalization of the Company and (ii) the pro forma capitalization of the
Company giving effect to the receipt of the estimated net proceeds from the sale
of the 1,000,000 Shares offered hereby at an assumed initial public offering
price of $10.00 per Share. This table should be read in conjunction with the
financial statements of the Company and the notes thereto included elsewhere in
this Prospectus. See "Description of Securities," "Use of Proceeds" and "Certain
Transactions."
<TABLE>
<CAPTION>
Pro forma
As Adjusted
for the
Offerings
Actual Hereby
------ ------
<S> <C> <C>
Current portion of long-term debt,
including accrued interest $ 391,470 $ 10,000
------------ ------------
Preferred Stock
Preferred Stock, par value $0.01 per share,
5,000,000 shares authorized, 0 shares
issued and outstanding as of
December 31, 1998 -0- -0-
------------ ------------
Total preferred stock -0- -0-
------------ ------------
Common Stockholders Investment (deficiency in assets)
Common Stock, par value $0.01 per share,
30,000,000 shares authorized,
3,245,517 shares issued and
outstanding as of December 31,
1998 after giving pro forma effect
to the Second Reverse Stock Split (1)(3);
30,000,000 shares authorized,
4,884,914 shares issued and
outstanding as of December 31,
1998 after giving pro forma
effect to the Second Reverse
Stock Split and the Offerings(2)(3) 32,455 48,849
Additional paid-in capital 10,871,198 25,398,774
Deficit accumulated during the development stage(4) (11,243,892) (17,356,392)
------------ ------------
Total common stockholders' investment
(deficiency in assets) $ (340,239) $ 8,091,231
============ ============
</TABLE>
- -------------------
(1) Excludes (i) an aggregate of 611,250 shares of Common Stock subject to
issuance without further consideration to Pharm-Eco and members of the
Consortium upon completion of the Offerings and (ii) shares of Common
Stock to be issued upon completion of the Offerings to satisfy the
interest portion of Immtech's outstanding note payable to the State of
Illinois, which interest portion equals $281,470 currently (and such
amount will not change prior to completion of the Offerings) (based upon
the assumed per Share initial public offering price of $10.00, the number
of shares issued to the State of Illinois in satisfaction of Immtech's
obligation will be 28,147 shares of Common Stock).
(2) Includes the shares referred to in items (i) and (ii) of Footnote (1).
(3) Excludes (i) an aggregate of 975,000 shares of Common Stock subject to
purchase and issuance at a price of $.10 per share pursuant to exercise
of outstanding warrants held by RADE Management Corporation ("RADE");
(ii) outstanding warrants to acquire an aggregate of 850,000 shares of
Common Stock with an exercise price equal to the weighted average
19
<PAGE>
market price of the Company's Common Stock during the first 20 days of
trading on any stock exchange or in any over-the-counter market, which
warrants are exercisable upon reaching certain scientific milestones and
are held by Pharm-Eco and members of the Consortium; (iii) an aggregate of
150,000 shares of Common Stock subject to issuance without further
consideration to Pharm-Eco and members of the Consortium upon the filing
by Immtech of an NDA or an ANDA with the FDA with respect to any product;
(iv) an aggregate of 91,400 shares of Common Stock subject to purchase and
issuance pursuant to exercise of outstanding warrants held by former
holders of the Company's Senior Subordinated Debentures, which warrants
carry an exercise price of 1/2 of the initial public offering price per
Share ($5.00 per Share assuming the initial public offering price is
$10.00 per Share) and are exercisable upon completion of the Offerings
until August 31, 1999; (v) an aggregate of 498,636 shares of Common Stock
subject to purchase and issuance pursuant to exercise of outstanding
options held by certain employees and consultants to the Company, which
options carry a weighted average exercise price of $0.83 per share; (vi)
an aggregate of 75,000 shares of Common Stock subject to purchase and
issuance at a price of $.10 per share pursuant to exercise of outstanding
warrants held by NCHK; (vii) up to 150,000 Shares issuable upon the
possible exercise by the Underwriters of the Over-allotment Option; and
(viii) up to 100,000 Shares issuable upon exercise of the Underwriters'
Warrants.
(4) Pro Forma as adjusted for the Offerings column includes $6,112,500
adjustment to accumulated deficit for issuance of 611,250 shares for
technology expensed as research and development.
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the years ended March 31,
1996, 1997 and 1998 and the balance sheet data as of March 31, 1997 and 1998 are
derived from the financial statements audited by Deloitte & Touche LLP included
elsewhere in this Prospectus. The statement of operations data set forth below
for the year ended March 31, 1995 and the balance sheet data at March 31, 1995
and 1996 are derived from audited financial statements which are not included in
this Prospectus. The results of operations for the nine month periods ended
December 31, 1997 and 1998 are not necessarily indicative of the results for
either fiscal year and include all normal recurring adjustments. Historical
results are not necessarily indicative of future results. The data set forth
below should be read in conjunction with the financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Month Periods
Years Ended March 31, Ended December 31,
-------------------------------------------------------- --------------------------
1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues $ 260,503 $ 335,000 $ 15,000 $ 19,552 -- $ 214,252
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Research and development 996,486 737,805 478,871 312,366 155,647 540,201
General and
administrative 429,042 218,843 532,642 534,984 211,791 2,596,869
Cancelled offering costs 188,144 65,837 73,984
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 1,613,672 956,648 1,077,350 921,334 367,438 3,137,070
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations (1,353,169) (621,648) (1,062,350) (901,782) (367,438) (2,922,818)
----------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense (98,984) (135,468) (281,710) (241,767) (181,012) (67,543)
Miscellaneous (expense)
income - net 19,941 (2,522) (6,503) (2,148) (54) 5,505
----------- ----------- ----------- ----------- ----------- -----------
Other expense - net (79,043) (137,990) (288,213) (243,915) (181,066) (62,038)
----------- ----------- ----------- ----------- ----------- -----------
Loss before
extraordinary item (1,432,212) (759,638) (1,350,563) (1,145,697) (548,504) (2,984,856)
Extraordinary gain on
extinguishment of debt 1,427,765
Net loss (1,432,212) (759,638) (1,350,563) (1,145,697) (548,504) (1,557,091)
Conversion of redeemable
preferred stock 3,713,334
Redeemable preferred stock
dividends net of premium
amortization (229,465) (246,324) (267,980) (331,435) (226,225) (137,689)
Net (loss) income
attributable to common
stockholders $(1,661,677) $(1,005,962) $(1,618,543) $(1,477,132) $ (774,729) $ 2,018,554
=========== =========== =========== =========== =========== ===========
Net loss per
common share
attributable to common
stockholders:
Loss before
extraordinary gain $ (2.22) $ (1.15) $ (2.04) $ (1.69) $ (0.81) $ (1.58)
Extraordinary Gain 0.76
----------- ----------- ----------- ----------- ----------- -----------
Net loss $ (2.22) $ (1.15) $ (2.04) $ (1.69) $ (0.81) $ (0.82)
Redeemable preferred
stock conversion,
premium amortization
and dividends (0.35) (0.37) (0.40) (0.49) (0.34) 1.89
----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income per
share attributable to
common stockholders $ (2.57) $ (1.52) $ (2.44) $ (2.18) $ (1.15) $ 1.07
=========== =========== =========== =========== =========== ===========
Shares used in computing
net (loss) income per
share attributable to
common stockholders 646,381 660,833 662,975 676,471 675,498 1,887,222
Balance Sheet Data:
Working capital
(deficiency) (1,053,991) (1,763,833) (3,045,867) (3,638,865) (3,562,107) (606,677)
Total assets 154,558 117,532 189,394 70,771 78,619 369,059
Accrued interest 29,679 70,787 454,684 663,013 634,842 281,470
Stockholder advances -- 311,500 770,000 985,172 920,214 --
Notes payable 769,709 966,419 1,572,969 1,576,450 1,584,585 110,000
Long-term debt due after
one year 383,488 383,488 -- -- -- --
Redeemable preferred stock 4,344,156 4,590,480 5,108,460 5,439,895 5,334,684 --
Common stockholders'
investment (deficiency
in assets) (5,635,441) (6,633,903) (8,058,145) (9,021,623) (8,832,874) (340,239)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. This
discussion contains forward-looking statements and such statements are subject
to certain risks and uncertainties which could cause actual results to differ
materially from those projected. Factors that could cause or contribute to such
differences include, but are not limited to, the factors discussed below and in
the "Business Section," as well as those discussed elsewhere in this document.
See "Risk Factors."
OVERVIEW
Immtech, a development stage enterprise, is a biopharmaceutical company
focused on the discovery and commercialization of therapeutics for the treatment
of patients afflicted with opportunistic infectious diseases, cancer or
compromised immune systems. The Company has two independent programs for
developing drugs. The first is based on a technology for the design of a new
class of pharmaceutical compounds commonly referred to as dications. The Company
believes that pharmaceutical dications can be designed to inhibit the growth of
a wide variety of infectious organisms which cause fungal, protozoan parasitic,
bacterial and viral diseases. The second is based on biological proteins that
work in conjunction with the body's immune system. These biological proteins are
derivatives of C-Reactive Protein ("CRP"), which occurs naturally in the body
and which the Company believes can be used to control the structural environment
around cancerous tumors and to reprogram cancerous cells to stop growing
uncontrollably and revert to normal cell behavior.
With the exception of research agreements and past development funding
from Centocor, Sigma-Aldrich and certain research grants, the Company has not
generated any revenue from operations. For the period from inception to December
31, 1998, the Company incurred a cumulative net loss of $11,243,892. The Company
has incurred additional losses since such date and expects to incur additional
operating losses for the foreseeable future. The Company expects that its
revenue sources for at least the next several years will be limited to research
grants from Small Business Technology Transfer Program Grants ("STTR") and
payments from other collaborators under arrangements that may be entered into in
the future. The timing and amounts of such revenues, if any, will likely
fluctuate sharply and depend upon the achievement of specified milestones, and
results of operations for any period may be unrelated to the results of
operations for any other period. See "Business."
RESULTS OF OPERATIONS
All amounts contained in this section have been rounded to the nearest
five hundred dollars.
Nine Month Periods Ended December 31, 1998 and 1997.
Revenues under the Small Business Technology Transfer ("STTR") Program
from the National Institutes of Health accounted for $103,500 in the nine month
period ended December 31, 1998. Additional revenue sources were a grant from
Franklin Research Group (co-founder of NextEra Therapeutics, Inc.) of $50,000, a
payment of $15,500 for technology sold to Criticare and research payments of
$45,000 from Sigma-Aldrich. There was no revenue in the nine month period ended
December 31, 1997.
Research and development expenses were $540,000 and $155,500 in the nine
month periods ended December 31, 1998 and December 31, 1997, respectively. The
increase is primarily due to contractual payments to UNC of $300,000.
General and Administrative expenses increased 1,126.4% from approximately
$212,000 in the nine month period ended December 31, 1997 to $2,600,000 in the
nine month period ended December 31, 1998, as a result of patent expenses
incurred in 1998 and of $2,220,00 of expense related to issuance of the RADE
Warrants for consulting services. Interest expense decreased 62.7% from $181,000
in the nine month period ended December 31, 1997 to $67,500 in the nine month
period ended December 31, 1998. This is due to the Senior Subordinated Debt
discount and issuance costs becoming fully amortized in 1997 and the conversion
of debt to stock in July 1998.
22
<PAGE>
Redeemable preferred stock dividends net of premium amortization decreased
39.2% from $226,000 for the nine months ended December 31, 1997 to $137,500 for
the nine months ended December 31, 1998. This is due to the conversion of the
preferred A and B to common in July 1998.
Years Ended March 31, 1998, 1997, and 1996.
Revenues under collaborative research and development agreements were
approximately $15,000 and $335,000 in the years ended March 31, 1997 and 1996,
respectively. In 1998, there were grant revenues of approximately $19,500 from
an STTR Program from the National Institutes of Health.
Research and development expenses decreased by 35.0% from approximately
$738,000 in 1996 to $479,000 in 1997 and decreased by 34.8% to approximately
$312,500 in 1998, due primarily to the completion of the biological platform
Phase I clinical trials in Germany in 1996, the internal shift from the
biological to the pharmaceutical focus and the corresponding shift from basic
research to clinical support.
General and administrative expenses increased by 0.5% in 1998 to
approximately $535,000 from $532,500 in 1997 and increased by 143.2% in 1997
from $219,000 in 1996. The 1997 increase resulted primarily from patent costs
related to the pharmaceutical platform technology. Interest expense increased
107.7% from $135,500 in 1996 to $282,500 in 1997, and decreased 14.0% to
$242,000 in 1998. The 1997 increase is due to the Company completing a Senior
Subordinated Debt issue in August 1996. Cancelled offering costs were
approximately $66,000 in 1997 and $74,000 in 1998. Both amounts relate to a
cancelled offering of the Company's preferred stock.
Redeemable preferred stock dividends net of premium amortization increased
8.8% from $246,500 in 1996 to $268,000 in 1997 and 23.7% to $331,500 in 1998.
The premium was fully amortized on the Series A Preferred as of December 1997.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1998, the Company financed its
operations from (i) the net proceeds of private placements of debt and equity
securities and cash contributed from stockholders, which in the aggregate,
raised approximately $11,000,000, (ii) payments from research agreements and
Small Business Innovation Research ("SBIR") grants and STTR Program grants of
approximately $1,900,000, and (iii) use of stock, options and warrants in lieu
of cash compensation.
In July 1998, the Company completed a private placement equity offering of
$1,000,000. As a condition to this investment, the Company completed the
Recapitalization effective July 24, 1998.
The Company intends to use $100,000 of the net proceeds of the Offerings
to repay amounts due to the State of Illinois. Substantially all of the
remaining net proceeds of the Offerings, $8,050,000, will be used to fund the
Company's research and development efforts, including clinical and preclinical
studies. Any net proceeds not applied to the Company's research and development
efforts will be used for working capital and general corporate purposes,
including hiring up to 10 additional employees. The amount and timing of
expenditures of the net proceeds of the Offerings cannot be precisely
determined, and will depend on numerous factors, including the status of the
Company's product development efforts, the results of clinical trials and the
regulatory approval process. The Company may also use a portion of the net
proceeds to acquire complementary businesses, products or technologies, although
the Company has no agreements and is not involved in any negotiations with
respect to any such transaction. See "Risk Factors - Management's Broad
Discretion in Use of Proceeds." Pending such uses, the Company plans to invest
the net proceeds from the Offerings in short-term, investment-grade,
interest-bearing securities. See "Use of Proceeds."
The Company's cash resources have been used to finance research and
development, including sponsored research, capital expenditures, expenses
associated with the efforts of the Consortium and general and administrative
expenses. Over the next several years, the Company expects to incur substantial
additional research and development costs, including costs related to
early-stage research in preclinical and clinical trials, increased
administrative expenses to support its research and development operations and
increased capital expenditures for expanded research capacity, various equipment
needs and facility improvements or relocation.
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At December 31, 1998, the Company was a party to sponsored research
agreements with UNC which, upon completion of this financing, require it to fund
an aggregate of approximately $100,000 per quarter through the third anniversary
of the completion of this offering.
At December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $7,405,000, which expire from 2003 through 2013.
At December 31, 1998, the Company had available for federal income tax purposes
approximately $7,349,000 of alternative minimum tax net operating loss
carryforwards which expire from 2003 through 2013. The Company also has
approximately $5,303,000 of state net operating loss carryforwards available as
of June 30, 1998, which expire from 2009 through 2013, available to offset
certain future state taxable income for Illinois state tax purposes. Because of
"change of ownership" provisions of the Tax Reform Act of 1986, approximately
$2,352,000 and $250,000 of the Company's net operating loss carryforwards for
federal and State of Illinois purposes, respectively, are subject to an annual
limitation regarding utilization against taxable income in future periods. The
Company is considering various equity financing alternatives. Such changes may
result in a change of ownership and significantly restrict the utilization of
the Company's net operating loss carryforwards and federal tax credit
carryforwards.
The Company believes its existing resources, subject to the completion of
the Offerings but not including proceeds from any grant the Company may receive,
to be sufficient to meet the Company's planned expenditures for 20 months
following the Offerings, although there can be no assurance the Company will not
require additional funds. The Company's working capital requirements will depend
upon numerous factors, including the progress of the Company's research and
development programs (which may vary as product candidates are added or
abandoned), preclinical testing and clinical trials, achievement of regulatory
milestones, the Company's corporate partners fulfilling their obligations to the
Company, the timing and cost of seeking regulatory approvals, the level of
resources that the Company devotes to the development of manufacturing, the
ability of the Company to maintain existing and establish new collaborative
arrangements with other companies to provide funding to the Company to support
these activities and other factors. In any event, the Company will require
substantial funds in addition to the present existing working capital to develop
its product candidates and otherwise to meet its business objectives.
YEAR 2000
Business interruptions resulting from technology problems arising out of
the Year 2000 may adversely affect companies in various industries. The Company
currently anticipates that it will still be in the process of conducting
clinical trials or otherwise developing its initial products at the onset of the
Year 2000. Consequently, it is not likely that the Company will be engaged in
time sensitive activities likely to be materially disrupted by the Year 2000
problems. Nevertheless, the Company recently assessed both its information
technology systems and other systems to determine the likelihood of a Year 2000
disruption. Based on such assessment the Company determined that its accounting
system will need to be modified, which can be accomplished by purchasing "off
the shelf" software that is Year 2000 compliant at a cost which is not material
to the Company's operations.
The Company intends to assess the Year 2000 vulnerability of its business
partners in mid 1999 to determine which, if any, relationships require
corrective action. Though the Company does not anticipate any material
disruptions to its operations from Year 2000 problems, there can be no assurance
such problems will not arise.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." These statements are required to be adopted
in fiscal 1999. In 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post Retirement Benefits." This Statement is required
to be adopted in fiscal 1999. In 1998, the FASB also issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is required to be adopted in fiscal 2000. The Company is currently in the
process of evaluating the impact of adopting these new statements.
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BUSINESS
THE COMPANY
Immtech is a biopharmaceutical company focused on the discovery and
commercialization of therapeutics for the treatment of patients afflicted with
opportunistic diseases, cancer or compromised immune systems. Through its
independent efforts and in cooperation with a group of universities led by the
University of North Carolina at Chapel Hill ("UNC") and including Auburn, Duke
and Georgia State Universities (the "Consortium"), the Company has developed and
licensed a pipeline of biological and pharmaceutical compounds ready for Phase I
and Phase II human trials. To date, the Consortium has accumulated a library of
over 800 compounds which are being tested in laboratories around the world.
Additional compounds are being screened in various laboratory and animal models
for future development to which the Company will have exclusive licensing rights
for use as antimicrobial agents. The Consortium is sponsored by a large National
Cooperative Drug Development Grant ("NCDDG") awarded by the National Institutes
of Health ("NIH") to develop platform technologies for new drugs; the focus is
on treating emerging diseases.
The Company has two independent programs for developing drugs. The first
is based on a technology for the design of a new class of pharmaceutical
compounds commonly referred to as dications. The Company believes that
pharmaceutical dications can be designed to inhibit the growth of a wide variety
of infectious organisms. The second is based on biological proteins that work in
conjunction with the body's immune system. These biological proteins are
derivatives of C-Reactive Protein ("CRP"), which occurs naturally in the body
and which the Company believes can be used to control the structural environment
around cancerous tumors and to reprogram cancerous cells to stop growing
uncontrollably and revert to normal cell behavior.
Pharmaceuticals - Dications
The discovery of the Company's pharmaceutical platform technology for
dications was the result of a research program focused on understanding
Pentamidine (a drug marketed by Fujisawa), an extremely toxic but effective drug
for the treatment of Pneumocystis carinii pneumonia ("PCP"), a form of pneumonia
common in patients with compromised immune systems. Researchers at UNC
discovered that most of Pentamidine's toxicity was caused by certain metabolites
formed as the drug breaks down within the body's circulatory system. This led to
the design of new compounds with more stable molecular structures which do not
break down into toxic substances. These newly designed compounds proved to be
significantly less toxic and more effective in treating PCP than Pentamidine.
The methodology used by these researchers to develop these new compounds evolved
into the Company's platform technology for designing dicationic compounds. The
Company intends to use this technology to design pharmaceutical compounds to
treat a wide variety of infectious diseases.
Dicationic compounds have two positively charged ends held together by a
neutrally charged chemical linker group. The unique structure of the compounds
with positive charges on the ends (shaped like molecular barbells) allows them
to bind to the negatively charged surface in the minor groove of the organism's
DNA (like a band-aid), preventing life-sustaining enzymes from attaching to the
DNA's active sites. Once a site is occupied by one of the Company's compounds,
the necessary enzyme cannot bind to the DNA, preventing the organism from
dividing, stopping the spread of the related disease by inhibiting or killing
the growth of the target organism. This will accelerate the body's return to
normal health.
UNC has developed a unique and rapid method for identifying drug
candidates for specific micro-organisms. The first step in this drug discovery
process is to map and analyze the genetic sequences of the DNA of infectious
microbes, specifically studying the structure of the minor grooves which run the
length of the double-stranded, helical DNA. The minor groove forms a deep pocket
with negative charges dispersed at regular intervals. Certain pockets define the
binding region for enzymes which control cell division and survival.
A second step in the discovery process identifies the location of sites
where the enzymes that control microbe cell division bind in the minor groove of
DNA. The Company's researchers then use rational computer modeling and empirical
drug design to develop compounds that can block the active enzyme sites. To
select target compounds, the researchers initially examine the current library
of 800 dicationic compounds that have already been made and analyzed, looking
for structures fitting the active site in the minor groove. Once the appropriate
compound is identified, a series of laboratory and animal tests are run on the
compound to assess its efficacy and safety.
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The Company has two drugs that are ready to begin human clinical trials.
The first compound, DAP-092, is for the treatment of Cryptosporidium parvum, a
common enteric parasite that causes severe diarrhea and wasting. The second
compound, DB-289, is for the treatment of PCP. These two drugs are ideally
suited to demonstrate the power of the dication technology platform. DAP-092 was
developed to treat a parasite that is found only in the gut. Because of its
positive charges DAP-092 cannot cross the digestive membranes and stays in the
digestive tract where it is needed. On the other hand, DB-289 which works in the
circulatory system, was developed with a proprietary (patented) method of
temporarily neutralizing the positive charges which allows it to readily pass
through the digestive membranes into the circulatory system where the dications
become activated for treatment of diseases.
DAP - 092 As A Therapy for Cryptosporidiosis
DAP-092 is derived from the pharmaceutical technology platform and was
designed to block key enzymes from binding to the minor groove of the
Cryptosporidium parvum parasite's DNA, thus inhibiting or killing the growth of
the organism. Dicationic compounds with strong positive charges generally cannot
pass through the membranes which separate the digestive tract from the
circulatory system. DAP-092 is unique because it will work directly in the
gastro-intestinal tract (gut) and not be absorbed into the circulatory system,
substantially reducing the possibility of adverse side effects. The Company has
specifically targeted Cryptosporidium in an effort to take advantage of the
fast-track FDA approval process often afforded to drugs which cure diseases for
which there is no acceptable treatment.
The prevalence of Cryptosporidium parvum in the general population has
been reported by Dr. Ron Fayer, in his textbook, "Cryptosporidium and
Cryptosporidiosis", CRC Press, 288 pp, 1979, by assessing the number of
individuals in each country with antibodies to Cryptosporidium. The number of
individuals exposed to Cryptosporidium varies from 30% to 35% in the industrial
world (including the United States) to 50% to 65% in some countries in Central
and South America where sanitation is poor. Although in the past several years
there has been a drop in the incidence of Cryptosporidium in HIV positive
patients in the United States (due to new protease drugs), the prevalence in the
general population remains unchanged. In other parts of the world where
sanitation and hygiene are extremely poor (including parts of Africa where AIDS
is endemic) it is anticipated that diarrhea and wasting caused by
Cryptosporidium are increasing. The Company estimates from incidence reports and
prevalence data of the general population the worldwide market potential for
DAP-092 to be approximately $100 million per annum.
The Company's DAP-092 pharmaceutical product has demonstrated efficacy in
animal tests against Cryptosporidium parvum, a parasite that causes a
debilitating diarrhea and wasting syndrome that affects cancer patients, AIDS
patients and a growing number of pediatric patents worldwide, which can lead to
death in severe cases. There is no drug currently approved for its treatment.
DAP-092 has been tested in several animal models infected with
Cryptosporidium parvum. In the data from the neonatal mouse model shown in the
table below, as higher doses of orally administered DAP-092 were given to the
mice, a significant reduction in the organisms were observed. At a dose of 4.7
mg/kg, there was approximately a 90% reduction in the number of organisms
measured in the stools of the mice. At doses five-time the effective dose no
toxicity or side effects were observed in animal models.
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Activity of DAP-092 Against Cryptosporidium parvum
Neonatal Mouse Model of Infection
[GRAPHIC OMITTED]
The activity of DAP-092 was compared to saline control.
DB-289 As a Therapy for PCP and Other Diseases
DB-289 was specifically developed to be a substitute for Pentamidine.
However, unlike Pentamidine, which is administered in a cost intensive hospital
setting, DB-289 can be self-administered orally by the patient outside the
hospital, making it a much more cost effective treatment. In immuno-compromised
individuals infected with PCP, the lungs are often filled with mucus and other
fluids, resulting in compromised air passages causing potentially
life-threatening pulmonary disease. Since up to 40% of immuno-compromised
patients become intolerant of Trimethoprim-Sulfamethoxazole ("TMP/SMX"), the
current drug of choice for PCP, physicians then prescribe Pentamidine as the
second-line alternative. Because it is a dication and cannot pass through the
digestive tract to enter the bloodstream, Pentamidine can be administered only
intravenously or via inhalation therapy. In addition, because it is highly toxic
and has a narrow therapeutic window, Pentamidine is given only under constant
medical supervision. The Company's scientists believe that DB-289 will prove to
be a superior treatment than Pentamidine, and a substitute for TMP/SMX in
patients sensitive to sulphur-based drugs.
DB-289 has been studied extensively in animal model systems of
Pneumocystis carinii. UNC developed the standard laboratory animal model for
evaluating the efficacy of new drugs for the treatment of PCP. The laboratory
results from the immune suppressed rat model shows that DB-289 is a very
effective oral drug for the treatment of PCP. The data in the chart shows that
as the dose increases, the number of cysts observed in the lungs of the mice is
reduced. In the high dose groups (greater than 2.4 mg/kg), PCP was not found in
the lung tissues of the rats during histology examinations.
Activity of DB-289 Against
Pneumocystis carinii Pneumonia (PCP)
[GRAPHIC OMITTED]
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DB-289 is an analog of Pentamidine, in which the charges have been
temporarily neutralized to enable DB-289 to cross the digestive membranes. Also,
DB-289 was designed with a more stable linker structure which results in
breakdown products that are far less toxic than those resulting from the
breakdown of Pentamidine. Once DB-289 enters the bloodstream, naturally
occurring enzymes remove the neutralizing groups that mask the positive charges,
thereby exposing the active drug. Because of this masking technology, DB-289 can
be taken orally. In addition, because of its reduced toxicity, DB-289 requires
less medical supervision than Pentamidine. Consequently, the Company believes
DB-289 will replace Pentamidine as the second line therapy for PCP and capture a
significant portion of the TMP/SMX market given the potential for serious
allergic reactions to sulfur based drugs. Although Pneumocystis carinii
pneumonia remains the most common opportunistic infection in HIV/AIDS patients,
the number of annual cases has decreased with the use of protease inhibitor
drugs. The Company estimates that the current market for treating PCP is over
$100 million annually, plus the uses of DP-289 for treating tropical diseases
such as Lieshmania and Trypanosomiasis (see paragraph below) with a potential
market for the drug of over $200 million annually.
The Company's Pipeline of Dication Pharmaceuticals
In addition to treating PCP, Company scientists have shown through animal
studies that dication compound DB-289 is active against Leishmania mexicana
amazonesis, an organism that causes ulcerating skin lesions, Leishmania denovni,
an organism that causes a potentially fatal visceral disease, and against
Trypanosoma brucei rhodesiense, a parasite that causes slow deterioration of
organs, tissues, and the central nervous system, which is fatal if untreated. In
May 1998, the Company received a Small Business Technology Transfer Grant
("STTR") to study dication compounds as a treatment for various tropical
diseases. The Company has been contacted by the Center for Disease Control
("CDC") about the availability of dication compounds to treat a recent epidemic
of Trypanosomiasis (sleeping sickness) in the Sudan. The World Health
Organization (WHO) estimates that 55 million people in Central Africa are at
risk for Trypanosomiasis. In the last survey conducted by the WHO, they forecast
that there are 300,000 to 500,000 active cases of the disease, with an "epidemic
situation" in the Sudan, Angola, and the Democratic Republic of Congo. The
Company's scientists are also collaborating with experts from the Walter Reed
Army Institute for Medical Research, the Southern Research Institute and other
universities to expedite the development of compounds effective against
Trypanosomiasis, Leishmania, malaria and tuberculosis.
The Company has other dicationic compounds in the initial stages of
development directed at several large markets:
Fungal Infections. Fungi, especially the three most common forms - Candida
albicans, Cryptococcus neoformans and Aspergillosis fumigatus - cause major
health complications, particularly in patients with compromised immune systems.
A number of the Company's dicationic compounds have not only stopped the growth
of fungi in both in vitro and limited in vivo tests, but have actually killed
the fungi (fungicidal), thus being superior to Fluconazole, the most commonly
used anti-fungal drug, which only stops the growth of the organism
(fungistatic). Initial responses indicate that the Company's compounds are
effective in treating a broad spectrum of blood-based fungal infections.
Initial studies applying 30 of the Company's compounds against fungi have
been conducted by academicians and several large pharmaceutical companies. The
results have been encouraging and the pharmaceutical companies have committed to
conducting animal testing of certain of the Company's anti-fungal compounds. If
the initial animal studies are positive, the next step would be to conduct human
clinical trials.
Given that the fungicidal market is several billion dollars, the Company
may seek to develop its anti-fungal products independently if it raises
additional funding for a worldwide market. In the alternative, the Company will
look to a collaborative venture with a large pharmaceutical company for
additional funding.
Tuberculosis Mycobacterial Infections. Immuno-compromised patients are
increasingly developing infections from drug-resistant strains of tuberculosis.
Eighty percent of AIDS patients infected with drug-resistant Mycobacterial
tuberculosis die. Thus far, 19 of the Company's compounds have shown
effectiveness against these diseases in in vitro testing and have advanced into
animal tests to be performed under the auspices of the NIH at the Tuberculosis
Antimicrobial Acquisition and Coordinating Facility at the Southern Research
Institute.
A total of 70 of the Company's compounds were tested in vitro against
Mycobacterium avium organisms isolated from patients; 20 of these compounds were
up to 500 times more potent than Azithromycin, the drug currently used as the
standard for treating tuberculosis. Consequently, the Company will continue to
work with the NIH and collaborating laboratories, as well as several
pharmaceutical companies, to complete testing and advance these compounds into
clinical trials to treat the emerging, drug-resistant strains of tuberculosis.
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HIV. The Company has designed a class of dicationic compounds to treat
HIV. Based upon the initial results of the in vitro and animal studies conducted
at Auburn University, the Company intends to develop further modifications of
these compounds and is in discussions with a potential licensee, which will
provide the funds for further testing. These compounds represent a new class of
antiviral drugs. These drugs inhibit the integrase enzyme which the HIV virus
needs to "integrate" into human DNA in order for the virus to divide and
multiply.
Other Infections. Some of the Company's pharmaceutical compounds are
effective against Giardia lambia, an enteric protozoa that is one of the most
widespread causes of common diarrhea. Other compounds are effective against
chloroquine- and mefloquine-resistant strains of Plasmodium falciparum, the
organism that causes malaria. Company scientists have shown that certain
compounds are active against Leishmania mexicana amazonesis, an organism that
causes ulcerating skin lesions, Leishmania donovni, an organism that causes a
potentially fatal visceral disease, and against Trypanosoma brucei rhodesiense,
a parasite that causes slow deterioration of organs, tissues and the central
nervous system.
Cancer. In the past two years, the National Cancer Institute (NCI) has
tested over 500 of the Company's dication compounds for anti-cancer activity.
The NCI reported that a significant number of the compounds had potent and
select activity against many different types of cancer cells. The dication drugs
have shown anti-cancer activity using a similar mechanism of action as shown
with infectious organisms; (1) the drugs bind in the minor groove of the DNA of
the cancer cells, and (2) blocks specific enzymes that are critical to the
cell's DNA function. A certain number of the compounds show a third anti-cancer
mechanism which potentially represents a new class of chemotherapeutic compounds
that work as alkylating agents (drug that irreversibly transfer chemical groups
onto the DNA). Since dications preferentially bind to adenosine rich regions of
the DNA, these compounds are unique from currently used alkylating
chemotherapeutic agents that are known to preferentially alkylate guanine bases
of the DNA. The overall effect of the binding of the dication compounds to DNA
stops the progression of the disease and kills the cancer cell.
To date, the NCI has identified forty-seven of the Company's compounds
with impressive specificity and potency as anti-cancer agents. Eighteen of these
compounds were chosen by the NCI to advance into in vivo testing in mice. The
early results show that specific dication compounds have activity against
different cancer types and that most of the compounds tested had activity at low
doses. Dr. David Boykin, Regents Professor of Chemistry, Georgia State
University and the Company's lead scientific consultant in the discovery and
development of dication drugs for cancer, has applied for a $5 million NCI grant
to continue the development of dication and related compounds as anti-cancer
chemotherapeutic drugs. He will work with the company's scientists and other
scientists from a Consortium of universities which include the University of
North Carolina at Chapel Hill and Auburn University.
The Company will pursue the clinical development of its pipeline compounds
for these clinical indications while conducting clinical trials to obtain FDA
approvals of DAP-092 for Cryptosporidiosis and DB-289 for PCP.
Biological Products - rmCRP
The Company's biological program is focused on strengthening the innate or
natural immune system by (i) improving the structural environment around cells
and vascular tissue and (ii) reprogramming cancer cells to act normally. The
Company's current biological products are derivatives of CRP, a naturally
occurring element of the human immune system and an important component of the
body's immediate immune response. When triggered, the immune system coordinates
physiological, biochemical, hormonal and immunological reactions to injury or
infection. It is the body's primary defense against disease. The Company's
scientists discovered that, as part of the immune system's response to disease,
the blood protein CRP is modified by the body to form modified CRP. Modified CRP
("mCRP") forms lattice-like meshworks that strengthen tissues and
interconnective structures which work to increase their ability to resist
disease and improve the effectiveness of the immune system. Using monoclonal
antibodies, the Company's scientists found that mCRP occurs naturally in healthy
tissues surrounding blood vessels, in the structural tissues inside lymphatic
organs, and in cells having important secretory functions (e.g. ductal
epithelial cells, insulin-secreting islet cells of the pancreas). In contrast,
mCRP is either absent or present in greatly reduced quantities in cancerous
tissues such as those found in the lung, breast, or prostate. mCRP functions not
only as a barrier to the spread of disease, but as a scaffold to order,
organize, and optimize biochemical and immunological reactions. When this
"scaffold" is damaged or weakened, the immune response is compromised and unable
to resist diseases which it would otherwise overcome.
The term "cancer" includes many different types of uncontrolled growth of
otherwise normal cells. Rapidly dividing cancer cells produce enzymes which
attack and weaken surrounding tissues, allowing cancer cells to grow
unrestrained and become tumors. As cancer cells grow they may also metastasize,
that is, spread from the primary site to secondary sites within the body.
Unrestrained growth of cancerous cells may destroy surrounding organs or impair
physiological functions, often
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leading to death. The Company's scientists have discovered that when cancerous
cells come in contact with mCRP, cell behavior is markedly changed, abnormal
rapid growth ceases and the cell returns to normal activity. The Company's
biological program focuses on replacing mCRP in areas where deficient,
increasing barriers between cells to reduce the entry and propagation of
disease, and enhancing the body's immune reactions.
The Company's scientists believe that rmCRP could be used to treat HIV and
cancer patients because, as these scientists recently discovered, when human
cancer cells or HIV-infected lymphocytes come in contact with rmCRP, their cell
morphology is markedly changed and their metabolic activity increases. The cells
shift away from phases of DNA duplication to phases of enhanced functional
activity. The effects of such shifts could be strongly positive in the fight to
stop the growth and spread of disease.
o In cancer, when cells divide uncontrollably, the Company's scientists
believe that therapeutic application of mCRP will stop DNA synthesis and
slow down the proliferation of cancer cells as it strengthens the immune
system to attack the defective cells.
o In viral infections such as HIV, viruses take over a cell and direct its
activities, merging the virus's genes with the DNA of the host cell. The
Company's scientists believe that therapeutic applications of mCRP will
inhibit the synthesis of DNA by the host cell, thus preventing viral genes
from reproducing themselves.
Preclinical studies have shown that mCRP has the following results when
used against a number of different diseases:
o stopped tumor growth and lead to tumor cell death or necrosis, and reduced
the spread of metastatic lesions in mouse models of several common
adenocarcinomas
o prevented the HIV virus from infecting CD4+lymphocytes in laboratory tests
o lowered both free virus and cell-associated virus
As an adjunct to standard chemotherapy regimens, injections of rmCRP also
enhanced the effectiveness and reduced the toxicity of a chemotherapeutic agent
in a mouse model of leukemia. In addition, rhesus monkeys infected with SIV (the
simian form of HIV), were able to safely tolerate injections of rmCRP, and rmCRP
treatments increased CD4+lymphocyte levels and platelet levels, and decreased
blood viral load.
A Phase I proof-of-principle human trial for mCRP was performed in 1994 in
Germany in three HIV-infected men. Each volunteer received seven intravenous
doses of mCRP over a two-week period. The injections were safely tolerated,
CD4+lymphocytes increased from 10 to 50 percent, platelet numbers and volume
increased notably, and blood viral load decreased within the four-week study
period. Thereafter, the Company developed a commercially scaleable recombinant
(synthetic) form of mCRP ("rmCRP") and, in 1996, began to conduct a larger scale
clinical program in Germany by using a dose-escalation, placebo-controlled
protocol. Five groups of four HIV-infected men were treated with 10 intravenous
injections of rmCRP each over a 12-day period. All patients safely completed
therapy with no adverse effects noted; the drug was shown to be nontoxic at high
doses. At a dose of 2 mg/kg, patients receiving rmCRP showed the same favorable
immune, hematopoietic, and antiviral effects observed in the Company's
preclinical and initial human clinical trials; there was an increase in CD4+
counts and platelets and a decrease in plasma HIV load.
TARGET MARKET
The market for the Company's products consists of those seeking to treat
cancer and HIV disease and the opportunistic infections associated with immune
suppressed patients. According to the Centers for Disease Control and Prevention
(CDC), cancer and infectious diseases rank second and third as causes of death
in the United States. In 1997, approximately 538,000 deaths (one of every four)
resulted from cancer. Over 1.2 million people are diagnosed with cancer every
year, and one of every four Americans now living will eventually develop cancer.
In 1997, the estimated cost to society to treat cancer patients was over $100
billion, more than $5 billion of it for drugs (both chemotherapeutic agents and
treatments for opportunistic infections).
The infectious disease market represents a major opportunity for Immtech.
Infectious diseases cause approximately 175,000 deaths in the United States
annually - 40 to 50 per cent from respiratory infections, and approximately 20
percent from opportunistic infections associated with HIV disease and AIDS. In
addition, 2 million people will contract infections this year during a hospital
stay, adding approximately 8 million days of extended hospital stay at an annual
cost of $4.5 billion.
In 1997, worldwide sales of drugs to combat infectious disease were
approximately $26 billion, including $7 billion in the United States. Three
individual drugs each had sales of more than $1 billion. Most prominent
anti-infectives have targeted
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bacterial and fungal infections. However, there is an acute need to develop new
drugs to treat not only primary infections but secondary or opportunistic
infections as well. The emergence around the world of drug-resistant strains of
micro-organisms has contributed to this need, as has the growing
immuno-suppressed population created by disease (e.g., HIV) and the use of
immunosuppressive drugs (e.g., chemotherapeutic agents).
Worldwide sales of drugs used to treat opportunistic infections are
estimated at more than $1 billion annually and are growing at more than 20
percent per year. Cancer patients account for the largest number of
opportunistic infections (an estimated 500,000 patients in the United States and
1 billion worldwide). Of the approximately 200,000 AIDS patients in the United
States, one-fourth will develop opportunistic infections which become
life-threatening. Before 1987, opportunistic infections generally occurred as
single infections; today, 50 to 75 percent of AIDS patients develop multiple
opportunistic infections. The use of protease inhibitors as antiviral therapy in
HIV positive patients has reduced the number of opportunistic infections
reported in the U.S. The protease drugs are often used in combination therapy
made up of several different protease drugs in a cocktail. This cocktail therapy
is very expensive (requires a rigid protocol for taking the drug) and is only
used in patients that can afford the high cost of the drugs. Further, in recent
meetings at the NIH, it has been reported that protease resistant strains of the
HIV virus are developing in a significant number of patients. This trend
suggests that over the next five years there will be an increase in
opportunistic infections in the HIV patient population.
The CDC recently issued a warning that drug-resistant forms of
Mycobacterium tuberculosis ("TB") are becoming prominent opportunistic
infections. The estimated annual cost to eradicate TB, reported to be $36
million in 1987 and $540 million in 1992, is estimated to have reached $825
million in 1996. In the state of New York, 23% of TB patients show signs of
having drug-resistant strains. It is estimated that 80% of patients with
multi-drug resistant TB die.
Another emerging opportunistic infection, Cryptosporidium parvum, occurs
not only in AIDS patients but in patients with cancers and heart disease, and
occasionally in the general population. The outbreak of Cryptosporidium parvum
in Milwaukee in 1993 afflicted approximately 400,000 people and was fatal to
100. This potentially life-threatening ailment affects 2-5% of AIDS patients,
with greater prevalence outside the United States, where protease inhibitors
have reduced the incidence. To date, there is no approved drug to treat
Cryptosporidium parvum-associated diarrhea. Immtech aims to have the first drug
in clinical trials and approved for treatment of this condition, although there
can be no assurance this will occur.
COMPETITION
Competition in the biotherapeutic, biotechnology and biopharmaceutical
industries is intense. Factors such as scientific and technological
developments, the availability of patents, timely governmental approval for
testing, manufacturing and marketing, and the ability to commercialize products
in a timely fashion play a significant role in determining a company's ability
to effectively compete. Furthermore, these industries are subject to rapidly
evolving technology that could result in the obsolescence of any products
developed by the Company. The Company competes with many specialized
biopharmaceutical firms, as well as a growing number of large pharmaceutical
companies that are applying biotechnology to their operations. Many of these
companies have concentrated their efforts in the development of human
therapeutics, and developed or acquired internal biotechnology capabilities.
These companies, as well as academic institutions, governmental agencies and
other public and private organizations conducting research, also compete with
the Company in recruiting and retaining highly qualified scientific personnel
and consultants and may establish collaborative arrangements with competitors of
the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's products are developed and ultimately
approved by regulatory authorities. The Company is relying on its collaborations
with the Consortium, Pharm-Eco, UNC and NextEra Therapeutics to enhance its
competitive edge by providing manufacturing, testing and commercialization
support.
The Company knows of other companies and institutions dedicated to the
development of therapeutics similar to those being developed by the Company,
including Eli-Lilly, Hoffman-LaRoche and Abbott Laboratories. Many of the
Company's competitors, existing or potential, have substantially greater
financial and technical resources and therefore may be in a better position to
develop, manufacture and market biopharmaceutical products. Many of these
competitors are also more experienced with regard to preclinical testing, human
clinical trials and obtaining regulatory approvals. The current or future
existence of competitive products may also adversely affect the marketability of
the Company's products.
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COLLABORATIVE ARRANGEMENTS
The Company intends to continue to conduct independent research and to
rely upon business-sponsored research programs, joint ventures and other forms
of collaborative programs for product development, manufacturing and marketing.
The Company considers its current collaborative relationships significant to the
successful development of its business and believes that it will enter into
arrangements in the future to develop, manufacture and market not only the
products on which it is currently focusing, but also those which it will seek to
commercialize.
Pharmaceutical Products-Dications
The Company initially acquired its rights to the platform technology and
dicationic compounds developed by the Consortium pursuant to an Agreement, dated
January 15, 1997 (as amended, the "Consortium Agreement") among the Consortium,
Pharm-Eco and UNC on behalf of itself and the other academic institutions in the
Consortium. The Consortium Agreement commits each party to the agreement to
research, develop, finance the research and development of, manufacture and
market the technology and compounds owned by the Consortium and then licensed or
optioned to Pharm-Eco (the "Current Compounds") and licensed to the Company
pursuant to the Consortium Agreement, and all technology and compounds developed
by the Consortium after the date thereof through use of Immtech-sponsored
research funding or National Cooperative Drug Development grant funding made
available to the Consortium (the "Future Compounds" and, collectively with the
Current Compounds, the "Compounds"). The Consortium Agreement contemplates that
Immtech and Pharm-Eco, with respect to the Current Compounds, and Immtech and
UNC, with respect to Future Compounds, will enter into more comprehensive
license or assignments of the intellectual property rights held by Pharm-Eco and
the Consortium; and that Pharm-Eco and the Company will enter into an
arrangement relating to the manufacture of products derived from the Compounds.
Under the Consortium Agreement, Immtech has agreed to use its best efforts
to complete an initial public offering ("IPO") of shares of its Common Stock to
raise at least $10,000,000 or an alternative form of financing ("Alternative
Financing") to raise at least $4,000,0000 by February 28, 1999. Upon the closing
of the IPO or the Alternative Financing, Immtech will: (i) use the greater of
(x) 33% of the net proceeds from the IPO or an Alternative Financing or (y)
$5,000,000, to develop the Compounds, (ii) issue an aggregate of 611,250 shares
of Common Stock to Pharm-Eco or persons designated by Pharm-Eco, which number
includes 137,500 shares to be issued to the Consortium, (iii) issue warrants to
purchase an aggregate of 850,000 shares of Common Stock to Pharm-Eco or persons
designated by Pharm-Eco with a ten-year term from the date of issuance, at an
exercise price equal to the weighted average market price of the Company's
Common Stock during the first 20 days of trading on any stock exchange or in any
over-the-counter market, which warrants are exercisable upon the occurrence of
certain events and subject to redemption by Immtech; and (iv) upon the filing by
Immtech of an NDA or ANDA with the FDA with respect to any product, issue an
aggregate of 150,000 shares of Common Stock collectively to Pharm-Eco or persons
designated by Pharm-Eco, which number of shares includes 100,000 shares of
Common Stock to be issued to the Consortium. In addition, Immtech will pay UNC
an aggregate royalty of 5% of net sales of Current Products and Future Products,
except that the Royalty Rate payable on any Compound developed at Duke
University will be determined by negotiation at the time such Compound is
developed. In the event that Immtech sublicenses its rights with respect to the
Compounds, Immtech will pay UNC, in addition to the royalty described above,
2.5% of all signing, milestone and other non-royalty payments made to Immtech
pursuant to the sublicense agreement and will pay to Pharm-Eco 2.5% of all
signing, milestone and other non-royalty payments made to Immtech pursuant to
the sublicense agreement.
Upon closing of this Offering: (a) Pharm-Eco will be entitled to designate
for appointment one representative to Immtech's Board of Directors, (b) UNC will
be entitled to designate one person as a non-voting observer of all meetings and
other proceedings of Immtech's Board of Directors, (c) Immtech will make
quarterly $100,000 Research Grants to UNC commencing on the final day of the
month during which the closing of this Offering occurs, and continuing every
three months thereafter until, at a minimum, the third anniversary of this
Offering and (d) Immtech will pay all costs to prosecute, maintain and defend
all patents and patent applications relating to any Compounds or products.
Upon raising $4,000,000, Pharm-Eco will grant Immtech a license to use the
Current Compounds only as antimicrobial agents and UNC will grant Immtech a
license to use the Future Compounds only as antimicrobial agents. The initial
$5,000,000 in funds raised by Immtech (including the initial $4,000,000
referenced above) will be applied to the advancement of dications. Once Immtech
has raised more than $10,000,000 both Pharm-Eco and UNC will grant an exclusive
worldwide license to use, manufacture, have manufactured, promote, sell,
distribute, or otherwise dispose of any products based directly or indirectly on
all of the Current Compounds and Future Compounds.
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In exchange for UNC's and Pharm-Eco's permission to extend the period of
time for Immtech to fulfill its obligations under the Agreement, Immtech has
agreed to (i) provide financial support to Dr. Richard Tidwell's laboratory and
research covered by the agreement, (ii) pay fees and expenses charged UNC by
UNC's patent counsel during the period of the extension, (iii) pay arrearages of
approximately $150,000 in research support accrued prior to the date of the
First Amendment within 30 days of the closing of the IPO, (iv) replenish Dr.
Tidwell's UNC Department of Pathology & Laboratory Medicine trust fund of all
monies spent due to the delay in receipt of the Research Grants, currently
estimated at $150,000 and (v) provide each of UNC and Pharm-Eco with 25,000
shares of Common Stock of Immtech.
Formation of NextEra Therapeutics, Inc.
The Company has entered into a joint venture agreement with Franklin
Research Group ("Franklin"), pursuant to which the parties have formed a
corporation, NextEra Therapeutics, Inc. ("NextEra"), to develop therapeutic
products for treating cancer and related diseases. NextEra will focus initially
on the development of recombinant modified CRP ("rmCRP"). NextEra plans to fund
the development of rmCRP through Phase I, II and III clinical trials and early
commercialization.
The joint venture agreement, commits Franklin to invest a minimum of
$1,350,000 to fund the Phase I human clinical trials using rmCRP in return for
510,000 common shares of NextEra. Of the $1,350,000 minimum investment, NextEra
has received $436,000 and Franklin has secured an irrevocable letter of credit
in favor of NextEra for $600,000. Immtech will contribute its rmCRP technology,
including relevant patents and know-how, as well as the use of its current
laboratory facilities, for 330,000 common shares of NextEra. NextEra's
scientists are in the process of preparing drug substance and documents for a
safety study in 30-40 cancer patients to be carried out at Northwestern
University. The focus of the study is to evaluate the safety and early efficacy
of rmCRP in patients with different types of cancer.
At the conclusion of the Phase I trial, the data for safety and efficacy
will be evaluated and Franklin will have 90 days to decide to continue the
development of rmCRP in human Phase II and III clinical trials. If Franklin
decides to proceed, it will invest a minimum of an additional $6,500,000 for
which it will receive an additional 160,000 common shares of NextEra. If
Franklin decides not to proceed, Immtech can purchase majority control of
NextEra by buying stock at $1.00/share until enough shares are purchased for
majority control. In addition, if Franklin elects to proceed, at its option,
Immtech can invest $1,625,000 of the $6,500,000 required of Franklin after the
Phase I trial, in which event Franklin will receive only 40,000 of the 160,000
shares to which it otherwise would be entitled.
In addition to the shares of NextEra that are held by Immtech and
Franklin, 33,000 shares are held by Dr. Potempa, 100,000 shares will be reserved
for issuance to employees of the Company and Dr. Potempa has been granted an
option to purchase 30,000 shares.
NextEra will fund the operation of Immtech's primary facility, including
employees' salaries related to work on rmCRP and overhead associated with the
project. Currently, this includes all employees except the President and Chief
Financial Officer. In addition, NextEra will fund the maintenance and
prosecution of all patents that are part of the intellectual property
transferred to NextEra by Immtech.
Manufacturing Joint Venture
The Company has executed a letter of intent to form a manufacturing joint
venture with Pharm-Eco to produce GMP-quality dicationic drugs and products for
clinical testing and for early commercialization. Pharm-Eco is a full-service
drug synthesis and chemical services company that has synthesized numerous
compounds and advanced them into clinical testing. Pharm-Eco is known
internationally for providing high-quality contract manufacturing services to
NIH, the U.S. military, the federally-funded AIDS programs, and numerous large
pharmaceutical firms. Pharm-Eco has extensive experience in developing and
validating bulk pharmaceutical processes and in preparing Drug Master Files.
It is contemplated that the joint venture will reduce the cost and risk
associated with manufacturing the initial pharmaceutical products (DAP-092 and
DB-289). Once the commercial sale of products begins, Immtech and Pharm-Eco will
deduct their costs associated with making and marketing (including selling,
marketing, and regulatory support) products. The remaining margin, after the
costs have been subtracted, will be divided equally between the joint venture
partners. At such time when Immtech's sales reach $20 million for DAP-092 and
DB-289, Immtech can elect not to use the joint venture or Pharm-Eco for
manufacturing, whereupon Immtech would be required to pay a royalty to Pharm-Eco
of no more than 2% of sales.
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RESEARCH AND DEVELOPMENT
Pharmaceutical
The Company conducts independent research and development efforts and is
also a participant since 1997 in the Consortium organized by Dr. Richard R.
Tidwell of UNC. Many of the world's leading experts in opportunistic infections
are affiliated with members of the Consortium, including:
o Dr. James E. Hall of UNC (for Pneumocystis diseases)
o Dr. John Perfect of Duke University (for fungal diseases)
o Dr. Byron Blagburn of Auburn University (for parasitic diseases)
o Dr. Christine Dykstra of Auburn (for the molecular and biochemical
effects of dicationic compounds on DNA and for viral disease)
o Drs. Dave Wilson and Dave Boykin of Georgia State University (for the
chemical design, synthesis, and molecular characterization of novel
anti-infective drugs).
The National Institutes of Health (NIH) has awarded two National
Cooperative Drug Development Grants to the Consortium, which has developed a
library of 800 compounds that have been tested in vitro and in animals against
infectious disease agents.
The Company is aggressively seeking to commence human clinical trials with
well-defined, short-term clinical end points. DAP-092, DB-289 and rmCRP are
being produced under GMP conditions, and study protocols and regulatory
information are being compiled in anticipation of starting clinical trials by
1999.
The Company plans to conduct multiple clinical trials using dication
drugs. Specifically:
o DAP-092 will be given orally to patients afflicted with severe
diarrhea caused by the intestinal parasite Cryptosporidium parvum.
Final plans are in place for synthesis, final toxicology testing
prior to human use, adsorption, distribution, metabolism and
excretion analyses, formulation for administration, and regulatory
approvals. This study is intended to establish that DAP-092
reduces the duration of Cryptosporidium parvum-caused diarrhea,
the associated weight loss, and the number of Cryptosporidium
parvum organisms excreted in the stool.
o DB-289 entered into a Phase I/IIa trial as an orally active
prodrug formulation to treat PCP. DB-289 is designed to cross the
intestinal membrane to get into the bloodstream, where it is
activated by natural enzymes found in human cells. Once activated,
the drug kills the microbes causing the pneumonia, resulting in a
clearing of the airways. The Company is pursuing an A-IND (an
abbreviated IND for rapid FDA approval) for this human trial
because the Company's application will focus primarily on
enhancing the safety and delivery mechanics of a currently
approved drug. The Company will test its prodrug in PCP-infected
AIDS patients.
Biological
The Company has completed two human Phase I biological clinical trials of
its biological products. Biological trials conducted to date have had promising
results:
o In 1994, a proof-of-principle Phase I human clinical safety study
of mCRP, conducted in a limited number of HIV-positive patients in
Germany, established that mCRP can be safely injected
intravenously in multiple-injection protocols. During treatment,
CD4+ and CD8+ cell counts increased, HIV viral titers decreased,
platelet numbers increased, and platelet mass increased
significantly.
o In 1995-1996, the Company developed a recombinant form of mCRP
(rmCRP), which was tested in a follow-up human Phase I/IIa dose
escalation clinical trial, also in Germany. Consistent with the
initial trial in both safety and efficacy, rmCRP enhanced the
immune system (i.e., lymphocytes increased and viral load
decreased) and increased the number of circulating platelets.
The next step is to test rmCRP in a Phase I/IIa trial in cancer patients
with funds provided by Franklin. Initial studies will investigate the safety and
anti-cancer activity of rmCRP as a primary therapy. A cohort of 25 to 50 cancer
patients with
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various malignancies will be enrolled. The anti-cancer effects of rmCRP will be
monitored by changes in relative levels of blood markers of cancer, non-invasive
diagnostic imaging techniques, and biopsy evaluations.
MANUFACTURING
Pharmaceutical Products. The Company has executed a letter of intent to
form a manufacturing joint venture with Pharm-Eco to produce GMP-quality
dicationic drugs and prodrugs for the initial two compounds (DAP-092 and DP-289)
for clinical testing and early commercialization. See "Collaborative
Arrangements."
Biological Products. The Company has developed a recombinant form of the
protein rmCRP. Recombinant manufacturing involves the use of cloned genetic
material (DNA) to produce proteins in large quantities. The Company's scientists
have successfully cloned and expressed the gene from mCRP in Escherichia coli
("E. coli"). The Company has developed methods to isolate rmCRP from E. coli and
remove other cell debris produced in the fermentation process. The Company's
scientists have determined that the recombinant protein has the same
characteristics as the naturally occurring protein, which showed promising
safety and efficacy characteristic in the Company's initial human trial. The
Company is continuously documenting the safety and efficacy of recombinant mCRP
to expeditiously file an IND to conduct Phase I&IIa trials with the products.
The Company recently signed a contract for making rmCRP on a commercial
scale with a third party manufacturer. The recombinant mCRP has been isolated
and purified to completion, and the Company has completed development of a
formulation method that is suitable for sterile and ongoing clinical trials. The
Company expects that the third party manufacturer will make sufficient
quantities of rmCRP to satisfy requirements for Phase I & IIa clinical trials.
PATENTS AND LICENSES
The Company's success will depend in part on its ability to obtain patent
protection for its products, both in the United States and abroad. Although the
Company aggressively pursues patent protection, obtaining patents for
biopharmaceutical products involves complex legal and factual questions and
consequently involves a high degree of uncertainty. The Company has a policy of
developing new forms of and uses for its products and then applying for a patent
on each newly developed product.
There can be no assurance that any particular patent will be granted or
that patents issued to the Company will provide the protection contemplated.
Patents can be challenged, invalidated or circumvented. It is also possible that
competitors will develop similar products simultaneously. The Company and the
Consortium have filed a total of 157 patent applications in the United States
and other countries worldwide.
The Company, by itself or jointly with others, has applied for 19 United
States patents, seven of which pertain to diagnostic or device products and 12
of which pertain to the lead biotherapeutic product, rmCRP. The 12 patent
applications for rmCRP cover its clinical uses for (1) treating cancer, viral
infections, bacterial infections, thrombocytopenia, and immune complex disease,
(2) diagnostic imaging of tissue based disease, (3) monoclonal antibodies which
specifically bind rmCRP and (4) the production and isolation of rmCRP. To date,
the Company has been issued 11 of the 12 United States patents for the uses of
mCRP. In total, the Company has filed 57 patent applications in the U.S. and in
various global markets on its biological products.
The Company has also obtained worldwide exclusive licensing rights to 100
additional patents filed domestically and globally for its pharmaceutical
products. The pharmaceutical patent applications cover compound structure and
uses for the treatment of infections caused by Pneumocystis carinii pneumonia,
Cryptosporidium parvum, Giardia lamblia, Leishmania mexicana amazonesis,
Trypanosoma brucei rhodesienes, various fungi, Plasmodium falciparum and HIV.
Also, patent applications cover the process for making prodrugs and the uses of
the Company's unique compounds to detect and quantify nucleic acids and
cytoskeleton elements. To date, 27 U.S. patents and 68 total patents have been
issued on the Company's pharmaceutical products.
Five of the 12 U.S. patents relating to mCRP products were filed jointly
with Northwestern University or Rush Medical School, and the Company retains
exclusive worldwide rights to use the technology covered by these patents
pursuant to license agreements. All of the Company's patents on its
pharmaceutical products have been filed jointly with the University of North
Carolina at Chapel Hill and the other academic institutions of the Consortium.
It should be noted that as of June 8, 1995, certain legislative changes
implementing the General Agreement on Trade and Tariffs resulted in changes to
United States patent laws that affect the length of patent protection. Whereas
the
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term for patent applications used to be for a period of seventeen years from the
date of grant, the new term of a United States patent commences on the date of
issuance and terminates twenty years from the earliest effective filing date of
the application. The time from filing to issuance of biotechnology patent
application is often more than three years; consequently, a twenty-year term
from the effective date of filing may result in a negative impact on the
Company's patent position by offering a substantially shortened term of
protection.
The Company's potential products may conflict with patents which have been
or may be granted to competitors, universities or others. As the
biopharmaceutical industry expands and more patents are issued, the risk
increases that the Company's potential products may give rise to claims that
they infringe the patents of others. Such other persons could bring legal
actions against the Company claiming damages and seeking to enjoin clinical
testing, manufacturing and marketing of the affected products. If any such
actions are successful, in addition to any potential liability for damages, the
Company could be required to obtain a license in order to continue to
manufacture or market the affected products. There can be no assurance that the
Company would prevail in any such action or that any license required under any
such patent would be made available on acceptable terms, if at all. If the
Company becomes involved in litigation, it could consume a substantial portion
of the Company's time and resources.
The Company also relies on trade secret protection for its confidential
and proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or technology, or that the Company
can meaningfully protect its rights to unpatented trade secrets.
The Company requires its employees, consultants and advisors to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with the Company. The agreements generally provide that trade
secrets and all inventions conceived by the individual and all confidential
information developed or made known to the individual during the term of the
relationship shall be the exclusive property of the Company and shall be kept
confidential and not disclosed to third parties except in specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's proprietary information in the
event of unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
The Company's development, manufacture and potential sale of therapeutics
is subject to extensive regulation by United States and foreign governmental
authorities.
Products being developed by the Company may be regulated by the FDA as
drugs or biologics. New drugs are subject to regulation under the Federal Food,
Drug, and Cosmetic Act, and biological products, in addition to being subject to
certain provisions of that Act, are regulated under the Public Health Service
Act. The Company believes that drug products developed by it or its
collaborators will be regulated either as biological products or as new drugs.
Both statutes and the regulations promulgated thereunder govern, among other
things, the testing, manufacturing, safety, efficacy, labeling, storage, record
keeping, advertising and other promotional practices involving biologics or new
drugs. FDA approval or other clearances must be obtained before clinical
testing, and before manufacturing and marketing, of biologics and drugs.
Obtaining FDA approval has historically been a costly and time consuming
process. Generally, in order to gain FDA pre-market approval, a developer first
must conduct pre-clinical studies in the laboratory and in animal model systems
to gain preliminary information on an agent's efficacy and to identify any
safety problems. The results of these studies are submitted as a part of an
investigational new drug ("IND") application, which the FDA must review before
human clinical trials of an investigational drug can start. The IND application
includes a detailed description of the clinical investigations to be undertaken.
In order to commercialize any product, the Company or its collaborator
must sponsor and file an IND and be responsible for initiating and overseeing
the clinical studies to demonstrate the safety, efficacy and potency that are
necessary to obtain FDA approval of any such products. For Company or
collaborator-sponsored INDs, the Company or its collaborator will be required to
select qualified investigators (usually physicians within medical institutions)
to supervise the administration of the products, and ensure that the
investigations are conducted and monitored in accordance with FDA regulations,
including the general investigational plan and protocols contained in the IND.
Clinical trials are normally done in three phases, although the phases may
overlap. Phase I trials are concerned primarily with the safety and preliminary
effectiveness of the drug, involve fewer than 100 subjects, and may take from
six months to over one year. Phase II trials
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normally involve a few hundred patients and are designed primarily to
demonstrate effectiveness in treating or diagnosing the disease or condition for
which the drug is intended, although short-term side effects and risks in people
whose health is impaired may also be examined. Phase III trials are expanded
clinical trials with larger numbers of patients which are intended to evaluate
the overall benefit-risk relationship of the drug and to gather additional
information for proper dosage and labeling of the drug. Clinical trials
generally take two to five years to complete, but may take longer. The FDA
receives reports on the progress of each phase of clinical testing, and it may
require the modification, suspension, or termination of clinical trials if it
concludes that an unwarranted risk is presented to patients.
If clinical trials of a new product are completed successfully, the
sponsor of the product may seek FDA marketing approval. If the product is
regulated as a biologic, the FDA will require the submission and approval of
both a Product License Application ("PLA") and an Establishment License
Application before commercial marketing of the biologic. If the product is
classified as a new drug, the Company must file a New Drug Application ("NDA")
with the FDA and receive approval before commercial marketing of the drug. The
NDA or PLA must include detailed information about the drug and its manufacture
and the results of product development, preclinical studies and clinical trials.
The testing and approval processes require substantial time and effort and there
can be no assurance that any approval will be granted on a timely basis, if at
all. NDAs and PLAs submitted to the FDA can take, on average, two to five years
to receive approval. If questions arise during the FDA review process, approval
can take more than five years. Notwithstanding the submission of relevant data,
the FDA may ultimately decide that the NDA or PLA does not satisfy its
regulatory criteria for approval and deny approval or require additional
clinical studies. In addition, the FDA may condition marketing approval on the
conduct of specific post-marketing studies to further evaluate safety and
effectiveness. Even if FDA regulatory clearances are obtained, a marketed
product is subject to continual review, and later discovery of previously
unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market as well as possible civil or criminal
sanctions.
The Company also is subject to foreign regulatory requirements governing
human clinical trials and marketing approval for drugs with respect to marketing
outside the United States. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.
EMPLOYEES
The Company currently has three employees, all of whom hold advanced
degrees. Through its collaborative agreement with the UNC Consortium,
approximately 25 researchers associated with institutions such as UNC, Auburn
University, Duke University and Georgia State University have worked to advance
the Company's products toward commercialization. The Company expects, upon
completion of this offering, to hire up to 10 employees primarily to focus on
clinical development activities and business opportunities. Among the employees
to be hired will be a physician to serve as the Company's Clinical Director to
coordinate and carry out human trials; several technical employees with
experience in preparing pharmaceutical products and recombinant proteins for
human trials; an expert in regulatory affairs to oversee clinical trials and
government filings; and a quality assurance coordinator to oversee and verify
compliance of good laboratory products (GLP) and data reporting. These employees
will be engaged directly in supporting the Company's clinical trial programs,
and in new product research and development activities.
FACILITIES
The Company's administrative offices and research laboratories are located
in Evanston, Illinois. The Company occupies approximately 2,500 square feet of
space under a lease which expires on November 30, 1999. As part of the joint
venture with Franklin, the Company's current facilities will also be occupied by
NextEra. The Company expects that it will obtain new administrative space, as
well as space for research and development activities. Management believes it
will be able to secure such space locally and at commercially reasonable rates.
LITIGATION
The Company is not presently involved in any litigation, nor is it aware
of any impending litigation.
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MANAGEMENT AND KEY SCIENTIFIC PERSONNEL
Executive Officers, Key Scientists, Consultants and Directors
The executive officers, key scientists, consultants and directors of the
Company are as follows:
Name Age Position
---- --- --------
T. Stephen Thompson 51 Director, President and Chief
Executive Officer
Lawrence A. Potempa, Ph.D. 46 Vice President-Research and Chief
Scientific Officer
Gary C. Parks 48 Treasurer, Secretary and Chief
Financial Officer
Gerhard J. Von der Ruhr 57 Chairman of the Board of Directors
Byron E. Anderson, Ph.D. 56 Director
T. Stephen Thompson, President, Chief Executive Officer and Director. Mr.
Thompson has served as a Director since 1991. He joined Immtech in April 1991
from Amersham Corporation, where he was President and Chief Executive Officer.
He was responsible for Amersham Corporation's four North American divisions:
Life Sciences, Radiopharmaceuticals, Diagnostics, and Quality and Safety
Products. In addition, he had direct responsibility for the Clinical Reagent (in
vitro diagnostic) Division in the United Kingdom. He was employed by Amersham
Corporation from 1986 to 1991. Mr. Thompson has 20 years' experience in health
care with previous positions as President of a small diagnostic start-up,
General Manager of the Infectious Disease and Immunology Business Unit in the
Diagnostic Division of Abbott Laboratories from 1981 to 1986, and Group
Marketing Manager for the Hyland Division of Baxter International Inc. from 1978
to 1981. Mr. Thompson is a Director of Matritech, Inc. (Nasdaq: NMPS). Mr.
Thompson holds a B.S. from the University of Cincinnati and an M.B.A. from
Harvard University.
Lawrence A. Potempa, Ph.D., Vice President-Research and Chief Scientific
Officer. Dr. Potempa has over 10 years experience in the Biotechnology industry
and has successfully brought the Company's lead biological therapy into human
trials. Dr. Potempa has an appointment as an Adjunct Associate Professor of the
Department of Medicine at Northwestern University Medical School. Dr. Potempa
received his B.S. degree cum laude from Bradley University in 1973 and earned
his Ph.D. in biochemistry in 1977 at Northwestern University. He was an NIH
postdoctoral fellow in Immunology at Rush Medical College until 1981 and was an
Assistant Professor at Rush University in the Department of
Immunology/Microbiology until he joined Immtech in 1988. He has over 40
publications and is the lead inventor on 39 of the Company's patents. Dr.
Potempa is a member of the American Chemical Society and has received various
government grants and other awards for excellence.
Gary C. Parks, Treasurer, Secretary and Chief Financial Officer. Mr. Parks
joined Immtech in January 1994, having previously served at Smallbone, Inc. from
1989 until 1993, where he was Vice President, Finance. Mr. Parks was a Division
Controller with International Paper from 1986 to 1989. Prior to that, he was
Vice President, Finance of SerckBaker, Inc., a subsidiary of BTR plc, from 1982
to 1986 and a board member of SerckBaker de Venezuela. Mr. Parks holds a B.A.
from Principia College and an M.B.A. from the University of Michigan.
Gerhard J. Von der Ruhr, Chairman of the Board. Mr. Von der Ruhr was a
founder of Immtech and has served as Chairman of the Board since 1984. He served
as President of Criticare, a developer and manufacturer of medical devices,
which he cofounded, from October 1984 to December 1998. From 1976 to 1984, he
served as President of Biochem International, Inc., a manufacturer of blood gas
sensors. From 1974 to 1976, he held the position of Vice President of Zimmer
U.S.A., Inc., a wholly owned subsidiary of Bristol-Myers Squibb Company, where
he directed international manufacturing and sales operations. Prior to that, he
held various management positions at General Electric and the Ford Motor
Corporation. Mr. Von der Ruhr holds an M.B.A. from the University of Cologne,
Germany.
Byron E. Anderson, Ph.D., Director. Dr. Anderson was a founder of Immtech
and has served as a Director since 1984. He is presently a Professor at
Northwestern University Medical School in the Department of Cell, Molecular, and
Structural Biology. He is a member of the American Association of Immunologists,
the American Society of Molecular and Biological Chemists, the American
Association for Advancement of Science, and several other biological and medical
research societies. Dr. Anderson received his B.A. in Chemistry and Biology from
Kalamazoo College in 1963, and a Ph.D. from the University of Michigan. He was a
postdoctoral fellow of the Helen Hay Whitney Foundation, a Senior Investigator
of the Arthritis Foundation, and a NIH Research Career Development Awardee. His
research areas include peptide, protein and glycoprotein structure and function,
as well as immunopathology of autoimmune and cancer diseases.
38
<PAGE>
All directors hold office until the next annual meeting of the
stockholders of the Company and until their successors are duly elected and
qualified. Officers are elected to serve, subject to the discretion of the Board
of Directors (the "Board"), until their successors are appointed. There are no
family relationships among any directors or executive officers of the Company.
Pursuant to the Consortium Agreement, upon completion of this Offering
Pharm-Eco will have the right to nominate one individual for election to the
Company's Board of Directors. Pursuant to its agreement with the Company, upon
completion of this Offering RADE will have the right to nominate two individuals
for election to the Company's Board of Directors. As of the date hereof, neither
Pharm-Eco nor RADE has indicated whether it will exercise its right to nominate
someone for election to the Company's Board of Directors.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being sought, nor is the Company aware of any pending or threatened litigation
that may result in claims for indemnification by any such person.
Employment Agreements
The Company entered into an employment agreement with Mr. Thompson in 1992
pursuant to which the Company retained Mr. Thompson as its President and Chief
Executive Officer for an annual base salary of $150,000 (subject to annual
adjustment by the Board), plus reimbursement for related business expenses. The
agreement, which includes certain confidentiality and non-disclosure provisions,
also grants to Mr. Thompson the right to receive an annual bonus to be
established by the Board in an amount not to exceed 60% of Mr. Thompson's annual
base salary for the year and certain other fringe benefits. If the Company
breaches the agreement or Mr. Thompson is terminated by the Company without
cause, he is entitled to all payments which he would otherwise accrue over the
greater of nine months from the date of termination or the remaining term under
the agreement. Additionally, rights to all options granted to Mr. Thompson
pursuant to the agreement vest immediately upon his termination without cause or
a change of control of the Company. The term of Mr. Thompson's agreement expires
on May 11, 1999, subject to automatic renewal for successive one-year terms
unless terminated by either party upon 30 days notice. Except for $12,500 paid
to Mr. Thompson during the fiscal year ended March 31, 1998, Mr. Thompson has
waived any right to receive salary due under his employment agreement prior to
June 30, 1998. Beginning July 1, 1998 and continuing until the Company completes
the Offerings, Mr. Thompson has agreed to accept one-half of his annual salary
as full satisfaction of the Company's salary obligation under his employment
agreement. Upon completion of the Offerings, Mr. Thompson will be paid the full
amount of his salary under his employment agreement, but will not be paid
amounts previously waived.
NextEra has entered into a three year employment agreement with Dr.
Potempa, with an option on the part of NextEra to extend the agreement for an
additional two year period, whereby Dr. Potempa has been retained as the lead
scientist for an annual base salary of $120,000. The Agreement provides that Dr.
Potempa shall receive bonuses and salary increases as determined by NextEra's
CEO and/or Board of Directors. NextEra issued 33,333 shares to Dr. Potempa upon
the formation of NextEra. Additionally, Dr. Potempa will receive options to
purchase 30,000 shares of NextEra upon submission of an NDA relating to rmCRP to
a regulatory agency for product approval. These options shall vest immediately
if there is a change of control of NextEra. The employment agreement contains
confidentiality and non-disclosure provisions.
Summary Compensation Table. The following table sets forth certain
information for the year ended March 31, 1998 regarding the compensation of the
Company's Chief Executive Officer for the fiscal year ended March 31, 1998. None
of the Company's employees received a salary in excess of $100,000 during the
1996, 1997 and 1998 fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ --------------
Name And Principal Position Year Salary ($) Options/Sars(#)
--------------------------- ---- ---------- ---------------
<S> <C> <C> <C>
T. Stephen Thompson 1998 $12,500 0
President, Chief Executive Officer and Director
</TABLE>
39
<PAGE>
Option Exercises in Last Fiscal Year and Fiscal Year End Option Values.
There were no stock option exercises during the year ended March 31, 1998. The
following table sets forth for each of the Named Executive Officers the number
and value of securities underlying unexercised options held at March 31, 1998:
AGGREGATE OPTION EXERCISES IN YEAR ENDED MARCH 31, 1998 AND
OPTION VALUES AT MARCH 31, 1998
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options At In-the Money Options at
March 31, 1998 (#) March 31, 1998($)(1)
------------------------------ ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
T. Stephen Thompson 60,332 -0- $561,812 $0.00
</TABLE>
- ------------------
(1) Based on a value of $10.00 per share, the assumed initial public offering
price, minus the per share exercise price, multiplied by the number of
shares underlying the option.
Consulting Arrangements
RADE Management Corporation ("RADE") has been engaged by the Company since
July 1998 to assist in various aspects of the Company's ongoing operations,
including analyzing the market potential of the Company's products, developing a
long term strategy for exploitation of the Company's products and assisting in
the negotiation of agreements with other parties which performed services for
the Company. Such services have been provided on behalf of RADE by Messrs. James
Ng, Eric Sorkin and Ms. Cecilia Chan. As compensation for the services which
RADE has provided and may provide to the Company, in July and October of 1998,
the Company granted to RADE options to purchase 225,000 shares of Common Stock
and 750,000 shares of Common Stock, respectively, exercisable at $0.10 per
share, subject to certain vesting conditions. In October 1998, in recognition of
RADE's continued efforts, the Company waived the conditions to vesting of the
RADE warrants.
The Company may continue to consult with RADE from time to time after
completion of this Offering. The Company anticipates, however, that the net
proceeds of this Offering will be sufficient to enable the Company to hire
additional management personnel, eliminating the need to rely upon RADE for
management assistance.
RADE has agreed with and for the Representative not to sell any of their
Shares, options or underlying Shares for the twelve-month period (the "Initial
Twelve-Month Period") commencing on the date of this Prospectus. RADE further
has agreed with and for the Representative not to sell or transfer any of their
Shares unless the Share market price, adjusted for splits and like transactions,
closes at or above $20.00 for a period of 20 consecutive days (assuming an
initial public offering price of $10.00 per Share).
The Company has also agreed, for a period of one year from the date of the
Offerings, if so requested by RADE, to nominate and use its best efforts to
elect two designees of RADE as directors of the Company, or at RADE's option, as
non-voting advisers to the Company's Board of Directors. RADE has not yet
exercised its right to designate such persons.
The Company and Criticare have agreed to indemnify RADE against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments RADE may be required to make in respect thereof.
40
<PAGE>
CERTAIN TRANSACTIONS
Criticare, the largest shareholder in Immtech, agreed to the Private
Placement of Stock by New China Hong Kong Securities Limited (NCHK). In
connection with the Recapitalization and other related transactions, Criticare
obtained an option to license rmCRP as a therapy for treating sepsis. Sepsis is
a bacterial infection which quickly overwhelms the immune systems and can lead
to sudden death.
On June 25, 1998 Criticare agreed to pay Immtech $150,000 (which amount
Immtech chose to apply toward extinguishing outstanding indebtedness of Immtech
to a service vendor) in exchange for 86,207 shares of Common Stock and the
following additional consideration: (i) all of Immtech's right, title and
interest in the Patent #5,484,735, which is used in the development of a
hemoglobin A1c ("HbA1c") assay to minor diabetics for long term diet and glucose
control; (ii) all of Immtech's right, title and interest in the Patent
#5,702,904 which is used in the development of a carbohydrate deficient
transferrin ("CDT") blood to screen individuals who abuse alcohol over a
sustained period of time; (iii) all of Immtech's rights under the Sigma
Diagnostics, Inc. ("Sigma") Agreement dated as of March 23, 1998, including up
to $110,000 in license fees payable by Sigma upon Sigma's exercise of options to
license technology to conduct research and evaluation; (iv) all of Immtech's
rights with respect to the License agreements between Immtech and Northwestern
University dated as of March 10, 1998 and as of October 27, 1994, the former
license agreement involving certain patent rights and know-how relating to
Immunoassay Constructs to Quantitate Glucosylated-Hemoglobin and other
Glucosylated Serum Proteins (NU 8403) and the latter license agreement involving
certain inventions in the field of Immunoassay for Identifying Alcoholics and
Monitoring Alcohol Consumption (NU 9134); (v) an exclusive, royalty-free,
world-wide license under Patent 5,405,832 to Potempa, granted as of April 11,
1995 to utilize rmCRP for the treatment of sepsis, a life threatening disease
caused by bacteria that overwhelm the body's immune response; (vi) the right to
sue for past infringement with respect to all of the foregoing; and (vii) all
other rights reasonably required to make, use, sell and offer for sale products
based on or related to the assigned assets. Under the agreement, Criticare is
not assuming any other liabilities or obligations of any nature or kind,
including any of Immtech's liabilities for obligations to Northwestern
University under the Northwestern NU 8403 License and the Northwestern NU 9134
License occurring after the closing. Additionally for a period of three years
following closing, Immtech has agreed to make available to Criticare the
part-time services of Dr. Potempa to consult with and advise Criticare regarding
research, testing, FDA compliance and approval, manufacture and
commercialization of the products or applications covered by the above
referenced patents. In exchange for Dr. Potempa's services, Criticare will
reimburse Immtech for Immtech's out-of-pocket salary and employee benefit plan
expenses, pro rata, with respect to Dr. Potempa. For a period of five years from
the time of closing, Criticare shall have the option of purchasing supplies of
rmCRP from Immtech. Criticare also, may manufacture rmCRP. If Criticare does
decide to manufacture rmCRP, Immtech will provide all necessary know-how and
expertise to enable Criticare to manufacture the molecule in commercially viable
quantities. Criticare has until July of 1999 to raise a minimum of $500,000 to
fund the development of a sepsis product and begin clinical trials. If Criticare
is not successful in raising the funds, Immtech has a right to acquire the
technology at market value.
For a description of the transaction between Immtech and NextEra regarding
rmCRP, please see "Business - Collaborative Arrangements - Formation of NextEra
Therapeutics, Inc."
In November 1997, Criticare advanced $120,000 on behalf of the Company in
order to fulfill a patent payment obligation of the Company to UNC. T. Stephen
Thompson, CEO of Immtech, reimbursed Criticare for the advancement of funds by
purchasing 20,425 shares of Criticare common stock (calculated using the average
of the high and low quotation price for Criticare's common stock on the NASDAQ
on the day of reimbursement). Criticare and Mr. Thompson have released Immtech
from any obligation to repay either of them with respect to the patent payment.
In January 1998, in connection with the acquisition of a "public shell"
corporation that the Company was considering merging into, certain stockholders
of the Company, including Gerhard J. Von der Ruhr, Chairman of the Company, and
T. Stephen Thompson, President and Chief Executive Officer of the Company, made
royalty payments to UNC on behalf of the Company in the amount of $56,000. The
payments were made on a voluntary basis in order to preserve the Company's
rights to the assets licensed from UNC pending completion of the proposed merger
between the Company and the "public shell" corporation. Thereafter, the Board of
Directors of the Company voted not to pursue the proposed merger and the $56,000
advanced on behalf of the Company was deemed to represent a contribution to the
Company's additional paid-in capital.
41
<PAGE>
Criticare Systems, Inc. ("Criticare"), a shareholder, has advanced
$597,722 and $590,000 to the Company as of June 30, 1998 and 1997, respectively.
These advances plus accrued interest of $66,474 have been converted into an
aggregate of 145,843 shares of Common Stock. Other shareholders have converted
interest free advances of $387,450 as of June 30, 1998 into an aggregate of
196,824 shares of Common Stock.
The Company has on occasion retained several law firms to perform
services, including among others Walsh & Keating S.C., Wauwatosa, Wisconsin
("W&K"), Reinhart, Boerner, Van Deuren, Norris & Rieselback, Milwaukee,
Wisconsin ("Reinhart, Boerner"), Brinks, Hofer, Gilson & Lione, Chicago,
Illinois ("Brinks, Hofer") and Winston & Strawn, Chicago, Illinois ("W&S").
Pursuant to conversion of outstanding notes payable by the Company, certain of
these law firms received cash payments of $203,450 and now hold shares of Common
Stock in the following amounts: W&K - 36,401 shares; Reinhart, Boerner - 10,454
shares; and W&S - 35,359 shares. In addition, certain partners in these law
firms beneficially own Common Stock in the following amounts: Gerald S. Walsh
(W&K) - 55,231 shares; David C. Keating (W&K) - 24,114; Robert Bellin (Reinhart,
Boerner) - 484 shares; and Richard Lione (Brinks, Hofer) - 30,717 shares and
warrants to purchase an additional 3,500 shares.
On July 24, 1998, all shares of Series A Preferred Stock, with a
liquidation preference of $2,780,324, were converted into 578,954 shares of
Common Stock, and all shares of Series B Preferred Stock, with a liquidation
preference of $2,797,260, were converted into 616,063 shares of Common Stock.
On July 24, 1998, Senior Subordinated Debt holders exchanged a principal
balance of $914,000 and accrued interest of $259,937 for 153,000 shares of
Common Stock.
The Company believes that the foregoing transactions were in its best
interests and were on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and were in connection with bona fide
business purposes of the Company. As a matter of policy, all future transactions
between the Company and any of its officers, directors or principal stockholders
will be approved by a majority of the independent and disinterested members of
the Board, will continue to be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties and will continue to be in
connection with bona fide business purposes of the Company.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of December 31, 1998
as adjusted to reflect the sale by the Company of the Shares offered hereby by
(i) each of the Company's Directors and Named Executive Officers, (ii) all
directors and executive officers as a group and (iii) each person known to be
the beneficial owner of more than 5% of the Shares. See "Risk Factors -
Concentration of Ownership."
<TABLE>
<CAPTION>
Number of
Shares of Common Percentage of Outstanding Shares
Stock of Common Stock
Beneficially --------------------------------
Name and Address Owned (1) Before Offering After Offering
---------------- --------- --------------- --------------
<S> <C> <C> <C>
T. Stephen Thompson 283,443(2) 7.28% 5.76%
c/o Immtech International, Inc.
1890 Maple Avenue
Suite 110
Evanston, IL 60201
Byron Anderson, Ph.D 109,322(3) 2.81% 2.22%
c/o Northwestern University
Medical School
303 East Chicago Avenue
Chicago, IL 60611
Gerhard J. Von der Ruhr 178,801(4) 4.57% 3.61%
c/o Criticare Systems, Inc.
20900 Swenson Drive
Waukesha, WI 53186
Criticare Systems, Inc.(5) 1,093,839 28.32% 22.37%
20925 Cross Road Circle
Waukesha, WI 53186
University of North Carolina 611,250(6) 15.85% 12.51%
at Chapel Hill/Pharm-Eco
Laboratories
c/o Office of Technology
Development
308 Bynum Hall
Chapel Hill, NC 27599
All directors and officers 693,848 16.90% 13.52%
as a group (5 persons)
</TABLE>
- --------------------------
(1) Unless otherwise indicated below, the persons in the above table have
sole voting and investment power with respect to all shares beneficially
owned by them, subject to applicable community property laws.
(2) Includes 246,510 shares of Common Stock, 800 warrants to purchase Common
Stock, and 36,133 shares of Common Stock issuable upon the exercise of
options as follows: option to purchase 8,872 shares of Common Stock at
$0.46 per share by March 21, 2006; option to purchase 13,066 shares of
Common Stock at $0.34 per share by November 27, 2001; and option to
purchase 14,195 shares of Common Stock at $1.74 per share by April 16,
2008.
(3) Includes 78,834 shares of Common Stock, and 30,488 shares of Common Stock
issuable upon the exercise of option as follows: option to purchase
21,777 shares of Common Stock at $0.59 per share by April 13, 2000;
option granted to Dr. Anderson's wife to purchase 8,711 shares at $0.34
per share by May 1, 2001.
(4) Includes 115,761 shares of Common Stock, 4,900 warrants to purchase
Common Stock, and 58,140 shares of Common Stock issuable upon the
exercise of options as follows: option to purchase 11,716 shares of
Common Stock at $0.59 per share by April 13, 2000; option to purchase
24,390 shares of Common Stock at $0.34 per share by May 1, 2001; option
to purchase 7,839 shares of Common Stock at $0.34 per share by April 14,
2002; option to purchase 14,195 shares of Common Stock at $1.74 per share
by April 16, 2008.
(5) Criticare Systems, Inc. (Nasdaq: CXIM) designs, manufactures and markets
cost-effective patient monitoring systems and noninvasive sensors for a
wide range of hospitals and alternate health care environments throughout
the worlds.
(6) University of North Carolina at Chapel Hill ("Consortium") and Pharm-Eco
jointly own 611,250 shares of Common Stock once $4,000,000 has been
raised in the Offerings. At the time of an ANDA or NDA filing, 150,000
additional shares of Common Stock shall be issued. Additionally, upon
reaching certain milestones of development, the Consortium and Pharm-Eco
are entitled to warrants to purchase 850,000 shares of Common Stock at an
exercise price equal to the weighted average market price of the
Company's Common Stock during the first 20 days of trading on any stock
exchange or in any over-the-counter market.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"U.S. Underwriting Agreement") between the Company and Westport Resources
Investment Services, Inc., as Representative of the several U.S. Underwriters
named below, the Company has agreed to sell to the U.S. Underwriters and the
U.S. Underwriters, through the Representative, have severally but not jointly
agreed to purchase from the Company, on a firm commitment basis, the aggregate
number of Shares set forth opposite their respective names (exclusive of Shares
purchased pursuant to the Underwriters' Over-allotment Option).
Underwriter Number of Shares
----------- ----------------
Westport Resources Investment Services, Inc.
Total 300,000
The U.S. Underwriting Agreement provides that the obligations of the
several U.S. Underwriters thereunder are subject to approval of certain legal
matters by counsel and to various other conditions. The nature of the U.S.
Underwriters' obligations are such that they are committed to purchase all of
the Shares offered in the U.S. if any are purchased.
The Company has agreed to sell the Shares to the Underwriters at a 10%
discount from the offering price and to pay to the Representative a
non-accountable expense allowance equal to 3% of the gross proceeds of the
public offering price of the Shares sold pursuant to this Prospectus, including
any Shares sold to the Underwriters upon exercise of the Underwriters'
Over-Allotment Option. $50,000 of the non-accountable expense allowance has been
paid to the Representative to date. In addition to such expense allowance, the
Company has agreed to pay certain fees and expenses of the Representative's
counsel in connection with qualification of this offering under state securities
laws.
The Company has entered into a separate underwriting agreement (the
"International Underwriting Agreement") with the underwriters of the
international offering (the "International Underwriters") providing for the
concurrent offer and sale of 700,000 shares of Common Stock by the Company in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The Representatives of
the International Underwriters are The New China Hong Kong Securities Limited
and China Everbright Securities (H.K.), Ltd.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the International
Offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person whom it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons, (ii) cause any dealer to whom it may sell such shares at any concession
to agree to observe a similar restriction, and (iii) offer, sell or deliver
shares of Common Stock only in those jurisdictions which permit such offers,
sales and delivery and, with respect to such jurisdictions, only in accordance
with the laws thereof. The International Underwriters do not anticipate a
trading market in the Company's Shares of Common Stock to develop outside of the
United States. Investors located in Hong Kong who purchase Shares in the
Interntional Offering are prohibited from selling their shares in Hong Kong for
a period of 6 months following the initial purchase. Such investors would be
permitted to sell Shares at any time in the United States.
44
<PAGE>
The Company has granted the U.S. Underwriters an option exercisable for 45
days after the date of this Prospectus to purchase up to an aggregate of 45,000
additional shares of Common Stock to cover over-allotments, if any, at the
initial public offering price less the underwriting discount, as set forth on
the cover page of this Prospectus. If the U.S. Underwriters exercise their
over-allotment option, the U.S. Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 300,000 shares of Common Stock offered hereby. The U.S.
Underwriters may exercise such option only to cover over-allotments, in
connection with the sale of the 300,000 shares of Common Stock offered hereby.
The Company has granted the International Underwriters an option exercisable for
45 days to purchase up to an aggregate of 105,000 additional shares of Common
Stock, solely to cover over-allotments, if any, at the initial public offering
price less the underwriting discount, as set forth on the cover page of the
Prospectus.
The Company has agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a price below the initial public offering price for a
period of one (1) year after the date of this Prospectus, except for the shares
of Common Stock offered in connection with the concurrent U.S. and International
Offerings.
Prior to the Offerings, there has been no public market for the shares.
The initial public offering price will be negotiated among the Selling
Stockholder, the Company and the Representative of the U.S. Underwriters and the
Representatives of the International Underwriters. Among the factors to be
considered in determining the initial public offering price of the Common Stock,
in addition to prevailing market conditions, are the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
The U.S. Underwriters, through the Representative, have advised the
Company that they propose to offer the Shares at the public offering price set
forth on the cover page of this Prospectus and that the U.S. Underwriters may
utilize the services of certain dealers, including dealers who are members of
the National Association of Securities Dealers, Inc. (the "NASD") and certain
foreign dealers. The public offering price and the amount of the concessions and
reallowances, if any, provided for any broker-dealers involved in the
distribution of the securities offered hereby will not be changed until after
the initial public offering is completed.
Management of the Company may provide the Representative with a list of
persons who they believe may be interested in purchasing Shares being offered
hereunder. The Representative and the other U.S. Underwriters may sell a portion
of the Shares to such persons if such persons reside in a state where the Shares
can be sold and where the U.S. Underwriters or selected dealers are permitted to
sell the Shares.
The Company's officers and directors, the holders of the Company's 498,636
stock options (the "Option Holders"), the holders of 5% or more (the "5%
Stockholders") of the outstanding shares of the Company's Common Stock
immediately prior to the date of this Prospectus, RADE and Criticare, have
agreed with and for the Representative not to sell any of their Shares, options
or underlying Shares for the twelve-month period (the "Initial Twelve-Month
Period") commencing on the date of this Prospectus. The Company's officers and
directors, the 5% Holders, Option Holders, Criticare and certain consultants,
including RADE, have further agreed with and for the Representative not to sell
or transfer any of their Shares unless the Share market price, adjusted for
splits and like transactions, closes at or above $20.00 for a period of 20
consecutive days (assuming an initial public offering price of $10.00 per
Share).
In connection with this offering, the Company has agreed to issue to the
Underwriters, for a purchase price of $0.01 per warrant, (the "Underwriters'
Warrants"), warrants to purchase common stock at a price equal to 120% of the
respective public offering price per share, for up to 100,000 Shares. The
Underwriters' Warrants contain anti-dilution provisions and are exercisable for
a period of four years commencing twelve months from the date of this
Prospectus. They are restricted from sale, transfer, assignment or hypothecation
for a period of twelve months from the date of this Prospectus except to
officers of the Underwriters or their successors, or to other Underwriters and
their officers. The holders of the Underwriters' Warrants will have no voting,
dividend or other rights as stockholders of the Company with respect to shares
of Common Stock underlying the Underwriters' Warrants until the Underwriters'
Warrants have been exercised. The Company has agreed, at its sole expense, to
include the Underwriters' Warrants and underlying shares in the Registration
Statement of which this Prospectus is a part and have granted certain
registration rights to the Underwriters.
For the term of the Underwriters' Warrants, the holders thereof will be
given the opportunity to profit from a rise in the market value of the Company's
Common Stock, with a resulting dilution in the interest of other stockholders.
The holders of the Underwriters' Warrants can be expected to exercise the
Underwriters' Warrants at a time when the Company
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would be able to obtain needed capital by an offering of its unissued capital
shares on terms more favorable to the Company than those provided by the
Underwriters' Warrants. Such facts may adversely affect the terms upon which the
Company can obtain additional financing. Any profit realized by the Underwriters
upon the sale of the Underwriters' Warrants or shares of Common Stock issuable
upon the exercise of the Underwriters' Warrants may be deemed additional
underwriting compensation (see "Risk Factors - Potential Adverse Effect of
Underwriters' Warrants").
The U.S. Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
None of the U.S. Underwriters nor any of their controlling persons have
any material relationship with the Company, its promoters or their controlling
persons.
In connection with this offering, certain U.S. Underwriters and selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing their respective market
prices. The U.S. Underwriters also may create a short position for the account
of the U.S. Underwriters by selling more Shares in connection with the offering
than they are committed to purchase from the Company, and in such case may cover
all or a portion of such short position by purchases in the market. The
Representative, on behalf of the U.S. Underwriters, may also cover all or a
portion of such short position by exercising the Over-Allotment Option. In
addition, the Representative, on behalf of the U.S. Underwriters, may impose
"penalty bids" under contractual arrangements with the U.S. Underwriters whereby
it may reclaim from a U.S. Underwriter (or dealer participating in the offering)
for the account of other U.S. Underwriters, the selling concession with respect
to Shares that are distributed in the offering but subsequently purchased for
the account of the U.S. Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at levels above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken they may be discontinued at any time.
The Company has agreed to indemnify the Underwriters and the Underwriters
have agreed to indemnify the Company against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended, by reason of
misstatements of, or omissions to state, material facts in this Prospectus and
the Registration Statement of which it is a part.
This Underwriting section is a summary of all of the material terms of the
U.S. Underwriting Agreement and does not purport to be complete. A copy of the
U.S. Underwriting Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available at or from the
offices of the Securities and Exchange Commission for review (see "Additional
Information").
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
Determination Of Offering Price
Prior to this offering, there has been no public market for any of the
Company's securities. The initial offering price of the Shares has been
arbitrarily determined by negotiations between the Company and the
Representative. Among the factors considered in determining such prices are
prevailing market conditions generally, the Company's historical and prospective
operations and earnings, the history of the prospects for the industry in which
the Company operates, and market prices for securities of other companies
comparable to the Shares.
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DESCRIPTION OF SECURITIES
General
The authorized capital stock of the Company consists of 30,000,000 shares
of common stock, $0.01 par value per share, of which 4,884,914 shares will be
issued and outstanding upon completion of this Offering, and 5,000,000 shares of
preferred stock, $0.01 par value per share, of which no shares are issued and
outstanding.
The following summary of the respective rights of the holders of the
capital stock of the Company is qualified in its entirety by reference to the
Company's Certificate of Incorporation and By-Laws, as amended to date, where
such rights are set forth in full, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
Common Stock
Subject to the rights of the holders of any Preferred Stock which may be
outstanding, each holder of Common Stock is entitled to receive such dividends
as may be declared by the Board of Directors out of funds legally available
therefor, and, in the event of liquidation, dissolution or winding up of the
Company, to share pro rata in any distribution of the Company's assets after
payment or providing for the payment of all liabilities and the liquidation
preference of any outstanding Preferred Stock. Each holder of Common Stock is
entitled to one vote for each share held of record on the applicable record date
on all matters presented to a vote of stockholders, including the election of
directors. Holders of Common Stock have no cumulative voting rights or
pre-emptive rights to purchase or subscribe for any shares of Common Stock or
other securities of the Company in the event of any subsequent offering. The
shares of Common Stock have no conversion rights, are not subject to redemption
and are not subject to further calls or assessments. All outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby on behalf of the
Company will be when issued, fully paid and nonassessable.
Preferred Stock
The Board of Directors is authorized, without any action of the
stockholders, to provide for the issuance of one or more series of Preferred
Stock and to fix the designations, preferences, powers and relative,
participating, optional and other rights, qualifications, limitations and
restrictions thereof including, without limitation, the dividend rate, voting
rights, conversion rights, redemption price and liquidation preference per
series of Preferred Stock. Any series of Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
to be distributed upon liquidation, dissolution or winding up of the Company.
There are no agreements for the issuance of Preferred Stock and the Board of
Directors has no present intent to issue any Preferred Stock. The existence of
authorized but unissued Preferred Stock may enable the Directors to render more
difficult or to discourage an attempt to obtain control of the Company by means
of a merger, tender offer, proxy contest or otherwise. The issuance of Preferred
Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the rights and
powers, including voting rights, of such holders and may have the effect of
delaying, deferring or preventing a change in control of the Company.
Underwriters' Warrants
The Company has authorized, in connection with the Underwriters' Warrants,
the issuance of 100,000 warrants to purchase Common Stock, and has reserved an
equal number of shares of Common Stock for issuance upon exercise of such
Underwriters' Warrants. See "Underwriting". The Underwriters' Warrants are not
redeemable and contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and the number of shares issuable
upon exercise thereof in certain events, such as stock dividends, distributions
and stock splits. In the event of any capital reorganization, reclassification,
conversion of the Common Stock or consolidation, merger or sale of all or
substantially all of the assets of the Company, the Underwriters' Warrants will
be exercisable for the number of shares of stock or other securities or property
of the Company, or of the corporation into which shares of Common Stock are
converted or resulting from such consolidation or surviving such merger or to
which such sale shall be made, as the case may be, to which the shares of Common
Stock issuable upon exercise of such Underwriters' Warrants would have been
converted if such shares had been issued and outstanding at the time of the
change. The Company is not required to issue fractional securities, but will pay
the holder of the Underwriters' Warrant an amount in cash equal to such fraction
multiplied by the then current market value for the Common Stock. The holder of
an Underwriters' Warrant will not possess any rights as a stockholder of the
Company unless and until he exercises his Representative's Warrant. See
"Underwriting".
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Registration Rights Agreements
In connection with the issuance and sale by the Company of the Series A
Preferred Stock and the issuance of an option to purchase shares of Series B
Preferred Stock, which shares of Series A Preferred Stock and Series B Preferred
Stock were converted into Common Stock pursuant to the Recapitalization
(collectively, "Registrable Securities"), the Company entered into a
Registration Agreement with Marquette Venture Partners II, L.P. and the other
investors executing the Registration Agreement (the "Investors"). The
Registration Agreement gives the Investors or subsequent holders of Registrable
Securities which hold a majority of Registrable Securities the right to request
the Company to effect two long-form registrations and unlimited short-form
registrations of such securities under the Act ("Demand Registration"). In
addition, the Registration Agreement gives the Investors or subsequent holders
of Registrable Securities the right to have their securities included in
offerings of the Company's securities that are registered under the Act
("Piggyback Registration"). Securities to be registered pursuant to Piggyback
Registration need only be included, on a pro rata basis, to the extent the
managing underwriter advises the Company that the aggregate number of securities
which the selling stockholders seek to offer can be sold. The Company is
required to pay all expenses of the holders of securities in connection with
Demand Registration and Piggyback Registration other than underwriting discounts
and commissions.
Stockholders who formally held senior subordinated debentures have certain
registration rights pursuant to the Subscription Agreement between the Company
and the debenture holders (the "Subscription Agreement"). Pursuant to the
Subscription Agreement, upon an event of default (as defined in the Subscription
Agreement) by the Company (which has occurred), each such person generally is
entitled to have shares of Common Stock held by them included in any offering of
Common Stock proposed to be registered by the Company under the Securities Act.
Under the Statement of Rights and Warrants Certificate (the
"Certificate"), between the Company and holders thereof, upon the Warrant
holders furnishing certain information and agreeing to abide by certain terms as
identified in the Certificate, the Company shall register the shares underlying
the Warrants held by the Warrant holders under the Securities Act.
Pursuant to the Letter Agreement, dated June 26, 1998, between the Company
and Criticare, Criticare is entitled to reasonably request shares of Common
Stock of the Company held by it be registered under federal and state securities
laws.
Transfer Agent, Registrar and Warrant Agent
The transfer agent and registrar for the Common Stock of the Company and
the Warrant Agent for the Warrants is Harris Trust and Savings Bank.
Certain Provisions of the Delaware General Corporation Law
Generally, Section 203 of the Delaware General Corporation Law (the
"DGCL") prohibits a publicly held Delaware corporation from engaging in a broad
range of "business combinations with an "interested stockholder" (defined
generally as a person owing 15% or more of the corporation's outstanding voting
stock) for three years following the date such person became an interested
stockholder unless (i) before the person becomes an interested stockholder, the
transaction resulting in such person becoming an interested stockholder or the
business combination is approved by the board of directors of the corporation,
(ii) upon consummation of the transaction resulting in the stockholder becoming
an interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock of the corporation (excluding shares owned by directors
who are also officers of the corporation or shares held by employee stock plans
that do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender offer or exchange
offer) or (iii) on or after such date on which such person became an interested
stockholder, the business combination is approved by the board of directors and
authorized at an annual or special meeting, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock excluding
shares owned by the interested stockholders. The restrictions of Section 203 do
not apply, among other reasons, if a corporation, by action of its stockholders,
adopts an amendment to its certificate of incorporation or bylaws expressly
electing not to be governed by Section 203, provided that, in addition to any
other vote required by law, such amendment to the certificate of incorporation
or bylaws must be approved by the affirmative vote of a majority of the shares
entitled to vote. Moreover, an amendment so adopted is not effective until
twelve months after its adoption and does not apply to any business combination
between the corporation and any person who became an interested stockholder of
such corporation on or prior to such adoption. The
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Company's Certificate of Incorporation and Bylaws do not currently contain any
provisions electing not to be governed by Section 203 of the DGCL.
Section 203 of the DGCL may discourage persons from making a tender offer
for or acquisitions of substantial amounts of the Common Stock. This could have
the effect of inhibiting changes in management and may also prevent temporary
fluctuations in the Common Stock that often result from takeover attempts.
Section 228 of the DGCL allows any action that is required to be or may be
taken at a special or annual meeting of the stockholders of a corporation to be
taken without a meeting with the written consent of holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, provided that the certificate of incorporation
of such corporation does not contain a provision to the contrary. The Company's
Certificate of Incorporation contains no such provision, and therefore
stockholders holding a majority of the voting power of the Common Stock will be
able to approve a broad range of corporate actions requiring stockholder
approval without the necessity of holding a meeting of stockholders.
Certain provisions of the Company's Bylaws may have the affect of
discouraging certain types of transactions that may involve an actual or
threatened change of control of the Company and encouraging any person who might
seek to acquire control of the Company to negotiate with the Company's Board of
Directors.
REPORTS TO STOCKHOLDERS
Stockholders of the Company will be furnished with annual reports
containing audited financial statements of the Company and such other interim
reports as the Company may determine.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of these Offerings, the Company will have 4,884,914 shares
of Common Stock outstanding, after giving effect to the issuance of 611,250
shares to Pharm-Eco and Members of the Consortium and 28,147 shares to the State
of Illinois (assuming an initial public offering price of $10 and not including
2,740,036 shares of Common Stock subject to outstanding options and warrants).
Of the shares to be outstanding, the 1,000,000 shares of Common Stock to be
distributed by the Company will be freely tradeable without restriction. All of
the remaining 3,884,914 shares will be restricted securities within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). Pursuant to
Rule 144, 2,670,517 of such restricted securities will be eligible for resale
upon the effective date (the "Effective Date") of the Registration Statement of
which this Prospectus forms a part. The holders of 2,042,945 of such 2,670,517
shares to become eligible for sale on the Effective Date have agreed not to sell
any of such shares for periods ranging from 1 to 2 years after the Effective
Date. In addition to the 2,670,517 shares previously mentioned, 575,000 shares
will be eligible for resale in July 1999 and 639,397 shares will be eligible for
resale one year after the Effective Date. The Company's officers, directors,
certain consultants, including RADE, and those shareholders owning 5% or more of
the shares outstanding, have further agreed not to sell any of their Shares
(representing 1,434,059 of the 2,042,945 Shares subject to "lock-up" agreements
and referred to above) and any of the 975,000 shares issuable upon exercise of
options and warrants held by them, until the market price for the Company's
Common Stock, adjusted for splits and like transactions, closes at or above
$20.00 per share for a period of 20 consecutive trading days.
The Company's officers and directors, the holders of the Company's 498,636
stock options (the "Option Holders"), the holders of 5% or more (the "5%
Stockholders") of the outstanding shares of the Company's Common Stock
immediately prior to the date of this Prospectus, RADE and Criticare, have
agreed with and for the Representative not to sell any of their Shares, options
or underlying Shares for the twelve-month period (the "Initial Twelve-Month
Period") commencing on the date of this Prospectus. The Company's officers and
directors, the 5% Holders, Option Holders, Criticare and certain consultants,
including RADE, have further agreed with and for the Representative not to sell
or transfer any of their Shares unless the Share market price, adjusted for
splits and like transactions, closes at or above $20.00 for a period of 20
consecutive days (assuming an initial public offering price of $10.00 per
Share).
In general, under Rule 144 as recently amended, a person (or persons whose
shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one (1) year (including the contiguous holding period of any
prior owner except an affiliate) is entitled to sell in "broker's transactions"
or to market makers, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (approximately 104,867 shares immediately after the Offering) or
(ii) the average weekly trading volume in the Common
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Stock during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain
requirements as to manner of sale, the filing of a notice and the availability
of public information concerning the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the three (3)
months preceding a sale and who has beneficially owned the shares proposed to be
sold for at least two (2) years (including the contiguous holding period of any
prior owner except an affiliate) would be entitled to sell such shares under
Rule 144(k) without regard to the requirements described above.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701 under the Securities
Act, which permits nonaffiliates to sell their Rule 701 shares without having to
comply with the public information, holding period, volume limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing ninety (90) days after the date of this Prospectus.
Prior to the Offering, there has been no market for the Common Stock or
the Warrants of the Company, and no predictions can be made of the effect, if
any, that market sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock and the Warrants of the Company in the
public market could adversely affect prevailing market prices for the Common
Stock and the Warrants and the ability of the Company to raise equity capital in
the future.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Gardner, Carton & Douglas, Chicago, Illinois. Certain legal
matters will be passed upon for the U.S. Underwriter by Prifti Law Offices,
Lynnfield, Massachusetts.
EXPERTS
The financial statements as of March 31, 1997 and 1998 and for each of the
three years in the period ended March 31, 1998 included in this Prospectus and
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein (which report
expresses an unqualified opinion and includes an explanatory paragraph regarding
substantial doubt about the company's ability to continue as a going concern.)
Such financial statements have been included herein and elsewhere in the
Registration Statement based upon the report of such firm given upon their
authority as experts in accounting and auditing.
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GLOSSARY
As used in this Prospectus, the following terms have the meanings set
forth below.
Acute phase response The term used to describe a vast number of systemic
and metabolic changes occurring in the body
immediately after and within the first few days of
any event which threatens the integrity of healthy
tissues.
Adaptive immunity The capacity of the immune system to "learn" and
acquire specific protection against disease.
Adjunct therapy An ancillary treatment which is secondary to the
main treatment.
Adjuvant A substance which aids another substance in its
action.
Affinity The intrinsic attractiveness of one substance for
another.
AIDS Acquired immune deficiency syndrome.
ANDA Abbreviated new drug application.
Antibody An immunoglobulin molecule capable of specifically
combining with a known substance (antigen).
Antigen A substance recognized by (reacting with) an
antibody.
B-cell One of two major classes of lymphocytes. B-cells
differentiate into antibody producing cells (i.e.
"plasma" cells).
Bone marrow Hematopoietic tissue. The area of the body where
most of the cellular elements of the blood are
produced.
Candida albicans A common, yeast-like fungus, normally found in the
mouth, digestive tract. vagina, and on the skin of
healthy persons. Can cause infections of internal
organs.
Carcinoma A malignant tumor arising from epithelial tissues.
CD4+ cell A subset of T-cells which function as helper cells
in the immune response to disease. HIV primarily
infects CD4+ cells which, as the infection
proliferates, will kill CD4+ cells.
CD8+ cell A subset of T-cells which function as suppressor and
cytotoxic cells of the immune response.
CDT Carbohydrate Deficient Transferrin - An isomeric
form of the iron binding blood protein, Transferrin,
that occurs in greater amounts in people who
chronically consume excess alcohol.
Complement A set of proteins in the blood which are responsible
for many biological defense reactions of both innate
and adaptive immunity.
C-reactive protein (CRP) A human protein composed of five identical globular
subunits arranged in cyclic symmetry (i.e. a cyclic
pentamer). The level of this protein in blood
increases up to 1000-fold within 24 to 72 hours of
an acute phase response. Because of these changes,
CRP is known as the prototypic acute phase reactant.
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CRO Clinical Research Organization
Cryptococcus neoformans A yeast-like fungus that spreads through the lungs
to the brain, skin, bones and urinary tract.
Cryptosporidium parvum A parasite that is commonly found in the intestinal
tract of mammals that, in immune suppressed
individuals, can cause chronic, profuse, watery
diarrhea accompanied by fever, marked weight loss,
and enlarged lymph nodes.
Cytokines Biologically active compounds produced by one cell
and which affect the activities of other cells.
Cytoskeleton An intracellular matrix of many different proteins
which form a scaffolding and a communication network
within a cell and functions to dynamically organize
and coordinate cellular actions and activities.
DAP 092 The designation given to the Company's lead drug
molecule. Its chemical structure contains two
positive charges (cationic groups) that are
important in the antibiotic activity of the
molecule.
DB 289 The designation given to the Company's lead prodrug,
which can be administered orally.
Diabetes A chronic disease characterized by abnormal insulin
secretion from the pancreas. This causes problems in
the metabolism of glucose (sugar).
DMF Drug Master File; a reference document providing
detailed information about a drug in development.
DNA A type of molecule made up of polymerized
deoxyribonucleotides linked together by phosphate
bonds. The sequence of nucleotides in the polymer
contains the basic information of life.
Effector function The action which a cell or factor has been
programmed to complete.
Endotoxin A part of a bacteria which has potent immunological
and fever-producing effects.
Epitope A biochemical structure on the surface portion of a
biomolecule which is recognized by an antibody. The
term "determinant" is a synonym.
Extracellular matrix A combination of proteins, carbohydrates, cells and
factors which form a physical meshwork and which
defines tissue environment.
ex vivo Occurring outside the body.
FDA Food and Drug Administration.
Gene A distinctive hereditary unit defined by part of the
DNA sequence of nucleotides.
Germinal centers A collection of metabolically active lymphoblasts,
macrophages and plasma cells which appear within
lymphoid tissues following antigenic stimulation.
GLP Good Laboratory Practices.
GMP Good Manufacturing Practices.
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HbA1c Hemoglobin A1c - An adduct of the hemoglobin
molecule that is modified by a chemical reaction
with glucose (i.e. a "glycated"-hemoglobin)
molecule. Because diabetic patients generally have
large fluctuations in the number of glucose
molecules in their blood, they have a higher
relative amount of HbA1c which correlates with the
extent of their disease.
Helper T-cells A class of specific T-lymphocytes which are
necessary to "help" B-cells produce antibody and
effector T-cells to carry out their functions.
HIV Human immunodeficiency virus (the virus that causes
AIDS).
Immunity An active process performed by white blood cells and
their products which repels a foreign organism or
substance.
IND Investigational new drug application; a document
required by the FDA prior to performance of clinical
investigations on human subjects in the United
States.
Inflammation Redness, swelling and pain in a tissue resulting
from the infiltration of the tissue by foreign
substances and activated immune cells.
Innate immunity Natural (i.e. unlearned) immunity which provides
mechanical, chemical and biological barriers, and a
rapid and immediate protective response to any
insult to body tissues.
Interleukin A term applied to any of a group of peptide signals
that are produced by activated lymphocytes or
monocytes.
IRB Institutional (Internal) Review Board - a committee
of individuals deciding on the appropriateness of a
proposed experimental procedure or trial.
in vitro Occurring in a contained artificial test system
(i.e. in a test tube).
in vivo Occurring inside the body.
IV Intravenous.
Leismaniasis An infection caused by a protozoal parasite that
affects the skin and abdominal organisms, causing
ulcers or skin disorders that resemble leprosy.
Leukemia A form of cancer in which white blood cells
proliferate and distribute throughout the body
abnormally.
Leukocytes Circulating white blood cells.
Lymphatics Vessels of the immune system that drain interstitial
fluids, debris and leukocytes.
Lymphocytes White blood cells of the lymph series, capable of
recognizing and responding to antigens in a specific
manner.
Lymphoma A form of cancer in which the cells in lymph tissues
(e.g. lymph nodes and spleen) proliferate
uncontrollably.
Lymph tissues Body structures within which lymphatic circulation
drains and immunity occurs.
Macrophage A phagocytic white blood cell found in tissues and
in blood. When found in blood, it is called a
monocyte.
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Megakaryocyte A multinuclear giant cell of the bone marrow,
portions of which break off to form platelets.
Melanoma A form of cancer arising from skin cells.
Metastases Areas within the body where cancers spread and grow
distant from the site of the primary or original
cancer site.
modified-CRP (mCRP) A naturally occurring human protein with the same
genetic structure as CRP but which is structurally
changed so it is no longer a cyclic pentamer. mCRP
has biological, immunological and pharmacological
activities distinct from CRP.
Monoclonal antibody A homogenous population of antibodies which react
with one, specific epitope of an antigen.
Monocytes Phagocytic blood leukocytes, originating from the
bone marrow.
Mycobacterium avium A bacterial infection that can affect most internal
organs. It is associated with widely disseminated
disease which is manifest by non-specific symptoms
such as enlarged lymph nodes, weight loss and
diarrhea.
Mycobacterium tuberculosis A bacterial infection that is transmitted by
breathing in, or eating infected droplets, usually
affecting the lungs, although infection of other
organ systems can occur.
NCDDG National Cooperative Drug Development Grant
NDA New drug application. The application must be
approved by the FDA before a new drug can be
marketed in the United States.
Neoantigens Antigens arising as the result of a change in
structure of a molecule.
Neutrophil The most prominent white blood cell in the
circulation which functions to aggressively attack
foreign substances compromising the integrity of
body tissues.
Pentamidine An antiprotozoal drug having two positive charges
(i.e. "dications"), used to treat Pneumocystis
carinii pneumonia, Leismaniasis, and African
trypanosomiasis. The drug is very difficult to
deliver and is extremely toxic if not administered
properly.
Phase I Clinical testing time in which the safety and
pharmacological profile of a new drug is established
in humans.
Phase II Clinical testing time in which the effectiveness of
a new drug is established in humans. This includes
establishing the dose amount and frequency required
to achieve a therapeutic effect, the metabolic rate
of the administered drug, and the toxicity profile
in specific patient populations.
Phase III Clinical testing time involving extensive
multicenter, blinded testing in humans. This testing
establishes the significance of therapeutic
effectiveness and is a required step to gain FDA
approval to begin product marketing in the United
States.
P-IND Physician-sponsored investigation new drug
application.
Plasmodium falciparum A type of protozoa that causes the most severe form
of malaria.
PLA Product License Application. Equivalent to an NDA,
but for products defined as `biological products' by
the FDA (e.g. vaccines, antitoxins, blood products,
immune modulators, etc.)
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Platelet The smallest type of blood particle which plays a
major role in blood clotting.
Pneumocystis carinii
pneumonia (PCP) A type of lung infection found rarely in the general
population but presents in immune suppressed
patients. Approximately 80% of all AIDS patients get
PCP at some time during the course of the disease.
Prodrug A non-active precursor form of a drug. A chemical
modification of a prodrug is required to express the
active moiety.
recombinant mCRP (rmCRP) A molecule identical to mCRP, produced by genetic
engineering techniques.
RNA A group of molecules made up of polymerized
ribonucleotides linked together by phosphate bonds.
These molecules help translate the information
stored in DNA into physical effects.
Sepsis A severe bacterial infection involving the blood
stream.
Stem cell An undifferentiated cell from which various effector
cells are derived.
Systemic Affecting the whole body rather than a specific
part.
Syncytium Multinucleated protoplasmic mass, an aggregation of
several cells without any apparent cell outlines.
T-cell One of two major classes of lymphocytes. T-cells are
subdivided into cells which "help" various aspects
of immune function, and cells which "suppress"
various aspects of immune function, and directly
kill specific targets (cells) which threaten health.
Thrombocyte Another name for a platelet.
Thrombocytopenia A reduction in the number of platelet cells in the
blood, causing a tendency to bleed.
Topoisomerase An enzyme that makes reversible cuts in a double
helical DNA molecule for the purpose of removing
knots or unwinding excessive twists.
Trypanosomiasis An infection caused by a protozoal parasite and
transmitted usually by insect bites.
55
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS F-1
FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND 1998 AND
DECEMBER 31, 1998 AND FOR THE YEARS ENDED MARCH 31, 1996,
1997 AND 1998, FOR THE NINE MONTH PERIODS ENDED DECEMBER 31,
1997 AND 1998 AND FOR THE PERIODS FROM OCTOBER 15, 1984
(DATE OF INCEPTION) TO MARCH 31, 1998 AND DECEMBER 31, 1998:
Balance Sheets F-2
Statements of Operations F-4
Statements of Common Stockholders' Investment (Deficiency in Assets) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Immtech International, Inc.
(A Development Stage Enterprise):
We have audited the accompanying balance sheets of Immtech International, Inc.
(a development stage enterprise) (the "Company") as of March 31, 1997 and 1998,
and the related statements of operations, common stockholders' investment
(deficiency in assets), and cash flows for each of the three years in the period
ended March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of March 31, 1997 and 1998,
and the results of its operations and its cash flows for each of the three years
in the period ended March 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in the discovery and development of biopharmaceutical
products. As discussed in Note 1 to the financial statements, the deficiency in
working capital as of March 31, 1998 and the Company's operating losses since
inception raise substantial doubt about its ability to continue as a going
concern. In addition, management of the Company expects the Company to incur
significant losses during the next several years. Management's plans concerning
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
August 29, 1998
F-1
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
-------------------- December 31,
ASSETS 1997 1998 1998
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 78,510 $ 92,487
Prepaid expenses and supplies 14,702 $ 13,634 10,134
--------- -------- ---------
Total current assets 93,212 13,634 102,621
--------- -------- ---------
PROPERTY AND EQUIPMENT (Notes 1 and 3):
Furniture and equipment 296,042 296,042 296,042
Leasehold improvements 17,205 17,205 17,205
--------- -------- ---------
Total - at cost 313,247 313,247 313,247
Less accumulated depreciation and amortization 228,991 256,110 276,450
--------- -------- ---------
Property and equipment - net 84,256 57,137 36,797
OTHER ASSETS (Note 1):
Debt issuance costs - net 11,926
Deferred offering costs 229,641
--------- -------- ---------
TOTAL $ 189,394 $ 70,771 $ 369,059
========= ======== =========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
---------------------------- December 31,
LIABILITIES AND COMMON STOCKHOLDERS' 1997 1998 1998
INVESTMENT (DEFICIENCY IN ASSETS) (unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable (Note 5) $ 208,274 $ 395,736 $ 222,406
Accrued interest (Notes 2, 4 and 5) 454,684 663,013 281,470
Other accrued liabilities 133,152 32,128 95,422
Advances from stockholders (Notes 2 and 4) 770,000 985,172
Notes payable (Notes 2 and 5) 1,572,969 1,576,450 110,000
------------ ------------ ------------
Total current liabilities 3,139,079 3,652,499 709,298
------------ ------------ ------------
REDEEMABLE PREFERRED STOCK (Notes 2 and 6):
Series A redeemable, par value $0.01 per share,
1,794,550 shares authorized and issued,
aggregate liquidation preference of $2,505,791 and
$2,711,171 as of March 31, 1997 and 1998,
respectively, converted to 578,954 shares of common
stock on July 24, 1998 2,586,967 2,711,171
Series B redeemable, par value $0.01 per share,
1,600,000 shares authorized and issued,
aggregate liquidation preference of $2,521,493 and
$2,728,724 as of March 31, 1997 and 1998,
respectively, converted to 616,063 shares of common
stock on July 24, 1998 2,521,493 2,728,724
------------ ------------
Total redeemable preferred stock 5,108,460 5,439,895
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 3, 5, 10 and 12)
COMMON STOCKHOLDERS' INVESTMENT
(DEFICIENCY IN ASSETS) (Notes 2, 4, 5, 6, 8, 11 and 12):
Preferred stock, par value $.01 per share,
5,000,000 shares authorized and unissued
Common stock, par value $0.01 per share, 30,000,000
shares authorized, 675,498, 743,665 and 3,245,517
shares issued and outstanding as of March 31, 1997
and 1998 and December 31, 1998, respectively 6,755 7,437 32,455
Additional paid-in capital 3,720,414 4,233,386 10,871,198
Deficit accumulated during the developmental stage (11,785,314) (13,262,446) (11,243,892)
------------ ------------ ------------
Total common stockholders' investment
(deficiency in assets) (8,058,145) (9,021,623) (340,239)
------------ ------------ ------------
TOTAL $ 189,394 $ 70,771 $ 369,059
============ ============ ============
</TABLE>
F-3
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 15,
1984
Years Ended March 31, (Inception)
-------------------------------------------- to March 31,
1996 1997 1998 1998
<S> <C> <C> <C> <C>
REVENUES (Notes 1, 11 and 12) $ 335,000 $ 15,000 $ 19,552 $ 1,721,121
------------ ------------ ------------ ------------
EXPENSES:
Research and development (Notes 1, 8 and 12) 737,805 478,871 312,366 6,854,445
General and administrative (Notes 8 and 11) 218,843 532,642 534,984 5,347,696
Cancelled offering costs 65,837 73,984 584,707
------------ ------------ ------------ ------------
Total expenses 956,648 1,077,350 921,334 12,786,848
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (621,648) (1,062,350) (901,782) (11,065,727)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (135,468) (281,710) (241,767) (1,061,959)
Miscellaneous (expense) income - net (2,522) (6,503) (2,148) 70,986
------------ ------------ ------------ ------------
Other expense - net (137,990) (288,213) (243,915) (990,973)
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (759,638) (1,350,563) (1,145,697) (12,056,700)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT (Notes 2, 4 and 5)
------------ ------------ ------------ ------------
NET LOSS (759,638) (1,350,563) (1,145,697) (12,056,700)
CONVERSION OF REDEEMABLE PREFERRED STOCK (Notes 2 and 6)
REDEEMABLE PREFERRED STOCK PREMIUM AMORTIZATION (Note 6) 89,435 100,145 81,696 440,119
REDEEMABLE PREFERRED STOCK DIVIDENDS (Note 6) (335,759) (368,125) (413,131) (1,645,865)
------------ ------------ ------------ ------------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1,005,962) $ (1,618,543) $ (1,477,132) $(13,262,446)
============ ============ ============ ============
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Loss before extraordinary gain $ (1.15) $ (2.04) $ (1.69)
Extraordinary gain
------------ ------------ ------------
Net loss (1.15) (2.04) (1.69)
Redeemable preferred stock conversion, premium
amortization and dividends (0.37) (0.40) (0.49)
------------ ------------ ------------
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (1.52) $ (2.44) $ (2.18)
============ ============ ============
SHARES USED IN COMPUTING NET (LOSS) INCOME PER
SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS 660,833 662,975 676,471
============ ============ ============
<CAPTION>
October 15,
Nine Month Periods 1984
Ended December 31, (Inception) to
---------------------------- December 31,
1997 1998 1998
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
REVENUES (Notes 1, 11 and 12) $ 214,252 $ 1,935,373
------------ ------------
EXPENSES:
Research and development (Notes 1, 8 and 12) $ 155,647 540,201 7,394,646
General and administrative (Notes 8 and 11) 211,791 2,596,869 7,944,565
Cancelled offering costs 584,707
------------ ------------ ------------
Total expenses 367,438 3,137,070 15,923,918
------------ ------------ ------------
LOSS FROM OPERATIONS (367,438) (2,922,818) (13,988,545)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (181,012) (67,543) (1,129,502)
Miscellaneous (expense) income - net (54) 5,505 76,491
------------ ------------ ------------
Other expense - net (181,066) (62,038) (1,053,011)
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (548,504) (2,984,856) (15,041,556)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT (Notes 2, 4 and 5) 1,427,765 1,427,765
------------ ------------ ------------
NET LOSS (548,504) (1,557,091) (13,613,791)
CONVERSION OF REDEEMABLE PREFERRED STOCK (Notes 2 and 6) 3,713,334 3,713,334
REDEEMABLE PREFERRED STOCK PREMIUM AMORTIZATION (Note 6) 81,696 440,119
REDEEMABLE PREFERRED STOCK DIVIDENDS (Note 6) (307,921) (137,689) (1,783,554)
------------ ------------ ------------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (774,729) $ 2,018,554 $(11,243,892)
============ ============ ============
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Loss before extraordinary gain $ (0.81) $ (1.58)
Extraordinary gain 0.76
------------ ------------
Net loss (0.81) (0.82)
Redeemable preferred stock conversion, premium
amortization and dividends (0.34) 1.89
------------ ------------
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (1.15) $ 1.07
============ ============
SHARES USED IN COMPUTING NET (LOSS) INCOME PER
SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS 675,498 1,887,222
============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF COMMON STOCKHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Deficit Common
Common Accumulated Stockholders'
Shares Issued Common Additional During the Equity
and Stock Paid-in Development (Deficiency in
Outstanding Amount Capital Stage Assets)
<S> <C> <C> <C> <C> <C>
October 15, 1984 (inception)
Issuance of common stock to founders 113,243 $ 1,132 $ 24,868 $ 26,000
--------- -------- ------------ ----------
Balance, March 31, 1985 113,243 1,132 24,868 26,000
Issuance of common stock 85,368 854 269,486 270,340
Net loss $ (209,569) (209,569)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1986 198,611 1,986 294,354 (209,569) 86,771
Issuance of common stock 42,901 429 285,987 286,416
Net loss (47,486) (47,486)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1987 241,512 2,415 580,341 (257,055) 325,701
Issuance of common stock 4,210 42 28,959 29,001
Net loss (294,416) (294,416)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1988 245,722 2,457 609,300 (551,471) 60,286
Issuance of common stock 62,792 628 569,372 570,000
Provision for compensation 489,975 489,975
Net loss (986,746) (986,746)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1989 308,514 3,085 1,668,647 (1,538,217) 133,515
Issuance of common stock 16,478 165 171,059 171,224
Provision for compensation 320,980 320,980
Net loss (850,935) (850,935)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1990 324,992 3,250 2,160,686 (2,389,152) (225,216)
Issuance of common stock 218 2 1,183 1,185
Provision for compensation 6,400 6,400
Net loss (163,693) (163,693)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1991 325,210 3,252 2,168,269 (2,552,845) (381,324)
Issuance of common stock 18,119 181 85,774 85,955
Provision for compensation 864,496 864,496
Issuance of stock options in exchange
for cancellation of indebtedness 57,917 57,917
Net loss (1,479,782) (1,479,782)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1992 343,329 3,433 3,176,456 (4,032,627) (852,738)
Issuance of common stock 195,790 1,958 66,839 68,797
Provision for compensation 191,502 191,502
Net loss (1,220,079) (1,220,079)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1993 539,119 5,391 3,434,797 (5,252,706) (1,812,518)
Issuance of common stock 107,262 1,073 40,602 41,675
Provision for compensation 43,505 43,505
Net loss (2,246,426) (2,246,426)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1994 646,381 6,464 3,518,904 (7,499,132) (3,973,764)
Net loss (1,661,677) (1,661,677)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1995 646,381 6,464 3,518,904 (9,160,809) (5,635,441)
Issuance of common stock for compensation 16,131 161 7,339 7,500
Net loss (1,005,962) (1,005,962)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1996 662,512 6,625 3,526,243 (10,166,771) (6,633,903)
Issuance of common stock 12,986 130 5,908 6,038
Provision for compensation - employees 45,086 45,086
Provision for compensation - non-employees 62,343 62,343
Issuance of warrants to purchase common stock 80,834 80,834
Net loss (1,618,543) (1,618,543)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1997 675,498 6,755 3,720,414 (11,785,314) (8,058,145)
Issuance of common stock 68,167 682 28,862 29,544
Provision for compensation - employees 50,680 50,680
Provision for compensation - non-employees 201,696 201,696
Contributed capital - common stockholders
(Note 11) 231,734 231,734
Net loss (1,477,132) (1,477,132)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1998 743,665 7,437 4,233,386 (13,262,446) (9,021,623)
Issuance of common stock (unaudited) 701,857 7,018 971,472 978,490
Compensation - non-employees (unaudited) 2,300,000 2,300,000
Conversion of redeemable preferred stock to
common stock (Note 6) (unaudited) 1,195,017 11,950 1,852,300 1,864,250
Conversion of debt to common stock
(Notes 4 and 5) (unaudited) 424,222 4,242 657,555 661,797
Conversion of Criticare debt to common stock
(Notes 4 and 5) (unaudited) 180,756 1,808 856,485 858,293
Net income (unaudited) 2,018,554 2,018,554
--------- -------- ------------ ------------- ----------
Balance, December 31, 1998 (unaudited) 3,245,517 $ 32,455 $ 10,871,198 $ (11,243,892) $ (340,239)
========= ======== ============ ============= ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------
1996 1997 1998
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(759,638) $ (1,350,563) $ (1,145,697)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment 42,296 36,814 27,119
Amortization of debt discount 62,218 18,616
Amortization of debt issuance costs 41,743 11,926
Compensation recorded related to issuance of common
stock or common stock options 7,500 107,429 252,376
Extraordinary gain on extinguishment of debt
Changes in operating assets and liabilities:
Prepaid expenses and supplies (5,270) (1,068) 1,068
Deferred revenue 15,000 (15,000)
Accounts payable 150,794 (205,487) 187,462
Other accrued liabilities 41,108 103,152 (101,024)
Accrued interest 124,360 169,726 208,329
--------- ------------ ------------
Net cash used in operating activities (383,850) (1,051,036) (539,825)
--------- ------------ ------------
INVESTING ACTIVITIES - Purchases of property and equipment (17,172)
------------
Net cash used in investing activities (17,172)
------------
FINANCING ACTIVITIES:
Advances from stockholders 311,500 458,500 215,172
Proceeds from the issuance of senior subordinated debt 525,000
Proceeds from the issuance of notes payable 72,350
Payments on notes payable (39,151) (3,500)
Payments for debt issuance costs (53,669)
Payments for extinguishment of debt
Proceeds from the issuance of common stock 6,038 17,909
Additional capital contributed by stockholders 231,734
Proceeds from the issuance of Preferred Stock - Series A
Proceeds from the issuance of Preferred Stock - Series B 250,000
Deferred offering costs
--------- ------------ ------------
Cash provided by financing activities 383,850 1,146,718 461,315
--------- ------------ ------------
NET (DECREASE) INCREASE IN CASH 0 78,510 (78,510)
CASH, BEGINNING OF PERIOD 0 0 78,510
--------- ------------ ------------
CASH, END OF PERIOD $ 0 $ 78,510 $ 0
========= ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION (Note 9)
<CAPTION>
October 15, October 15,
1984 Nine Month Periods 1984
(Inception) Ended December 31, Inception to
to March 31, --------------------------- December 31,
1998 1997 1998 1998
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (12,056,700) $ (548,504) $ (1,557,091) $ (13,613,791)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment 287,790 20,339 20,340 308,130
Amortization of debt discount 80,834 18,616 80,834
Amortization of debt issuance costs 53,669 11,926 53,669
Compensation recorded related to issuance of common
stock or common stock options 2,462,963 2,300,000 4,762,963
Extraordinary gain on extinguishment of debt (1,427,765) (1,427,765)
Changes in operating assets and liabilities:
Prepaid expenses and supplies (13,634) 3,500 (10,134)
Deferred revenue
Accounts payable 395,736 95,759 155,810 551,546
Other accrued liabilities 32,128 (3,518) 63,294 95,422
Accrued interest 663,013 180,158 663,013
------------- ---------- ------------ -------------
Net cash used in operating activities (8,094,201) (225,224) (441,912) (8,536,113)
------------- ---------- ------------ -------------
INVESTING ACTIVITIES - Purchases of property and equipment (318,403) (318,403)
------------- -------------
Net cash used in investing activities (318,403) (318,403)
------------- -------------
FINANCING ACTIVITIES:
Advances from stockholders 985,172 150,214 985,172
Proceeds from the issuance of senior subordinated debt 525,000 525,000
Proceeds from the issuance of notes payable 2,120,194 2,120,194
Payments on notes payable (97,119) (3,500) (11,000) (108,119)
Payments for debt issuance costs (53,669) (53,669)
Payments for extinguishment of debt (203,450) (203,450)
Proceeds from the issuance of common stock 1,371,292 978,490 2,349,782
Additional capital contributed by stockholders 231,734 231,734
Proceeds from the issuance of Preferred Stock - Series A 1,330,000 1,330,000
Proceeds from the issuance of Preferred Stock - Series B 2,000,000 2,000,000
Deferred offering costs (229,641) (229,641)
------------- ---------- ------------ -------------
Cash provided by financing activities 8,412,604 146,714 534,399 8,947,063
------------- ---------- ------------ -------------
NET (DECREASE) INCREASE IN CASH 0 (78,510) 92,487 92,487
CASH, BEGINNING OF PERIOD 0 78,510 0 0
------------- ---------- ------------ -------------
CASH, END OF PERIOD $ 0 $ 0 $ 92,487 $ 92,487
============= ========== ============ =============
SUPPLEMENTAL CASH FLOW INFORMATION (Note 9)
</TABLE>
See notes to financial statements.
F-6
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE NINE MONTH PERIODS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
1. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Immtech International, Inc. (the "Company") is a
biopharmaceutical company focusing on the discovery and development of
therapeutic products for the treatment of opportunistic diseases and
cancer in patients with compromised immune responses. The Company has two
separate platform technologies for developing drugs, one based on
developing a new class of molecules as pharmaceuticals and a second for
developing a series of biological proteins that work in conjunction with
the immune system.
The Company was incorporated in 1984. The Company is in the development
stage and has directed its efforts toward research and development, hiring
scientific and management personnel, arranging for facilities and
conducting clinical trials. The Company has no products currently
available for sale, and none are expected to be commercially available for
several years.
Basis of Presentation - The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business.
Since inception, the Company has incurred accumulated losses of
approximately $11,244,000. Management expects the Company to continue to
incur significant losses during the next several years. In addition, as of
March 31, 1998 and December 31, 1998, the Company's current liabilities
exceeded its current assets by approximately $3,639,000 and $607,000,
respectively, and the Company had a common stockholders' deficiency of
approximately $9,022,000 and $340,000, respectively. In addition, the
Company has various research and development agreements with various
entities that are thinly capitalized and are dependent upon their ability
to raise additional funds to continue their research and development
activities. These factors, among others, indicate that the Company may be
unable to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and ultimately, to obtain profitable operations. As discussed
in Note 2, as of July 24, 1998, the Company completed a recapitalization.
Management's plans for the forthcoming year include continuing their
efforts to obtain additional equity financing and research grants, and
enter into various research and development agreements with other entities
(see Notes 3 and 12).
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method (see Note 3).
Property and Equipment - Equipment and leasehold improvements are recorded
at cost and depreciation and amortization are provided using accelerated
methods. Assets are depreciated over five to seven years.
F-7
<PAGE>
Debt Issuance Costs and Debt Discounts - Costs incurred in connection with
the issuance of the senior subordinated notes during the year ended March
31, 1997, were deferred and amortized over the original life of these
notes using the interest method. Amortization of approximately $42,000 and
$12,000 was charged to operations for the years ended March 31, 1997 and
1998, respectively, and $12,000 and $0 for the nine month periods ended
December 31, 1997 and 1998, respectively, as additional interest expense.
Discounts related to the issuance of debt are amortized and charged to
operations using the interest method.
Deferred Offering Costs - Costs incurred with respect to a common stock
offering in process have been deferred pending the completion of the
offering.
Revenue Recognition - Revenue under grants and research and development
agreements is recognized based on the Company's estimates of the stage of
completion under the terms of the respective agreements.
Research and Development Costs - All research and development costs are
charged to operations as incurred.
Income Taxes - The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable
income.
Net Loss Per Share - Net loss per share is calculated in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." Diluted net loss per share was the same as the basic loss per
share as the stock options and warrants were antidilutive for the years
ended March 31, 1996, 1997 and 1998 and the nine month periods ended
December 31, 1997 and 1998.
Fair Value Information - Due to the uncertainties previously discussed in
Note 1, management has determined that it is not practicable to estimate
the fair value of the Company's financial instruments (notes payable and
preferred stock).
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Approved Accounting Standards Not Yet Adopted - In 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." These statements are required to be
adopted in fiscal 1999. In 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This
statement is required to be adopted in fiscal 1999. In 1998, the FASB also
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement is required to be adopted in fiscal 2000. The
Company is currently in the process of evaluating the impact of adopting
these new statements.
Reclassifications - Certain amounts previously reported have been
reclassified to conform with the current presentation.
F-8
<PAGE>
2. RECAPITALIZATION, PRIVATE PLACEMENT AND STOCK SPLITS
On July 24, 1998 (the "Effective Date"), the Company (with stockholder
approval) completed a recapitalization (the "Recapitalization) pursuant to
which: (i) the Company effected a .645260-for-1 reverse stock split of all
of the shares of common stock issued and outstanding immediately prior to
the Effective Date, resulting in the reduction in the number of issued and
outstanding shares of common stock from 2,305,166 to 1,487,431 (the "First
Reverse Stock Split"); (ii) the Company's debtholders converted
approximately $3,151,000 in stockholder advances, notes payable and
related accrued interest and accounts payable outstanding immediately
prior to the Effective Date into 1,209,962 shares of common stock (after
giving effect to the First Reverse Stock Split) and approximately $203,000
in cash; (iii) the Company's Series A Preferred stockholders converted
1,794,550 shares of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Date into 1,157,931 shares of common
stock (after giving effect to the First Reverse Stock Split); (iv) the
Company's Series B Preferred stockholders converted 1,600,000 shares of
Series B Preferred Stock issued and outstanding immediately prior to the
Effective Date into 1,232,133 shares of common stock (after giving effect
to the First Reverse Stock Split); (v) the Company converted options
outstanding immediately prior to the Effective Date and held by employees
of or consultants to the Company to purchase an aggregate of 1,716,815
shares of common stock into options to purchase 1,107,792 shares of common
stock (after giving effect to the First Reverse Stock Split); and (vi) the
total number of authorized shares was increased to 35,000,000, consisting
of 30,000,000 shares of common stock and 5,000,000 shares of preferred
stock, .01 par value.
On January 25, 1999, the Company effected a .5-for-1 reverse stock split
of all of the shares of common stock issued and outstanding as of February
5, 1999, resulting in a reduction in the number of issued and outstanding
shares from 6,491,135 to 3,245,517 (the "Second Reverse Stock Split").
All other share and per share information included in the accompanying
financial statements has been restated to reflect the First Reverse Stock
Split and the Second Reverse Stock Split.
Contemporaneously with the completion of the Recapitalization, the Company
issued and sold 575,000 shares of common stock for $1.74 per share, or
aggregate consideration to the Company of $1,000,000 to certain accredited
investors. For services and expenses involved with this Recapitalization,
the placement agent New China Hong Kong Securities Limited ("NCHK")
received $50,000 and warrants to purchase 75,000 shares of the Company's
common stock at $.10 per share. For advisory services in this transaction,
RADE Management Corporation ("RADE") received warrants to purchase 225,000
shares of the Company's common stock at $.10 per share. The warrants
expire July 29, 2004.
3. INVESTMENT IN NEXTERA THERAPEUTICS, INC.
On July 8, 1998, the Company, together with Franklin Research Group, Inc.
("Franklin") and certain other parties, formed NextEra Therapeutics, Inc.
("NextEra") to develop therapeutic products for treating cancer and
related diseases. NextEra's initial focus will be on the manufacturing and
clinical development of recombinant modified CRP ("rmCRP"). NextEra
intends to fund rmCRP through the clinical Phases I, II, and III and early
commercialization.
On September 29, 1998, the Company and Franklin entered into a Research
and Funding Agreement with NextEra in which Franklin agreed to advance a
minimum of $1,350,000 to NextEra to fund the scale-up of manufacturing and
Phase I clinical trials. On September 29, 1998, the Company contributed
its rmCRP technology, including relevant patents and know-how, as well as
use of its current laboratory facilities for 330,000 common shares of
NextEra. NextEra's scientists are in the process of preparing drug
substance and documents for a Phase I safety study in 30 to 40 cancer
patient to be carried out at Northwestern
F-9
<PAGE>
University. The focus of the study is to evaluate the safety and early
efficacy of rmCRP in patients with different types of cancer. If Franklin
fails to make their investment in NextEra, the Company can purchase the
shares owned by Franklin at 90% of their investment in exchange for the
Company's common stock (if the Company's common stock is publicly traded),
or cash.
The Company and Franklin estimate that it will take approximately 18
months to complete the initial Phase I clinical trial. At the conclusion
of the trial, the data for safety and efficacy will be evaluated and
Franklin will have 90 days to decide whether to continue the development
of rmCRP in human Phase II and III clinical trials. If Franklin decides to
proceed, it has to invest a minimum of an additional $6,500,000 for which
Franklin will receive an additional 160,000 common shares of NextEra. In
addition, if Franklin elects to proceed, at its option, the Company shall
have the right to provide $1,625,000 of the additional investment of
$6,500,000 in return for 40,000 of the 160,000 common shares Franklin
would receive. At such time the Company will assign its laboratory
facilities to NextEra. If Franklin decides not to proceed, the Company can
purchase majority control of NextEra by buying NextEra common stock at
$1.00 per share until enough shares are purchased for majority control.
The lead scientist of NextEra, who is also a director of NextEra and the
Company, received 33,333 shares of NextEra common stock at the formation
of NextEra and will receive options to purchase 30,000 additional common
shares that will vest upon submission of a new drug application for a
product based on rmCRP. NextEra has also reserved 100,000 shares of common
stock for issuance as stock options for employees and consultants.
The Board of Directors of NextEra consists of two directors appointed by
the Company and five by Franklin. Unanimous approval of the Board is
required for issuance of stock to employees, mergers, sales or disposition
of substantially all assets, or liquidation of NextEra. The Company's
President is an officer and director of NextEra, and the Company's Chief
Financial Officer is also NextEra's Chief Financial Officer. In addition,
the principal stockholder in RADE is also a director of NextEra.
The Company has, on the fifth anniversary of the formation of NextEra, a
"put" option of NextEra stock. The exercise of the put will cause NextEra
to purchase the stock owned by Immtech at an appraised value, or at $5.00
per share, whichever is lower.
NextEra has agreed to fund the operation of the Company's primary
facility, including employees' salaries related to work on rmCRP, rent and
overhead associated with the project. Currently, this includes all of the
Company's employees except the President and Chief Financial Officer. In
addition, NextEra has agreed to fund the maintenance and prosecution of
all patents that are part of the intellectual property transferred to
NextEra by the Company.
NextEra has incurred accumulated losses of approximately $265,000 since
inception (July 8, 1998) through December 31, 1998. NextEra is expected to
continue to incur significant losses during the next several years. In
addition, as of December 31, 1998, NextEra's current liabilities exceeded
its current assets by approximately $269,000 and NextEra had a
stockholders' deficiency of approximately $265,000.
NextEra's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and, ultimately, to obtain profitable operations. NextEra's
financial plans for the forthcoming year include the continuing efforts to
obtain additional equity financing.
As of December 31, 1998, the Company owned approximately 49% of the issued
and outstanding shares of NextEra common stock.
F-10
<PAGE>
The following is a summary of the Company's investment in NextEra as of
December 31, 1998:
Investment in NextEra:
Common stock $ 2
Less investment losses recognized 2
---
Net investment $ 0
===
The Company has recognized an equity loss in NextEra to the extent of the
basis of its original investment. Recognition of any investment income on
the equity method by the Company for its investment in NextEra will occur
only after NextEra has earnings in excess of previously unrecognized
equity losses.
The following is summarized financial information for NextEra as of
December 31, 1998 and for the period from inception (July 8, 1998) through
December 31, 1998:
Current assets $ 80,000
Noncurrent assets 4,000
Current liabilities:
Advances from Franklin 336,000
Other 13,000
Stockholders' equity (deficit) (265,000)
Revenues --
Net loss (265,000)
4. ADVANCES FROM STOCKHOLDERS
Criticare Systems, Inc. ("Criticare"), a significant stockholder who, as
of March 31, 1998, owned 1,000,000 shares of Series A Preferred Stock,
1,200,000 shares of Series B Preferred Stock and 112,501 shares of common
stock, had advanced $590,000 and $597,722 to the Company as of March 31,
1997 and 1998, respectively. Interest on the advances accrued at a rate of
5%. The advances were payable on demand. On July 24, 1998, Criticare
exchanged $597,722 of advances and $68,368 of accrued interest for 145,353
shares of common stock (see Note 2). The carrying value of the outstanding
Criticare indebtedness under the advances in excess of the estimated fair
market value of the shares of common stock and cash exchanged was
accounted for as additional paid-in capital. As of December 31, 1998,
Criticare owned 1,087,939 shares (33.5%) of the Company's outstanding
common stock.
Certain other stockholders had advanced funds to the Company aggregating
$180,000 and $387,450 as of March 31, 1997 and 1998, respectively. The
advances were non-interest bearing and payable on demand. On July 24,
1998, the other shareholders exchanged $387,450 of advances for 196,824
shares of common stock (see Note 2). The Company recognized an
extraordinary gain on the extinguishment of debt of $80,404 for the
outstanding indebtedness under the advances in excess of the estimated
fair market value of the 196,824 shares of common stock ($307,046). As of
December 31, 1998, none of the other stockholders individually owned more
than 7.6% of the Company's outstanding common stock.
F-11
<PAGE>
5. NOTES PAYABLE
Notes payable consist of the following:
March 31,
------------------ December 31,
1997 1998 1998
State of Illinois, payment due upon
closure of initial public offering, 0%
interest as of March 31, 1997 and 1998 $100,000 $100,000 $100,000
and December 31, 1998, unsecured
Northwestern University, payable in
monthly installments of $3,500 through
October, 1997, 0% interest as of
March 31, 1997 and 1998 and December
31, 1998, unsecured 24,500 21,000 10,000
Criticare term note, due December 31, 1997,
8.5% interest, unsecured, together
with accrued interest of $27,201,
was exchanged for 25,526 shares of
common stock on July 24, 1998 89,777 89,777
Senior subordinated notes - Criticare,
due May 31, 1997, 15% interest,
unsecured, net of unamortized discount
of $1,202 and $0 as of March 31, 1997
and 1998, respectively, together with
accrued interest of $16,225, were
exchanged for 9,876 shares of common
stock on July 24, 1998 57,798 59,000
Senior subordinated notes - other, due
May 31, 1997, 15% interest, unsecured,
net of unamortized discount of $17,414
and $0 as of March 31, 1997 and 1998,
respectively, together with accrued
interest of $243,712, were exchanged for
143,128 shares of common stock on July
24, 1998 837,586 855,000
Walsh & Keating, S.C. term note, due
December 31, 1997, 8.5% interest,
unsecured, together with accrued
interest of $25,149, was exchanged for
36,401 shares of common stock and
$28,907 on July 24, 1998 $167,139 $167,139
Partners of Walsh & Keating, S.C. term
note, due December 31, 1997, 8.5%
interest, unsecured, together with
accrued interest of $1,605, was
exchanged for 2,062 shares of common
stock and $1,637 on July 24, 1998 22,301 10,666
F-12
<PAGE>
March 31,
------------------ December 31,
1997 1998 1998
Winston & Strawn term note, due
December 31, 1997, 8.5% interest,
unsecured, together with accrued
interest of $30,428, was exchanged for
35,359 shares of common stock and
$17,679 on July 24, 1998 153,744 153,744
Brinks, Hofer, Gilson & Lione term
note, due December 31, 1997, 8.5%
interest, unsecured, together with
accrued interest of $36,396 and
accounts payable of $204,327, was
exchanged for $150,000 on July 24, 1998 120,124 120,124
---------- ---------- --------
Total notes payable 1,572,969 1,576,450 $110,000
Less current portion 1,576,450 1,572,969 110,000
---------- ---------- --------
Long-term debt $ 0 $ 0 $ 0
========== ========== ========
Interest on the State of Illinois loan stopped accruing during the year
ended March 31, 1996, when the maximum interest from this loan of $281,470
was reached. The interest rate on this loan was 25% prior to when it
stopped accruing interest. Interest on the Northwestern University loan
stopped accruing during the year ended March 31, 1997, when this loan was
restructured to provide Northwestern University with higher monthly
payments in exchange for no further interest accrual. Before this loan was
restructured, the interest rate was 8.12%.
On July 24, 1998, the senior subordinated notes, the Criticare term note,
the Walsh & Keating related term notes, the Winston & Strawn term note and
the Brinks, Hofer, Gilson & Lione term note, together with related accrued
interest and accounts payable, were exchanged for shares of common stock
and cash (see Note 2). The Company did not have sufficient funds to pay
such notes on the original maturity dates indicated and, accordingly, all
such notes were in default as of March 31, 1998. In addition, on July 24,
1998, certain other trade creditors exchanged $57,270 of accounts payable
for 20,908 shares of common stock and $5,227 cash.
The carrying value of the outstanding Criticare indebtedness under the
term note and senior subordinated notes in excess of the estimated fair
market value of the shares of common stock and cash exchanged was
accounted for as additional paid-in capital, as Criticare is a significant
stockholder. The Company recognized an extraordinary gain on the
extinguishment of debt of $1,347,361 for the outstanding aggregate
indebtedness under the other term notes and subordinated notes
($1,306,673), related accrued interest ($337,290) and accounts payable
($261,597) in excess of the estimated fair market value of the shares of
common stock ($354,749) and cash ($203,450) exchanged. As of December 31,
1998, none of these debt holders individually owned more than 7.6% of the
Company's outstanding common stock.
During the year ended March 31, 1997, approximately $389,000 of notes
payable were exchanged, in $1,000 increments, for an equal amount of
senior subordinated debt and a detachable warrant to purchase 100 shares
of the common stock of the Company. Also during fiscal 1997, the Company
sold for $525,000, senior subordinated notes in increments of $1,000, each
with a warrant to purchase 100 shares of the Company's common stock. The
holders of these warrants would be entitled to purchase a share of common
stock, in the event the Company participates in an initial public
offering, at a price equivalent to one-
F-13
<PAGE>
half the price in the initial public offering. As of March 31, 1997 and
1998 and December 31, 1998, there were warrants outstanding to purchase
91,400 shares of common stock at a price equivalent to one-half the price
of the initial public offering. These warrants expire August 29, 1999.
The discount on the senior subordinated notes resulted from the allocation
of the proceeds from the issuance of the senior subordinated notes to the
debt and related stock warrants at their estimated fair value. The
estimated fair value of these warrants was $.90 per warrant at the date
the warrants were granted, resulting in a discount of $80,834. This
discount was amortized using the interest method over the original life of
the senior subordinated notes.
6. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock outstanding as of March 31, 1998 and 1997
consisted of Series A and Series B. On July 24, 1998, the Series A and B
Preferred stockholders exchanged their preferred shares for an aggregate
1,195,017 shares of common stock (see Note 2). The holders of the Series A
and Series B Preferred Stock had cumulative dividend preferences at the
rate of 8% per annum, compounded daily, of the liquidation value thereof,
plus accumulated and unpaid dividends thereon, in preference to any
dividend on common stock, payable when and if declared by the Board of
Directors. Dividends accrued whether or not they had been declared and
whether or not there were profits, surplus or other funds of the Company
legally available for the payment of dividends. In the event the Company
declared a dividend or distribution on the common stock, the holders of
the preferred stock and the holders of the common stock would have shared
pro rata in such dividend or distribution.
The holders of the Series A and Series B Preferred Stock had the right to
convert each share at any time, into one share of common stock. The
holders of the preferred stock had the right to vote with the holders of
the common stock. The holders had voting rights equivalent to the number
of shares of common stock issuable upon conversion.
The difference between the initial estimated fair value of the Series A
Preferred Stock and the aggregate redemption value was amortized by a
credit to retained earnings (deficit accumulated during the developmental
stage) and a debit to the carrying value of the redeemable preferred stock
during the period from issuance to December 21, 1997 using the interest
method.
At any time on or after December 21, 1997, a holder of Series A and B
Preferred Stock could have required the Company to redeem all or part of
the holder's shares at the liquidation value plus all accrued but unpaid
dividends thereon. The Company was required to redeem such shares in a
series of eight equal quarterly redemptions commencing on the last day of
the calendar quarter occurring at least 30 days following the Company's
receipt of the holder's redemption notice. The aggregate future annual
redemption requirements of the liquidation value plus accrued unpaid
dividends as of March 31, 1998 was $5,439,895.
The Series A and Series B Preferred Stock had redemption (carrying) values
of $2,780,324 and $2,797,260, respectively, as of July 24, 1998. The
Series A and Series B Preferred stockholders received 578,954 and 616,063
shares of common stock, respectfully, for their shares of the preferred
stock. The difference between the carrying value of the Series A and
Series B Preferred Stock and the estimated fair value of the common shares
exchanged of $1,877,138 and $1,836,196, respectively, was credited to
deficit accumulated during the development stage.
F-14
<PAGE>
7. INCOME TAXES
The Company accounts for income taxes using an asset and liability
approach which generally requires the recognition of deferred income tax
assets and liabilities based on the expected future income tax
consequences of events that have previously been recognized in the
Company's financial statements or tax returns. In addition, a valuation
allowance is recognized if it is more likely than not that some or all of
the deferred income tax asset will not be realized. A valuation allowance
is used to offset the related net deferred income tax assets due to
uncertainties of realizing the benefits of certain net operating losses
and tax credit carryforwards.
The Company has no significant deferred income tax liabilities.
Significant components of the Company's deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
March 31,
----------------------------------------- December 31,
1996 1997 1998 1998
<S> <C> <C> <C> <C>
Deferred income tax assets:
Federal net operating loss carryforwards $ 2,049,000 $ 2,467,000 $ 2,770,000 $ 2,518,000
State net operating loss carryforwards 188,400 247,300 290,000 255,000
Federal tax credit carryforwards 80,000 86,400 89,100 89,100
----------- ----------- ----------- -----------
Total deferred income tax assets 2,317,400 2,800,700 3,149,100 2,862,100
----------- ----------- ----------- -----------
Valuation allowance (2,317,400) (2,800,700) (3,149,100) (2,862,100)
----------- ----------- ----------- -----------
Net deferred income taxes recognized
in the balance sheets $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
</TABLE>
At March 31, 1998, the Company had federal net operating loss
carryforwards of approximately $8,148,000, which expire from 2001 through
2013. At March 31, 1998, the Company had available for federal income tax
purposes approximately $8,092,000 of alternative minimum tax net operating
loss carryforwards which expire from 2001 through 2013. The Company also
has approximately $6,046,000 of state net operating loss carryforwards,
which expire from 2008 through 2013, available to offset certain future
state taxable income for Illinois State tax purposes. At December 31,
1998, the Company had federal net operating loss carryforwards of
approximately $7,405,000, which expire from 2003 through 2013. At December
31, 1998, the Company had available for federal income tax purposes
approximately $7,349,000 of alternative minimum tax net operating loss
carryforwards which expire from 2003 through 2013. The Company also has
approximately $5,303,000 of state net operating loss carryforwards
available as of December 31, 1998, which expire from 2009 through 2013,
available to offset certain future state taxable income for Illinois state
tax purposes. Because of "change of ownership" provisions of the Tax
Reform Act of 1986, approximately $2,352,000 and $250,000 of the Company's
net operating loss carryforwards for federal and State of Illinois
purposes, respectively, are subject to an annual limitation regarding
utilization against taxable income in future periods. The Company is
considering various equity financing alternatives. Such changes may result
in a change of ownership and significantly restrict the utilization of the
Company's net operating loss carryforwards and federal tax credit
carryforwards.
F-15
<PAGE>
The income tax provision consists of the following:
Nine
Month Periods
Years Ended Ended
March 31, December 31,
------------------- -------------
1996 1997 1998 1997 1998
Current:
Federal $ 0 $ 0 $ 0 $ 0 $ 0
State 0 0 0 0 0
--- --- --- --- ---
Total income tax provision $ 0 $ 0 $ 0 $ 0 $ 0
=== === === === ===
A reconciliation of the provision for income taxes(benefit) at the federal
statutory income tax rate to the effective income tax rate follows
<TABLE>
<CAPTION>
Nine Month
Years Ended Periods Ended
March 31, December 31,
------------------------ ----------------
1996 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C>
Federal statutory income tax rate (34.0)% (34.0)% (34.0)% (34.0)% (34.0)%
State statutory income tax rate (4.8) (4.8) (4.8) (4.8) (4.8)
Non-deductible compensation 7.5 50.2
Benefit of federal and state net operating
loss carryforwards not (recognized) 38.8 38.8 31.3 38.8 (11.4)
---- ---- ---- ---- ----
Effective income tax rate 0% 0% 0% 0% 0%
==== ==== ==== ==== ====
</TABLE>
8. STOCK OPTIONS, WARRANTS AND COMMON STOCK
The Company has granted common stock options to individuals who have
contributed to the Company. The options contain various provisions
regarding vesting periods, expiration dates, stockholder approval
requirements and contingencies on the approval of an increase in the stock
option pool by the Board of Directors. The options vest in periods ranging
from 0 to 4 years and generally expire in ten years. As of March 31, 1998
and December 31, 1998, 480,030 and 498,636 granted options are
outstanding, respectively. As of March 31, 1998 and December 31, 1998,
there were 2,581 employee stock options available for grant.
During the years ended March 31, 1997 and 1998 and the nine month period
ended December 31, 1998, the Company issued stock options to nonemployees
for services rendered to the Company. For the year ended March 31, 1997,
29,036 options were issued and expense of approximately $62,000 was
recorded. For the year ended March 31, 1998, 99,141 options were issued
and expense of approximately $202,000 was recorded. For the nine month
period ended December 31, 1998, 87,109 options were issued and expense of
$80,000 was recorded. The expense was determined based on the estimated
fair value of the options issued.
F-16
<PAGE>
The activity during the years ended March 31, 1996, 1997 and 1998 and the
nine months ended December 31, 1998 for the Company's stock options is
summarized as follows:
Weighted
Number of Stock Options Average
Shares Price Range Exercise Price
Outstanding at April 1, 1995 420,292 $0.31-6.88 $ 0.68
Granted 56,138 0.31-0.31 0.31
------ ---------- ----------
Outstanding at March 31, 1996 476,430 0.31-6.88 0.68
Granted 68,397 0.46-0.46 0.46
Exercised (12,986) 0.46-0.46 0.46
Expired (565) 0.46-0.46 0.46
---------- ---------- ----------
Outstanding at March 31, 1997 531,276 0.31-6.88 0.84
Granted 144,955 0.59-1.74 1.02
Exercised (68,217) 0.34-0.59 0.44
Expired (127,984) 0.34-6.88 1.48
---------- ---------- ----------
Outstanding at March 31, 1998 480,030 0.31-1.74 0.59
Granted 87,109 1.74-1.74 1.74
Exercised (40,650) 0.31-0.34 0.33
Expired (27,853) 0.31-0.34 0.33
---------- ---------- ----------
Outstanding at December 31, 1998 498,636 $0.31-1.74 $ 0.83
========== ========== ==========
Exercisable at March 31, 1998 478,685 $0.31-1.74 $ 0.59
========== ========== ==========
Exercisable at December 31, 1998 439,487 $0.31-1.74 $ 0.71
========== ========== ==========
The following table summarizes information about stock options outstanding
as of March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- --------------------------
Weighted
Average Weighted Shares Weighted
Shares Remaining Average Exercisable Average
Range of Outstanding at Contractual Exercise at Exercise
Exercise Prices March 31, 1998 Life-Years Price March 31, 1998 Price
<S> <C> <C> <C> <C> <C>
$0.31 to 0.45 175,567 2.83 $ 0.34 175,567 $ 0.34
0.46 to 0.59 248,970 4.61 0.52 247,625 0.52
1.74 55,493 10.00 1.74 55,493 1.74
-------- --------
480,030 4.58 $ 0.59 478,685 $ 0.59
======== ========
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------
Weighted
Shares Average Weighted Shares Weighted
Outstanding at Remaining Average Exercisable at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1998 Life-Years Price 1998 Price
<S> <C> <C> <C> <C> <C>
$0.31 to 0.45 111,437 2.37 $ 0.33 111,437 $ 0.33
0.46 to 0.59 244,600 3.88 0.53 244,600 0.53
1.74 142,599 9.32 1.74 83,450 1.74
-------- -------
498,636 5.10 $ 0.83 439,487 $ 0.71
======== ========
</TABLE>
F-17
<PAGE>
The following table summarizes information about common stock warrants
outstanding (see Note 5) as of March 31, 1998:
Warrants Expiration
Exercise Price Outstanding Date
-------------- ----------- ----
50% of initial public offering
price per share (see Note 5) 91,400 August 29, 1999
On October 12, 1998, RADE received warrants to purchase 750,000 shares of
the Company's common stock at $.10 per share. The warrants were issued as
compensation for management consulting, market analysis and strategic
advisory services performed during July through December 1998. The Company
recorded a general and administrative expense of $2,220,000 during the
nine month period ended December 31, 1998 based upon the estimated fair
value of the options issued. The warrants expire October 12, 2004.
The following table summarizes information about common stock warrants
outstanding as of December 31, 1998:
Warrants Expiration
Exercise Price Outstanding Date
-------------- ----------- ----
50% of initial public offering
price per share (see Note 5) 91,400 August 29, 1999
$.10 per share (see Note 2) 300,000 July 29, 2004
$.10 per share 750,000 October 12, 2004
---------
1,141,400
=========
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation," but applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its employee stock
option plans. For the year ended March 31, 1997, the Company issued 39,361
options to employees and recognized expense of $45,814 related to those
options. For the year ended March 31, 1998, the Company issued 45,814
options to employees and recognized expense of $50,680 related to those
options. The expense was calculated as the difference between the option
exercise price and the estimated fair value of the Company's stock as of
the date the option was granted. If the Company had recognized
compensation expense for the options granted during the years ended March
31, 1997 and 1998 and the nine month periods ended December 31, 1997 and
1998, consistent with the method prescribed by SFAS No. 123, net loss and
net loss per share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Nine Month Periods
Years Ended March 31, Ended December 31,
------------------------------- ----------------------------
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net (loss) income attributable to common
stockholders - as reported $ (1,618,543) $ (1,477,132) $ (774,729) $ 2,018,554
Net (loss) income attributable to common
stockholders - pro forma $ (1,623,641) $ (1,503,470) $ (778,942) $ 2,015,899
Net (loss) income per share attributable to
common stockholders - as reported $ (2.44) $ (2.18) $ (1.15) $ 1.07
Net (loss) income per share attributable to
common stockholders - pro forma $ (2.44) $ (2.22) $ (1.15) $ 1.07
</TABLE>
The fair value of stock options used to compute pro forma net loss
(income) and net loss (income) per share is the estimated present value at
the grant date using the Black-Scholes option-pricing model. The
assumptions used to estimate compensation cost were expected volatility of
27.5%, risk-free interest rate of 5.4% and expected
F-18
<PAGE>
option lives of 4.5 years. The pro forma effect on net loss (income) for
1997 and 1998 is not representative of the pro forma effect in future
years because it does not take into consideration pro forma compensation
cost related to grants made prior to 1997.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company did not pay any income taxes during the years ended 1996, 1997
or 1998 or in the nine month periods ended December 31, 1997 and 1998. The
Company paid $0, $8,023 and $0 in interest during 1996, 1997 and 1998,
respectively, and no interest during the nine month periods ended December
31, 1997 and 1998, respectively.
Non-Cash Financing Activities:
During the years ended March 31, 1996, 1997 and 1998, the Company
increased the carrying value of the Series A and B Preferred Stock by
amounts representing the value of dividends not currently declared or
paid, but which are payable under mandatory redemption features. The
Company has also recorded Series A Preferred Stock premium amortization on
the securities. Also, during the years ended March 31, 1996, 1997 and
1998, and the nine month period ended December 31, 1998, the Company
issued common stock or options as compensation for services. Finally,
during the year ended March 31, 1998, the Company issued common stock for
a note payable payment. The amounts of these transactions were as follows:
<TABLE>
<CAPTION>
Nine Month Periods
Years Ended March 31, Ended December 31,
--------------------------------------- -------------------------
1996 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C>
Preferred stock dividends accrued $ 335,759 $ 368,125 $ 413,131 $ 307,921 $ 137,689
Preferred stock premium amortization (89,435) (100,145) (81,696) (81,696)
Conversion of preferred stock to common stock 5,577,584
Conversion of debt, accrued interest and accounts
payable to common stock 1,702,110
Conversion of Criticare debt to common stock 858,293
Conversion of Stockholder advances to common stock 387,450
Issuance of common stock or stock options
as compensation for services 7,500 107,429 252,376 2,300,000
Common stock issued for note payable payment (11,635)
</TABLE>
During August 1996, the Company exchanged certain notes payable and
accrued interest on such notes for senior subordinated notes with a face
value of $389,000.
10. COMMITMENTS
The Company leases office space under an operating lease which requires
monthly lease payments of $4,100 through November 1999. Total rental
expense was approximately $58,000, $57,000 and $50,000 for the years ended
March 31, 1996, 1997 and 1998, respectively, and $36,000 and $4,000 for
the nine month periods ended December 31, 1997 and 1998, respectively. As
discussed in Note 3, NextEra agreed to pay the Company's obligation under
the operating lease effective May 1, 1998. NextEra made approximately
$32,000 of lease payments during the nine month period ended December 31,
1998.
F-19
<PAGE>
11. RELATED PARTY TRANSACTIONS
During the year ending March 31, 1998, the following payments for various
Company expenses were made on behalf of the Company by related parties:
approximately $146,000 from Criticare; approximately $56,000 from an
investment fund whose directors are also directors of the Company; and
approximately $30,000 from certain officers and directors of the Company.
These payments were recorded as expenses and additional paid-in capital in
the Company's financial statements for the year ended March 31, 1998.
There were no such payments for the years ended March 31, 1996 and 1997 or
for the nine month periods ended December 31, 1997 and 1998.
Transactions with Criticare Systems, Inc.
Criticare agreed to the private placement of stock by NCHK and the
spin-off of shares of the Company owned by Criticare. In exchange,
Criticare obtained an option to license rmCRP as a therapy for treating
sepsis. Sepsis is a bacterial infection which quickly overwhelms the
immune systems and can lead to sudden death.
Criticare's option includes patents and know-how developed by the Company.
NextEra has licensed the rights for producing rmCRP back to the Company
for use with sepsis applications. Criticare has twelve months from the
date of the closing on the private placement by NCHK to raise a minimum of
$500,00 to fund both the development of the sepsis technology and the
initiation of clinical trials. If Criticare or its assignee is unable to
raise the funds, the Company can acquire the sepsis technology from
Criticare at market price, determine by negotiations between the two
parties or an agreed third party if an agreement on price cannot be
reached. The Company is required to pay the cost of maintaining and
prosecuting the patents until the initial financing is completed by
Criticare or its assignee.
On July 2, 1998, the Company transferred to Criticare certain of its
intangible assets and 86,207 shares of the Company's common stock for
$150,000. These assets include rights to the Company's diagnostic products
for measuring hemoglobin A1c. in diabetic patients and Carbohydrate
Deficient Transferrin ("CDT") as a marker in the blood for long-term
alcohol abuse, as well as patents that have been issued for both
technologies and exclusive worldwide rights from Northwestern University
to develop and sell the products, which now inure to the benefit of
Criticare. Criticare will be responsible for the maintenance and
prosecution of the patents for both technologies. The shares issued were
assigned a value of $134,483 and the remainder ($15,517) was recorded as
revenue.
12. COLLABORATIVE RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has various collaborative research agreements with commercial
enterprises. Under the terms of these arrangements, the Company has agreed
to perform best efforts research and development and, in exchange, the
Company may receive advanced cash funding and may also earn additional
fees for the attainment of certain milestones. The Company may receive
royalties on the sales of such products. The other parties generally
receive exclusive marketing and distribution rights for certain products
for set time periods in specific geographic areas.
The Company initially acquired its rights to the platform technology and
dicationic compounds developed by a consortium of universities including
The University of North Carolina at Chapel Hill ("UNC"), Duke University,
Auburn University and Georgia State University (the "Consortium") pursuant
to an agreement, dated January 15, 1997 (as amended in May 1998, the
"Consortium Agreement") among the Consortium, Pharm-Eco Laboratories, Inc.
("Pharm-Eco"), and on behalf of itself and the other academic institutions
in the Consortium. The Consortium Agreement commits each party to the
agreement to research, develop, finance the research and development of,
manufacture and market the technology and compounds owned by
F-20
<PAGE>
the Consortium and then licensed or optioned to Pharm-Eco (the "Current
Compounds") and licensed to the Company pursuant to the Consortium
Agreement, and all technology and compounds developed by the Consortium
after the date thereof through use of Company-sponsored research funding
or National Cooperative Drug Development grant funding made available to
the Consortium (the "Future Compounds" and, collectively with the Current
Compounds, the "Compounds"). The Consortium Agreement contemplates that
the Company and Pharm-Eco, with respect to the Current Compounds, and the
Company and Pharm-Eco, with respect to the Current Compounds, and the
Company and UNC, with respect to Future Compounds, will enter into more
comprehensive license or assignments of the intellectual property rights
held by Pharm-Eco and the Consortium; and that Pharm-Eco and the Company
will enter into an arrangement relating to the manufacture of products
derived from the Compounds.
Under the Consortium Agreement, the Company has agreed to use its best
efforts to complete an initial public offering ("IPO") of shares of its
common stock to raise at least $10,000,000 or an alternative form of
financing ("Alternative Financing") to raise at least $4,000,000 by
February 28, 1999. Upon the closing of the IPO or the Alternative
Financing, the Company will: (i) use the greater of (x) 33% of the net
proceeds from the IPO or an Alternative Financing or (y) $5,000,000, to
develop the Compounds; (ii) issue an aggregate of 611,250 shares of common
stock to Pharm-Eco or persons designated by Pharm-Eco, which number
includes 137,500 shares to be issued to the Consortium. The Company
anticipates recording as research and development costs the estimated fair
value of the 611,250 shares upon completion of the IPO; (iii) issue
warrants to purchase an aggregate of 850,000 shares of common stock to
Pharm-Eco or persons designated by Pharm-Eco with a ten-year term from the
date of issuance, at an exercise price equal to the weighted average
market price of the Company's common stock during the first 20 days of
trading on any stock exchange or in any over-the-counter market, which
warrants are exercisable upon the occurrence of certain events and subject
to redemption by the Company; and (iv) agree to issue an aggregate of
150,000 shares of common stock collectively to Pharm-Eco or persons
designated by Pharm-Eco, which number of shares includes 100,000 shares of
common stock to be issued to the Consortium, upon the filing by the
Company of a new drug application or an abbreviated new drug application
with the Food and Drug Administration with respect to any product. In
addition, the Company will pay UNC an aggregate royalty of 5% of net sales
of Current Products and Future Products, except that the royalty rate
payable on any Compound developed at Duke University will be determined by
negotiation at the time such Compound is developed. In the event that the
Company sublicenses its rights with respect to the Compounds, the Company
will pay UNC, in addition to the royalty described above, 2.5% of all
signing, milestone and other non-royalty payments made to the Company
pursuant to the sublicense agreement and will pay to Pharm-Eco 2.5% of all
signing, milestone and other nonroyalty payments made to the Company
pursuant to the sublicense agreement.
Upon closing of this Offering: (a) Pharm-Eco will be entitled to designate
for appointment one representative to the Company's Board of Directors,
(b) UNC will be entitled to designate one person as a non-voting observer
of all meetings and other proceedings of the Company's Board of Directors,
(c) the Company will make quarterly $100,000 research grants to UNC
commencing on the final day of the month during which the closing of the
offering occurs, and continuing every three months thereafter until, at a
minimum, the third anniversary of the offering and (d) the Company will
pay all costs to prosecute, maintain and defend all patents and patent
applications relating to any Compounds or products.
Upon raising $4,000,000, Pharm-Eco will grant the Company a license to use
the Current Compounds only as antimicrobial agents and UNC will grant the
Company a license to use the Future Compounds only as antimicrobial
agents. The initial $5,000,000 in funds raised by the Company (including
the initial $4,000,000 referenced above) will be applied to the
advancement of dications. Once the Company has raised more than
$10,000,000 both Pharm-Eco and UNC will grant an exclusive worldwide
license to use,
F-21
<PAGE>
manufacture, have manufactured, promote, sell, distribute, or otherwise
dispose of any products based directly or indirectly on all of the Current
Compounds and Future Compounds.
In exchange for UNC's and Pharm-Eco's permission to extend the period of
time for the Company to fulfill its obligations under the Consortium
Agreement, the Company has agreed to (i) provide financial support to Dr.
Richard Tidwell's laboratory and research covered by the agreement, (ii)
pay fees and expenses charged UNC by UNC's patent counsel during the
period of the extension, (iii) pay arrearages in research support accrued
prior to the date of the First Amendment within 30 days of the closing of
the IPO, (iv) replenish Dr. Tidwell's UNC Department of Pathology &
Laboratory Medicine trust fund of all monies spent due to the delay in
receipt of the research grants, currently estimated at $150,000 and (v)
provide each of UNC and Pharm-Eco with 25,000 shares of common stock of
the Company (included in the aforementioned 611,250 shares).
During the years ended March 31, 1997 and 1998 and the nine month period
ended December 31, 1998, the Company made payments to UNC of $100,000,
$100,000 and $300,000, respectively. Such payments were expensed as
research and development costs.
The Company entered into an agreement with Pharm-Eco to use reasonable
efforts to form a joint venture to produce Good Manufacturing
Practices-quality dicationic drugs and products for clinical testing and
for early commercialization. The proposed joint venture would manufacture
the initial pharmaceutical products (DAP-092 and DB-289). Once the
commercial sale of products begins, the Company and Pharm-Eco would deduct
their costs associated with making and marketing (including selling,
marketing, and regulatory support) products. The remaining margin, after
the costs have been subtracted, would be divided equally between the
parties. At such time when the Company's sales reach $20 million for
DAP-092 and DB-289, the Company could elect not to use Pharm-Eco for
manufacturing, whereupon the Company would be required to pay a royalty to
Pharm-Eco of no more than 2% of sales.
In February 1998, the Company received a Small Business Technology
Transfer Research Grant for approximately $97,000 from the National
Institutes of Health ("NIH") to develop simple, immune-based assays to
measure drug presence and concentration in blood. During the year ended
March 31, 1998, the Company recognized revenue of approximately $20,000
from this grant and expensed payments to the Consortium in the amount of
approximately $15,000 for their research. During the nine month period
ended December 31, 1998, the Company recognized revenue of approximately
$40,000 from this grant and expensed payments to the Consortium in the
amount of approximately $33,000 for their research. Another Small Business
Technology Transfer Research Grant for $100,000 was awarded to the Company
in May 1998 from the NIH to study the applicability and effectiveness of
using prodrug compounds as an oral treatment for tropical diseases such as
trypanosomiasis, leishmaniasis and malaria. During the nine month period
ended December 31, 1998, the Company recognized revenue of approximately
$64,000 from this grant and expensed payments to the Consortium in the
amount of approximately $16,000 for their research.
In March 1998, the Company entered into an option and worldwide exclusive
license agreement with Sigma Diagnostics, Inc. ("Sigma") for hemoglobin
Alc technology which the Company had the right to. The option part of the
agreement allows Sigma to evaluate the technology for potential
manufacturing and use on instrumentation developed by Sigma. The option
agreement includes a series of payments as specific research milestones
are met. The first two milestones were completed and payments by Sigma of
$20,000 and $25,000 were received by the Company in March 1998 and June
1998, respectively. The remaining milestone and license payments (which
have not been paid) are for $110,000 and will be paid to Criticare, which
acquired the Company's rights to future payments from Sigma, as further
described in Note 11. In addition, if a license is purchased by Sigma and
sales are made through commercial sales, Criticare will receive annual
royalty payments. The Company will receive no ongoing revenues nor will it
have any further obligations to Sigma.
F-22
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation in connection with this offering other
than those contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any other person. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that information contained herein is correct as of any
time subsequent to its date.
------------
TABLE OF CONTENTS
Page
----
Available Information............ 2
Prospectus Summary............... 3
Summary Financial Information.... 8
Risk Factors..................... 9
Use of Proceeds.................. 17
Dividend Policy.................. 18
Dilution......................... 18
Capitalization................... 19
Selected Financial Data.......... 21
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 22
Business......................... 25
Management and Key Scientific
Personnel..................... 38
Certain Transactions............. 41
Principal Stockholders........... 43
Underwriting..................... 44
Description of Securities........ 47
Reports to Stockholders.......... 49
Shares Eligible for Future Sale.. 49
Legal Matters.................... 50
Experts.......................... 50
Glossary......................... 51
Index to Financial Statements.... F-1
------------
Until _________, 1999 ([___] days after the date of this Prospectus), all
dealers effecting transactions in the Registered Securities offered hereby,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.]
================================================================================
================================================================================
1,000,000 Shares
[LOGO]
IMMTECH
INTERNATIONAL, INC.
Common Stock
----------
PROSPECTUS
----------
WESTPORT RESOURCES
[LOGO]-------------------------
INVESTMENT SERVICES, INC.
February , 1999
================================================================================
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
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 FEBRUARY , 1999
P R O S P E C T U S
1,000,000 Shares
[LOGO] IMMTECH INTERNATIONAL, INC.
Common Stock
------------
Immtech International, Inc. (the "Company" or "Immtech") is offering to
the public 1,000,000 shares (the "Shares") of Common Stock, $0.01 par value (the
"Common Stock"), of which 300,000 shares are being offered hereby in the United
States (the "U.S. Offering") and 700,000 shares are being offered in a
concurrent international offering outside the United States (the "International
Offering" and together with the U.S. Offering, the "Offerings"). The initial
public offering price and the aggregate underwriting discount per share and
non-accountable expense allowance will be identical for both offerings. See
"Underwriting." It is currently estimated that the initial public offering price
will be between $9.00 and $11.00 per Share. For information regarding the
factors considered in determining the initial public offering price of the
Common Stock, see "Risk Factors" and "Underwriting". Prior to the Offerings
there has been no market for the Common Stock and there can be no assurance that
a trading market will develop after the Offerings with respect to the Common
Stock. Application has been made for the Common Stock to be approved for
quotation on the Nasdaq SmallCap Market under the symbol "IMMT." The Company
also plans to make application to list the Common Stock on the Boston Stock
Exchange. See "Risk Factors - Arbitrary Determination of Offering Price; No
Public Market for the Shares."
The Securities offered hereby involve a high degree of risk. See "Risk
Factors" beginning on page 9 for a discussion of certain matters that should be
considered by prospective purchasers of the securities offered hereby.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions(1) Stockholders(1)(2)
- --------------------------------------------------------------------------------
Per Share.................. $ $ $
- --------------------------------------------------------------------------------
Total (3) ................. $ $ $
================================================================================
(1) In addition, the Company has agreed to the following: (i) it will pay
Westport Resources Investment Services, Inc. (the "U.S. Underwriter") and
The New China Hong Kong Securities Ltd. and China Everbright Securities
(H.K.), Ltd. (the "International Underwriters" and together with the U.S.
Underwriter, the "Underwriters") a 3% non-accountable expense allowance;
(ii) it will issue to the Underwriters, upon the closing of this offering,
warrants (the "Underwriters' Warrants") to purchase up to 100,000 Shares,
which Underwriters' Warrants are exercisable for a period of four years,
commencing twelve months from the date of this Prospectus, at 120% of the
initial public offering price; (iii) it will pay to the Underwriters
certain other items of compensation; and (iv) the Company and the
Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "1933 Act") (see "Underwriting").
(2) Before deducting expenses of the offering payable by the Company estimated
at $850,000, including the non-accountable expense allowance payable to
the Underwriters (see "Underwriting").
(3) The Company has granted the U.S. Underwriter an option for 45 days to
purchase up to an additional 45,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments (the "U.S. Over-Allotment Option"). Additionally, the
Company has granted an over-allotment option with respect to an additional
105,000 shares as part of the International Offering (the "International
Over-Allotment Option" and collectively with the U.S. Over-Allotment
Option, the "Over-Allotment Option"). If such options are exercised in
full, the total initial public offering price, underwriting discount and
proceeds to the Company (before deducting estimated expenses) will be
$__________, $__________ and $____________, respectively. See
"Underwriting."
------------
The Shares offered by this Prospectus are being offered by the
International Underwriters on a firm commitment basis. The International
Underwriters reserve the right to reject any order in whole or in part and to
withdraw, cancel or modify the offer without notice in accordance with
applicable state law. It is expected that certificates for the shares of Common
Stock will be available for delivery on or about __________, 1999 at [the
offices of the U.S. Underwriter at 315 Post Road West, Westport, Connecticut
06880].
[LOGO] THE NEW CHINA HONG KONG SECURITIES LTD.
CHINA EVERBRIGHT SECURITIES (H.K.), LTD
The date of this Prospectus is _____________, 1999
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH OTHERWISE MIGHT PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
AVAILABLE INFORMATION
[Please refer to text from United States Prospectus]
PROSPECTUS SUMMARY
[Please refer to text from United States Prospectus]
SUMMARY FINANCIAL INFORMATION
[Please refer to text from United States Prospectus]
RISK FACTORS
[Please refer to text from United States Prospectus]
USE OF PROCEEDS
[Please refer to text from United States Prospectus]
DIVIDEND POLICY
[Please refer to text from United States Prospectus]
DILUTION
[Please refer to text from United States Prospectus]
CAPITALIZATION
[Please refer to text from United States Prospectus]
SELECTED FINANCIAL DATA
[Please refer to text from United States Prospectus]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
[Please refer to text from United States Prospectus]
BUSINESS
[Please refer to text from United States Prospectus]
MANAGEMENT AND KEY SCIENTIFIC PERSONNEL [Please refer to
text from United States Prospectus]
CERTAIN TRANSACTIONS
[Please refer to text from United States Prospectus]
PRINCIPAL STOCKHOLDERS
[Please refer to text from United States Prospectus]
2
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
CERTAIN U.S. TAX CONSIDERATIONS APPLICABLE TO
NON-U.S. HOLDERS OF THE COMMON STOCK
The following is a general discussion of certain U.S. federal income tax
consequences of the ownership and disposition of Common Stock by a person that,
for U.S. federal income tax purposes, is a non-resident alien individual, a
foreign corporation, a foreign partnership or a foreign estate or trust (a
"non-U.S. holder"). An individual may be deemed to be a resident alien (as
opposed to a non-resident alien) by virtue of being a lawful permanent resident
at anytime during the year, or being present in the United States on at least 31
days in the calendar year and for an aggregate of 183 days during a three-year
period ending in the current calendar year (counting for such purposes all of
the days present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year). Resident aliens are subject to U.S. federal tax as if they were
U.S. citizens and residents.
This discussion does not consider specific facts and circumstances that
may be relevant to a particular holder's tax position and does not deal with
U.S. state and local or non-U.S. tax consequences. Furthermore, the following
discussion is based on provisions of the U.S. Internal Revenue Code of 1986, as
amended (the "Code") and administrative and judicial interpretations as of the
date hereof, all of which are subject to change. Each prospective holder is
urged to consult a tax advisor with respect to the US. federal tax consequences
of holding and disposing of Common Stock as well as any tax consequences that
may arise under the laws of any U.S. state, municipality or other tax
jurisdiction.
Dividends. Dividends paid to a non-U.S. holder of Common Stock will be
subject to withholding of U.S. federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business
within the United States. Dividends that are effectively connected with such
holder's conduct of a trade or business in the United States are subject to tax
at rates applicable to U.S. citizens, resident aliens and domestic U.S.
corporations, and are not generally subject to withholding. Any such effectively
connected dividends received by a non-U.S. corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
Under current U.S. Treasury Regulations, dividends paid to an address
outside the United States are presumed to be paid to a resident of such foreign
country for purposes of the withholding discussed above and under current
interpretation of U.S. Treasury Regulations, for purposes of determining the
applicability of a tax treaty rate. Under new U.S. Treasury Regulations,
effective January 1, 2000, however, a non-U.S. holder of Common Stock who wishes
to claim the benefit of an applicable treaty rate would be required to file Form
W-8 (Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding) with the Company or its agent. Such forms would be required to
contain the holder's name, address, and other pertinent information, to be
certified by the holder under penalties of perjury. A properly executed Form W-8
will be valid for the period running from the date the certificate is signed
until the last day of the third succeeding calendar year. Because the Common
Stock will be publicly traded, it will not be necessary to include a taxpayer
identification number ("TIN") for a non-U.S. holder on the Form W-8. However, if
a Form W-8 is furnished with a TIN, it will remain valid until a change in
circumstances makes any information on the certificate no longer correct (in
lieu of the three-year period described above).
The current regulations require a separate Form W-8 or other appropriate
documentation from each non-U.S. holder of Common Stock to establish the
holder's foreign status and treaty eligibility. Under the new regulations, a
foreign intermediary, such as a financial institution, that receives payments as
nominee on behalf of several non-U.S. holders, may enter into a withholding
agreement with the Internal Revenue Service to obtain "qualified intermediary"
status. Under this type of agreement, the qualified intermediary will be
permitted to furnish an intermediary withholding certificate certifying on
behalf of the non-U.S. holders for which it receives payments. The qualified
intermediary generally will be required to obtain Form W-8 withholding
certificates or other appropriate documentation from the non-U.S. holders, but
will not be required to attach such documentation to the intermediary
withholding certificate.
Under the new regulations, a payment made to a foreign partnership will
generally be treated as a payment made to the partners rather than to the
partnership, unless the partnership qualifies as a "withholding foreign
partnership" by entering into an agreement with the Internal Revenue Service
agreeing, among other things, to be responsible for all withholding and
reporting obligations. In the absence of such an agreement, withholding will be
required on dividends paid to the foreign partnerships that are not effectively
connected with the conduct by the partnership of a trade or business in the
United States. However, a reduced rate of withholding based on a treaty may be
obtained if the partnership provides information
3
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
on the distributive share of each partner and furnishes a Form W-8 certificate
from each partner that claims reduced withholding for its distributive share.
A non-U.S. holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for refund with the
U.S. Internal Revenue Service.
Gain on Disposition of Common Stock. A non-U.S. holder generally will not
be subject to U.S. federal income tax in respect of gain recognized on a
disposition of Common Stock unless (i) the gain is effectively connected with a
trade or business of the non-U.S. holder in the United States, (ii) in the case
of a non-U.S. holder who is an individual and holds the Common Stock as capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale and either (a) such individual's "tax home" for U.S.
federal income tax purposes is in the United States, or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual, or (iii) the Company is or has been a "U.S.
real property holding corporation" for federal income tax purposes and the
non-U.S. holder held, directly or indirectly at any time during the five-year
period ending on the date of disposition, more than 5% of the Common Stock. The
Company is not and does not anticipate becoming a "U.S. real property holding
corporation" for U.S. federal income tax purposes.
Federal Estate Taxes. Common Stock held by a non-U.S. holder at the time
of death will be included in such holder's gross estate for U.S. federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding. U.S. information reporting
requirements (other than reporting of dividend payments for purposes of the
withholding tax discussed above) and backup withholding generally will not apply
to dividends on Common Stock paid to non-U.S. holders that are either subject to
the 30% withholding tax, or that are not so subject because an applicable income
tax treaty reduces or eliminates such withholding. Under current U.S. Treasury
Regulations, the payor of the dividends may generally rely on a payee's address
outside the United States in determining the exemption from information
reporting and backup withholding. Under the new Treasury Regulations that are
effective January 1, 2000, dividends will continue to be exempt from information
reporting and backup withholding, provided documentation exists establishing the
payee's status as a foreign person. Mere reliance upon a foreign address will no
longer be sufficient. For this purpose, documentation furnished to establish the
payee's eligibility for reduced withholding under an income tax treaty (Form
W-8) may also be used to support the exemption from information reporting and
backup withholding.
Under current Treasury Regulations, payment on the sale, exchange or other
disposition of Common Stock made to or through a foreign office of a broker
generally will not be subject to backup withholding. However, if such broker is
a United States person, a controlled foreign corporation for United States tax
purposes, or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting (but not backup withholding) will be required
unless the broker has in its records documentary evidence that the beneficial
owner is not a United States person and certain other conditions are met or the
beneficial owner otherwise establishes an exemption. Under the new Treasury
Regulations, effective January 1, 2000, backup withholding may apply to any
reportable payment for which the broker has actual knowledge that the payee is a
United States person. Payments to or through the United States office of a
broker will be subject to backup withholding and information reporting unless
the holder certifies, under penalties of perjury, that it is not a United States
person or otherwise establishes an exemption.
Holders should consult their tax advisors regarding their qualification
for an exemption from backup withholding and information reporting and the
procedures for obtaining such an exemption, if applicable. Any amounts withheld
under the backup withholding rules from a payment to a beneficial owner would be
allowed as a refund or a credit against such beneficial owner's United States
Federal income tax provided the required information is furnished to the
Internal Revenue Service.
4
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"International Underwriting Agreement") among the Company, on the one hand, and
The New China Hong Kong Securities Ltd. and China Everbright Securities (H.K.),
Ltd., on the other hand, as Representatives of the several Underwriters named
below, the Company has agreed to sell to the International Underwriters and the
International Underwriters, through the Representatives, have severally but not
jointly agreed to purchase from the Company, on a firm commitment basis, the
aggregate number of Shares set forth opposite their respective names (exclusive
of Shares purchased pursuant to the Underwriters' Over-allotment Option).
Underwriter Number of Shares
The New China Hong Kong Securities Ltd.
China Everbright Securities (H.K.),
Ltd.
Total 700,000
The International Underwriting Agreement provides that the obligations of
the several International Underwriters thereunder are subject to approval of
certain legal matters by counsel and to various other conditions. The nature of
the International Underwriters' obligations are such that they are committed to
purchase all of the Shares offered outside the U.S. if any are purchased.
The Company has agreed to sell the Shares to the Underwriters at a 10%
discount from the offering price and to pay to the Representatives a
non-accountable expense allowance equal to 3% of the gross proceeds of the
public offering price of the Shares sold pursuant to this Prospectus, including
any Shares sold to the Underwriters upon exercise of the Underwriters'
Over-Allotment Option. $50,000 of the non-accountable expense allowance has been
paid to the U.S. Underwriter to date. In addition to such expense allowance, the
Company has agreed to pay certain fees and expenses of the U.S. Underwriter's
counsel in connection with qualification of the U.S. Offering under state
securities laws.
The Company has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with the underwriters of the U.S. Offering (the "U.S.
Underwriters") providing for the concurrent offer and sale of 300,000 shares of
Common Stock by the Company in an offering in the United States. The offering
price and aggregate underwriting discounts and commissions per share for the two
offerings are identical. The closing of the offering made hereby is a condition
to the closing of the U.S. Offering, and vice versa. The Representative of the
U.S. Underwriters is Westport Resources Investment Services, Inc.
Pursuant to an Agreement between the International and U.S. Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
International Underwriters named herein has agreed that, as part of the
distribution of the shares offered hereby and subject to certain exceptions, it
will (i) not, directly or indirectly, offer, sell or deliver the shares offered
hereby and other shares of Common Stock (a) in the United States of America
(including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction (the "United States") or
to any U.S. person as defined below, or (b) to any person whom it believes,
intends to reoffer, resell or deliver such shares in the United States or to any
U.S. Person, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction. The term "U.S. Person"
shall mean: (a) individuals resident in the United States or (b) corporations,
partnerships or other entities organized in or under the laws of the United
States or any political subdivision thereof and whose office most directly
involved with the purchase is located in the United States. Each of the U.S.
Underwriters has agreed pursuant to the Agreement Between that, as a part of the
distribution of the shares offered as a part of the U.S. Offering, and subject
to certain exceptions, it will only offer, sell or deliver shares of Common
Stock, directly or indirectly, in the United States to U.S. persons.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed.
The Company has granted the International Underwriters an option
exercisable for 45 days after the date of this Prospectus to purchase up to an
aggregate of 105,000 additional shares of Common Stock to cover over-allotments,
if any, at the initial public offering price less the underwriting discount, as
set forth on the cover page of this Prospectus. If the International
Underwriters exercise their over-allotment option, the International
Underwriters have severally agreed,
5
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the 700,000 shares of Common Stock offered hereby.
The International Underwriters may exercise such option only to cover
over-allotments, in connection with the sale of the 700,000 shares of Common
Stock offered hereby. The Company has granted the U.S. Underwriters an option
exercisable for 45 days to purchase up to an aggregate of 45,000 additional
shares of Common Stock, solely to cover over-allotments, if any, at the initial
public offering price less the underwriting discount, as set forth on the cover
page of the Prospectus.
The Company has agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a price below the initial public offering price for a
period of one (1) year after the date of this Prospectus without the prior
written consent of the Representative of the Underwriters, except for the shares
of Common Stock offered in connection with the concurrent U.S. and International
Offerings.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
Prior to the Offerings, there has been no public market for the shares.
The initial public offering price will be negotiated among the Company and the
Representative of the U.S. Underwriters and the Representatives of the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Common Stock, in addition to prevailing
market conditions, are the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
The U.S. Underwriters, through the Representative, have advised the
Company that they propose to offer the Shares at the public offering price set
forth on the cover page of this Prospectus and that the U.S. Underwriters may
utilize the services of certain dealers, including dealers who are members of
the National Association of Securities Dealers, Inc. (the "NASD") and certain
foreign dealers. The public offering price and the amount of the concessions and
reallowances, if any, provided for any broker-dealers involved in the
distribution of the securities offered hereby will not be changed until after
the initial public offering is completed.
Management of the Company may provide the Representatives with a list of
persons who they believe may be interested in purchasing Shares being offered
hereunder. The Representatives and the other International Underwriters may sell
a portion of the Shares to such persons if such persons reside in a country
where the Shares can be sold and where the International Underwriters or
selected dealers are permitted to sell the Shares.
The Company's officers and directors, the holders of the Company's 499,926
stock options (the "Option Holders"), and the holders of 5% or more (the "5%
Stockholders") of the outstanding shares of the Company's Common Stock
immediately prior to the date of this Prospectus, RADE and Criticare, have
agreed with and for the Representatives not to sell any of their Shares, options
or underlying Shares for the twelve-month period (the "Initial Twelve-Month
Period") commencing on the date of this Prospectus. The Company's officers and
directors, the 5% Holders, Option Holders, Criticare and certain consultants,
including RADE, have further agreed with and for the Representative not to sell
or transfer any of their Shares unless the Share market price, adjusted for
splits and like transactions, closes at or above $20.00 for a period of 20
consecutive days (assuming an initial public offering price of $10.00 per
Share).
In connection with this offering, the Company has agreed to issue to the
Underwriters, for a purchase price of $0.01 per warrant, (the "Underwriters'
Warrants"), warrants to purchase common stock at a price equal to 120% of the
respective public offering price per share, for up to 100,000 Shares. The
Underwriters' Warrants contain anti-dilution provisions and are exercisable for
a period of four years commencing twelve months from the date of this
Prospectus. They are restricted from sale, transfer, assignment or hypothecation
for a period of twelve months from the date of this Prospectus except to
officers of the Underwriters or their successors. The holders of the
Underwriters' Warrants will have no voting, dividend or other rights as
stockholders of the Company with respect to shares of Common Stock underlying
the Underwriters' Warrants until the Underwriters' Warrants have been exercised.
The Company has agreed, at its sole expense, to include the Underwriters'
Warrants and underlying shares in the Registration Statement of which this
Prospectus is a part and have granted certain registration rights to the
Underwriters.
For the term of the Underwriters' Warrants, the holders thereof will be
given the opportunity to profit from a rise in the market value of the Company's
Common Stock, with a resulting dilution in the interest of other stockholders.
The holders of the Underwriters' Warrants can be expected to exercise the
Underwriters' Warrants at a time when the Company
6
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
would be able to obtain needed capital by an offering of its unissued capital
shares on terms more favorable to the Company than those provided by the
Underwriters' Warrants. Such facts may adversely affect the terms upon which the
Company can obtain additional financing. Any profit realized by the Underwriters
upon the sale of the Underwriters' Warrants or shares of Common Stock issuable
upon the exercise of the Underwriters' Warrants may be deemed additional
underwriting compensation (see "Risk Factors - Potential Adverse Effect of
Underwriters' Warrants").
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
None of the Underwriters nor any of their controlling persons have any
material relationship with the Company, its promoters or their controlling
persons.
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing their respective market
prices. The Underwriters also may create a short position for the account of the
Underwriters by selling more Shares in connection with the offering than they
are committed to purchase from the Company, and in such case may cover all or a
portion of such short position. The Underwriters may also cover all or a portion
of such short position by exercising the Over-Allotment Option. In addition, the
Underwriters may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the offering) for the account of other Underwriters, the selling concession
with respect to Shares that are distributed in the offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at levels above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken they may be discontinued at any time.
The Company has agreed to indemnify the Underwriters and the Underwriters
have agreed to indemnify the Company against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended, by reason of
misstatements of, or omissions to state, material facts in this Prospectus and
the Registration Statement of which it is a part.
This Underwriting section is a summary of all of the material terms of the
International Underwriting Agreement and does not purport to be complete. A copy
of the International Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is available at or
from the offices of the Securities and Exchange Commission for review (see
"Additional Information").
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
Determination Of Offering Price
Prior to this offering, there has been no public market for any of the
Company's securities. The initial offering price of the Shares has been
arbitrarily determined by negotiations between the Company and the
Representative of the U.S. Underwriters and the Representatives of the
International Underwriters. Among the factors considered in determining such
prices are prevailing market conditions generally, the Company's historical and
prospective operations and earnings, the history of the prospects for the
industry in which the Company operates, and market prices for securities of
other companies comparable to the Shares.
7
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
DESCRIPTION OF SECURITIES
[Please refer to text from United States Prospectus]
REPORTS TO STOCKHOLDERS
[Please refer to text from United States Prospectus]
SHARES ELIGIBLE FOR FUTURE SALE
[Please refer to text from United States Prospectus]
LEGAL MATTERS
[Please refer to text from United States Prospectus]
EXPERTS
[Please refer to text from United States Prospectus]
GLOSSARY
[Please refer to text from United States Prospectus]
IMMTECH INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
[Please refer to text from United States Prospectus]
8
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation in connection with this offering other
than those contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any other person. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that information contained herein is correct as of any
time subsequent to its date.
------------
TABLE OF CONTENTS
Page
----
Available Information............ 2
Prospectus Summary............... 3
Summary Financial Information.... 8
Risk Factors..................... 9
Use of Proceeds.................. 17
Dividend Policy.................. 18
Dilution......................... 18
Capitalization................... 19
Selected Financial Data.......... 21
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 22
Business......................... 25
Management and Key Scientific
Personnel..................... 38
Certain Transactions............. 41
Principal Stockholders........... 43
Certain Tax Considerations
Applicable to Non-U.S.
Holders of the Common Stock... 44
Underwriting..................... 46
Description of Securities........
Reports to Stockholders..........
Shares Eligible for Future Sale..
Legal Matters....................
Experts..........................
Glossary.........................
Index to Financial Statements.... F-1
------------
Until _________, 1999 ([___] days after the date of this Prospectus), all
dealers effecting transactions in the Registered Securities offered hereby,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.]
================================================================================
================================================================================
1,000,000 Shares
[LOGO]
IMMTECH
INTERNATIONAL, INC.
Common Stock
----------
PROSPECTUS
----------
[LOGO]
NEW CHINA HONG KONG
THE NEW CHINA HONG KONG
SECURITIES LTD.
CHINA EVERBRIGHT
SECURITIES (H.K.), LTD.
February , 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
LIMITATION OF DIRECTOR'S LIABILITY
The By-laws of the Company (the "By-laws") eliminates the liability of
directors to the fullest extent permissible under Delaware law. Delaware law
permits a corporation to limit the personal liability of a director to the
corporation or its shareholders for monetary damages for breach of certain
fiduciary duties as a director, provided, that the director's liability may not
be eliminated or limited for: (a) breaches of the director's duty of loyalty to
the corporation or its shareholders; (b) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law; (c) the payment
of unlawful dividends or unlawful stock repurchases or redemptions; or (d)
transactions in which the director received an improper personal benefit. A
director's liability may also not be limited for violation of, or otherwise
relieve the corporation or its directors from the necessity of complying with,
federal or state securities laws or affect the availability of non-monetary
remedies such as injunctive relief or rescission.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Bylaws relating to indemnification require that the Company
indemnify its directors and its executive officers to the fullest extent
permitted under Delaware law, provided, that the Company may modify the extent
of such indemnification by individual contracts with its directors and executive
officers, and provided, further, that the Company will not be required to
indemnify any director or executive officer in connection with a proceeding
initiated by such person, with certain exceptions. Delaware corporate law, the
Company's Bylaws, as well as any indemnity agreements, may also permit
indemnification for liabilities arising under the Securities Act or the
Securities Exchange Act of 1934, as amended.
The Board of Directors has been advised that, in the opinion of the
Securities and Exchange Commission, indemnification of liabilities arising under
the Securities Act is contrary to 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 Company
of expenses incurred or paid by a director or officer of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director or officer in connection with the Shares being registered hereby, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby are itemized below.
Securities and Exchange Commission Registration fee ............... $ 6,000
Underwriters unallocated expense reimbursement .................... $300,000
Nasdaq and Boston Stock Exchange application and listing fees ..... $ 20,000
Accounting fees and expenses ...................................... $125,000
Legal fees and expenses ........................................... $280,000
Printing and engraving expenses ................................... $ 60,000
Blue Sky fees and expenses (including legal fees) ................. $ 30,000
Transfer Agent and Registrar fees and expenses .................... $ 10,000
Miscellaneous ..................................................... $ 19,000
--------
TOTAL ................................................. $850,000
========
- --------------------
The Registrant will bear all expenses listed above.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
II-1
<PAGE>
ITEM 27. EXHIBITS.
Exhibit Description
- ------- -----------
1.1(2) Form of U.S. Underwriting Agreement
1.2(2) Form of International Underwriting Agreement
1.3(2) Form of Selected Dealers Agreement
1.4(2) Form of Agreement Among Underwriters
3.1(2) Certificate of Incorporation of the Company
3.2(3) By-laws of the Company
4.1(1) Form of Common Stock Certificate
4.2(2) Form of Warrant Agreement relating to the Underwriters' Warrants
4.3(2) Warrant Agreement dated July 24, 1998 by and between the Company and
RADE Management Corporation
4.4(2) Warrant Agreement dated October 12, 1998 by and between the Company
and RADE Management Corporation
4.5(3) Warrant Agreement dated July 24, 1998 by and between the Company and
The New China Hong Kong Securities Ltd.
4.6(3) Registration Agreement dated December, 1992 by and among the Company,
Marquette Ventures Partners II, L.P. and certain investors
5.1(1) Opinion of Gardner, Carton & Douglas
10.1(3) Form of Consulting Agreement dated May 15, 1998 by and between the
Company and RADE Management Corporation
10.2(3) 1993 Stock Option and Award Plan
10.3(3) Letter Agreement dated January 15, 1997 between the Company, Pharm-Eco
Laboratories, Inc. and The University of North Carolina at Chapel
Hill, as amended
10.4(3) Letter Agreement dated May 29, 1998 between the Company and Franklin
Research Group, Inc.
10.5(3) Indemnification Agreement dated June 1, 1998 between the Company and
RADE Management Corporation
10.6(3) Letter Agreement dated June 24, 1998 between the Company and Criticare
Systems, Inc.
10.7(3) Letter Agreement dated June 25, 1998 between the Company and Criticare
Systems, Inc.
10.8(3) Option Agreement dated April 20, 1998 between the Company and ImmvaRx
10.9(3) Material Transfer and Option Agreement dated March 23, 1998 by and
between the Company and Sigma Diagnostics, Inc.
10.10(3) License Agreement dated March 10, 1998 by and between the Company and
Northwestern University
10.11(3) License Agreement dated October 27, 1994 by and between the Company
and Northwestern University
II-2
<PAGE>
10.12(3) Settlement Agreement and Release dated June 29, 1998 by and between
the Company and Brinks, Hofer, Gilson & Lione
10.13(3) Assignment of Intellectual Properties dated June 29, 1998 between the
Company and Criticare Systems, Inc.
10.14(3) Assignment Agreement dated June 26, 1998 by and between the Company
and Criticare Systems, Inc.
10.15(3) International Patent, Know-How and Technology License Agreement dated
June 29, 1998 by and between the Company and Criticare Systems, Inc.
10.16(3) Assignment Agreement dated June 29, 1998 by and between the Company
and Criticare Systems, Inc.
10.17(3) Employment Agreement dated 1992 by and between the Company and T.
Stephen Thompson
10.18(2) Amendment, dated January 15, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.19(2) Funding and Research Agreement dated September 30, 1998 by and among
the Company, Next Era Therapeutics, Inc. and Franklin Research Group,
Inc.
10.20(2) Office Lease dated December 5, 1991, as amended, by and between the
Company and Shaw Realty Services, Inc., as agent for CHS Evanston One
Associates, Limited Partnership
23.1(2) Consent of Deloitte & Touche LLP
23.2(1) Consent of Gardner, Carton & Douglas (included in Exhibit 5.1)
24.1(3) Powers of Attorney (included on signature page)
- ---------------
(1) To be filed by amendment.
(2) Filed herewith.
(3) Included with the Company's Registration Statement on Form SB-2
(Registration Statement No. 333-64393), as filed with the Securities and
Exchange Commission on September 28, 1998.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(a) It will provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as are required by the underwriters to permit prompt delivery to each
purchaser; and
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
(c) (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 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (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.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Evanston, State of Illinois, on this ______ day
of February, 1999.
IMMTECH INTERNATIONAL, INC.
By: /s/ T. Stephen Thompson
--------------------------------------------
T. Stephen Thompson
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on this ______ day of February, 1999.
Signatures Title
- ---------- -----
/s/ T. Stephen Thompson President, Chief Executive Officer and
- -------------------------------- Director (Principal Executive Officer)
T. Stephen Thompson
* Lawrence A. Potempa Vice President of Research and Chief
- -------------------------------- Science Officer
Lawrence A. Potempa, Ph.D.
/s/ Gary C. Parks Chief Financial Officer, Treasurer and
- -------------------------------- Secretary (Principal Financial and
Gary C. Parks Accounting Officer)
* Gerhard J. Von der Ruhr Chairman of the Board of Directors
- --------------------------------
Gerhard J. Von der Ruhr
* Byron E. Anderson Director
- --------------------------------
Byron E. Anderson, Ph.D.
*By: /s/ T. Stephen Thompson
- --------------------------------
T. Stephen Thompson
Attorney-In-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
1.1(2) Form of U.S. Underwriting Agreement
1.2(2) Form of International Underwriting Agreement
1.3(2) Form of Selected Dealers Agreement
1.4(2) Form of Agreement Among Underwriters
3.1(2) Certificate of Incorporation of the Company
3.2(3) By-laws of the Company
4.1(1) Form of Common Stock Certificate
4.2(2) Form of Warrant Agreement relating to the Underwriters' Warrants
4.3(2) Warrant Agreement dated July 24, 1998 by and between the Company and
RADE Management Corporation
4.4(2) Warrant Agreement dated October 12, 1998 by and between the Company
and RADE Management Corporation
4.5(3) Warrant Agreement dated July 24, 1998 by and between the Company and
The New China Hong Kong Securities Ltd.
4.6(3) Registration Agreement dated December, 1992 by and among the Company,
Marquette Ventures Partners II, L.P. and certain investors
5.1(1) Opinion of Gardner, Carton & Douglas
10.1(3) Form of Consulting Agreement dated May 15, 1998 by and between the
Company and RADE Management Corporation
10.2(3) 1993 Stock Option and Award Plan
10.3(3) Letter Agreement dated January 15, 1997 between the Company, Pharm-Eco
Laboratories, Inc. and The University of North Carolina at Chapel
Hill, as amended
10.4(3) Letter Agreement dated May 29, 1998 between the Company and Franklin
Research Group, Inc.
10.5(3) Indemnification Agreement dated June 1, 1998 between the Company and
RADE Management Corporation
10.6(3) Letter Agreement dated June 24, 1998 between the Company and Criticare
Systems, Inc.
10.7(3) Letter Agreement dated June 25, 1998 between the Company and Criticare
Systems, Inc.
10.8(3) Option Agreement dated April 20, 1998 between the Company and ImmvaRx
10.9(3) Material Transfer and Option Agreement dated March 23, 1998 by and
between the Company and Sigma Diagnostics, Inc.
10.10(3) License Agreement dated March 10, 1998 by and between the Company and
Northwestern University
10.11(3) License Agreement dated October 27, 1994 by and between the Company
and Northwestern University
<PAGE>
10.12(3) Settlement Agreement and Release dated June 29, 1998 by and between
the Company and Brinks, Hofer, Gilson & Lione
10.13(3) Assignment of Intellectual Properties dated June 29, 1998 between the
Company and Criticare Systems, Inc.
10.14(3) Assignment Agreement dated June 26, 1998 by and between the Company
and Criticare Systems, Inc.
10.15(3) International Patent, Know-How and Technology License Agreement dated
June 29, 1998 by and between the Company and Criticare Systems, Inc.
10.16(3) Assignment Agreement dated June 29, 1998 by and between the Company
and Criticare Systems, Inc.
10.17(3) Employment Agreement dated 1992 by and between the Company and T.
Stephen Thompson
10.18(2) Amendment, dated January 15, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.19(2) Funding and Research Agreement dated September 30, 1998 by and among
the Company, Next Era Therapeutics, Inc. and Franklin Research Group,
Inc.
10.20(2) Office Lease dated December 5, 1991, as amended, by and between the
Company and Shaw Realty Services, Inc., as agent for CHS Evanston One
Associates, Limited Partnership
23.1(2) Consent of Deloitte & Touche LLP
23.2(1) Consent of Gardner, Carton & Douglas (included in Exhibit 5.1)
24.1(3) Powers of Attorney (included on signature page)
- ---------------
(1) To be filed by amendment.
(2) Filed herewith.
(3) Included with the Company's Registration Statement on Form SB-2
(Registration Statement No. 333-64393), as filed with the Securities and
Exchange Commission on September 28, 1998.
IMMTECH INTERNATIONAL, INC.
300,000 Shares
of
Common Stock
UNDERWRITING AGREEMENT
, 19
Westport Resources Investment Services, Inc.
315 Post Road West
Westport, CT 06880
Dear Sirs:
Immtech International, Inc,. a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters"), three hundred thousand shares of Common Stock of
the Company (the "Securities"). The Company hereby confirms the agreement made
by it with respect to the purchase of the Securities by the Underwriter, which
Securities are more fully described in the Registration Statement referred to
below. Westport Resources Investment Services, Inc. is referred to herein as the
"Underwriter" or the "Representative."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to publicly offer and sell the Securities for the Company and
that you are authorized to execute this Agreement. The Company confirms the
agreement made by it with respect to the relationship with the Underwriters as
follows:
1. Filing of Registration Statement with S.E.C. and Definitions. A Registration
Statement and Prospectus on Form SB-2 (File No.333-64393) with respect to the
Securities has been carefully and accurately prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the published rules and regulations (the "Rules and Regulations")
thereunder or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been filed with the Securities and Exchange Commission
(the "Commission") and such other states that the Underwriter deems necessary in
its discretion to so file to permit a public offering and trading thereunder.
Such registration statement, including the prospectus, Part II, and all
financial schedules and exhibits thereto, as amended at the time when it shall
become effective, is herein referred to as the "Registration Statement," and the
prospectus included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430 A of the Rules and
Regulations with any changes contained in any prospectus filed with the
Commission by the Company with the Underwriters consent after the effective date
of the Registration Statement, is herein referred to as the "Final Prospectus."
The prospectus included as part of the Registration Statement of the Company and
in any amendments thereto prior to the effective date of the Registration
Statement is referred to herein as a "Preliminary Prospectus."
2. Discount, Delivery, and Sale of the Securities
(a) Subject to the terms and conditions of this Agreement, and on the
basis of the representations, warranties, and agreements herein contained, the
Company agrees to sell to, and the Underwriters agree to buy from the Company at
a purchase price of $ per share before any underwriter expense allowances,
an aggregate of 300,000 shares of Common Stock on a firm commitment basis the
"Initial Securities".
It is understood that the Underwriters propose to offer the Securities to
be purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes effective.
1
<PAGE>
(b) Delivery of the Securities against payment of the purchase price
therefor by certified or official bank check or checks or wire transfer in
next-day funds, payable to the order of the Company shall take place at the
offices of the clearing broker for the Underwriter at New York City, within
three (3) business days after the Securities are first traded (or such other
place as may be designated by agreement between you and the Company) at 11:00
A.M., New York time or such time and date as you and the Company may agree upon
in writing, such time and date of payment and delivery for the Securities being
herein called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock to
be purchased by the Underwriters hereunder available to the Underwriter for
inspection and packaging at least two (2) full business days prior to the
Initial Closing Date. The certificates shall be in such names and denominations
as the Underwriter may request to the Company in writing at least two (2) full
business days prior to any Closing Date.
(c) In addition, subject to the terms and conditions of this Agreement and
on the basis of the representations, warranties and agreements herein contained,
the Company grants an option to the Underwriters to purchase up to an additional
45,000 shares of Common Stock ("Option Securities") at the same terms as the
Underwriters shall pay for the Initial Securities being sold by the Company
pursuant to the provisions of Section 2(a) hereof. This option may be exercised
from time to time, for the purpose of covering overallotments, within forty-five
(45) days after (i) the effective date of the Registration Statement if the
Company has elected not to rely on Rule 430A under the Rules and Regulations or
(ii) the date of this Agreement if the Company has elected to rely upon Rule
430A under the Rules and Regulations, upon written notice by the Underwriter
setting forth the number of Option Securities as to which the Underwriter is
exercising the option and the time and date at which such certificates are to be
delivered. Such time and date shall be determined by the Underwriter but shall
not be earlier than four (4) nor later than ten (10) full business days after
the date of the exercise of said option. Nothing herein shall obligate the
Underwriter to make any overallotment.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered at the closing by the
Company to the Underwriters against payment of the purchase price by the
Underwriters by certified or bank cashier's checks or wire transfer in next day
funds payable to the order of the Company.
(e) The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph on
page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representative, warrants (the "Representative's Warrants") at a purchase price
of $.001 per Representative's Warrant, which shall entitle the holders thereof
to purchase an aggregate of 30,000 shares of Common Stock. The shares of common
stock issuable upon the exercise of the Representative's Warrants are hereafter
referred to as the "Representative's Securities" or "Representative's Warrants."
The Representative's Warrants shall be exercisable for a period of four (4)
years commencing one (1) year from the effective date of the Registration
Statement at a price equaling one hundred twenty percent (120%) of the initial
public offering price of the Securities. The form of Representative's Warrant
Certificate shall be substantially in the form filed as an Exhibit to the
Registration Statement. Payment for the Representative's Warrant shall be made
on the Initial Closing Date.
2
<PAGE>
3. Representations and Warranties of the Company.
(a) The Company represents and warrants to you as follows:
(i) The Company has prepared and filed with the Commission a registration
statement, and an amendment or amendments thereto, on Form SB-2 (No.333-64393),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities, the Representative's Warrant (sometimes referred
to herein collectively as the "Registered Securities"), under the Act, which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the Rules and
Regulations. The Company will promptly file a further amendment to said
registration statement in the form heretofore delivered to the Underwriter and
will not file any other amendment thereto to which the Underwriter shall have
objected verbally or in writing after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the prospectus, financial statements, any
schedules, exhibits and all other documents filed as a part thereof or that may
be incorporated therein (including, but not limited to those documents or
information incorporated by reference therein) and all information deemed to be
a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Rules and Regulations), is hereinafter called the "Registration Statement," and
the form of prospectus in the form first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations, is hereinafter called the
"Prospectus."
(ii) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Prospectus or the Registration
Statement and no proceeding for an order suspending the effectiveness of the
Registration Statement or any of the Company's securities has been instituted or
is pending or threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act and the
Rules and Regulations and on its date did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, in light of the circumstances under which they were made
and (i) the Prospectus and/or any supplement thereto will contain all statements
which are required to be stated therein by the Act and Rules and Regulations,
and (ii) the Prospectus and/or any supplement thereto will not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
in light of the circumstances under which they were made; provided, however,
that no representations, warranties or agreements are made hereunder as to
information contained in or omitted from the Prospectus in reliance upon, and in
conformity with, the written information furnished to the Company by you as set
forth in Section 2(e) above.
(iii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation,
with full power and authority (corporate and other) to own its properties and
conduct its businesses as described in the Prospectus and is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties or
operations of the Company and the subsidiaries as a whole.
(iv) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, the Option Securities and the
Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be exercised
and delivered by the Company to the Representative (the "Representative's
Warrant Agreement"), and to consummate the transactions provided for in such
agreements, and each of such agreements has been duly and properly authorized,
and on the Initial Closing Date will be duly and properly executed and delivered
by the Company. This Agreement constitutes and on the Initial Closing Date the
Representative's Warrant Agreement will then constitute valid and binding
agreements, enforceable in accordance with their respective terms (except as the
enforceability thereof may be limited by bankruptcy or other similar laws
affecting the rights of creditors generally or by general equitable principles
and except as the enforcement of indemnification provisions may be limited by
federal or state securities laws).
3
<PAGE>
(v) Except as disclosed in the Prospectus, the Company is not in violation
of its respective certificate or articles of incorporation or bylaws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture, partnership or other agreement or instrument to
which the Company is a party or by which it may be bound or is not in material
violation of any law, order, rule, regulation, writ, injunction or decree of any
governmental instrumentality or court, domestic or foreign; and the execution
and delivery of this Agreement, the Representative's Warrant Agreement ;and the
consummation of the transactions contemplated therein and in the Prospectus and
compliance with the terms of each such agreement will not conflict with, or
result in a material breach of any of the terms, conditions or provisions of, or
constitute a material default under, or result in the imposition of any material
lien, charge or encumbrance upon any of the property or assets of the Company
pursuant to, any material bond, debenture, note or other evidence of
indebtedness or any material contract, indenture, mortgage, loan agreement,
lease, joint venture, partnership or other agreement or instrument to which the
Company is a party nor will such action result in the material violation by the
Company of any of the provisions of its respective certificate or articles of
incorporation or bylaws or any law, order, rule, regulation, writ, injunction,
decree of any government, governmental instrumentality or court, domestic or
foreign, except where such violation will not have a material adverse effect on
the financial condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus and the Company will have the adjusted
capitalization set forth therein on the Initial Closing Date; all of the shares
of issued and outstanding capital stock of the Company set forth therein have
been duly authorized, validly issued and are fully paid and nonassessable; the
holders thereof do not have any rights of rescission with respect therefor and
are not subject to personal liability for any obligations of the Company by
reason of being stockholders under the laws of the State in which the Company is
incorporated; none of such outstanding capital stock is subject to or was issued
in violation of any preemptive or similar rights of any stockholder of the
Company; and such capital stock (including the Securities, the Option Securities
and the Representative's Securities) conforms in all material respects to all
statements relating thereto contained in the Prospectus.
(vii) The Company is not a party to or bound by any instrument, agreement
or other arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement or as described
in the Prospectus. The Securities, the Option Securities and the
Representative's Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the respective
descriptions thereof contained in the Prospectus; except for payment of the
applicable purchase price paid upon exercise of the options or warrants, as the
case may be the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue and sale of the Securities, the Option Securities and the Representative's
Securities has been duly and validly taken; and the certificates representing
the Securities, the Option Securities and the Representative's Securities will
be in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities, the Option Securities and the Representative's
Securities to be sold by the Company hereunder, the Underwriter will acquire
good and marketable title to such Securities, Option Securities and
Representative's Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction of any kind
whatsoever other than restrictions as may be imposed under the securities laws.
(viii) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described or referred
to in the Prospectus or which are not materially significant or important in
relation to its business or which have been incurred in the ordinary course of
business; except as described in the Prospectus all of the leases and subleases
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and the Company is not
in material default in respect of any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to the
Company's rights as lessor, sublessor, lessee or sublessee under any of the
leases or subleases mentioned above or affecting or questioning the Company's
right to the continued possession of the leased or subleased premises or assets
under any such lease or sublease; and
4
<PAGE>
the Company owns or leases all such properties as are necessary to its
operations as now conducted and as contemplated to be conducted, except as
otherwise stated in the Prospectus.
(ix) The financial statements, together with related notes, set forth in
the Prospectus fairly present the financial position and results of operations
of the Company at the respective dates and for the respective periods to which
they apply. Said statements and related notes have been prepared in accordance
with generally accepted accounting principles applied on a basis which is
consistent in all material respects during the periods involved but any stub
period has not been audited by an independent accounting firm. There has been no
material adverse change or material development involving a prospective change
in the condition, financial or otherwise, or in the prospects, value, operation,
properties, business or results of operations of the Company whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Registration Statement and the Prospectus.
(x) Subsequent to the respective dates as of which information is given in
the Prospectus as it may be amended or supplemented, and except as described in
the Prospectus, the Company has not, directly or indirectly, incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business or entered into any transactions not in the ordinary course of
business, which are material to the business of the Company as a whole and there
has not been any change in the capital stock of, or any incurrence of long term
debts by, the Company or any issuance of options, warrants or rights to purchase
the capital stock of the Company or declaration or payment of any dividend on
the capital stock of the Company or any material adverse change in the condition
(financial or other), net worth or results of operations of the Company as a
whole and the Company has not become a party to, any material litigation whether
or not in the ordinary course of business.
(xi) To the knowledge of the Company, there is no pending or threatened,
action, suit or proceeding to which the Company is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business or prospects of the
Company as a whole or might materially and adversely affect the properties or
assets of the Company as a whole nor are there any actions, suits or proceedings
against the Company related to environmental matters or related to
discrimination on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company as a whole;
and no labor disturbance by the employees of the Company individually exists or
is, to the knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company has
properly prepared and filed all necessary federal, state, local and foreign
income and franchise tax returns, has paid all taxes shown as due thereon, has
established adequate reserves for such taxes which are not yet due and payable,
and does not have any tax deficiency or claims outstanding, proposed or assessed
against it.
(xiii) The Company has sufficient licenses, permits, right to use trade or
service marks and other governmental authorizations currently required for the
conduct of its business as now being conducted and as contemplated to be
conducted and the Company is in all material respects complying therewith.
Except as set forth in the Prospectus, the expiration of any such licenses,
permits, or other governmental authorizations would not materially affect the
Company's operations. To its knowledge, none of the activities or businesses of
the Company are in material violation of, or cause the Company to materially
violate any law, rule, regulations, or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality.
(xiv) The Company has not at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contribution, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi public duties, other than payments required or allowed by applicable law.
5
<PAGE>
(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the Company
or the Underwriters may be responsible, or which may affect the Underwriter's
compensation as determined by the National Association of Securities Dealers,
Inc. ("NASD") except as otherwise disclosed in the Prospectus or known by the
Underwriters.
(xvi) The Company has its property adequately insured against loss or
damage by fire and maintains such other insurance as is customarily maintained
by companies in the same or similar business.
(xvii) The Representative's Warrants herein described are duly and validly
authorized and upon delivery to the Representative in accordance herewith will
be duly issued and legal, valid and binding obligations of the Company, except
as the enforceability thereof may be limited by bankruptcy or other similar laws
affecting the rights of creditors generally or by equitable principles, and
except as the enforcement of indemnification provisions may be limited by
federal or state securities laws.
The Representative's Securities issuable upon exercise of any of the
Representative's Warrants have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
nonassessable.
(xviii) Except as set forth in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
(xix) To the best of the Company's knowledge it has generally enjoyed a
satisfactory employer-employee relationship with its employees and, to the best
of its knowledge, is in substantial compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. To the best of the Company's knowledge, there are no pending
investigations involving the Company, by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. To the best of the Company's
knowledge, there is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or to its knowledge involving the Company, or any predecessor entity, and none
has ever occurred. To the best of the Company's knowledge, no representation
question is pending respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. To the best of the Company's knowledge, no grievance or arbitration
proceeding is pending or to its knowledge threatened under any expired or
existing collective bargaining agreements of the Company. No labor dispute with
the employees of the Company is pending, or, to its knowledge is imminent; and
the Company is not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
may result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(xx) Except as may be set forth in the Registration Statement, the Company
does not maintain, sponsor or contribute to any program or arrangement that is
an "employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(l) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code (the "Code"), which could subject the Company
to any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as
6
<PAGE>
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401 (a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(xxi) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities,
Option Securities, Representative's Securities or otherwise.
(xxii) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, and licenses and rights to the foregoing
presently owned or held by the Company, are in dispute or, to the best knowledge
of the Company's management are in any conflict with the right of any other
person or entity. The Company (i) except as disclosed in the Prospectus owns or
has the right to use, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing, and except as set forth in the Prospectus or otherwise disclosed
to the Underwriter in writing, to the best knowledge of the Company's management
is not obligated or under any liability whatsoever to make any material payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(xxiii) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's management all
trade secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company. The Company is not aware of
any such development of similar or identical trade secrets or technical
information by others. The Company has valid and binding confidentiality
agreements with all of its officers, covering its intellectual property (subject
to the equitable powers of any court), which agreements have remaining terms of
at least two years from the effective date of the Registration Statement except
where the failure to have such agreements would not materially and adversely
effect the Company's business taken as a whole. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus, to be owned or leased by it
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(xxiv) Deloitte & Touche LLP whose reports are filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(xxv) The Company has agreed to cause to be duly executed agreements
pursuant to which each of the Company's officers and directors and holders of
more than 5% of the outstanding Common Stock and holders of any Incentive Stock
Options and their underlying shares and any person or entity deemed to be an
affiliate of the Company pursuant to the Rules and Regulations has agreed not
to, directly or indirectly, sell, assign, transfer, or otherwise dispose of any
shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) for a period of not less than twelve (12) months following such
effective date. In addition the Company will cause its foreign placed securities
to bear a restrictive legend restricting their public resale and public resale
in the United States for at least one year from the effective date of the
present offering. The 5% holders and the Incentive Stock Option holders will
have agreed not to dispose of (sell or transfer) their shares until the share
price, adjusted for any splits, trades at or above 200% of the offering price
for a twenty (20) consecutive day
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period. The Company will cause the Transfer Agent, as defined below, to mark an
appropriate legend on the face of stock certificates representing all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
(xxvi) The Registered Securities have been approved for listing on NASDAQ
or an Exchange.
(xxvii) Except as set forth in the Prospectus or disclosed in writing to
the Underwriter (which writing specifically refers to this Section), no officer
or director of the Company, holder of 5% or more of securities of the Company or
any "affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficiary interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions" or disclosed in writing to the
Underwriter (which writing specifically refers to this Section) there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and
delivered to the Underwriter or to the Underwriter's counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
(xxix) Each of the minute books of the Company has been made available to
the Underwriter and contains a complete summary of all meetings and actions of
the directors and stockholders of the Company, since the time of its
incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(xxx) Intentionally left blank.
(xxxi) Except and only to the extent described in the Prospectus or
disclosed in writing to the Underwriter (which writing specifically refers to
this Section), no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company. Except as disclosed in the Prospectus, all rights so described or
disclosed have been waived or have not been triggered with respect to the
transactions contemplated by this Agreement and the Representative's Warrant
Agreement (including the warrants issuable thereunder).
(xxxii) The Company has not entered into any employment agreements with
its executive officers, except as disclosed in the Prospectus.
(xxxiii) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Registered Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the Underwriter's
Warrants, the performance of this Agreement, the Representative's Warrant
Agreement, and the transactions contemplated hereby and thereby, including
without limitation, any waiver of any preemptive, first refusal or other rights
that any entity or person may have for the issue and/or sale of any of the
Securities, the Option Securities and the Underwriter's Securities, except such
as have been or may be obtained under the Act, otherwise or may be required
under state securities or blue sky laws in connection with the Underwriter's
purchase and distribution of the Securities, the Option Securities, the
Representative's Securities and the Underwriter's Warrants to be sold by the
Company hereunder or may be required by the Rules of the National Association of
Securities Dealer, Inc. ("NASD").
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(xxxiv) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(xxxv) Within the past five (5) years, none of the Company's independent
public accountants has brought to the attention of the Company's management any
"material weakness" as defined in the Statement of Auditing Standard No. 60 in
any of the Company's internal controls.
4. Covenants of the Company. The Company covenants and agrees with you that:
(a) It will cooperate in all respects in making the Prospectus effective
and will not at any time, whether before or after the effective date, file any
amendment to or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you or your counsel
shall have reasonably objected or which is not in material compliance with the
Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you,
and confirm the advice in writing, of the receipt of any comments of the
Commission or any state securities department, when the Registration Statement
becomes effective if the provisions of Rule 430A promulgated under the Act will
be relied upon, when the Prospectus has been filed in accordance with said Rule
430A, of the effectiveness of any posteffective amendment to the Registration
Statement or Prospectus, or the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission or any state
securities department for amendment of the Prospectus or for supplementing of
the Prospectus or for additional information with respect thereto, of the
issuance of any stop order suspending the effectiveness of the Prospectus or any
order preventing or suspending the use of any Prospectus or any order suspending
trading in the Common Stock of the Company, or of the suspension of the
qualification of the Securities, the Option Securities or the Representatives
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any such purposes, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain as soon as possible the
lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus, and the
Company has consented and hereby consents to the use of such copies for the
purposes permitted by law. The Company authorizes you and the dealers to use the
Prospectus and such copies of the Prospectus in connection with the sale of the
Securities, the Option Securities and the Representative's Securities for such
period as in the opinion of your counsel and our counsel the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. The Company will prepare and file with the states, promptly upon
your request, any such amendments or supplements to the Prospectus, and take any
other action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Securities, the Option Securities and
the Underwriter's Securities and will use its best efforts to cause the same to
become effective as promptly as possible.
The Company shall file the Prospectus (in form and substance satisfactory
to the Underwriter) or transmit the Prospectus by a means reasonably calculated
to result in filing with the Commission pursuant to rule 424(b)(1) or pursuant
to Rule 424(b)(3) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement, and (ii) the fifth business day after the effective date of the
Registration Statement.
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<PAGE>
In case of the happening, at any time within such period as a Prospectus
is required under the Act to be delivered in connection with the initial sale of
the Securities, the Option Securities and the Representative's Securities of any
event of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required under the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act, the
Rules and Regulations or any other law, the Company will forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they are made. The preparation and
furnishing of any such amendment or supplement to the Prospectus or supplement
to be attached to the Prospectus shall be without expense to you.
The Company will to the best of its ability comply with the Act, the
Exchange Act and applicable state securities laws so as to permit the initial
offer and sales of the Securities, the Option Securities and the Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
(b) It will cooperate to qualify the Securities and the Option Securities
and the Representative's Securities for initial sale under the securities laws
of such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders' equity,
and changes in cash flow of the Company for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date three
signed copies of the signature pages to the Registration Statement and three
copies of the registration statement including all financial statements and
exhibits filed therewith, whether or not incorporated by reference. The Company
will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request. The
Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the Act
and the Rules and Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e) The Company will apply the net proceeds from the sale of the
Securities and the Option Securities substantially in the manner set forth under
"Use of Proceeds" in the Prospectus. No portion of the proceeds shall be used,
directly or indirectly, to acquire any securities issued by the Company, without
the prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the
first (lst) day of the fifteenth (15th) full calendar month following the
effective date of the Registration Statement, the Company will make available to
its security holders and the Underwriter an earnings statement (which need not
be audited) covering a period of at least twelve (12) consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations.
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<PAGE>
(g) Non-Accountable Expense Allowance and other Costs and Expenses.
The Company shall pay to the Underwriter at each closing date, and to be
deducted from the purchase price for the Securities and the Option Securities,
an amount equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Securities and the Option Securities at such
closing date less in the case of the Initial Closing Date, the sum of $50,000
previously paid by the Company. If the sale of the Securities by the Underwriter
is not consummated for any reason not attributable to the Underwriter, or if (i)
the Company unilaterally withdraws the Registration Statement or does not
proceed with the public offering for reasons other than the affirmative
wrongdoing of the Underwriter, or (ii) the representations in Section 3 hereof
are not correct or the covenants cannot be complied with, or (iii) there has
been a materially adverse change in the condition, prospects or obligations of
the Company or a materially adverse change in stock market conditions from
current conditions, or (iv) the road show presentation produced a negative
affect on the intended syndicate members, or (v) the offering is not completed
within 180 days of the signing of the letter of intent (January 8, 1999), all as
determined by the Underwriter, then the Company shall reimburse the Underwriter
for its out of pocket expenses including without limitation, its legal fees and
disbursements all on a non-accountable basis, an additional sum of $75,000
(excluding the $50,000 previously paid by the Company). This additional fee is
also to be paid if the Company decides not to complete the offering or does a
private placement with another broker/dealer or agent or if good funds from
international sales activity are not in place five days prior to the effective
date.
Costs and Expenses. Subject to the provisions above the Company will pay
all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement and Prospectus (including the fee of the Commission, any securities
exchange and the NASD in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby); all expenses,
including fees of counsel, which shall be due and payable on the Closing Date in
connection with the qualification of the Securities under the state securities
or blue sky laws; the cost of furnishing to you copies of the Prospectus, this
Agreement, the cost of printing the certificates representing the Securities and
of preparing and photocopying the Underwriting Agreement and related
Underwriting documents, the cost of three underwriter's bound volumes, any
advertising costs and expenses, including but not limited to the Company's
expenses on "road show" information meetings and presentations, prospectus
memorabilia, issue and transfer taxes, if any. The Company will also pay all
costs and expenses incident to the furnishing of any amended Prospectus of or
any supplement to be attached to the Prospectus.
(h) As a condition of the closing, the Company shall obtain from its officers
and directors and holders of 5% of the outstanding Common Stock of the Company,
written commitments restricting the sale of 100% of their common stock for (12)
months after the closing.
(i) During a date five years after the date hereof, the Company will make
available to its shareholders, as soon as practicable, and deliver to the
Underwriter:
(1) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(3) every press release and every material news item or article of
interest to the financial community in respect of the Company or its
affairs which was prepared and released by or on behalf of the Company;
and
(4) any additional information of a public nature concerning the Company
(and any future subsidiaries) or its businesses which the Underwriter may
request.
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<PAGE>
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(j) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(k) The Company will furnish to the Underwriter or on the Underwriter's
order, without charge, at such place as the Underwriter may designate, copies of
each Preliminary Prospectus, the Final Prospectus the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriter may request.
(1) Neither the Company nor any of its officers, directors, stockholders
or any of its affiliates will take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any of the Company's securities.
(m) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall cause the Securities to be listed on the NASDAQ
Small Cap Market or on an exchange for a period of five (5) years from the date
hereof, and use its best efforts to maintain the listing of the Securities to
the extent they are outstanding.
(o) As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in no event
more than 30 days from the effective date of the Registration Statement, take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and/or Moody's OTC Manual and to continue such
inclusion for a period of not less than five years if the securities are not
listed on an exchange. The Company also agrees to take such steps as may be
necessary to comply with the requirements of any state to be in compliance with
the aftermarket provisions of Section 18 of the Securities Act of 1933, as
amended, and as further amended by the National Securities Markets Improvement
Act of 1996.
(p) Until the completion of the distribution of the Securities, the
Company shall not without the prior written consent of the Underwriter and its
counsel which consent shall not be unreasonably withheld or delayed, issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in 'the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(q) During the five (5) year period from the date hereof, the Company will
not take any action or actions which may prevent or disqualify the Company's use
of Form SB-2 (or other appropriate form) for the registration under the Act of
the Warrant Shares and the Representative's Securities.
(r) Since the combination of the U.S. and foreign offering will result in
$10,000,000 of aggregate proceeds, it is understood that five days prior to the
effective date , participating foreign broker-dealers will deposit an aggregate
of $7,000,000 of their funds, not funds of the investors intending to
participate in this offering, into an account at Westport Resources or Westport
Resources clearing agent, National Financial Services Corporation (a Fidelity
company).
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<PAGE>
5. Conditions of the Underwriter's Obligations. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing Dates) of
and compliance with the representations and warranties of the Company to the
performance by it of its agreement and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective as and when
cleared by the Commission, and you shall have received notice thereof, on or
prior to any closing date no stop order suspending the effectiveness of the
Prospectus shall have been issued and no proceedings for that or similar purpose
shall have been instituted or shall be pending, or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the Underwriter; and
qualification, under the securities laws of such states as you may designate, of
the issue and sale of the Securities upon the terms and conditions herein set
forth or contemplated and containing no provision unacceptable to you shall have
been secured, and no stop order shall be in effect denying or suspending
effectiveness of such qualification nor shall any stop order proceedings with
respect thereto be instituted or pending or threatened under such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or facsimile copies
of such opinion as you may reasonably request, addressed to you by Gardner,
Carton & Douglas, counsel for the Company, in form and substance reasonably
satisfactory to the Underwriter and William M. Prifti, Esq., counsel to the
Underwriter, dated each such closing date, to the effect that:
(A) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction in which it is
incorporated and has all necessary corporate power and authority to carry on its
business as described in the Prospectus.
(B) The Company is qualified to do business in each jurisdiction in which
conducting its business requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the Company's
business or assets.
(C) The Company has the full corporate power and authority to enter into
this Agreement, the Representative's Warrant Agreement and to consummate the
transactions provided for therein and each such Agreement has been duly and
validly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party thereto, constitutes a
legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency or
similar laws governing the rights of creditors and to general equitable
principles, and provided that no opinion need be given as to the enforceability
of any indemnification or contribution provisions, and none of the Company's
execution or delivery of this Agreement, or the Representative's Warrant
Agreement, its performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its business as
described in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or will
result in any material breach or violation of any of the terms or provisions of,
or constitutes or will constitute a material default under, or result in the
creation or imposition of any material lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company pursuant to the terms
of (A) the articles of incorporation or by-laws of the Company, (B) to the
knowledge of such counsel, any material license, contract, indenture, mortgage,
deed of trust, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument to which the Company is a
party or by which it is or may be bound, or (C) to the knowledge of such
counsel, any statute, judgment, decree, order, rule or regulation applicable to
the Company, whether domestic or foreign.
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(D) The Company had authorized and outstanding capital stock as set forth
in the Prospectus under the heading "Capitalization" as of the date set forth
therein, and all of such issued and outstanding shares of capital stock have
been duly and validly authorized and issued, and to the knowledge of such
counsel are fully paid and nonassessable, and to the knowledge of such counsel
no stockholder of the Company is entitled to any preemptive rights to subscribe
for, or purchase shares of the capital stock and to the knowledge of such
counsel none of such securities were issued in violation of the preemptive
rights of any holders of any securities of the Company.
(E) To the knowledge of such counsel, the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities, except
for this Agreement, the Representative's Warrant Agreement, and except as
described in the Prospectus. The Common Stock, and the Representative's Warrants
each conforms in all material respects to the respective descriptions thereof
contained in the Prospectus. The outstanding shares of Common Stock, the
Redeemable Warrant and the Representative's Warrant Stock, upon issuance and
delivery and payment therefore in the manner described herein, the Warrant
Agreement and the Representative Agreement, as the case may be, will be, duly
authorized, validly issued, fully paid and nonassessable. There are no
preemptive or other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant to the
Company's articles of incorporation, by-laws, other governing documents or any
agreement or other instrument known to such counsel to which the Company is a
party or by which it is bound.
(F) The certificates representing the Securities comprising the Common
Stock are in due and proper form and and the Representative's Warrant has been
duly authorized and reserved for issuance and when issued and delivered in
accordance with the respective terms of the Warrant Agreement and
Representative's Warrant Agreement, respectively, will duly and validly issued,
fully paid and nonassessable.
(G) To the knowledge of such counsel, there are no claims, suits or other
legal proceedings pending or threatened against the Company in any court or
before or by any governmental body which might materially affect the business of
the Company or the financial condition of the Company as a whole, except as set
forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of the Commission,
the Registration Statement has become effective and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Prospectus is in
effect and no proceedings for that purpose are pending before, or threatened by,
federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal or governmental
proceedings, actions, arbitrations, investigations, inquiries or the like
pending or threatened against the Company of a character required to be
disclosed in the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which could adversely
affect the Company's ability to perform any of its obligations under this
Agreement, or the Representative's Warrant Agreement.
(J) To such counsel's knowledge, there are no material agreements,
contracts or other documents known to such counsel required by the Act to be
described in the Registration Statement and the Prospectus and filed as exhibits
to the Registration Statement other than those described in the Registration
Statement and the Prospectus and filed as exhibits thereto, and to such
counsel's knowledge (A) the exhibits which have been filed are correct copies of
the documents of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other documents to which the Company is a party or by
which it is bound, including any document to which the Company is a party or by
which it is bound incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2.
(K) No consent, approval, order or authorization from any regulatory
board, agency or instrumentality having jurisdiction over the Company, or its
properties (other than registration under the Act or qualification under state
or
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foreign securities law or approval by the NASD) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Option
Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk Factors- Dependence on
Key Personnel" "Management-Limitation of Liability" "Description of the
Securities," and "Shares Eligible For Future Sale" have been reviewed by such
counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not certified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement, when
such documents became effective or were filed with the Commission (other than
the financial statements including the notes thereto and supporting schedules
and other financial and statistical information derived therefrom, as to which
such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Prospectus and any amendment or supplement thereto (other than
the financial statements including the notes thereto and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
Such opinion shall also cover such other matters incident to the
transactions contemplated hereby and the offering Prospectus as you or counsel
to the Underwriter shall reasonably request. In rendering such opinion, to the
extent deemed reasonable by them, such counsel may rely upon certificates of any
officer of the Company or public officials as to matters of fact of which the
maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the
Principal Financial or Accounting Officer of the Company dated the Closing Date,
to the effect that with regard to the Company, each of the conditions set forth
in Section 5(d) have been satisfied.
(iii) a letter, addressed to the Underwriter and in form and substance
satisfactory to the Underwriter in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (D) below),
from Deloitte & Touche LLP.dated, respectively, as of the effective date of the
Registration Statement and as of the Closing Date, as the case may be:
(A) Confirming that they are independent public accountants with respect
to the Company and its consolidated subsidiaries, if any, within the meaning of
the Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial statements, related
notes and schedules of the Company and its consolidated subsidiaries, if any,
included in the Registration Statement examined by them comply as to form in all
material respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from March 31, 1998, to a
specified date (the specified date") not earlier than five (5) business days
prior to the date of such letter, they have read the minutes of meetings of the
stockholders and board of directors (and various committees thereof) of the
Company and its consolidated subsidiaries, if any, for the period from March 31,
1998 through the specified date, and made inquiries of officers of the Company
and its consolidated subsidiaries, if any, responsible for financial and
accounting matters and, especially
15
<PAGE>
as to whether there was any decrease in sales, income before extraordinary items
or net income as compared with the corresponding period in the preceding year;
or any change in the capital stock of the Company or any change in the longterm
debt or any increase in the short-term bank borrowings or any decrease in net
current assets or net assets of the Company or of any of its consolidated
subsidiaries, if any, and further stating that while such procedures and
inquiries do not constitute an examination made in accordance with generally
accepted auditing standards, nothing came to their attention which caused them
to believe that during the period from December 31, 1997, through the specified
date there were any decreases as compared with the corresponding period in the
preceding year in sales, income before extraordinary items or net income; or any
change in the capital stock of the Company or consolidated subsidiary, if any,
or any change in the long term debt or any increase in the short-term bank
borrowings (other than any increase in short-term bank borrowings in the
ordinary course of business) of the Company or any consolidated subsidiary, if
any, or any decrease in the net current assets or net assets of the Company or
any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified procedures
(specifically set forth in such letter or letters) as specified by the
Underwriter (after consultations with Deloitte & Touche LLP, CPA's relating to
such procedures), not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and such financial data not included in the Prospectus but from
which information in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or consolidated subsidiaries,
if any, or from such accounting records by analysis or computation, and having
compared such financial data with the accounting records of the Company or the
consolidated subsidiaries, if any, stating that they have found such financial
data to agree with the accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory to or
approved by counsel to the Underwriter and you shall have received from Gardner,
Carton & Douglas a signed opinion dated as of each closing date, with respect to
the incorporation of the Company, the validity of the Securities, the form of
the Prospectus, (other than the financial statements together with related notes
and other financial and statistical data contained in the Prospectus or omitted
therefrom, as to which such counsel need express no opinion), the execution of
this Agreement and other related matters as you may reasonably require.
(d) At each closing date, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of such closing date; (ii)
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and in all material respects conform to the
requirements thereof, and neither the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary, in light of the
circumstances under which they were made, in order to make the statements
therein not misleading; (iii) there shall have been since the respective dates
as of which information is given no material adverse change in the business,
properties or condition (financial or otherwise), results of operations, capital
stock, longterm debt or general affairs of the Company from that set forth in
the Prospectus, except changes which the Prospectus indicates might occur after
the effective date of the Prospectus, and the Company shall not have incurred
any material liabilities or material obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Prospectus and which would
be required to be set forth in the Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company which would be required to be set
forth in the Prospectus, and no proceedings shall be pending or threatened
against the Company or any subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement in
final form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
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<PAGE>
(f) On or before the Initial Closing Date, the Securities shall have been
duly approved for listing on an exchange or on NASDAQ, Small Cap Market.
(g) On or before the Initial Closing Date, there shall have been delivered
to the Underwriter all of the Lock-up Agreements required to be delivered
pursuant to Section 3(a)(xxv) and 4(h), in form and substance satisfactory to
the Underwriter and Underwriter's counsel.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
6. Conditions of the Company's Obligations. The obligation of the Company to
sell and deliver the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in Section
10.
(b) At the Initial Closing Date, no stop order suspending the
effectiveness of the Prospectus shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission or by any state
securities department.
(c) Tender of payment by the Underwriter in accord with Section 2 hereof.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
its employees and each person, if any, who controls you within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for any purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
each Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission made in the Prospectus, or such amendment or supplement to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, which is in reliance upon and in conformity
with written information furnished by the Company to you specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of you with
respect to any person asserting any such loss, claim, damage or liability who
has purchased the Securities which are the subject thereof if you or any
participants failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Securities to such
person and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter ( or to any person controlling any such underwriter)
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned to the extent that such untrue statement or
omission, or alleged untrue statement or omission, has been corrected in a later
Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to such
person
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon
17
<PAGE>
any untrue statement or alleged untrue statement of any material fact contained
in the Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission was made in the
Prospectus, or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by you specifically for use in
the preparation thereof. This indemnity will be in addition to any liability
which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, subject to the provisions herein stated, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that, if the indemnified party is you or a person who controls you, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both you or such controlling person
and the indemnifying party and you or such controlling person shall have been
advised by such counsel that there is a conflict of interest which would prevent
counsel for the indemnifying party from representing the indemnifying party and
you or such controlling person (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of you or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction or which are consolidated
into the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for you and all such controlling persons, which firm
shall be designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnified party.
8. Contribution. In order to provide for just and equitable contribution
tinder the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriters, then the Company and the Underwriters in the aggregate shall
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities times the difference
between the public offering price and the commission to the Underwriter and
dividing the product thereof by the public offering price, and the Company, if
applicable, shall be responsible for that portion of such losses, claims,
damages or liabilities times the commission to the Underwriters and dividing the
product thereof by the public offering price; provided, however, that the
Underwriters shall not be required to so contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 12(2) of the Act)
shall be entitled to contribution from any person
18
<PAGE>
who is not guilty of such fraudulent misrepresentation. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any person having liability under Section 12 of the Act other than the Company
and the Underwriter. As used in this paragraph, the term "Underwriters" includes
any person who controls the Underwriters within the meaning of Section 15 of the
Act. If the full amount of the contribution specified in this paragraph is not
permitted by law, then any Underwriter and each person who controls any
Underwriter shall be entitled to contribution from the Company, to the full
extent permitted by law.
9. Effective Date. This Agreement shall become effective at 10:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Prospectus as you in your discretion shall first commence the public offering of
any of the Securities covered thereby, provided, however, that at all times the
provisions of Sections 7, 8, 9 and 11 shall be effective.
10. Termination.
(a) This Agreement, may be terminated at any time prior to the
Closing Date by you if in your judgment it is impracticable to offer for sale or
to enforce contracts made by you for the sale of the Securities agreed to be
sold hereunder by reason of (i) the Company as a whole having sustained a
material loss, whether or not insured, by reason of fire, earthquake, flood,
accident or other calamity, or from any labor dispute or court or government
action, order or decree, (ii) trading in securities of the Company having been
suspended by a state securities administrator or by the Commission, (iii)
material governmental restrictions having been imposed on trading in securities
generally (not in force and effect on the date hereof) or trading on the New
York Stock Exchange, American Stock Exchange, or in the over-the-counter market
shall have been suspended, (iv) a banking moratorium having been declared by
federal or New York State authorities, (v) an outbreak or escalation of
hostilities or other national or international calamity having occurred, (vi)
the passage by the Congress of the United States or by any state legislative
body, of any act or measure, or the adoption of any orders, rules or regulations
by any governmental body or any authoritative accounting institute or board, or
any governmental executive, which is believed likely by you to have a material
impact on the business, financial condition or financial statements of the
Company; or (vii) any material adverse change having occurred, since the
respective dates as of which information is given in the Prospectus, in the
condition, financial or otherwise, of the Company as a whole, whether or not
arising in the ordinary course of business, (viii)T. Stephen Thompson ceases to
be employed by the Company in his present capacity; (ix) the Securities are not
listed on NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 10 or in Section 9,
the Company shall be promptly notified by you, by telephone or telegram,
confirmed by letter.
11. Representations, Warrants and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter, the Company, or
any of their officers or directors and will survive delivery of and payment for
the Securities.
12. Notices. All communications hereunder will be in writing and, except
as otherwise expressly provided herein, if sent to you, will be mailed,
delivered or telephoned and confirmed to you at, Westport Resources Investment
Services, Inc. 315 Post Road West, Westport, Ct. 06880, Attn: John Lane, Vice
President; and to Immtech International, Inc. , 1890 Maple Avenue, Evanston,
Illinois 60201, Attn: T. Stephen Thompson, President.
13. Parties in Interest. This Agreement is made solely for the benefit of
the Underwriter(s), and the Company, and their respective controlling persons,
directors and officers, and their respective successors, assigns, executors and
administrators. No other person shall acquire or have any right under or by
virtue of this Agreement.
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<PAGE>
14. Headings. The Section headings in this Agreement have been inserted as
a matter of convenience of reference and are not a part of this Agreement.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, without giving effect to
conflict of law principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
If the foregoing correctly sets forth the understanding between the
Company and you, as Representative of the several underwriters, please so
indicate in the space provided below for such purpose, whereupon this letter and
your acceptance shall constitute a binding agreement between us.
Very truly yours,
Immtech International, Inc.
By ______________________________________
(Authorized Officer)
T. Stephen Thompson, President
Accepted as of the date first above written:
Westport Resources Investment Services, Inc.
As Representative of the several Underwriters
By: _____________________________________________
(Authorized Officer)
John D. Lane, Vice President
20
<PAGE>
EXHIBIT A
SCHEDULE I
UNDERWRITERS
Shares of
Underwriter Common Stock
- ----------- ------------
Westport Resources Investment Services, Inc.
------------
TOTAL 300,000
21
IMMTECH INTERNATIONAL, INC.
700,000 SHARES OF COMMON STOCK
INTERNATIONAL UNDERWRITING AGREEMENT
, 1999
New China Hong Kong Securities Limited
as International Representative of the International Underwriters
- --------------------------
- --------------------------
- --------------------------
Dear Sirs:
Immtech International, Inc.. a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "International Underwriters"), seven hundred thousand shares of
Common Stock (the "Initial International Securities"). The Company hereby
confirms the agreement made by it with respect to the purchase of the Securities
by the International Underwriters, which Securities are more fully described in
the Registration Statement referred to below. New China Hong Kong Securities
Limited is referred to herein as the "International Underwriter" or the
"International Representative."
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "U.S. Underwriting Agreement") providing
for (i) the offering by the Company of an aggregate of 300,000 shares of Common
Stock (the "International U.S. Securities") through arrangements with certain
underwriters in the United States (the "U.S. Underwriters") for which Westport
Resources Investment Services, Inc. is acting as representative (the "U.S.
Representative"); (ii) the grant by the Company to the U.S. Underwriters, acting
severally and not jointly, of an option to purchase all or any part of the U.S.
Underwriters' pro rata portion of up to 45,000 additional shares of Common Stock
("U.S. Option Securities") solely to cover overallotments, if any; and (iii) the
offering by the Company to the U.S. Representative (together with the
International Representative) of warrants to purchase up to 100,000 shares of
Common Stock. It is understood that the Company is not obligated to sell and the
International Underwriters are not obligated to purchase, any Initial
International Securities unless all of the Initial U.S. Securities are
contemporaneously purchased by the U.S. Underwriters.
You have advised the Company that the International Underwriters desire to
act on a firm commitment basis to offer and sell the International Securities
for the Company and that you are authorized to execute this Agreement. The
Company confirms the agreement made by it with respect to the relationship with
the International Underwriters as follows:
1. Filing of Registration Statement with S.E.C. and Definitions. A
Registration Statement and Prospectus on Form SB-2 (File No.333-64393) with
respect to the Securities has been carefully and accurately prepared by the
Company in conformity with the requirements of the Securities Act of 1933,
<PAGE>
as amended (the "Act"), and the published rules and regulations (the "Rules and
Regulations") thereunder or under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and has been filed with the Securities and Exchange
Commission (the "Commission") and such other states that the International Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one to the International Securities (the "Form of International
Prospectus"). The Form of International Prospectus is identical to the Form of
U.S. Prospectus, except for the front cover and back cover pages and the
information under the caption "Underwriting" and the inclusion in the Form of
International Prospectus of a section under the caption "Certain United States
Tax Considerations Applicable to Non- U.S. Holders of the Common Stock." Such
registration statement, including the prospectuses, Part II, and all financial
schedules and exhibits thereto, as amended at the time when it shall become
effective, is herein referred to as the "Registration Statement," and the
prospectuses included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from the
prospectuses on the effective date pursuant to Rule 430A of the Rules and
Regulations with any changes contained in any prospectuses filed with the
Commission by the Company with the International Underwriters consent after the
effective date of the Registration Statement, is herein referred to as the
"Final Prospectus." The prospectuses included as part of the Registration
Statement of the Company and in any amendments thereto prior to the effective
date of the Registration Statement is referred to herein as a "Preliminary
Prospectus."
2. Discount, Delivery, and Sale of the Securities
a. Subject to the terms and conditions of this Agreement, and on the
basis of the representations, warranties, and agreements herein contained,
the Company agrees to sell to, and the International Underwriters agree to
buy from the Company at a purchase price of $______ per share before any
underwriter expense allowances, an aggregate of 700,000 shares of Common
Stock on a firm commitment basis the "Initial International Securities".
It is understood that the International Underwriters propose to
offer the International Securities to be purchased hereunder upon the
terms and conditions set forth in the Registration Statement, after the
Registration Statement becomes effective.
b. Delivery of the Initial International Securities against payment
of the purchase price therefor by certified or official bank check or
checks or wire transfer in next-day funds, payable to the order of the
Company shall take place at the offices of the clearing broker for the
International Underwriter at New York City, within three (3) business days
after the Initial International Securities are first traded (or such other
place as may be designated by agreement between you and the Company) at
11:00 A.M., New York time or such time and date as you and the Company may
agree upon in writing, such time and date of payment and delivery for the
Initial International Securities being herein called the "Initial Closing
Date."
The Company will make the certificates for the shares of Common
Stock to be purchased by the International Underwriters hereunder
available to the International Underwriters for inspection and packaging
at least two (2) full business days prior to the Initial Closing Date. The
certificates shall be in such names and denominations as the International
Underwriters may request to the Company in writing at least two (2) full
business days prior to any Closing Date.
2
<PAGE>
c. In addition, subject to the terms and conditions of this
Agreement and on the basis of the representations, warranties and
agreements herein contained, the Company grants an option to the
International Underwriters to purchase up to an additional 105,000 shares
of Common Stock (" International Option Securities") at the same terms as
the International Underwriters shall pay for the Initial International
Securities being sold by the Company pursuant to the provisions of Section
2(a) hereof. This option may be exercised from time to time, for the
purpose of covering overallotments, within forty-five (45) days after (i)
the effective date of the Registration Statement if the Company has
elected not to rely on Rule 430A under the Rules and Regulations or (ii)
the date of this Agreement if the Company has elected to rely upon Rule
430A under the Rules and Regulations, upon written notice by the
International Underwriter setting forth the number of International Option
Securities as to which the International Underwriter is exercising the
option and the time and date at which such certificates are to be
delivered. Such time and date shall be determined by the International
Underwriter but shall not be earlier than four (4) nor later than ten (10)
full business days after the date of the exercise of said option. Nothing
herein shall obligate the International Underwriter to make any
overallotment.
d. Definitive certificates in negotiable form for the Initial
International Securities to be purchased by the International Underwriter
hereunder will be delivered at the closing by the Company to the
International Underwriters against payment of the purchase price by the
International Underwriters by certified or bank cashier's checks or wire
transfer in next day funds payable to the order of the Company.
e. The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Initial International Securities
and the information set forth in the third full paragraph on page 2
concerning stabilization and over-allotment by the International
Underwriters, and (insofar as such information relates to the
International Underwriters) constitutes the only information furnished by
the International Underwriter to the Company for inclusion therein, and
you represent and warrant to the Company that the statements made therein
are correct.
f. On the Initial Closing Date, the Company shall issue and sell to
the International Representative, warrants (the "International
Representative's Warrants") at a purchase price of $.01 per
Representative's Warrant, which shall entitle the holders thereof to
purchase an aggregate of 70,000 shares of Common Stock. The shares of
common stock issuable upon the exercise of the Representative's Warrants
are hereafter referred to as the "International Representative's
Securities" or "International Representative's Warrants." The
International Representative's Warrants shall be exercisable for a period
of four (4) years commencing twelve (12) months from the effective date of
the Final Prospectus at a price equaling one hundred twenty percent (120%)
of the initial public offering price of the Initial International
Securities. The form of Representative's Warrant Certificate shall be
substantially in the form filed as an Exhibit to the Registration
Statement. Payment for the International Representative's Warrant shall be
made on the Initial Closing Date.
3. Representations and Warranties of the Company.
a. The Company represents and warrants to you as follows:
(1) The Company has prepared and filed with the Commission a
registration statement, and an amendment or amendments thereto, on
Form SB-2 (No.333-64393), including any related preliminary
prospectus ("Preliminary Prospectus"), for the registration of the
Initial International
3
<PAGE>
Securities, the International Option Securities, the International
Representative's Warrant (sometimes referred to herein collectively
as the "International Securities"), under the Act, which
registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the
Act, and the Rules and Regulations. The Company will promptly file a
further amendment to said registration statement in the form
heretofore delivered to the International Underwriter and will not
file any other amendment thereto to which the International
Underwriter shall have objected verbally or in writing after having
been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file
with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, any
schedules, exhibits and all other documents filed as a part thereof
or that may be incorporated therein (including, but not limited to
those documents or information incorporated by reference therein)
and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations), is hereinafter called the "Registration Statement,"
and the form of prospectus in the form first filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations, is
hereinafter called the "Prospectus."
(2) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any
Prospectus or the Registration Statement and no proceeding for an
order suspending the effectiveness of the Registration Statement or
any of the Company's securities has been instituted or is pending or
threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act
and the Rules and Regulations and on its date did not include any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading, in light of
the circumstances under which they were made and (i) the Prospectus
and/or any supplement thereto will contain all statements which are
required to be stated therein by the Act and Rules and Regulations,
and (ii) the Prospectus and/or any supplement thereto will not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances
under which they were made; provided, however, that no
representations, warranties or agreements are made hereunder as to
information contained in or omitted from the Prospectus in reliance
upon, and in conformity with, the written information furnished to
the Company by you as set forth in Section 2(e) above.
(3) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
state of its incorporation, with full power and authority (corporate
and other) to own its properties and conduct its businesses as
described in the Prospectus and is duly qualified to do business as
a foreign corporation in good standing in all other jurisdictions in
which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to
so qualify would not have a material adverse effect on the business,
properties or operations of the Company and the subsidiaries as a
whole.
(4) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Initial International
Securities, the International Option Securities and the
International Representative's Securities; to enter into this
Agreement, the U.S. Underwriting Agreement, the Representative's
Warrant Agreement dated as of the Initial Closing Date to be
executed and delivered by the Company to the International
Representative (the "International Representative's
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Warrant Agreement"); and to consummate the transactions provided for
in such agreements. Each of such agreements has been duly and
properly authorized, and on the Initial Closing Date will be duly
and properly executed and delivered by the Company. This Agreement
and the U.S. Underwriting Agreement constitute and, on the Initial
Closing Date, with the International Representative's Warrant
Agreement will then constitute valid and binding agreements,
enforceable in accordance with their respective terms (except as the
enforceability thereof may be limited by bankruptcy or other similar
laws affecting the rights of creditors generally or by general
equitable principles and except as the enforcement of
indemnification provisions may be limited by federal or state
securities laws).
(5) Except as disclosed in the Prospectus, the Company is not
in violation of its respective certificate or articles of
incorporation or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other
evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture, partnership or other
agreement or instrument to which the Company is a party or by which
it may be bound or is not in material violation of any law, order,
rule, regulation, writ, injunction or decree of any governmental
instrumentality or court, domestic or foreign; and the execution and
delivery of this Agreement, the U.S. Underwriting Agreement and the
International Representative's Warrant Agreement; and the
consummation of the transactions contemplated therein and in the
Prospectus and compliance with the terms of each such agreement will
not conflict with, or result in a material breach of any of the
terms, conditions or provisions of, or constitute a material default
under, or result in the imposition of any material lien, charge or
encumbrance upon any of the property or assets of the Company
pursuant to, any material bond, debenture, note or other evidence of
indebtedness or any material contract, indenture, mortgage, loan
agreement, lease, joint venture, partnership or other agreement or
instrument to which the Company is a party nor will such action
result in the material violation by the Company of any of the
provisions of its respective certificate or articles of
incorporation or bylaws or any law, order, rule, regulation, writ,
injunction, decree of any government, governmental instrumentality
or court, domestic or foreign, except where such violation will not
have a material adverse effect on the financial condition of the
Company.
(6) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus and the Company will
have the adjusted capitalization set forth therein on the Initial
Closing Date; all of the shares of issued and outstanding capital
stock of the Company set forth therein have been duly authorized,
validly issued and are fully paid and nonassessable; the holders
thereof do not have any rights of rescission with respect therefor
and are not subject to personal liability for any obligations of the
Company by reason of being stockholders under the laws of the state
in which the Company is incorporated; none of such outstanding
capital stock is subject to or was issued in violation of any
preemptive or similar rights of any stockholder of the Company; and
such capital stock (including the Initial International Securities,
the Option Securities and the International Representative's
Securities) conforms in all material respects to all statements
relating thereto contained in the Prospectus.
(7) The Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for
this Agreement, the U.S. Underwriting Agreement, the International
Representative's Warrant Agreement, and as described in the
Prospectus. The Initial International
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Securities, the International Option Securities and the
International Representative's Securities are not and will not be
subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof and thereof, will
be validly issued, fully paid and non-assessable and will conform to
the respective descriptions thereof contained in the Prospectus;
except for payment of the applicable purchase price payable upon
exercise of the options or warrants, as the case may be, the holders
thereof will not be subject to any liability solely as such holders;
all corporate action required to be taken for the authorization,
issue and sale of the Initial International Securities, the
International Option Securities and the International
Representative's Securities has been duly and validly taken; and the
certificates representing the Initial International Securities, the
International Option Securities and the International
Representative's Securities will be in due and proper form. Upon the
issuance and delivery pursuant to the terms of this Agreement, the
U.S. Underwriting Agreement and the International Representative's
Warrant Agreement of the Initial International Securities, the
Option Securities and the Representative's Securities to be sold by
the Company hereunder, the International Underwriter will acquire
good and marketable title to such securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction of any kind whatsoever other than restrictions
as may be imposed under the securities laws.
(8) The Company has good and marketable title to all
properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions,
except such as are described or referred to in the Prospectus or
which are not materially significant or important in relation to its
business or which have been incurred in the ordinary course of
business; except as described in the Prospectus, all of the leases
and subleases under which the Company holds properties or assets as
lessee or sublessee as described in the Prospectus are in full force
and effect, and the Company is not in material default in respect of
any of the terms or provisions of any of such leases or subleases,
and no claim has been asserted by anyone adverse to the Company's
rights as lessor, sublessor, lessee or sublessee under any of the
leases or subleases mentioned above or affecting or questioning the
Company's right to the continued possession of the leased or
subleased premises or assets under any such lease or sublease; and
the Company owns or leases all such properties as are necessary to
its operations as now conducted and as contemplated to be conducted,
except as otherwise stated in the Prospectus.
(9) The financial statements, together with related notes, set
forth in the Prospectus fairly present the financial position and
results of operations of the Company at the respective dates and for
the respective periods to which they apply. Said statements and
related notes have been prepared in accordance with generally
accepted accounting principles applied on a basis which is
consistent in all material respects during the periods involved but
any stub period has not been audited by an independent accounting
firm. There has been no material adverse change or material
development involving a prospective change in the condition,
financial or otherwise, or in the prospects, value, operation,
properties, business or results of operations of the Company whether
or not arising in the ordinary course of business, since the date of
the financial statements included in the Registration Statement and
the Prospectus.
(10) Subsequent to the respective dates as of which
information is given in the Prospectus as it may be amended or
supplemented, and except as described in the Prospectus, the Company
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has not, directly or indirectly, incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of
business or entered into any transactions not in the ordinary course
of business, which are material to the business of the Company as a
whole and there has not been any change in the capital stock of, or
any incurrence of long term debts by, the Company or any issuance of
options, warrants or rights to purchase the capital stock of the
Company or declaration or payment of any dividend on the capital
stock of the Company or any material adverse change in the condition
(financial or otherwise), net worth or results of operations of the
Company as a whole and the Company has not become a party to, any
material litigation whether or not in the ordinary course of
business.
(11) To the knowledge of the Company, there is no pending or
threatened, action, suit or proceeding to which the Company is a
party before or by any court or governmental agency or body, which
might result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Company as a
whole or might materially and adversely affect the properties or
assets of the Company as a whole nor are there any actions, suits or
proceedings against the Company related to environmental matters or
related to discrimination on the basis of age, sex, religion or race
which might be expected to materially and adversely affect the
conduct of the business, property, operations, financial condition
or earnings of the Company as a whole; and no labor disturbance by
the employees of the Company individually exists or is, to the
knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company
as a whole.
(12) Except as may be disclosed in the Prospectus, the Company
has properly prepared and filed all necessary federal, state, local
and foreign income and franchise tax returns, has paid all taxes
shown as due thereon, has established adequate reserves for such
taxes which are not yet due and payable, and does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(13) The Company has sufficient licenses, permits, right to
use trade or service marks and other governmental authorizations
currently required for the conduct of its business as now being
conducted and as contemplated to be conducted and the Company is in
all material respects complying therewith. Except as set forth in
the Prospectus, the expiration of any such licenses, permits, or
other governmental authorizations would not materially affect the
Company's operations. To its knowledge, none of the activities or
businesses of the Company are in material violation of, or cause the
Company to materially violate any law, rule, regulations, or order
of the United States, any state, county or locality, or of any
agency or body of the United States or of any state, county or
locality.
(14) The Company has not at any time (i) made any
contributions to any candidate for political office in violation of
law, or failed to disclose fully any such contribution, or (ii) made
any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi
public duties, other than payments required or allowed by applicable
law.
(15) Except as set forth in the Prospectus the Company knows
of no outstanding claims for services either in the nature of a
finder's fee, brokerage fee or otherwise with respect to this
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financing for which the Company or the International Underwriters
may be responsible, except as otherwise disclosed in the Prospectus
or known by the International Underwriters.
(16) The Company has its property adequately insured against
loss or damage by fire and maintains such other insurance as is
customarily maintained by companies in the same or similar business.
(17) The International Representative's Warrants herein
described are duly and validly authorized and upon delivery to the
International Representative in accordance herewith will be duly
issued and legal, valid and binding obligations of the Company,
except as the enforceability thereof may be limited by bankruptcy or
other similar laws affecting the rights of creditors generally or by
equitable principles, and except as the enforcement of
indemnification provisions may be limited by federal or state
securities laws.
The International Representative's Securities issuable upon
exercise of any of the International Representative's Warrants have
been duly authorized, and when issued upon payment of the exercise
price therefor, will be validly issued, fully paid and
nonassessable.
(18) Except as set forth in the Prospectus, no default exists
in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement,
purchase order, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company
may be bound or to which the property or assets (tangible or
intangible) of the Company is subject or affected.
(19) To the best of the Company's knowledge it has generally
enjoyed a satisfactory employer-employee relationship with its
employees and, to the best of its knowledge, is in substantial
compliance in all material respects with all federal, state, local,
and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages
and hours. To the best of the Company's knowledge, there are no
pending investigations involving the Company, by the U.S. Department
of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and
regulations. To the best of the Company's knowledge, there is no
unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or
threatened against or to its knowledge involving the Company, or any
predecessor entity, and none has ever occurred. To the best of the
Company's knowledge, no representation question is pending
respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently being
negotiated by the Company. To the best of the Company's knowledge,
no grievance or arbitration proceeding is pending or to its
knowledge threatened under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the
employees of the Company is pending, or, to its knowledge is
imminent; and the Company is not aware of any pending or imminent
labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors which may result in any
material adverse change in the condition, financial or otherwise, or
in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the
Company.
8
<PAGE>
(20) Except as may be set forth in the Registration Statement,
the Company does not maintain, sponsor or contribute to any program
or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan," or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(l) and 3(37), respectively, of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or
contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any
trust created thereunder) has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code (the "Code"), which could subject the Company
to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code
and ERISA as they relate to any such ERISA Plan. Determination
letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code
Section 401 (a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. The Company has never completely or
partially withdrawn from a "multiemployer plan."
(21) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and
Regulations) has taken or will take, directly or indirectly, any
action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
International Securities, International Option Securities,
International Representative's Securities or otherwise.
(22) None of the patents, patent applications, trademarks,
service marks, trade names, copyrights, and licenses and rights to
the foregoing presently owned or held by the Company, are in dispute
or, to the best knowledge of the Company's management are in any
conflict with the right of any other person or entity. The Company,
(i) except as disclosed in the Prospectus, owns or has the right to
use, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or
proposed to be conducted without infringing upon or otherwise acting
adversely to the right or claimed right of any person, corporation
or other entity under or with respect to any of the foregoing, and
(ii) except as set forth in the Prospectus or otherwise disclosed to
the International Underwriter in writing, to the best knowledge of
the Company's management is not obligated or under any liability
whatsoever to make any material payments by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any
patent, trademark, service mark, trade name, copyright, know-how,
technology or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or
otherwise.
(23) Except as disclosed in the Prospectus, the Company owns
and has adequate right to use to the best knowledge of the Company's
management all trade secrets, formulas, copyrights, know-how
(including all other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions,
trademarks, service marks, trade names, designs, processes, works of
authorship, computer programs and technical data and information
(collectively herein "intellectual property") required for or
incident to the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the Company.
The Company is not aware of any such development of similar or
identical trade
9
<PAGE>
secrets or technical information by others. The Company has valid
and binding confidentiality agreements with all of its officers,
covering its intellectual property (subject to the equitable powers
of any court), which agreements have remaining terms of at least two
years from the effective date of the Registration Statement except
where the failure to have such agreements would not materially and
adversely effect the Company's business taken as a whole. The
Company has good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all
liens, charges, claims, encumbrances, pledges, security interests,
defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes
not yet due and payable.
(24) Deloitte & Touche LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules
and Regulations.
(25) The Company has agreed to cause to be duly executed
agreements pursuant to which each of the Company's officers and
directors, holders of 5% or more (the "5% Holders") of the
outstanding shares of the Company's stock and the holders of 553,896
stock options ("Option Holders") have agreed not to, directly or
indirectly, sell, assign, transfer, or otherwise dispose of any
shares of Common Stock or securities convertible into, exercisable
or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the
Rules and Regulations or otherwise) for a period of not less than
twelve (12) months following such effective date without the prior
written consent of the International Underwriter. The 5% Holders and
the Option Holders have further agreed with and for the
International Representative not to sell or transfer any of their
shares unless the share market price, adjusted for splits and like
transactions, closes at or above $20.00 for a period of 20
consecutive days within 10 days prior to sale by them. The Company
will cause the Transfer Agent, as defined below, to mark an
appropriate legend on the face of stock certificates representing
all of such securities and to place "stop transfer" orders on the
Company's stock ledgers.
(26) The Registered Securities have been approved for listing
on NASDAQ or an Exchange.
(27) Except as set forth in the Prospectus or disclosed in
writing to the International Underwriter (which writing specifically
refers to this Section), no officer or director of the Company,
holder of 5% or more of securities of the Company or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated
under the Rules and Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an
interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to
be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) has a
beneficiary interest in any contract or agreement to which the
Company is a party or by which it may be bound or affected. Except
as set forth in the Prospectus under "Certain Transactions" or
disclosed in writing to the International Underwriter (which writing
specifically refers to this Section), there are no existing
agreements, arrangements, understandings or transactions, or
proposed agreements, arrangements, understandings or transactions,
between or among the Company, and any officer, director,
10
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principal stockholder of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(28) Any certificate signed by any officer of the Company, and
delivered to the International Underwriter or to the International
Underwriter's counsel (as defined herein) shall be deemed a
representation and warranty by the Company to the International
Underwriter as to the matters covered thereby.
(29) Each of the minute books of the Company has been made
available to the International Underwriter and contains a complete
summary of all meetings and actions of the directors and
stockholders of the Company, since the time of its incorporation and
reflect all transactions referred to in such minutes accurately in
all respects.
(30) Except and only to the extent described in the Prospectus
or disclosed in writing to the International Underwriter (which
writing specifically refers to this Section), no holders of any
securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right
to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company
or to require the Company to file a registration statement under the
Act and no person or entity holds any anti-dilution rights with
respect to any securities of the Company. Except as disclosed in the
Prospectus, all rights so described or disclosed have been waived or
have not been triggered with respect to the transactions
contemplated by this Agreement, the U.S. Underwriting Agreement and
the Representative's Warrant Agreement (including the warrants
issuable thereunder).
(31) The Company has not entered into any employment
agreements with its executive officers, except as disclosed in the
Prospectus.
(32) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other
body, domestic or foreign, is required for the issuance of the
International Registered Securities pursuant to the Prospectus and
the Registration Statement, the issuance of the International
Underwriter's Warrants, the performance of this Agreement, the U.S.
Underwriting Agreement, the International Representative's Warrant
Agreement, and the transactions contemplated hereby and thereby,
including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the
issue and/or sale of any of the Initial International Securities,
the International Option Securities and the International
Underwriter's Securities, except such as have been or may be
obtained under the Act, otherwise or may be required under state
securities or blue sky laws in connection with the International
Underwriter's purchase and distribution of the Initial International
Securities, the International Option Securities, the International
Representative's Securities and the International Underwriter's
Warrants to be sold by the Company hereunder.
(33) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as
exhibits to the Registration Statement to which the Company is a
party or by which it may be bound or to which its assets, properties
or businesses may be subject have been duly and validly authorized,
executed and delivered by the Company and constitute the legal,
valid and binding agreements of the Company, enforceable against the
Company, in accordance with their respective terms. The descriptions
in the
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Registration Statement of agreements, contracts and other documents
are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2, and there are no contracts or
other documents which are required by the Act to be described in the
Registration Statement or filed as exhibits to the Registration
Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of
the documents of which they purport to be copies.
(34) Within the past five (5) years, none of the Company's
independent public accountants has brought to the attention of the
Company's management any "material weakness" as defined in the
Statement of Auditing Standard No. 60 in any of the Company's
internal controls.
4. Covenants of the Company. The Company covenants and agrees with you
that:
a. It will cooperate in all respects in making the Prospectus
effective and will not at any time, whether before or after the effective
date, file any amendment to or supplement to the Prospectus of which you
shall not previously have been advised and furnished with a copy or to
which you or your counsel shall have reasonably objected or which is not
in material compliance with the Act and the Rules and Regulations.
As soon as the Company is advised thereof, the Company will advise
you, and confirm the advice in writing, of the receipt of any comments of
the Commission or any state securities department, when the Registration
Statement becomes effective if the provisions of Rule 430A promulgated
under the Act will be relied upon, when the Prospectus has been filed in
accordance with said Rule 430A, of the effectiveness of any posteffective
amendment to the Registration Statement or Prospectus, or the filing of
any supplement to the Prospectus or any amended Prospectus, of any request
made by the Commission or any state securities department for amendment of
the Prospectus or for supplementing of the Prospectus or for additional
information with respect thereto, of the issuance of any stop order
suspending the effectiveness of the Prospectus or any order preventing or
suspending the use of any Prospectus or any order suspending trading in
the Common Stock of the Company, or of the suspension of the qualification
of the Initial International Securities, the International Option
Securities or the International Representatives Securities for offering in
any jurisdiction, or of the institution of any proceedings for any such
purposes, and will use its best efforts to prevent the issuance of any
such order and, if issued, to obtain as soon as possible the lifting or
dismissal thereof.
The Company has caused to be delivered to you copies of such
Prospectus, and the Company has consented and hereby consents to the use
of such copies for the purposes permitted by law. The Company authorizes
you and the dealers to use the Prospectus and such copies of the
Prospectus in connection with the sale of the Initial International
Securities, the International Option Securities and the International
Representative's Securities for such period as in the opinion of your
counsel and our counsel the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. The
Company will prepare and file with the states, promptly upon your request,
any such amendments or supplements to the Prospectus, and take any other
action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Initial International
Securities, the International Option Securities and the International
Underwriter's Securities and will use its best efforts to cause the same
to become effective as promptly as possible.
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The Company shall file the Prospectus (in form and substance
satisfactory to the International Underwriter) or transmit the Prospectus
by a means reasonably calculated to result in filing with the Commission
pursuant to rule 424(b)(1) or pursuant to Rule 424(b)(3) not later than
the Commission's close of business on the earlier of (i) the second
business day following the execution and delivery of this Agreement, and
(ii) the fifth business day after the effective date of the Registration
Statement.
In case of the happening, at any time within such period as a
Prospectus is required under the Act to be delivered in connection with
the sale of the Initial International Securities, the International Option
Securities and the International Representative's Securities of any event
of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required under the Act to be
delivered, or in case it shall be necessary to amend or supplement the
Prospectus to comply with the Act, the Rules and Regulations or any other
law, the Company will forthwith prepare and furnish to you copies of such
amended Prospectus or of such supplement to be attached to the Prospectus,
in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they are made. The
preparation and furnishing of any such amendment or supplement to the
Prospectus or supplement to be attached to the Prospectus shall be without
expense to you.
The Company will to the best of its ability comply with the Act, the
Exchange Act and applicable state securities laws so as to permit the
initial offer and sales of the Initial International Securities, the
International Option Securities and the International Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
b. It will cooperate to qualify the Initial International Securities
and the International Option Securities and the International
Representative's Securities for initial sale under the securities laws of
such jurisdictions as you may designate and will make such applications
and furnish such information as may be required for that purpose, provided
the Company shall not be required to qualify as a foreign corporation or a
dealer in securities. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue
such qualification in effect for so long as the International Underwriter
may reasonably request.
c. So long as any of the Initial International Securities, the
International Option Securities or the International Representative's
Securities remain outstanding in the hands of the public, the Company, at
its expense, will annually furnish to its shareholders a report of its
operations to include financial statements audited by independent public
accountants, and will furnish to the International Underwriter as soon as
practicable after the end of each fiscal year, a balance sheet of the
Company as at the end of such fiscal year, together with statements of
operations, shareholders' equity, and changes in cash flow of the Company
for such fiscal year, all in reasonable detail and accompanied by a copy
of the certificate or report thereon of independent public accountants.
d. It will deliver to you at or before the Initial Closing Date
three signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, whether or not incorporated by
reference. The Company will deliver to you, from time to time until the
effective
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date of the Prospectus, as many copies of the Prospectus as you may
reasonably request. The Company will deliver to you on the effective date
of the Prospectus and thereafter for so long as a Prospectus is required
to be delivered under the Act and the Rules and Regulations as many copies
of the Prospectus, in final form, or as thereafter amended or
supplemented, as you may from time to time reasonably request.
e. The Company will apply the net proceeds from the sale of the
Initial International Securities and the International Option Securities
substantially in the manner set forth under "Use of Proceeds" in the
Prospectus. No portion of the proceeds shall be used, directly or
indirectly, to acquire any securities issued by the Company, without the
prior written consent of the International Underwriter.
f. As soon as it is practicable, but in any event not later than the
first (lst) day of the fifteenth (15th) full calendar month following the
effective date of the Registration Statement, the Company will make
available to its security holders and the International Underwriter an
earnings statement (which need not be audited) covering a period of at
least twelve (12) consecutive months beginning after the effective date of
the Registration Statement, which shall satisfy the requirements of
Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations.
g. Non-Accountable Expense Allowance and other Costs and Expenses.
The Company shall pay to the International Underwriter at each
closing date, an amount equal to three percent (3%) of the gross proceeds
received by the Company from the sale of the Initial International
Securities and the International Option Securities at such closing date.
If the sale of the Initial International Securities by the International
Underwriter is not consummated for any reason not attributable to the
International Underwriter, or if (i) the Company withdraws the
Registration Statement from the Commission or does not proceed with the
public offering, or (ii) the representations in Section 3 hereof are not
correct or the covenants cannot be complied with, or (iii) there has been
a materially adverse change in the condition, prospects or obligations of
the Company or a materially adverse change in stock market conditions from
current conditions, all as determined by the International Underwriter,
then the Company shall reimburse the International Underwriter for its out
of pocket expenses including without limitation, its legal fees and
disbursements all on an accountable basis.
Costs and Expenses. Subject to the provisions above, the Company
will pay all costs and expenses incident to the performance of this
Agreement, the U.S. Underwriting Agreement and the International
Representative's Warrant Agreement including, but not limited to, the fees
and expenses of counsel to the Company and of the Company's accountants;
the costs and expenses incident to the preparation, printing, filing and
distribution under the Act of the Registration Statement and Prospectus
(including the fee of the Commission, any securities exchange and the
NASD; all expenses, including fees of counsel, which shall be due and
payable on the Closing Date in connection with the qualification of the
International Securities under the state securities or blue sky laws; the
cost of furnishing to you copies of the Prospectus; the cost of printing
the certificates representing the International Securities and of
preparing and photocopying this Agreement, the U.S. Underwriting
Agreement, the International Representative's Warrant Agreement and
related Underwriting documents; the cost of three underwriter's bound
volumes; any advertising costs and expenses, including but not limited to
the Company's expenses on "road show" information meetings and
presentations, prospectus memorabilia, issue and transfer taxes, if any.
The Company will also
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pay all costs and expenses incident to the furnishing of any amended
Prospectus of or any supplement to be attached to the Prospectus.
h. As a condition of the closing, the Company shall obtain from its
officers and directors of the Company written commitments restricting the
sale of 100% of their common stock for (12) months after the closing.
i. During the period ending five years after the date hereof, the
Company will make available to its shareholders, as soon as practicable,
and deliver to the International Underwriter:
(1) as soon as they are available, copies of all reports
(financial or other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
(3) every press release and every material news item or
article of interest to the financial community in respect of the
Company or its affairs which was prepared and released by or on
behalf of the Company; and
(4) any additional information of a public nature concerning
the Company (and any future subsidiaries) or its businesses which
the International Underwriter may request.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a
consolidated basis to the extent that the accounts of the Company
and its subsidiaries are consolidated, and will be accompanied by
similar financial statements for any significant subsidiary which is
not so consolidated.
j. The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which
may be the same entity as the Transfer Agent) for its Common Stock.
k. The Company will furnish to the International Underwriter or on
the International Underwriter's order, without charge, at such place as
the International Underwriter may designate, copies of each Preliminary
Prospectus, the Final Prospectus the Registration Statement and any
pre-effective or post-effective amendments thereto (two of which copies
will be signed and will include all financial statements and exhibits),
the Prospectus, and all amendments and supplements thereto, including any
prospectus prepared after the effective date of the Registration
Statement, in each case as soon as available and in such quantities as the
International Underwriter may request.
l. Neither the Company nor any of its officers, directors,
stockholders or any of its affiliates will take, directly or indirectly,
any action designed to, or which might in the future reasonably be
expected to cause or result in stabilization or manipulation of the price
of any of the Company's securities.
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<PAGE>
m. The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms
and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
n. The Company shall cause the Initial International Securities to
be listed on the NASDAQ Small Cap Market or on an exchange for a period of
five (5) years from the date hereof, and use its best efforts to maintain
the listing of the Securities to the extent they are outstanding.
o. As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing for
the registration under the Exchange Act of the Securities and (ii) but in
no event more than 30 days from the effective date of the Registration
Statement, take all necessary and appropriate actions to be included in
Standard and Poor's Corporation Descriptions and/or Moody's OTC Manual and
to continue such inclusion for a period of not less than five years if the
securities are not listed on an exchange. The Company also agrees to take
such steps as may be necessary to comply with the requirements of any
state to be in compliance with the aftermarket provisions of Section 18 of
the Securities Act of 1933, as amended, and as further amended by the
National Securities Markets Improvement Act of 1996.
p. Until the completion of the distribution of the Initial
International Securities, the Company shall not without the prior written
consent of the International Underwriter and its counsel which consent
shall not be unreasonably withheld or delayed, issue, directly or
indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in 'the ordinary
course of the Company's business consistent with past practices with
respect to the Company's operations.
q. Until the earlier of five (5) years from the date hereof, the
Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 (or other appropriate form) for
the registration under the Act of the International Representative's
Securities.
5. Conditions of the International Underwriter's Obligations. The
obligation of the International Underwriters to offer and sell the Initial
International Securities and the International Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing
Dates) of and compliance with the representations and warranties of the
Company to the performance by it of its agreement and obligations
hereunder and to the following additional conditions:
a. The Registration Statement shall have become effective as and
when cleared by the Commission, and you shall have received notice
thereof; on or prior to any closing date, no stop order suspending the
effectiveness of the Prospectus shall have been issued and no proceedings
for that or similar purpose shall have been instituted or shall be
pending, or, to your knowledge or to the knowledge of the Company, shall
be contemplated by the Commission; any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the International Underwriter; and
no stop order shall be in
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effect denying or suspending effectiveness of such qualification nor shall
any stop order proceedings with respect thereto be instituted or pending
or threatened under such law.
b. On any Closing Date and, with respect to the letter referred to
in subparagraph (3), as of the date hereof, you shall have received:
(1) the opinion, together with such number of signed or
facsimile copies of such opinion as you may reasonably request,
addressed to you by Gardner, Carton & Douglas, counsel for the
Company, in form and substance reasonably satisfactory to the
International Underwriter, dated each such closing date, to the
effect that:
(A) The Company has been duly incorporated and is a
validly existing corporation in good standing under the laws
of the jurisdiction in which it is incorporated and has all
necessary corporate power and authority to carry on its
business as described in the Prospectus.
(B) The Company is qualified to do business in each
jurisdiction in which conducting its business requires such
qualification, except where the failure to be so qualified
would not have a material adverse effect on the Company's
business or assets.
(C) The Company has full legal right, power and
authority to authorize, issue, deliver and sell the
International Securities and the International
Representative's Securities. The Company has the full
corporate power and authority to enter into this Agreement,
the U.S. Underwriting Agreement, the International
Representative's Warrant Agreement and to consummate the
transactions provided for therein. Each such agreement has
been duly and validly authorized, executed and delivered by
the Company. Each of this Agreement, the U.S. Underwriting
Agreement and the Representative's Warrant Agreement, assuming
due authorization, execution and delivery by each other party
thereto, constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency or similar laws
governing the rights of creditors and to general equitable
principles, and provided that no opinion need be given as to
the enforceability of any indemnification or contribution
provisions, and none of the Company's execution or delivery of
this Agreement, the U.S. Underwriting Agreement or the
International Representative's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of
its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result
in any material breach or violation of any of the terms or
provisions of, or constitutes or will constitute a material
default under, or result in the creation or imposition of any
material lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction of any kind whatsoever
upon, any property or assets (tangible or intangible) of the
Company pursuant to the terms of (A) the articles of
incorporation or by-laws of the Company, (B) to the knowledge
of such counsel, any material license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders'
agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by
which it is or may be bound, or (C) to the knowledge of such
counsel, any statute,
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judgment, decree, order, rule or regulation applicable to the
Company, whether domestic or foreign.
(D) The Company had authorized and outstanding capital
stock as set forth in the Prospectus under the heading
"Capitalization" as of the date set forth therein, and all of
such issued and outstanding shares of capital stock have been
duly and validly authorized and issued, and to the knowledge
of such counsel are fully paid and nonassessable, and to the
knowledge of such counsel no stockholder of the Company is
entitled to any preemptive rights to subscribe for, or
purchase shares of the capital stock and to the knowledge of
such counsel none of such securities were issued in violation
of the preemptive rights of any holders of any securities of
the Company.
(E) To the knowledge of such counsel, the Company is not
a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this
Agreement, the U.S. Underwriting Agreement, the International
Representative's Warrant Agreement, and except as described in
the Prospectus. The International Securities and the
International Representative's Securities are not subject to
any preemptive or other similar rights of any stockholder,
have been duly authorized and, when issued, paid for and
delivered in accordance with the terms of this Agreement, the
U.S. Underwriting Agreement and the Representative's Warrant
Agreement, will be validly issued, fully paid and
non-assessable and will conform to the respective descriptions
thereof contained in the Prospectus; except for payment of the
applicable purchase price paid upon exercise of the options or
warrants, as the case may be, the holders thereof will not be
subject to any liability solely as such holders.
(F) The certificates representing the International
Securities comprising the Common Stock are in due and proper
form and the International Representative's Warrant has been
duly authorized and the shares of Common Stock to be issued
pursuant hereto and upon exercise of the International
Representative's Warrant have been reserved for issuance and
when issued and delivered in accordance with the respective
terms of this Agreement and the International Representative's
Warrant Agreement will duly and validly issued, fully paid and
nonassessable. All corporate action required to be taken for
the authorization, issue and sale of the International
Securities and the International Representative's
International Securities has been duly and validly taken. Upon
the issuance and delivery pursuant to the terms of this
Agreement, the U.S. Underwriting Agreement and the
Representative's Warrant Agreement of the Securities and the
International Representative's Securities, the International
Underwriter will acquire good and marketable title to such
International Securities and International Representative's
Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other
restriction of any kind whatsoever other than restrictions as
may be imposed under the securities laws.
(G) To the knowledge of such Counsel, there is no
pending or threatened, action, suit or proceeding to which the
Company is a party before or by any court or governmental
agency or body, which might result in any material adverse
change in the condition (financial or otherwise), business or
prospects of the Company as a whole or
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might materially and adversely affect the properties or assets
of the Company as a whole nor are there any actions, suits or
proceedings against the Company related to environmental
matters or related to discrimination on the basis of age, sex,
religion or race which might be expected to materially and
adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as
a whole; and no labor disturbance by the employees of the
Company individually exists or is, to the knowledge of the
Company, imminent which might be expected to materially and
adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as
a whole.
(H) Based on oral and/or written advice from the staff
of the Commission, the Registration Statement has been
declared effective; any required filing of the Final
Prospectus pursuant to Rule 424(b) has been made in the manner
and within the time period required by Rule 424(b); and, to
the knowledge of such counsel, no stop order suspending the
effectiveness of the Prospectus is in effect and no
proceedings for that purpose are pending before, or threatened
by, federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal
or governmental proceedings, actions, arbitrations,
investigations, inquiries or the like pending or threatened
against the Company of a character required to be disclosed in
the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this
Agreement, the U.S. Underwriting Agreement or the
International Representative's Warrant Agreement or might
adversely affect the condition, financial or otherwise, or the
prospects of the Company or which could adversely affect the
Company's ability to perform any of its obligations under this
Agreement, the U.S. Underwriting Agreement or the
International Representative's Warrant Agreement.
(J) To such counsel's knowledge, there are no statutes
or regulations that are required to be described in the
Prospectus that are not described as required.
(K) To such counsel's knowledge, there are no material
agreements, contracts or other documents known to such counsel
required by the Act to be described in the Registration
Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the
Registration Statement and the Prospectus and filed as
exhibits thereto, and to such counsel's knowledge (i) the
exhibits which have been filed are correct copies of the
documents of which they purport to be copies; (ii) the
descriptions in the Registration Statement and the Prospectus
and any supplement or amendment thereto of contracts and other
documents to which the Company is a party or by which it is
bound, including any document to which the Company is a party
or by which it is bound incorporated by reference into the
Prospectus and any supplement or amendment thereto, are
accurate in all material respects and fairly represent the
information required to be shown by Form SB-2.
(L) No consent, approval, order or authorization from
any regulatory board, agency or instrumentality having
jurisdiction over the Company, or its properties (other than
registration under the Act or qualification under state or
foreign securities law or
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approval by the NASD) is required for the valid authorization,
issuance, sale and delivery of the International Securities,
the International Option Securities or the International
Representative's Warrant.
(M) The statements in the Prospectus under "Risk
Factors- Dependence on Key Personnel," "Risk Factors-NASDAQ
Stock Market; Boston Stock Exchange," "Risk Factors-Penny
Stock Regulations," "Risk Factors-Limitation of Liability and
Indemnification," "Management's Discussion and Analysis of
Financial Condition and Results of Operation-Government
Regulation," "Management's Discussion and Analysis of
Financial Condition and Results of Operation-Litigation,"
"Management and Key Scientific Personnel-Employment
Agreements," "Management and Key Scientific
Personnel-Consulting Arrangements," "Certain U.S. Tax
Considerations Applicable to Non-U.S. Holders of the Common
Stock," "Description of the Securities," and "Shares Eligible
For Future Sale" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions,
are correct in all material respects.
In addition, such counsel shall state that such counsel
has participated in conferences with officials and other
representatives of the Company, the International
Representatives, International Underwriters' Counsel and the
independent certified public accountants of the Company, at
which such conferences the contents of the Registration
Statement and Prospectus and related matters were discussed,
and although they have not certified the accuracy or
completeness of the statements contained in the Registration
Statement or the Prospectus, nothing has come to the attention
of such counsel which leads them to believe that, at the time
the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any
later date on which International Option Shares are to be
purchased, the Registration Statement and any amendment or
supplement, when such documents became effective or were filed
with the Commission (other than the financial statements
including the notes thereto and supporting schedules and other
financial and statistical information derived therefrom, as to
which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading, or at the Closing
Date or any later date on which the International Option
Shares are to be purchased, as the case may be, the Prospectus
and any amendment or supplement thereto (other than the
financial statements including the notes thereto and other
financial and statistical information derived therefrom, as to
which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
Such opinion shall also cover such other matters
incident to the transactions contemplated hereby and the
offering Prospectus as you shall reasonably request. In
rendering such opinion, to the extent deemed reasonable by
them, such counsel may rely upon certificates of any officer
of the Company or public officials as to matters of fact of
which the maker of such certificate has knowledge.
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(2) a certificate, signed by the Chief Executive Officer and
the Principal Financial or Accounting Officer of the Company dated
the Closing Date, to the effect that with regard to the Company,
each of the conditions set forth in Section 5(d) have been
satisfied.
(3) a letter, addressed to the International Underwriter and
in form and substance satisfactory to the International Underwriter
in all respects (including the nonmaterial nature of the changes or
decreases, if any, referred to in clause (D) below), from, Deloitte
& Touche LLP dated, respectively, as of the effective date of the
Registration Statement and as of the Closing Date, as the case may
be:
(A) Confirming that they are independent public
accountants with respect to the Company and its consolidated
subsidiaries, if any, within the meaning of the Act and the
applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial
statements, related notes and schedules of the Company and its
consolidated subsidiaries, if any, included in the
Registration Statement examined by them comply as to form in
all material respects with the applicable accounting
requirements of the Act and the published Rules and
Regulations thereunder.
(C) Stating that, with respect to the period from
December 31, 1998, to a specified date (the specified date")
not earlier than five (5) business days prior to the date of
such letter, they have read the minutes of meetings of the
stockholders and board of directors (and various committees
thereof) of the Company and its consolidated subsidiaries, if
any, for the period from December 31, 1998 through the
specified date, and made inquiries of officers of the Company
and its consolidated subsidiaries, if any, responsible for
financial and accounting matters and, especially as to whether
there was any decrease in sales, income before extraordinary
items or net income as compared with the corresponding period
in the preceding year; or any change in the capital stock of
the Company or any change in the long-term debt or any
increase in the short-term bank borrowings or any decrease in
net current assets or net assets of the Company or of any of
its consolidated subsidiaries, if any, and further stating
that while such procedures and inquiries do not constitute an
examination made in accordance with generally accepted
auditing standards, nothing came to their attention which
caused them to believe that during the period from December
31, 1998, through the specified date there were any decreases
as compared with the corresponding period in the preceding
year in sales, income before extraordinary items or net
income; or any change in the capital stock of the Company or
consolidated subsidiary, if any, or any change in the long
term debt or any increase in the short-term bank borrowings
(other than any increase in short-term bank borrowings in the
ordinary course of business) of the Company or any
consolidated subsidiary, if any, or any decrease in the net
current assets or net assets of the Company or any
consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified
procedures (specifically set forth in such letter or letters)
as specified by the International Underwriter (after
consultations with Deloitte & Touche LLP relating to such
procedures), not constituting an audit, with respect to
certain tables, statistics and other financial data in the
Prospectus
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specified by the International Underwriter and such financial
data not included in the Prospectus but from which information
in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or
consolidated subsidiaries, if any, or from such accounting
records by analysis or computation, and having compared such
financial data with the accounting records of the Company or
the consolidated subsidiaries, if any, stating that they have
found such financial data to agree with the accounting records
of the Company.
c. All corporate proceedings and other legal matters relating to
this Agreement, the U.S. Underwriting Agreement, the Representative's
Warrant Agreement, the Prospectus and other related matters shall be
satisfactory to or approved by counsel to the International Underwriter
and you shall have received from Gardner, Carton & Douglas a signed
opinion dated as of each closing date, with respect to the incorporation
of the Company, the validity of the Securities, the form of the
Prospectus, (other than the financial statements together with related
notes and other financial and statistical data contained in the Prospectus
or omitted therefrom, as to which such counsel need express no opinion),
the execution of this Agreement, the U.S. Underwriting Agreement, the
International Representative's Warrant Agreement and other related matters
as you may reasonably require.
d. Purchase of Initial U.S. Securities. Contemporaneously with the
purchase by the International Underwriters of the Initial International
Securities under this Agreement, the U.S. Underwriters shall have
purchased the Initial U.S. Securities under the U.S. Underwriting
Agreement.
e. At each closing date, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of such
closing date; (ii) the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations and in
all material respects conform to the requirements thereof, and neither the
Prospectus nor any amendment or supplement thereto shall contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary, in light of the circumstances
under which they were made, in order to make the statements therein not
misleading; (iii) there shall have been since the respective dates as of
which information is given no material adverse change in the business,
properties or condition (financial or otherwise), results of operations,
capital stock, long-term debt or general affairs of the Company from that
set forth in the Prospectus, except changes which the Prospectus indicates
might occur after the effective date of the Prospectus, and the Company
shall not have incurred any material liabilities or material obligations,
direct or contingent, or entered into any material transaction, contract
or agreement not in the ordinary course of business other than as referred
to in the Prospectus and which would be required to be set forth in the
Prospectus; and (iv) except as set forth in the Prospectus, no action,
suit or proceeding at law or in equity shall be pending or threatened
against the Company which would be required to be set forth in the
Prospectus, and no proceedings shall be pending or threatened against the
Company or any subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would materially and adversely
affect the business, property, condition (financial or otherwise), results
of operations or general affairs of the Company.
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f. On the Initial Closing Date, the Company shall have executed and
delivered to the International Underwriter, (i) a copy of the U.S.
Underwriting Agreement substantially in the form filed as an Exhibit to
the Registration Statement in final form and substance satisfactory to the
U.S. Underwriter, (ii) the International Representatives' Warrant
Agreement substantially in the form filed as an Exhibit to the
Registration Statement in final form and substance satisfactory to the
International Underwriter, and (iii) the International Representative's
Warrants in such denominations and to such designees as shall have been
provided to the Company.
g. On or before the Initial Closing Date, the International
Securities shall have been duly approved for listing on an exchange or on
NASDAQ, Small Cap Market.
h. On or before the Initial Closing Date, there shall have been
delivered to the International Underwriter all of the Lock-up Agreements
required to be delivered pursuant to Sections 3(a)(25) and 4(h), in form
and substance satisfactory to the International Underwriter and
International Underwriter's counsel.
If any condition to the International Underwriter's obligations
hereunder to be fulfilled prior to or at the Closing Date or the relevant
Option Closing Date, as the case may be, is not so fulfilled, the
International Underwriter may terminate this Agreement or, if the
International Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
6. Conditions of the Company's Obligations. The obligation of the Company
to sell and deliver the Securities is subject to the following:
a. The provisions regarding the effective date, as described in
Section 10.
b. At the Initial Closing Date, no stop order suspending the
effectiveness of the Prospectus shall have been issued under the Act or
any proceedings therefor initiated or threatened by the Commission or by
any state securities department.
c. Tender of payment by the International Underwriter in accord with
Section 2 hereof.
The foregoing discussion of the Company's financial conditions, results of
operation and liquidity, and other portions of this Report, contain
forward-looking statements. Such statements include, but are not limited to, the
Company's expectations regarding its prospective merger with Aquis, future
financial condition and operating results, market conditions and competitive
environment. The Company's actual results could differ markedly from those
anticipated as a result of certain factors, including but not limited to, its
failure to consummate the merger with Acquis, increased price competition from
other paging companies, the further development of products and technologies
which compete with paging and the reduction of prices for such alternate
products and services.
7. Indemnification.
a. The Company agrees to indemnify and hold harmless each
International Underwriter and its employees, agents and counsel, and each
person, if any, who controls you within the meaning of the Act, against
any losses, claims, damages or liabilities, joint or several (which shall,
for any purposes
23
<PAGE>
of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), to which each International
Underwriter such employees, agents, counsel or controlling person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission made in the Prospectus, or such amendment or supplement
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, which is in reliance upon and
in conformity with written information furnished by the Company to you
specifically for use in the preparation thereof, and provided further that
the indemnity agreement contained in this subsection (a) shall not inure
to the benefit of you with respect to any person asserting any such loss,
claim, damage or liability who has purchased the International Securities
which are the subject thereof if you or any participants failed to send or
give a copy of the Prospectus to such person at or prior to the written
confirmation of the sale of such International Securities to such person
and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective
Prospectus, the indemnity agreement contained in this subsection (a) shall
not inure to the benefit of any International Underwriter (or to any
person controlling any such underwriter) from whom the person asserting
any such loss, claim, damage or liability purchased the securities
concerned to the extent that such untrue statement or omission, or alleged
untrue statement or omission, has been corrected in a later Pre-Effective
Prospectus or in the Final Prospectus unless the International Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to
such person.
b. Each International Underwriter will indemnify and hold harmless
the Company, each of its directors, each of its officers, each person, if
any, who controls the Company within the meaning of the Act against any
losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs
of defense and investigation and all attorneys' fees) to which the Company
or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission was made in the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by you specifically for use in the preparation
thereof. This indemnity will be in addition to any liability which any
International Underwriter may otherwise have.
c. Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party, similarly notified, to assume the defense
thereof, subject
24
<PAGE>
to the provisions herein stated, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not
be at the expense of the indemnifying party if the indemnifying party has
assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that, if the indemnified party is you or a
person who controls you, the fees and expenses of such counsel shall be at
the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any
impleaded parties) include both you or such controlling person and the
indemnifying party and you or such controlling person shall have been
advised by such counsel that there is a conflict of interest which would
prevent counsel for the indemnifying party from representing the
indemnifying party and you or such controlling person (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of you or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one
such action or separate but substantially similar or related actions in
the same jurisdiction or which are consolidated into the same jurisdiction
arising out of the same general allegations or circumstances, be liable
for the reasonable fees and expenses of more than one separate firm of
attorneys for you and all such controlling persons, which firm shall be
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified
party, which shall not be unreasonably withheld in light of all factors of
importance to such indemnified party.
8. Contribution. In order to provide for just and equitable contribution
under the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
International Underwriters, then the Company and the International Underwriters
in the aggregate shall contribute to the aggregate losses, claims, damages, or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) in either such case (after contribution
from others) in such proportions that the International Underwriters are
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities determined by multiplying the total amount of such losses, claims,
damages or liabilities times the commission to the International Underwriter and
dividing the product thereof by the public offering price, and the Company, if
applicable, shall be responsible for that portion of such losses, claims,
damages or liabilities determined by multiplying the total amount of such
losses, claims, damages or liabilities times the public offering price less the
commission to the International Underwriter and dividing the product thereof by
the public offering price; provided, however, that the International
Underwriters shall not be required to so contribute any amount in excess of the
underwriting discount applicable to the International Securities purchased by
the International Underwriters hereunder. If such allocation is not permitted by
applicable law, then the relative fault of the Company and the International
Underwriters in connection with the statements or omissions which resulted in
such damages and other relevant equitable considerations shall also be
considered. No person guilty of a fraudulent
25
<PAGE>
misrepresentation (within the meaning of Section 12(2) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The foregoing contribution agreement shall in no way affect
the contribution liabilities of any person having liability under Section 12 of
the Act other than the Company and the International Underwriter. As used in
this paragraph, the term "International Underwriters" includes any person who
controls the International Underwriters within the meaning of Section 15 of the
Act. If the full amount of the contribution specified in this paragraph is not
permitted by law, then any International Underwriter and each person who
controls any International Underwriter shall be entitled to contribution from
the Company, to the full extent permitted by law.
9. Effective Date. This Agreement shall become effective at 10:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Registration Statement as you in your discretion shall determine, provided,
however, that at all times the provisions of Sections 7, 8, 9 and 11 shall be
effective.
10. Termination.
a. This Agreement, may be terminated at any time prior to the
Closing Date by you if in your judgment it is impracticable to offer for
sale or to enforce contracts made by you for the sale of the International
Securities agreed to be sold hereunder by reason of (i) the Company as a
whole having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree, (ii) trading in
securities of the Company having been suspended by a state securities
administrator or by the Commission, (iii) material governmental
restrictions having been imposed on trading in securities generally (not
in force and effect on the date hereof) or trading on the New York Stock
Exchange, Hong Kong Stock Exchange, Boston Stock Exchange, or in the
over-the-counter market shall have been suspended, (iv) a banking
moratorium having been declared by federal or New York State or Hong Kong
authorities, (v) an outbreak or escalation of hostilities or other
national or international calamity having occurred, (vi) the passage by
the Congress of the United States or by any state legislative body, of any
act or measure, or the adoption of any orders, rules or regulations by any
governmental body or any authoritative accounting institute or board, or
any governmental executive, which is believed likely by you to have a
material impact on the business, financial condition or financial
statements of the Company; or (vii) any material adverse change having
occurred, since the respective dates as of which information is given in
the Prospectus, in the condition, financial or otherwise, of the Company
as a whole, whether or not arising in the ordinary course of business,
(viii) T. Stephen Thompson ceases to be employed by the Company in his
present capacity; (ix) the Securities are not listed the Boston Stock
Exchange or any other exchange or on NASDAQ.
b. If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 10 or in Section
9, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
11. Representations, Warrants and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the International Underwriter
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the
International Underwriter, the
26
<PAGE>
Company, or any of their officers or directors and will survive delivery of and
payment for the Securities.
12. Notices. All communications hereunder will be in writing and, except
as otherwise expressly provided herein, if sent to you, will be mailed,
delivered or telephoned and confirmed to you at, New China Hong Kong Securities
Limited, ___________________, ________, _________, Attn: _________,
______________; and to Immtech International, Inc., 1890 Maple Avenue, Suite
110, Evanston, Illinois 60201, Attn: T. Stephen Thompson, President.
13. Parties in Interest. This Agreement is made solely for the benefit of
the International Underwriter(s), and the Company, and their respective
controlling persons, directors and officers, and their respective successors,
assigns, executors and administrators. No other person shall acquire or have any
right under or by virtue of this Agreement.
14. Headings. The Section headings in this Agreement have been inserted as
a matter of convenience of reference and are not a part of this Agreement.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of law principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
If the foregoing correctly sets forth the understanding between the Company and
you, as International Representative of the several underwriters, please so
indicate in the space provided below for such purpose, whereupon this letter and
your acceptance shall constitute a binding agreement between us.
Very truly yours,
IMMTECH INTERNATIONAL, INC.
By: ______________________________
(Authorized Officer)
T. Stephen Thompson, President
Accepted as of the date first above written:
New China Hong Kong Securities Limited
As International Representative of the several International Underwriters
By: ________________________________
(Authorized Officer)
[Name], [Title]
27
<PAGE>
SCHEDULE I
INTERNATIONAL UNDERWRITERS
Shares of
International Underwriters Common Stock
- -------------------------- ------------
New China Hong Kong Securities Limited
TOTAL 700,000
A-1
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE. YOUR EXECUTION HEREOF WILL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND
UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
IMMTECH INTERNATIONAL, INC.
SELECTED DEALERS AGREEMENT
,
Dear Sirs:
1. Westport Resources Investment Services, Inc. named as the Underwriter
("Underwriter") in the enclosed preliminary Prospectus, proposes to offer on a
firm commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement, 300,000 shares of common stock at $ per share
("Securities") of the above Company. The Securities are more particularly
described in the enclosed preliminary Prospectus, additional copies of which
will be supplied in reasonable quantities upon request. Copies of the definitive
Prospectus will be supplied after the effective date of the Registration
Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including you
who are to act as principal and who are (i) registered with the Securities and
Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's Interpretation
with Respect to FreeRiding and Withholding and with Sections 2730, 2740, 2420,
to the extent applicable to foreign nonmember brokers or dealers, and Section
2750 of the NASD's Rules of Fair Practice. The Securities are to be offered at a
public price of $... per share. Selected Dealers will be allowed a concession of
$... per share, except as provided below. You will be notified of the precise
amount of such concession prior to the effective date of the Registration
Statement. You may reallow not in excess of $... per share to dealers who meet
the requirements set forth in this Section 2. This offer is solicited subject to
the issuance and delivery of the Securities and their acceptance by the
Underwriter, to the approval of legal matters by counsel and to the terms and
conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you and any time prior to acceptance and
no offer may be accepted by us and no sale can be made until after the
registration statement covering the Securities has become effective with the
Commission. Subject to the foregoing, upon execution by you of the Offer to
Purchase below and the return of same to us, you shall be deemed to have offered
to purchase the number of Securities set forth in your offer on the basis set
forth in paragraph 2 above. Any oral notice by us of acceptance of your offer
shall be immediately followed by written or telegraphic confirmation preceded or
accompanied by a copy of the Prospectus. If a contractual commitment arises
hereunder, all the terms of this Selected Dealers Agreement shall be applicable.
We may also make available to you an allotment to purchase
<PAGE>
this Selected Dealers Agreement shall be applicable. We may also make available
to you an allotment to purchase Securities, but such allotment shall be subject
to modification or termination upon notice from us any time prior to an exchange
of confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of Securities assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing. Selling concessions will be lost however, if any of the offered
securities purchased by you are resold within 45 days of the effective date of
the registration statement and reacquired by the managing underwriter by reason
of stabilization activities in connection with this offering.( Please note that
the concession must be repaid to the syndicate and will result in a sale price
to you that is equal to the public offering price.)
4. You agree that in reoffering said Securities, if your offer is accepted
after the effective date, you will make a bona fide public distribution of same.
You will advise us upon request of Securities purchased by you remaining unsold
and we shall have the right to repurchase such Securities upon demand at the
public offering price without paying the concession with respect to any
Securities so repurchased. Any of the Securities purchased by you pursuant to
this Agreement are to be subject to the terms hereof. Securities shall not be
offered or sold by you below the public offering price before the termination of
this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by
you on or before three (3) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with the
Securities and Exchange Commission in respect to the Securities. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under said
Acts. No person is authorized by the Company or by the Underwriter to give any
information or to make any representations other than those contained in the
Prospectus in connection with the sale of the Securities. Nothing contained
herein shall render the Selected Dealers a member of the Underwriting Group or
partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Securities have been qualified for sale or are exempt
under the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Securities in any state. You agree not to sell
Securities in any other state or jurisdiction and to not sell Securities in any
state or jurisdiction unless you are qualified or licensed to sell securities in
such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by us in this Agreement, and no obligation on our part shall be implied
or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD and
registered as a broker-dealer with the Commission, or that you are a foreign
broker-dealer not eligible for membership under Section 1 of the Bylaws of the
NASD who agrees to make no sales within the United States, its territories or
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with Respect to
FreeRiding and Withholding and with Sections 2730, 2740, 2420 to the extent
applicable to foreign nonmember brokers and dealers, and Section 2750 of the
NASD's Rules of Fair Practice. Your attention is called to and you agree to
comply with the following: (a) Article III, Section 1 of the Rules of Fair
Practice of the NASD and the
2
<PAGE>
interpretations of said Section promulgated by the Board of Governors of the
NASD including Section 2740 and the interpretation with respect to "Free-Riding
and Withholding;" (b) Section 10(b) of the 1934 Act and Regulation M, 10b-10 of
the general rules and regulations promulgated under the 1934 Act; and (c) Rule
15c2-8 of the general rules and regulations promulgated under the 1934 Act
requiring the distribution of a preliminary Prospectus to all persons reasonably
expected to be purchasers of the Securities from you at least 48 hours prior to
the time you expect to mail confirmations. You, as a member of the NASD, by
signing this Agreement, acknowledge that you are familiar with the cited laws
and rules and agree that you will not directly and/or indirectly violate any
provisions of applicable law in connection with your participation in the
distribution of the Securities.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities in the open
market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased and you agree to pay such amount to us on
demand.
13. We agree that without your consent we will not sell to any account
over which we exercise discretionary authority any of the Securities which we
purchase and which are subject to the terms of this Agreement.
14. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 15c3-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
15. All communications from you should be directed to us at 315 Post Road
West, Westport, Ct. 06880 Attn: John D. Lane, Vice President, (1-800-935-0222
or 203-221-6450) and fax (203-291-7931) (All communications from us to you shall
be directed to the address to which this letter is mailed.)
Very truly yours,
Westport Resources Investment Services, Inc.
By
-----------------------------------
(Authorized Officer)
3
<PAGE>
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) __________________* Securities in accordance
with the terms fShadow0 and conditions set forth above. We hereby acknowledge
receipt of the Prospectus referred to in the first paragraph thereof relating to
such Securities. We further state that in purchasing such Securities we have
relied upon such Prospectus and upon no other statement whatsoever, written or
oral.
- --------------------------------------
By
-----------------------------------
(Authorized Officer)
*If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number by crossing out the number, inserting a
different number and initializing the change.
IMMTECH INTERNATIONAL, INC.
300,000
Shares of Common Stock
AGREEMENT AMONG UNDERWRITERS
, 19
Westport Resources Investment Services, Inc.
315 Post Road West
Westport, CT 06880
as Representative
GENTLEMEN:
We wish to confirm as follows the agreement among you, the undersigned and
the other members of the Underwriting Group named in Schedule I to the
Underwriting Agreement, as it is to be executed (all such parties being herein
called the "Underwriters"), with respect to the purchase by the Underwriters
severally from Immtech International, Inc. ("Company") of 300,000 shares of
Common Stock ("Securities") set forth in Schedule I to the Underwriting
Agreement. The number of Securities to be purchased by each Underwriter from the
Company shall be determined in accordance with Section 2 of the Underwriting
Agreement. It is understood that changes may be made in those who are to be
Underwriters and in the respective numbers of Securities to be purchased by
them, but that the Underwriting Agreement will not be changed without our
consent, except as provided herein, and in the Underwriting Agreement. The
obligations of the Underwriters to purchase the number of Securities set
opposite their respective names in Schedule I to the Underwriting Agreement, are
herein called their "underwriting obligations." The number of Securities set
opposite our name in said Schedule I, are herein called "our Securities." For
purposes of this Agreement the following definitions shall be applicable:
(a) "Manager's Concession" shall be the compensation to you for acting as
Manager as provided in Paragraph 1 of not less than percent ( %) of the
underwriting discount. The Manager's Concession shall include the right to a
portion of the warrants to be issued pursuant to the Underwriting Agreement and,
the right to the nonaccountable expenses to be paid pursuant to the Underwriting
Agreement.
(b) "Underwriting Group Concession" shall mean compensation to members of
the Underwriting Group for assuming the underwriting risk and shall be not less
than percent ( %) of the underwriting discount.
(c) "Dealer's Concession" shall mean compensation to Dealers, who are
members of the Selling Group and shall, as to Dealers who have executed an
agreement with you, be not less than percent ( %) of the underwriting
discount.
(d) "Dealer's Reallowance Concession" shall mean the compensation allowed
Dealers by Underwriters other than you and shall be one-half (1/2) of the
Dealer's Concession.
(e) It is contemplated that the underwriting discount will be ten percent
(10%) of the offering price. You, in your absolute discretion, shall determine,
within the foregoing limitations, the precise allocation of the underwriting
discount and shall notify us of same at least twenty-four (24) hours prior to
the execution of the Underwriting Agreement.
1. Authority and Compensation of Representative. We hereby authorize you,
as our Representative and on our behalf, (a) to enter into an agreement with the
Company substantially in the form attached hereto as Exhibit A ("Underwriting
Agreement"), but with such changes therein as in your judgment are not
materially adverse to the Underwriters, (b) to exercise all the authority and
discretion vested in the Underwriters and in you by the provisions of the
Underwriting Agreement, and (c) to take all such action as you, in your
discretion, may deem necessary or advisable in order to carry out the provisions
of the Underwriting Agreement and this Agreement and the sale and
<PAGE>
distribution of the Securities, provided, however, that the time within which
the Registration Statement is required to become effective pursuant to the
Underwriting Agreement will not be extended more than forty-eight (48) hours
without the approval of a majority in interest of the Underwriters (including
you). We authorize you, in executing the Underwriting Agreement on our behalf,
to set forth in Schedule I of the Underwriting Agreement as our commitment to
purchase the number of Securities (which shall not be substantially in excess of
the number of Securities included in your invitation to participate unless we
have agreed otherwise) included in a wire, telex, or similar means of
communication transmitted by you to us at least twenty-four (24) hours prior to
the commencement of the offering as our finalized underwriting participation.
As our share of the compensation for your services hereunder, we will pay you,
and we authorize you to charge to our account, a sum equal to the Manager's
Concession.
2. Public Offering. A public offering of the Securities is to be made, as
herein provided, as soon after the Registration Statement relating thereto shall
become effective as in your judgment is advisable. The Securities shall be
initially offered to the public at the public offering price of $ per
share. You will advise us by telegraph or telephone when the Securities shall be
released for offering. We authorize you as Representative of the Underwriters,
after the initial public offering, to vary the public offering price, in your
sole discretion, by reason of changes in general market conditions or otherwise.
The public offering price of the Securities at any time in effect is herein
called the "Offering Price."
We hereby agree to deliver all preliminary and final Prospectuses as
required for compliance with the provisions of Rule 15c2-8 under the Securities
Exchange Act of 1934 and Section 5(b) of the Securities Act of 1933. You have
heretofore delivered to us such preliminary Prospectuses as have been requested
by us, receipt of which is hereby acknowledged, and will deliver such final
Prospectuses as will be requested by us.
3. Offering to Dealers and Group Sales. We authorize you to reserve for
offering and sale, and on our behalf to sell, to institutions or other retail
purchasers (such sales being herein called "Group Sales") and to dealers
selected by you (such dealers being herein called the "Dealers") all or any part
of our Securities as you may determine. Such sales of Securities, if any, shall
be made (i) in the case of Group Sales, at the Offering Price, and (ii) in the
case of sales to Dealers, at -the Offering Price less the Dealer's Concession.
Any Group Sales shall be as nearly as practicable in proportion to the
underwriting obligations of the respective Underwriters. Any sales to Dealers
made for our account shall be as nearly as practicable in the ratio that the
Securities reserved for our account for offering to Dealers bears to the
aggregate of all Securities of all Underwriters, including you, so reserved. On
any Group Sales or sales to Dealers made by you on our behalf, we shall be
entitled to receive only the Underwriter's Concession.
You agree to notify us not less than twenty-four (24) hours prior to the
commencement of the public offering as to the number of Securities, if any,
which we may retain for direct sale. Prior to the termination of this Agreement,
you may reserve for offering and sale, as herein before provided, any Securities
remaining unsold theretofore retained by us and we may, with your consent,
retain any Securities remaining unsold theretofore reserved by you. Sales to
Dealers shall be made under a Selected Dealers Agreement, attached hereto as
Exhibit B and by this reference incorporated herein. We authorize you to
determine the form and manner of any communications with Dealers, and to make
such changes in the Selected Dealers Agreement, as you may deem appropriate. In
the event that there shall be any such agreements with Dealers, you are
authorized to act as managers thereunder, and we agree, in such event, to be
governed by the terms and conditions of such agreements. Each Underwriter agrees
that it will not offer any of the Securities for sale at a price below the
Offering Price or allow any concession therefrom, except as herein otherwise
provided. We, as to our Securities, may enter into agreements with Dealers, but
any Dealer's Reallowance Concession shall not exceed half of the Dealer's
Concession.
It is understood that any person to whom an offer may be made, as herein before
provided, shall be a member of the National Association of Securities Dealers,
Inc. ("NASD") or dealers or institutions with their principal place of business
located outside of the United States, its territories or possessions, and who
are not eligible for membership under Section 1 of the Bylaws of the NASD who
agree to make no sales within the United States, its territories or
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possessions, or to persons who are nationals thereof, or residents therein, and,
in making sales, to comply with the NASD's Rules of Fair Practice.
We authorize you to determine the form and manner of any public
advertisement of the Securities.
Nothing in this Agreement contained shall be deemed to restrict our right,
subject to the provisions of this Section 3, to offer our Securities prior to
the effective date of the Registration Statement, provided, however, that any
such offer shall be made in compliance with any applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission thereunder and of any
applicable state securities laws.
4. Repurchases in the Open Market. Any Securities sold by us (otherwise
than through you) which, prior to the termination of this Agreement, or such
earlier date as you may determine, shall be contracted for or purchased in the
open market by you on behalf of any Underwriter or Underwriters, shall be
repurchased by us on demand at a price equal to the cost of such purchase plus
commissions and taxes, if any, on redelivery. Any Securities delivered on such
repurchase need not be the identical Securities originally sold by us. In lieu
of delivery of such Securities to us, you may (i) sell such Securities in any
manner for our account and charge us with the amount of any loss or expense, or
credit us with the amount of any profit, less any expense, resulting from such
sale, or (ii) charge our account with an amount not in excess of the concession
to Dealers on such Securities.
5. Delivery and Payment. We agree to deliver to you, at or before 9:00
A.M., New York, New York Time, on the Closing Date referred to in the
Underwriting Agreement, at your office, a certified or bank cashier's check
payable to your order for the offering price of the Securities less Dealer's
Concession of the Securities which we retained for direct sale by us, the
proceeds of which check shall be delivered to you, in the manner provided in the
Underwriting Agreement, to or for the account of the Company against delivery of
certificates for such Securities to you for our account. You are authorized to
accept such delivery and to give receipts therefor. You may advance funds for
Securities which have been sold or reserved for sale to retail purchasers or
Dealers for our account. If we fail (whether or not such failure shall
constitute a default hereunder) to deliver to you, or you fail to receive, our
check and/or payment for sales made by you for our account for the Securities
which we have agreed to purchase, you, individually and not as Representative of
the Underwriters, are authorized (but shall not be obligated) to make payment,
in the manner provided in the Underwriting Agreement, to or for the account of
the Company for such Securities for our account, but any such payment by you
shall not relieve us of any of our obligations under the Underwriting Agreement
or under this Agreement and we agree to repay you on demand the amount so
advanced for our account.
We also agree on demand to take up and pay for or to deliver to you funds
sufficient to pay for at cost any Securities of the Company purchased by you for
our account pursuant to the provisions of Section 9 hereof, and to deliver to
you on demand any Securities sold by you for our account, pursuant to any
provision of this Agreement.
We authorize you to deliver our Securities, and any other Securities
purchased by you for our account pursuant to the provisions of Section 9 hereof,
against sales made by you for our account pursuant to any provision of this
Agreement.
Upon receipt by you of payment for the Securities sold by us and/or
through you for our account, you will remit to us promptly an amount equal to
the Underwriter's Concession on such Securities. You agree to cause to be
delivered to us, as soon as practicable after the Closing Date referred to in
the Underwriting Agreement, such part of our Securities purchased on such
Closing Date as shall not have been sold or reserved for sale by your for our
account.
In case any Securities reserved for sale in Group Sales or to Dealers
shall not be purchased and paid for in due course as contemplated hereby, we
agree to accept delivery when tendered by you of any Securities so reserved for
our account and not so purchased and pay you the offering price less the
Dealer's and Underwriter's Concessions.
6. Authority to Borrow. We authorize you to advance your funds for our
account (charging current interest rates) and to arrange loans for our account
for the purpose of carrying out this Agreement, and in connection therewith to
execute and deliver any notes or other instruments, and to hold, or pledge as
security therefor, all or any
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part of our Securities of the Company purchased hereunder for our account. Any
lending bank is hereby authorized to accept your instructions as Representative
in all matters relating to such loans. Any part of our Securities held by you,
may be delivered to us for carrying purposes, and if so delivered, will be
redelivered to you upon demand.
7. Allocation of Expense and Liability. We authorize you to charge our
account with, and we agree to pay (a) all transfer taxes on sales made by you
for our account, except as herein otherwise provided, and (b) our proportionate
share (based on our underwriting obligations) of all expenses in excess of those
reimbursed by the Company incurred by you in connection with the purchase,
carrying and distribution, or proposed purchase and distribution, of the
Securities and all other expenses arising under the terms of the Underwriting
Agreement or this Agreement. Your determination of all such expenses and your
allocation thereof shall be final and conclusive. Funds for our account at any
time in your hands as our Representative may be held in your general funds
without accountability for interest. As soon as practicable after the
termination of this Agreement, the net credit or debit balance in our account,
after proper charge and credit for all interim payments and receipts, shall be
paid to or paid by us, provided, however, that you, in your discretion, may
reserve from distribution an amount to cover possible additional expenses
chargeable to the several Underwriters.
8. Liability for Future Claims. Neither any statement by you, as
Representative of the Underwriters, of any credit or debit balance in our
account nor any reservation from distribution to cover possible additional
expenses relating to the Securities shall constitute any representation by you
as to the existence or nonexistence of possible unforeseen expenses or
liabilities of or charges against the several Underwriters. Notwithstanding the
distribution of any net credit balance to us or the termination of this
Agreement, or both, we shall be and remain liable for, and will pay on demand,
(a) our proportionate share (based on our underwriting obligations) of all
expenses and liabilities which may be incurred by, or for the accounts of the
Underwriters, including any liability which may be incurred by the Underwriters
or any of them, and (b) any transfer taxes paid after such settlement on account
of any sale or transfer for our account.
9. Stabilization. We authorize you, until the termination of this
Agreement, (a) to make purchases and sales of the Securities, in the open market
or otherwise, for long or short account, and on such terms, and at such prices
as you in your discretion may deem desirable, (b) in arranging for sales of
Securities, to overallot, and (c) either before or after the termination of this
Agreement, to cover any short position incurred pursuant to this Section 9;
subject, however, to the applicable rules and regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934. All such
purchases, sales and overallotments shall be made for the accounts of the
several Underwriters as nearly as practicable in proportion to their respective
underwriting obligations; provided, however, that our net position resulting
from such purchases and sales and overallotments shall not at any time exceed,
either for long or short account, fifteen percent (15%) of the number of
Securities agreed to be purchased by us.
If you engage in any stabilizing transactions as representative of the
underwriters, you shall promptly notify us of that fact and in like manner you
agree to promptly notify and file with us any stabilizing transaction in
accordance with the requirements of Rule 17a-2(d) under the Securities Exchange
Act of 1934.
We agree to advise you from time to time, upon request, until the settlement of
accounts hereunder, of the number of Securities at the time retained by us
unsold, and we will upon request sell to you, for the accounts of one or more of
the several Underwriters, such number of our unsold Securities as you may
designate, at the Offering Price less such amount, not in excess of the
concession to Dealers, as you may determine.
10. Open Market Transactions. We agree that, except with your consent and
except as herein provided upon advice from you, we will not make purchases or
sales on the open market or otherwise, or attempt to induce others to make
purchases or sales, either before or after the purchase of the Securities, and
prior to the completion (as defined in Regulation M of the Securities Exchange
Act of 1934) of our participation in the distribution, we will otherwise comply
with Regulation M. Nothing in this Section 10 contained shall prohibit us from
acting as broker or agent in the execution of unsolicited orders of customers
for the purchase or sale of any securities of the Company.
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<PAGE>
11. Blue Sky. Prior to the initial offering by the Underwriters, you will
inform us as to the states under the respective securities or Blue Sky laws of
which it is believed that the Securities have been qualified or are exempt for
sale, but you do not assume any responsibility or obligation as to the accuracy
of such information or as to the right of any Underwriter or Dealer to sell the
Securities in any jurisdiction. We will not sell any Securities in any other
state or jurisdiction and we will not sell Securities in any state or
jurisdiction unless we are qualified or licensed to sell securities in such
state or jurisdiction. We authorize you, if you deem it inadvisable in arranging
sales of Securities for our account hereunder, to sell any of our Securities to
any particular Dealer, or other buyer, because of the securities or Blue Sky
laws of any jurisdiction, to sell our Securities to one or more other
Underwriters at the Offering Price less, in the case of a sale to any Dealer,
such amount, not in excess of the concession to Dealers thereon, as you may
determine. The transfer tax on any such sales among Underwriters shall be
treated as an expense and charged to the respective accounts of the several
Underwriters, in proportion to their respective underwriting obligations.
12. Default by Underwriters. Default by one or more Underwriters, in
respect to their obligations under the Underwriting Agreement shall not release
us from any of our obligations. In case of such default by one or more
Underwriters, you are authorized to increase, pro rata, with the other
nondefaulting Underwriters, the number of defaulted Securities which we shall be
obligated to purchase from the Company, provided, however, that the aggregate
amount of all such increases for all Underwriters shall not exceed ten percent
(10%) of such Securities, and, if the aggregate number of the Securities not
taken up by such defaulting Underwriters exceeds such ten percent (10%), you are
further authorized, but shall not be obligated, to arrange for the purchase by
other persons, who may include yourselves, of all or a portion of the Securities
not taken up by such Underwriters. In the event any such increases or
arrangements are made, the respective numbers of Securities to be purchased by
the nondefaulting Underwriters and by any such other person or persons shall be
taken as the basis for the underwriting obligations under this Agreement, but
this shall not in any way affect the liability of any defaulting Underwriters to
the other Underwriters for damages resulting from such default.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any Securities purchased
by your for their respective accounts, pursuant to Section 9 hereof, or to
deliver any such Securities sold or overallotted by you for their respective
accounts pursuant to any provisions of this Agreement, and to the extent that
arrangements shall not have been made by you for other persons to assume the
obligations of such defaulting Underwriter or Underwriters, each nondefaulting
Underwriter shall assume its proportionate share of the aforesaid obligations of
each such defaulting Underwriter without relieving any such Underwriter of its
liability therefor.
13. Termination of Agreement. Unless earlier terminated by you, the
provisions of Sections 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as
otherwise provided therein, terminate thirty (30) full business days after the
effective date of the Registration Statement herein referred to, but may be
extended by you for an additional period or periods not exceeding thirty (30)
full business days in the aggregate. You may, however, terminate this Agreement,
or any provisions hereof, at any time by written or telegraphic notice to us.
14. General Position of the Representative. In taking action under this
Agreement, you shall act only as agent of the several Underwriters. Your
authority as Representative of the several Underwriters shall include the taking
of such action as you may deem advisable in respect of all matters pertaining to
any and all offers and sales of the Securities, including the right to make any
modifications which you consider necessary or desirable in the arrangements with
Dealers or others. You shall be under no liability for or in respect of the
value of the Securities or the validity or the form thereof, the Registration
Statement, the Prospectus, the Underwriting Agreement, or other instruments
executed by the Company or others of any agreement on its or their part; nor
shall you, as such Representative or otherwise, be liable under any of the
provisions hereof, or for any matters connected herewith, except for want of
good faith, and except for any liability arising under the Securities Act of
1933; and no obligation not expressly assumed by you as such Representative
herein shall be implied from this Agreement. In representing the Underwriters
hereunder, you shall act as the representative of each of them respectively.
Nothing herein contained shall constitute the several Underwriters partners with
you or with each other, or render any Underwriter liable for the commitments of
any other Underwriter, except as otherwise provided in Section 12 hereof. The
commitments and liabilities of each of the several Underwriters are several in
accordance with their respective underwriting obligations and are not joint.
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<PAGE>
15. Acknowledgment of Registration Statement, etc. We hereby confirm that
we have examined the Registration Statement (including all amendments thereto)
relating to the Securities as heretofore filed with the Securities and Exchange
Commission, that we are familiar with the amendment(s) to the Registration
Statement and the final form of Prospectus proposed to be filed, that we are
willing to accept the responsibilities of an underwriter thereunder, and that we
are willing to proceed as therein contemplated. We further confirm that the
statements made under the heading "Underwriting" in such proposed final form of
Prospectus are correct and we authorize you so to advise the Company on our
behalf. We understand that the aforementioned documents are subject to further
change and that we will be supplied with copies of any amendment or amendments
to the Registration Statement and of any amended Prospectus promptly, if and
when received by you, but the making of such changes and amendments shall not
release us or affect our obligations hereunder or under the Underwriting
Agreement.
16. Indemnification. Each Underwriter, including you, agrees to indemnify
and hold harmless each other Underwriter and each person who controls any other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, as
amended, to the extent of their several commitments under the Underwriting
Agreement and upon the terms that such Underwriter agrees to indemnify and hold
harmless the Company as set forth in Section 7 of the Underwriting Agreement.
The Agreement contained in this Section 16 shall survive any termination of this
Agreement Among Underwriters.
17. Capital Requirements. We confirm that our ratio of aggregate
indebtedness to net capital is such that we may, in accordance with and pursuant
to Rule 15c3-1, promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, agree to purchase the number of Securities we
may be obligated to purchase under any provision of the Underwriting Agreement
or this Agreement.
18. Miscellaneous. We have transmitted herewith a completed Underwriters'
Questionnaire on the form thereof supplied by you. Any notice hereunder from you
to us or from us to you shall be deemed to have been duly give if sent by
registered mail, telegram, teletype, telex, telecopier, graphic scan, or other
written form of telecommunication to us at our address as set forth in the
Underwriting Agreement, or to you at the address set forth on the first page of
this Agreement.
You hereby confirm that you are registered as a broker-dealer with the
United States Securities and Exchange Commission and that you are a member of
the NASD and we confirm that we are either a member of the NASD or a foreign
broker-dealer not eligible for membership under Section I of the Bylaws of the
NASD, who agrees to make no sales within the United States, its territories or
possessions, or to persons who are nationals thereof or residents therein, and,
in making sales, to comply with the requirements of the NASD's Interpretation
with Respect to Free Riding and Withholding, and with Sections 2730, 2740, and
2420 to the extent applicable to foreign nonmember brokers or dealers, and
Section 2750 of the NASD's Rules of Fair Practice.
We will comply with all applicable federal laws, the laws of the states or
other jurisdictions concerned and the Rules and Regulations of the NASD,
including, but not limited to, Section 2740 of the Rules of Fair Practice.
This instrument may be signed by the Underwriters in various counterparts
which together shall constitute one and the same agreement among all the
Underwriters and shall become effective as between us at such time as you shall
have confirmed same by returning an executed copy to us, and thereafter, as to
us and the other Underwriters, upon execution by them of counterparts which are
confirmed by you. In no event, however, shall we have any liability under this
Agreement if the Underwriting Agreement is not executed.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
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Very truly yours,
----------------------------------------
Attorney-in-Fact
for the several Underwriters
named in Schedule I
to the Underwriting Agreement
Confirmed as of the date first above written.
Westport Resources Investment Services, Inc.
As Representative
By
-------------------------------------------
Vice President
7
CERTIFICATE OF INCORPORATION
OF
IMMTECH INTERNATIONAL, INC.
ARTICLE FIRST
The name of the corporation is Immtech International, Inc.
ARTICLE SECOND
The address of the corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, County of Kent, Dover, Delaware
19901. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE THIRD
The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
ARTICLE FOURTH
Section 1. Capital Stock.
The total number of shares of stock which the Corporation has
authority to issue is 10,394,550, consisting of:
(A) 1,794,550 shares of Series A Participating Preferred
Stock, $0.01 par value per share (the "Series A Preferred
Stock");
(B) 1,600,000 shares of Series B Participating Preferred
Stock, $0.01 par value per share (the "Series B Preferred
Stock"); and
(C) 7,000,000 shares of Common Stock, $0.01 par value per
share (the "Common Stock").
The Series A Preferred Stock and the Series B Preferred Stock are referred to
herein collectively as the "Preferred Stock."
<PAGE>
Section 2. Powers and Special Rights of the Preferred Stock.
Part 1. Dividends.
1A. General Obligation. When and as declared by the Corporation's
board of directors and to the extent permitted under the General Corporation Law
of the State of Delaware, the Corporation will pay preferential cumulative
dividends to the holders of the Preferred Stock as provided in this Part 1.
Except as otherwise provided herein, dividends on each share of Preferred Stock
will accrue on a daily basis at the rate of 8% per annum of the Liquidation
Value thereof plus accumulated and unpaid dividends thereon from and including
the date of issuance of such share of Preferred Stock to and including the
earlier of (i) the date on which the Liquidation Value of such share of
Preferred Stock plus any accrued and unpaid dividends thereon is paid upon any
1iquidation, dissolution or winding up of the Corporation, (ii) subject to
paragraph 5A(vii) below, the date on which such share of Preferred Stock is
converted into Common Stock or (iii) the date on which such share of Preferred
Stock is redeemed in accordance with Part 3 hereof. Such dividends will accrue
whether or not they have been declared and whether or not there are profits,
surplus or other funds of the Corporation legally available for the payment of
dividends. The date on which the Corporation initially issues any share of
Preferred Stock will be deemed to be its "date of issuance" regardless of the
number of times transfer of such share of Preferred Stock is made on the stock
records maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such share of Preferred Stock.
1B. Dividend Reference Dates. To the extent not paid on March 31,
June 30, September 30 and December 31 of each year, beginning December 31, 1992
(the "Dividend Reference Dates"), all dividends which have accrued on each share
of Preferred Stock outstanding during the three-month period (or other period in
the case of the initial Dividend Reference Date) shall be accumulated and shall
remain accumulated dividends with respect to each such share of Preferred Stock
until paid.
1C. Distribution of Partial Dividend Payments. If at any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Preferred Stock, such payment will be distributed ratably among
the holders of the Preferred Stock on the basis of the number of shares of
Preferred Stock owned by each such holder.
1D. Preference. The Corporation shall not, without the prior written
consent of the holders of a majority of the shares of Preferred Stock then
outstanding, pay or declare any dividend or distribution on any Junior
Securities at any time when accumulated dividends on the Preferred Stock have
not been paid in full.
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<PAGE>
1E. Participation in Common Stock Dividends. In the event that the
Corporation declares a dividend or distribution on the Common Stock (subject to
the receipt of any required approvals under paragraph 1D), the holders of the
Preferred Stock and the holders of the Common Stock shall share pro rata (based,
in the case of holders of Preferred Stock, on the number of shares of Common
Stock which each holder of Preferred Stock would be entitled to receive upon
conversion of its Preferred Stock into Common Stock) in such dividend or
distribution.
Part 2. Liquidation.
Upon any liquidation, dissolution or winding up of the Corporation,
each holder of Preferred Stock will be entitled to be paid, before any
distribution or payment is made upon any Junior Securities, an amount in cash
equal to the aggregate Liquidation Value of all of such holder's shares of
Preferred Stock plus all accrued and unpaid dividends thereon. If upon any such
liquidation, dissolution or winding up of the Corporation, the Corporation's
assets available for distribution to its stockholders are insufficient to permit
payment to the holders of the Preferred Stock of the aggregate Liquidation Value
of the Preferred Stock plus all accrued but unpaid dividends thereon, then the
entire assets available for distribution will be distributed among the holders
of the Preferred Stock pro rata based upon the amount of each such holder's
aggregate investment in the Preferred Stock plus all accrued and unpaid
dividends thereon. If the Corporation's assets available for distribution to its
stockholders upon any such liquidation, dissolution or winding up exceed the
aggregate Liquidation Value of the Preferred Stock plus all accrued but unpaid
dividends thereon, then, after payment shall have been made to the holders of
the Preferred Stock of the aggregate Liquidation Value of the Preferred Stock
plus all accrued but unpaid dividends thereon, the holders of the Common Stock
and the holders of the Preferred Stock shall share pro rata (based, in the case
of holders of Preferred Stock on the number of shares of Common Stock which each
holder of Preferred Stock would be entitled to receive upon conversion of its
Preferred Stock into Common Stock) in all remaining assets of the Corporation
available for distribution. The Corporation will mail written notice of any
liquidation, dissolution or winding up to each record holder of Preferred Stock
not less than 30 days prior to the effective date thereof. Neither the
consolidation or merger of the Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of all or any part of
its assets, nor the reduction of the capital stock of the Corporation, will be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Part 2, but instead will be treated pursuant to Paragraph 3D
hereof.
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<PAGE>
Part 3. Redemptions.
3A. Optional Redemption. Each holder of Preferred Stock may require
the Corporation to redeem all or part of its Preferred Stock at any time on or
after the fifth anniversary of the original date of issuance of the Series A
Preferred Stock in accordance with this Part 3 and at a price per share of
Preferred Stock equal to the Redemption Price (the "Redemption Right"). Any
holder of Preferred Stock may exercise the Redemption Right by delivering to the
Corporation a written notice (a "Redemption Notice") stating such holder's
intention to exercise the Redemption Right and the number of such holder's
shares of preferred Stock to be redeemed. The Corporation shall be obligated to
redeem the total number of shares of Preferred Stock specified in any Redemption
Notice in a series of eight equal quarterly redemptions, such redemptions to
occur on the last day of each calendar quarter commencing with the first
calendar quarter ending at least 30 days following the Corporation's receipt of
the Redemption Notice (each a "Redemption Date"). Within 5 days after receipt of
a Redemption Notice from any holder of Preferred Stock, the Corporation shall
notify all other holders of Preferred Stock that the Redemption Right has been
exercised, and each other holder shall have the right, exercisable by written
notice delivered to the Corporation within 10 days after receipt of such notice
from the Corporation, to request that any or all of such other holder's shares
of Preferred Stock be redeemed on the Redemption Dates together with the shares
of Preferred Stock of the holder who delivered the Redemption Notice.
3B. Redemption Price. For each share of Preferred Stock which is to
be redeemed on any Redemption Date, the Corporation will be obligated to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such share of Preferred Stock) an amount
in immediately available funds (the "Redemption Price") equal to the Liquidation
Value thereof plus all accrued but unpaid dividends thereon. If the funds of the
Corporation legally available for redemption of Preferred Stock on any
Redemption Date are insufficient to redeem the total number of shares of
Preferred Stock to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of shares of
Preferred Stock ratably among the holders of such shares to be redeemed based
upon each stockholder's aggregate investment in the Preferred Stock plus all
accrued but unpaid dividends thereon. Thereafter, when additional funds of the
Corporation are legally available for the redemption of Preferred Stock, such
funds will be used to redeem the balance of the shares of Preferred Stock which
the Corporation became obligated to redeem on such Redemption Date but which it
has not redeemed (such redemptions to be made on a monthly basis).
3C. Reissuance of Certificates. In case fewer than the total number
of shares of Preferred Stock represented by any certi-
- 4 -
<PAGE>
ficate are redeemed in any installment, a new certificate representing the
number of unredeemed shares of such of Preferred Stock will be issued to the
holder thereof without cost to such holder promptly after surrender of the
certificate representing the redeemed shares of Preferred Stock.
3D. Special Redemptions.
(i) If a Fundamental Change is to occur, the Corporation will notify
each holder of Preferred Stock in writing of such pending Fundamental Change not
less than 35 days prior to the consummation thereof. Such notice will describe
the material terms and conditions of the Fundamental Change (including, but not
limited to, the amount and nature of the consideration to be paid in connection
therewith) and the provisions of this paragraph 3D and the Corporation will
thereafter give each holder prompt notice of any material changes in such terms
and conditions. The holder or holders of a majority of the Preferred Stock then
outstanding may (a) waive such notice, or (b) require the Corporation to redeem
all or any portion of the Preferred Stock owned by such holder or holders at a
price per share equal to that which such holder would be entitled to if the
Corporation were deemed to be liquidated (pursuant to Part 2 above) immediately
prior to the consummation of such Fundamental Change (the "Special Redemption
Price"), by giving written notice to the Corporation of such election within 20
days after receipt of notice from the Corporation. Such notice to the
Corporation will include an election by the holders of the Preferred Stock to
receive their respective Special Redemption Price in cash or in securities from
the acquiring Person, or in a combination thereof. Any securities to be
delivered to the holders of Preferred Stock will be valued at their Market
Price. The Corporation will give prompt written notice of such election to the
other holders of the Preferred Stock (but in any event within 10 days prior to
the consummation of the Fundamental Change), and each such holder will have
until 5 days after the receipt of such notice to request redemption (by written
notice given to the Corporation) of all or any portion of the class of Preferred
Stock owned by such holder. Upon receipt of such election(s), the Corporation
will be obligated to redeem the number of shares specified therein at the time
of the consummation of such Fundamental Change. If the Fundamental Change does
not occur, all requests for redemption will be rescinded.
(ii) The term "Fundamental Change" means (a) a sale or transfer of
more than 50% of the assets of the Corporation on a consolidated basis in any
transaction or series of related transactions (other than sales in the ordinary
course of business), (b) any merger, consolidation or reorganization to which
the Corporation is a party, except for a merger, consolidation or reorganization
in which the Corporation is the surviving corporation and, after giving effect
to such merger, consolidation or reorganization, the holders of the
Corporation's outstanding capital stock
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<PAGE>
(on a fully-diluted basis) immediately prior to the merger, consolidation or
reorganization will own immediately following the merger, consolidation or
reorganization the Corporation's outstanding capital stock (on a fully-diluted
basis) having a majority of the ordinary voting power to elect the Corporation's
board of directors or (c) any sale or series of sales of shares of the
Corporation's capital stock by the holders thereof which results in any Person
or group of affiliated Persons (other than the owners of the Corporation's
capital stock as of the consumation of the merger contemplated by paragraph 3Q
of the Stock Purchase Agreement) owning capital stock of the Corporation
possessing the voting power (under ordinary circumstances) to elect a majority
of the Corporation's board of directors.
(iii) If and to the extent that applicable law or any other
restriction prohibits the payment to the holders of Preferred Stock of all or
any portion of the amounts required to be paid under subparagraph (i) above such
unpaid amounts will be paid to the holders of Preferred Stock by the Person
(other than the Corporation) who is a party to the Fundamental Change upon the
closing thereof by purchase of such shares of Preferred Stock under an agreement
which will provide that such purchased shares will be canceled effective upon
the closing of the Fundamental Change. In the event the full amount of any
payment hereunder is not paid to the holders of Preferred Stock upon or
immediately prior to the closing of the Fundamental Change in accordance
herewith, then the entire amount payable in respect of the Fundamental Change
will be distributed ratably among the holders of Preferred Stock in proportion
to the aggregate Special Redemption Price of the Preferred Stock held by each
holder.
(iv) In the event that the requirements of subparagraphs (i) and
(iii) above are not complied with, the Corporation will either:
(a) cause the closing of the Fundamental Change to be
postponed until such time as the requirements of subparagraphs (i) and
(iii) above have been complied with; or
(b) cancel such Fundamental Change, in which event the rights,
preferences and privileges of the holders of Preferred Stock shall revert
to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in
subparagraph (i) above.
3E. Redeemed or Otherwise Acquired Shares. Any shares of Preferred
Stock which are redeemed or otherwise acquired by the Corporation will be
canceled and will not be reissued, sold or otherwise transferred.
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Part 4. Voting Rights.
4A. Voting Rights. Except as otherwise required by law, the holders
of the Preferred Stock will be entitled to vote with the holders of the Common
Stock on each matter submitted to a vote of the Corporation's stockholders, with
each share of Preferred Stock having a number of votes equal to the number of
votes possessed by the number of shares of Common Stock into which such share of
Preferred Stock is convertible as of the record date for the determination of
stockholders entitled to vote on such matter. Notwithstanding the foregoing, the
provisions of this Paragraph 4A shall not apply to the election or removal of
directors at any time when the provisions of Paragraph 4B are in effect.
4B. Class Voting Rights.
(i) The Corporation's board of directors shall be elected as
follows:
(a) So long as at least the Requisite Number of shares of
Series A Preferred Stock are outstanding (as appropriately adjusted for
any stock dividends payable in shares of Preferred Stock and any
combinations, subdivisions and split-ups of the shares of Preferred
Stock), the holders of the Series A Preferred Stock will have the special
right, voting separately as a single class (with each share of Series A
Preferred Stock being entitled to the number of votes possessed by the
number of shares of Common Stock into which such share of Series A
Preferred Stock is convertible) and to the exclusion of all other classes
of the Corporation's stock, to elect two of the members of the board of
directors of the Corporation. The holders of Series A Preferred Stock
shall also have the special right, voting separately as a single class and
to the exclusion of all other classes of the Corporation's stock, to
remove any individuals elected to such directorships.
(b) At all times after at least 800,000 shares of Series B
Preferred Stock have been issued pursuant to the Series B Preferred Stock
Options and so long as at least the Requisite Number of shares of Series B
Preferred Stock are outstanding (as appropriately adjusted for any stock
dividends payable in shares of Preferred Stock and any combinations,
subdivisions and split-ups of the shares of Preferred Stock), the holders
of the Series B Preferred Stock will have the special right, voting
separately as a single class (with each share of Series B Preferred Stock
being entitled to the number of votes possessed by the number of shares of
Common Stock into which such share of Series B Preferred Stock is
convertible) and to the exclusion of all other classes of the
Corporation's stock, to elect one member of the board of directors of the
Corporation. The holders of Series B
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Preferred Stock shall also have the special right, voting separately as a
single class and to the exclusion of all other classes of the
Corporation's stock, to remove any individual elected to such
directorship.
(c) The holders of the Common Stock, voting separately as a
single class, shall have the right to elect three members of the board of
directors of the Corporation. The holders of the Common Stock shall also
have the right, voting separately as a single class, to remove any
individuals elected to such directorships.
(d) The holders of the Preferred Stock and the Common Stock,
voting together as a single class (with each share of Preferred Stock
having a number of votes equal to the number of votes possessed by the
number of shares of Common Stock into which such share of Preferred Stock
is convertible as of the record date for the determination of stockholders
entitled to vote on such matter), shall have the right to elect all other
members of the board of directors of the Corporation. The holders of the
Preferred Stock and the Common Stock shall also have the right, voting
together as a single class (with each share of Preferred Stock having the
number of votes set forth in the immediately preceding sentence), to
remove any individuals elected to such directorships.
(ii) The special right of the holders of Preferred Stock to elect
and remove directors contained in Paragraphs 4B(a) and 4B(b) may be exercised
either at a special meeting of the holders of the applicable series of Preferred
Stock called as provided below, at any annual or special meeting of the
stockholders of the Corporation, or by written consent of the holders of the
applicable series of Preferred Stock in lieu of a meeting. The directors to be
elected by the holders of the Preferred Stock pursuant to Paragraphs 4B(a) and
4B(b) shall serve for terms extending from the date of their election and
qualification until the time of the next succeeding annual meeting of
stockholders (unless sooner removed) and until their successors have been
elected and qualified.
At any time when the holders of Preferred Stock have the special
voting rights set forth in Paragraph 4B(a) and/or 4B(b), the secretary of the
Corporation shall, upon the written request of the holders of record of shares
of the applicable series of Preferred Stock having at least 10% of the votes
possessed by the then outstanding Preferred Stock of such series, call a special
meeting of the holders of such series of Preferred Stock for the purpose of
electing or removing directors. Such meeting shall be held at the earliest
practicable date at the Corporation's principal office or at such other place
designated by the holders of shares of the applicable series of Preferred Stock
having at least 10% of the votes possessed by the then outstanding Preferred
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Stock of such series. If such meeting shall not be called by a proper officer of
the Corporation within 10 days after personal service of said written request
upon the secretary of the Corporation or within 20 days after mailing the same
to the secretary of the Corporation at the Corporation's principal office, then
the holders of record of shares of the applicable series of Preferred Stock
having at least 10% of the votes possessed by the then outstanding Preferred
Stock of such series may designate in writing one of their number to call such
meeting at the expense of the Corporation, and such meeting may be called by
such persons so designated upon the shortest legally permissible notice. Any
holders of Preferred Stock so designated shall have access to the stock books of
the Corporation for the purpose of calling a meeting of the stockholders
pursuant to these provisions.
At any stockholders meeting at which the holders of Preferred Stock
shall have the special right, voting separately as a single class, to elect or
remove directors as provided in Paragraphs 4B(a) and 4B(b), the presence, in
person or by proxy, of the holders of record of shares of the applicable series
of Preferred Stock having a majority of the votes possessed by the then
outstanding Preferred Stock of such series shall be required to constitute a
quorum of such series of Preferred Stock for such election or removal. At any
such meeting or adjournment thereof, the absence of such a quorum of the
applicable series of Preferred Stock shall not prevent the election of directors
other than the directors to be elected by holders of such series of Preferred
Stock pursuant to Paragraph 4B(a) and/or 4B(b), and in the absence of either or
both such quorums, the holders of record of shares representing a majority of
the voting power present in person or by proxy of the class or classes of stock
which lack a quorum shall have power to adjourn the meeting for the election of
directors which they are entitled to elect from time to time without notice
other than announcement at the meeting.
A vacancy in the directorships to be elected by the holders of the
Preferred Stock pursuant to Paragraphs 4B(a) and 4B(b) may be filled only by
vote or written consent in lieu of a meeting of the holders of shares of the
applicable series of Preferred Stock having a majority of the votes possessed by
the then outstanding Preferred Stock of such series acting separately as a
single class and to the exclusion of all other classes of the Corporation's
stock.
Part 5. Conversion.
5A. Conversion Procedure.
(i) At any time and from time to time, any holder of shares of
Series A Preferred Stock may convert all or any portion of such shares
(including any fraction of a share) into the number of shares of the
Corporation's Common Stock computed by multiplying
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the number of shares of Series A Preferred Stock to be converted times $1.00 per
share and dividing the result by the Series A Conversion Price (as defined in
Paragraph 5B below). At any time and from time to time, any holder of shares of
Series B Preferred Stock may convert all or any portion of such shares
(including any fraction of a share) into the number of shares of the
Corporation's Common Stock computed by multiplying the number of shares of
Series B Preferred Stock to be converted times $1.25 per share and dividing the
result by the Series B Conversion Price (as defined in Paragraph 5B below).
(ii) Each conversion of preferred Stock will be deemed to have been
effected as of the close of business on the date on which the certificate or
certificates representing the Preferred Stock to be converted have been
surrendered at the principal office of the Corporation. At such time as such
conversion has been effected, the rights of the holder of such Preferred Stock
as such holder will cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock are to be issued upon
such conversion will be deemed to have become the holder or holders of record of
the shares of Common Stock represented thereby.
(iii) As soon as possible after a conversion has been effected and
in no event later than ten (10) business days thereafter, the Corporation will
deliver to the converting holder:
(a) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such conversion in such name
or names and such denomination or denominations as the converting holder
has specified;
(b) the amount payable under Subparagraph 5A(vi) below with
respect to such conversion; and
(c) a certificate representing any shares of Preferred Stock
which were represented by the certificate or certificates delivered to the
Corporation in connection with such conversion but which were not
converted.
(iv) The issuance of certificates for shares of Common Stock upon
conversion of Preferred Stock will be made without charge to the holders of such
Preferred Stock for any issuance tax in respect thereof or other cost incurred
by the Corporation in connection with such conversion and the related issuance
of shares of Common Stock. Upon conversion of any share of Preferred Stock, the
Corporation will take all such actions as are necessary in order to insure that
the Common Stock issued as a result of such conversion is validly issued, fully
paid and nonassessable.
(v) The Corporation will not close its books against the transfer of
Preferred Stock or of Common Stock issued or issuable
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upon conversion of Preferred Stock in any manner which interferes with the
timely conversion of preferred Stock.
(vi) If any fractional interest in a share of Common Stock would,
except for the provisions of this Subparagraph 5A(vi), be deliverable upon any
conversion of the Preferred Stock, the Corporation, in lieu of delivering the
fractional share therefor, shall pay an amount to the holder thereof equal to
the Market Price of such fractional interest as of the date of conversion.
(vii) Upon conversion of shares of Preferred Stock into Common Stock
pursuant to this paragraph 5A, the holder of such shares of Preferred Stock
shall forfeit its right to receive any accrued but unpaid dividends on such
shares.
5B. Conversion Price.
(i) The initial "Series A Conversion Price" will be $1.00. The
initial "Series B Conversion Price" will be $1.25. The Series A Conversion Price
and the Series B Conversion Price shall each be referred to herein as a
"Conversion Price". In order to prevent dilution of the conversion rights
granted under this subdivision, the Series A Conversion Price and the Series B
Conversion Price will be subject to adjustment from time to time pursuant to
this Paragraph 5B; provided, however, that, notwithstanding anything to the
contrary contained herein, there will be no adjustment of either Conversion
Price as a result of (a) the issuance of shares of Common Stock upon the
conversion of shares of the Series A Preferred Stock or Series B Preferred
Stock, or (b) issuances of Common Stock for incentive or compensatory purposes
to directors, officers, employees, consultants and scientific advisors of the
Corporation which are from time to time approved by the Corporation's board of
directors (including, without limitation, grants of stock options and the
issuance of Common Stock upon the exercise thereof).
(ii) If and whenever on or after the original date of issuance of
the Series A Preferred Stock, but prior to July 1, 1994, the Corporation issues
or sells, or in accordance with paragraph 5C is deemed to have issued or sold,
any share of Common Stock for a consideration per share less than the Conversion
Price in effect immediately prior to such time, then forthwith upon such issue
or sale the Conversion Price shall be reduced to the lowest net price per share
at which any such share of Common Stock has been issued or sold or is deemed to
have been issued or sold.
(iii) If and whenever on or after July 1, 1994, the Corporation
issues or sells, or in accordance with Paragraph 5C is deemed to have issued or
sold, any shares of its Common Stock for a consideration per share less than any
Conversion Price in effect immediately prior to the time of such issuance or
sale, then immediately upon such issuance or sale such Conversion Price will
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be reduced to the conversion price determined by dividing (a) the sum of (1) the
product derived by multiplying such Conversion Price in effect immediately prior
to such issuance or sale times the number of shares of Underlying Common Stock
outstanding immediately prior to such issuance or sale, plus (2) the
consideration, if any, received by the Corporation upon such issuance or sale,
by (b) the number of shares of Underlying Common Stock outstanding immediately
prior to such issuance or sale plus the number of shares of Common Stock deemed
to have been issued in such sale pursuant to this Part 5.
5C. Effect on Conversion Prices of Certain Events.
(i) For purposes of determining the adjusted Conversion Prices under
Subparagraph 5B(ii), the following will be applicable:
(a) Issuance of Rights or Options. If the Corporation in any
manner grants, issues or sells any right or option to subscribe for or to
purchase Common Stock (other than grants of stock options to directors,
officers, employees, consultants and scientific advisors of the
Corporation for incentive or compensatory purposes which are approved from
time to time by the Corporation's board of directors) or any stock or
other securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities") and the lowest price per share for which any one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Security is less than the
Conversion Price in effect immediately prior to the time of the granting,
issuance or sale of such Option, then such share of Common Stock shall be
deemed to have been issued and sold by the Corporation at the time of the
granting, issuance or sale of such Options for such price per share. For
purposes of this paragraph, the "lowest price per share for which any one
share of Common Stock is issuable" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the
granting, issuance or sale of the Option, upon exercise of the Option and
upon conversion or exchange of the Convertible Security. No further
adjustment of the Conversion Price shall be made upon the actual issue of
such Common Stock or of such Convertible Security upon the exercise of
such Options or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Security.
(b) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Security and the lowest price
per share for which any one share of Common Stock is issuable upon
conversion or exchange
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thereof is less than the Conversion Price in effect immediately prior to
the time of such issue or sale, then such share of Common Stock shall be
deemed to have been issued and sold by the Corporation at the time of the
issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "lowest price per share for which
any one share of Common Stock is issuable" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the
issuance or sale of the Convertible Security and upon the conversion or
exchange of such Convertible Security. No further adjustment of the
Conversion Price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of any Convertible Security, and if any such
issue or sale of such Convertible Security is made upon exercise of any
Options for which adjustments of the Conversion Price had been or are to
be made pursuant to other provisions of this Part 5, no further adjustment
of the Conversion Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. If the purchase
price provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible
Security, or the rate at which any Convertible Security is convertible
into or exchangeable for Common Stock change at any time, the Conversion
Price in effect at the time of such change shall be readjusted to the
Conversion Price which would have been in effect at such time had such
Option or Convertible Security originally provided for such changed
purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold; provided
that if such adjustment of the Conversion Price would result in an
increase in the Conversion Price then in effect, such adjustment shall not
be effective until 30 days after written notice thereof has been given to
all holders of the Preferred Stock.
(ii) For purposes of determining the adjusted Conversion Prices under
Subparagraph 5B(iii), the following will be applicable:
(a) Issuance of Rights or Options. If the Corporation in any
manner grants, issues or sells any Options or Convertible Securities and
the price per share for which Common Stock is issuable upon the exercise
of such Options or upon conversion or exchange of such Convertible
Securities is less than any Conversion Price in effect immediately prior
to the time of the granting, issuance or sale of such Options, then the
total maximum number of shares of Common Stock issuable upon the exercise
of such Options or upon conversion or exchange of the total maximum amount
of such Convertible
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Securities issuable upon the exercise of such Options will be deemed to
have been issued and sold by the Corporation for such price per share. For
purposes of this paragraph, the "price per share for which Common Stock is
issuable" will be determined by dividing (a) the total amount, if any,
received or receivable by the Corporation as consideration for the
granting, issuance or sale of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon
exercise of all such Options, plus in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (b) the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options. No further adjustment of such Conversion Price will be made
when Convertible Securities are actually issued upon the exercise of such
Options or when Common Stock is actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Securities and the price per
share for which Common Stock is issuable upon such conversion or exchange
is less than any Conversion Price in effect immediately prior to the time
of such issue or sale, then the maximum number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities will
be deemed to be outstanding and to have been issued and sold by the
Corporation for such price per share. For the purposes of this paragraph,
the "price per share for which Common Stock is issuable" will be
determined by dividing (a) the total amount received or receivable by the
Corporation as consideration for the issuance or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the conversion or exchange
thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of such Conversion Price will be made
when Common Stock is actually issued upon the conversion or exchange of
such Convertible Securities, and if any such issuance or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustments of such Conversion Price had been or are to be made pursuant
to other provisions of this Part 5, no further adjustment of such
Conversion Price will be made by reason of such issuance or sale.
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(c) Change in Option Price or Conversion Rate. If the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock change at any time, any Conversion Price in
effect at the time of such change will be readjusted, if necessary, to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold;
provided that if such adjustment would result in an increase of any
Conversion Price then in effect, such adjustment will not be effective
until 10 days after written notice thereof has been delivered by the
Corporation to all holders of the Preferred Stock.
(iii) For purposes of determining the adjusted Conversion Prices
under Subparagraph 5B(ii) and Subparagraph 5B(iii), the following will be
applicable:
(a) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Security without the exercise
of any such Option or right, any Conversion Price then in effect hereunder
will be adjusted to the Conversion Price which would have been in effect
at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(b) Calculation of Consideration Received. If any Common
Stock, Option or Convertible Security is issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be
deemed to be the gross amount received by the Corporation therefor. In
case any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation will be the fair value of such
consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Corporation will be
the Market Price thereof as of the date of receipt. If any Common Stock,
Option or Convertible Security is issued in connection with any merger in
which the Corporation is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair value of such portion
of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration
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other than cash and securities will be determined jointly by the
Corporation and the holders of a majority of the outstanding Preferred
Stock. If such parties are unable to reach agreement within 10 days after
the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined by an independent
appraiser jointly selected by the Corporation and the holders of a
majority of the outstanding Preferred Stock; provided, that, if such
parties are unable to reach agreement upon the selection of an independent
appraiser within 15 days after the Valuation Event, within 25 days after
the Valuation Event, the Corporation and the holders of a majority of the
Preferred Stock then outstanding will each choose a qualified independent
appraiser reasonably acceptable to the other party and each such appraiser
will deliver in writing its determination of the fair value of such
consideration. If the difference between the two appraisals is 10% or less
of the lower amount, the fair value will be the average of such two
appraisals. If the difference between the two appraisals is greater than
10% of the lower amount, the two appraisers will, within 35 days after the
Valuation Event, jointly choose a third qualified independent appraiser.
Within 45 days after the Valuation Event, the third appraiser will deliver
its determination of fair value and the final determination of the fair
value of such consideration will be equal to the average of the two
appraisals which are nearest to each other. The expenses of the appraisers
will be paid one-half by the Corporation and one-half by the holders of
the Preferred Stock (pro rata based on the number of shares of Preferred
Stock held).
(c) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the
Option will be deemed to have been issued for a consideration of $.01.
(d) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or
for the account of the Corporation or any Subsidiary, and the disposition
of any shares so owned or held will be considered an issue or sale of
Common Stock.
(e) Record Date. If the Corporation takes a record of the
holders of Common Stock for the purpose of entitling them (I) to receive a
dividend or other distribution payable in Common Stock, Options or
Convertible Securities or (II) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to
be the date of the issue or sale of the shares of Common Stock deemed
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to have been issued or sold upon the declaration of such dividend or upon
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
5D. Subdivision or Combination of Common Stock. If the Corporation
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, each Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced, and if the Corporation at any
time combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, each Conversion Price in effect immediately prior to such combination
will be proportionately increased.
5E. Reorganization, Reclassification, Consolidation, Merger or Sale.
Any capital reorganization, reclassification, consolidation, merger or sale of
all or substantially all of the Corporation's assets to another Person which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
Organic Change. Prior to the consummation of any Organic Change, the Corporation
will make appropriate provisions (in form and substance reasonably satisfactory
to the holders of a majority of the Preferred Stock then outstanding) to insure
that each of the holders of Preferred Stock will thereafter have the right to
acquire and receive, in lieu of or (if additional consideration is received) in
addition to the shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Preferred Stock, such shares of
stock, securities or assets as such holder would have received in connection
with such Organic Change if such holder had converted its Preferred Stock
immediately prior to such Organic Change. In any such case, the Corporation will
make appropriate provisions (in form and substance satisfactory to the holders
of a majority of the Preferred Stock then outstanding) to insure that the
provisions of this Part 5 and Parts 6 and 7 will thereafter be applicable to the
Preferred Stock (including, without limitation, in the case of any such
consolidation, merger or sale in which the successor corporation or purchasing
corporation is other than the Corporation, an immediate adjustment of each
Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, if the value so reflected is less than such
Conversion Price in effect immediately prior to such consolidation, merger or
sale). The Corporation will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor corporation (if other
than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets assumes by written instrument (in form and
substance reasonably satisfactory to the holders of a majority of the
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Preferred Stock then outstanding), the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
5F. Certain Events. If any event occurs of the type contemplated by
the provisions of this Part 5 but not expressly provided for by such provisions,
then the Corporation's board of directors will make an appropriate adjustment in
each Conversion Price so as to protect the rights of the holders of the
Preferred Stock; provided, however, that, no such adjustment will increase any
Conversion Price as otherwise determined pursuant to this Part 5 or decrease the
number of shares of Common Stock issuable upon conversion of each share of
Preferred Stock.
5G. Notices.
(i) Immediately upon any adjustment of the Conversion Price of any
class of Preferred Stock, the Corporation will give written notice thereof to
all holders of such class of Preferred Stock.
(ii) The Corporation will give written notice to all holders of
Preferred Stock at least twenty (20) days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any dividend
or distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Organic Change, dissolution or Liquidation.
(iii) The Corporation will also give written notice to the holders
of Preferred Stock at least twenty (20) days prior to the date on which any
Organic Change will take place.
5H. Mandatory Conversion. The Corporation may require the conversion
of all of the outstanding Preferred Stock upon the closing of a firm commitment
underwritten Public Offering of shares of the Corporation's Common Stock in
which (i) the net proceeds received by the Corporation will be at least
$15,000,000 and (ii) the price per share paid by the public for such shares will
be at least $7.50 (based on the Common Stock as constituted on the date of
issuance of Series A Preferred Stock and appropriately adjusted for any stock
dividend or stock split or in connection with any combination of shares,
recapitalization, merger, consolidation or other reorganization). Any such
mandatory conversion shall only be effected at the time of and subject to the
closing of the sale of such shares pursuant to such Public Offering and upon
written notice of such mandatory conversion delivered to all holders of
Preferred Stock at least 20 but not more than 40 days prior to such closing.
- 18 -
<PAGE>
Part 6. Liquidating Dividends.
If the Corporation declares or pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock or a stock split
(a "Liquidating Dividend"), then the Corporation shall pay to the holders of
Preferred Stock at the time of payment thereof the Liquidating Dividends which
would have been paid on the Common Stock had such Preferred Stock been converted
into Common Stock immediately prior to the date on which a record is taken for
such Liquidating Dividend, or, if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
Part 7. Purchase Rights.
If at any time the Corporation distributes, grants or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to all record holders of any class of Common Stock
(the "Purchase Rights"), then each holder of Preferred Stock will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon conversion of such holder's
Preferred Stock immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the distribution, issue or sale of such Purchase Rights.
Part 8. Registration of Transfer.
The Corporation will keep at its principal office a register for the
registration of the Preferred Stock. Upon the surrender of any certificate
representing Preferred Stock at such place, the Corporation will, at the request
of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares of Preferred Stock
represented by the surrendered certificate. Each such new certificate will be
registered in such name and will represent such number of shares of Preferred
Stock as is requested by the holder of the surrendered certificate and will be
substantially identical in form to the surrendered certificate; provided,
however, that any transfer shall be subject to any applicable restrictions on
the transfer of such shares and the payment of any applicable transfer taxes, if
any, by the holder thereof.
- 19 -
<PAGE>
Part 9. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder will be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
shares of Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is an institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation, upon
surrender of such certificate, the Corporation will (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the number of shares of Preferred Stock represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
Part 10. Definitions.
"Junior Securities" means any of the Corporation's equity
securities other than the Preferred Stock.
"Liquidation Value" means, with respect to the Series A Preferred
Stock, $1.00 per share, and with respect to the Series B Preferred Stock, $1.25
per share.
"Market Price" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time, be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
ail such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day. If at any time such security is not
listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" will be the fair value thereof
determined jointly by the Corporation and the holders of a majority of the
Preferred Stock. If such parties are unable to reach agreement within a
reasonable period of time, such fair value will be determined by an independent
appraiser jointly selected by the Corporation and the holders of a majority of
the Preferred Stock.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint
- 20 -
<PAGE>
venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means any offering by the Corporation of its
equity securities to the public pursuant to an effective registration statement
under the Securities Act of 1933, as then in effect, or any comparable statement
under any similar federal statute then in force; provided that a Public Offering
will not include an offering made in connection with a business acquisition.
"Requisite Number" means (i) with respect to the Series A Preferred
Stock, 772,275 shares of Series A Preferred Stock and (ii) with respect to the
Series B preferred Stock, half the number of shares of Series B Preferred Stock
issued upon exercise of the Series B Preferred Stock Options pursuant to the
Stock Purchase Agreement.
"Series B Preferred Stock Options" has the meaning set forth in the
Stock Purchase Agreement.
"Stock Purchase Agreement" means that certain Stock Purchase
Agreement, dated as of December 18, 1992, by and among Immtech International,
Inc., a Wisconsin corporation, and certain investors.
"Subsidiary" means any corporation of which the shares of stock
having a majority of the general voting power in electing the board of directors
are, at the time as of which any determination is being made, owned by the
Corporation either directly or indirectly through Subsidiaries.
"Underlying Common Stock" means (i) the Common Stock issued or
issuable upon conversion of the Preferred Stock and (ii) any Common Stock issued
or issuable with respect to the Common Stock referred to in clause (i) above by
way of stock dividend or stock split or in connection with a combination or
other reorganization.
Part 11. Amendment and Waiver.
No amendment, modification or waiver will be binding or effective
with respect to any provision of this Section 2 without the prior written
consent of the holders of a majority of the shares of Preferred Stock
outstanding at the time such action is taken. No change in the terms hereof may
be accomplished by merger or consolidation of the Corporation with another
corporation unless the Corporation has obtained the prior affirmative vote or
written consent of the holders of a majority of the shares of Preferred Stock
then outstanding.
- 21 -
<PAGE>
Part 12. Notices.
Except as otherwise expressly provided, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested, postage prepaid and shall be deemed to have been
delivered when so mailed (i) to the Corporation, at its principal executive
offices and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated in writing by
any such holder).
Section 3. Common Stock.
Part 1. Voting Rights. Except as otherwise required by law and the
other provisions of this Article Fourth, the holders of Common Stock will be
entitled to one vote per share on all matters to be voted on by the
corporation's stockholders.
Part 2. Dividends. Subject to the limitations contained in paragraph
1D of Section 2 of this Article Fourth, the holders of Common Stock will be
entitled to dividends if, when, and as declared by the Corporation's board of
directors, out of funds legally available therefor, whether payable in cash,
property or securities of the Corporation.
Part 3. Registration of Transfer. The Corporation will keep at its
principal office (or such other place as the Corporation reasonably designates)
a register for the registration of shares of Common Stock. Upon the surrender of
any certificate representing shares of Common stock at such place, the
Corporation will, at the request of the registered holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares of Common Stock represented by the surrendered certificate, and the
Corporation forthwith will cancel such surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
shares as is requested by the holder of the surrendered certificate and will be
substantially identical in form to the surrendered certificate.
Part 4. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (it being understood that an affidavit of the
registered holder will be deemed satisfactory to the Corporation) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of Common Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is an institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation, upon
surrender of such certificate, the Corporation will (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the number
- 22 -
<PAGE>
of shares represented by such lost, stolen, destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate.
ARTICLE FIFTH
The board of directors of the Corporation shall consist of not more
than seven members.
ARTICLE SIXTH
The corporation is to have perpetual existence.
ARTICLE SEVENTH
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the corporation is expressly authorized to
make, alter or repeal the by-laws of the corporation.
ARTICLE EIGHTH
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the corporation. Election of directors need not be by written ballot unless
the by-laws of the corporation so provide.
ARTICLE NINTH
To the fullest extent permitted by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended, a director
of this corporation shall not be liable to the corporation or its stockholders
for monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE NINTH shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE TENTH
The corporation expressly elects not to be governed by Section 203
of the General Corporation Law of the State of Delaware.
- 23 -
<PAGE>
ARTICLE ELEVENTH
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
* * * * *
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<PAGE>
State of Delaware PAGE 1
Office of the Secretary of State
-------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "IMMTECH INTERNATIONAL, INC.", FILED IN THIS OFFICE ON THE SIXTH DAY OF
AUGUST, A.D. 1996, AT 12 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
[SEAL] ----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
DATE:
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
IMMTECH INTERNATIONAL, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation").
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation has determined
that it is advisable and in the best interests of the Corporation that the
Certificate of Incorporation of the Corporation be amended by deleting the
current text of section 1 of Article Fourth thereof describing the authorized
shares and substituting in lieu thereof the following:
Section 1. Capital Stock.
The total number of shares of stock which the Corporation has
authority to issue is 13,394,550, consisting of:
(A) 1,794,550 shares of Series A Participating Preferred Stock,
$O.01 par value per share (the "Series A Preferred Stock");
(B) 1,600,000 shares of Series B Participating Preferred Stock,
$O.01 par value per share (the "Series B Preferred Stock"); and
(C) 10,000,000 shares of Common Stock, $O.Ol par value par value per
share (the "Common Stock").
The Series A Preferred Stock and the Series B Preferred Stock are referred
to herein collectively as the "Preferred Stock."
SECOND: That in accordance with section 228 of the General
Corporation Law of the State of Delaware the holders of a majority of the issued
and outstanding shares of capital stock of the Corporation and the holders of a
majority of the issued and outstanding shares of Common Stock of the Corporation
as a separate class have given written consent in favor of such amendment and
the
<PAGE>
Corporation has given written notice of such amendment to each stockholder of
the Corporation who has not given written consent in favor of such amendment.
THIRD: That the foregoing amendment was duly adopted in accordance
with the applicable provisions of section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed by T. Stephen Thompson, its President, and attested by Gary C. Parks,
its Secretary, this 26th day of July, 1996.
IMMTECH INTERNATIONAL, INC.
BY /s/ T. Stephen Thompson
-------------------------------------
President
Attest:
/s/ Gary C. Parks
----------------------------------------
Secretary
2
<PAGE>
CONSENT OF HOLDER OF PREFERRED STOCK
OF IMMTECH INTERNATIONAL, INC.
The undersigned, who is the sole owner and holder of a majority of the
issued and outstanding shares of Series A Preferred Stock, par value $0.01 per
share ("Series A Preferred"), and a majority of the issued and outstanding
shares of Series B Preferred Stock, par value $0.01 per share ("Series B
Preferred"), of Immtech International, Inc., a Delaware corporation (the
"Corporation"), hereby consents to the actions of the Corporation as provided
herein.
RECITALS
A. The Corporation entered into a Stock Purchase Agreement, dated as of
December 18, 1992, as amended (the "Agreement"), with Marquette Venture Partners
II, L.P., a Delaware limited partnership ("Marquette"), providing for the
purchase by Marquette or certain of Marquette's affiliates of certain shares of
Series A Preferred and options to purchase shares of Series B Preferred.
B. Section 4E of the Agreement prohibits under certain circumstances the
issuance by the Corporation of equity securities (including options, warrants
and securities convertible into or exchangeable for equity securities of the
Corporation) without the vote or written consent of the holders of a majority of
the issued and outstanding shares of Series A Preferred and Series B Preferred
as a single class.
C. Section 4J of the Agreement provides limited first refusal rights to
the holders of Series A Preferred and Series B Preferred upon certain issuances
by the Corporation of shares of common stock, par value $0.01 per share ("Common
Stock"), of the Corporation or securities containing options or rights to
acquire shares of Common Stock upon conversion or otherwise, subject to waiver
by the holders of a majority of the issued and outstanding shares of Series A
Preferred and Series B Preferred as a single class.
D. The Corporation has authorized the issuance of certain units ("Units")
consisting of Senior Convertible Notes due 1997 and warrants to purchase shares
of the Corporation's common stock, par value $0.01 per share, as described in
the Corporation's Private Placement Memorandum dated July 2, 1996 (the "PPM").
E. Criticare Biomedical, Inc. ("Stockholder") has purchased 1,000,000
shares of Series A Preferred and 1,200,000 shares of Series B Preferred
previously
<PAGE>
held by Marquette and/or certain of Marquette's affiliates, and as such
Stockholder has succeeded to the rights of Marquette under the Agreement.
CONSENT
1. Stockholder hereby consents to the issuance of the Units substantially
as described in the PPM.
2. Stockholder, for itself and for all owners and holders of Series A
Preferred and Series B Preferred, hereby waives, now and forever, but solely
with respect to the issuance of the Units substantially as described in the PPM,
all rights under section 4 of the Agreement, including, without limitation, with
respect to the restrictive covenants in section 4E of the Agreement and the
first refusal rights under section 4J of the Agreement.
Dated: 7/25/96 CRITICARE BIOMEDICAL, INC.
By /s/ Gerhard J. Von der Ruhr PRES
--------------------------------
2
<PAGE>
Certificate of Amendment to
Certificate of Incorporation
of
IMMTECH INTERNATIONAL. INC.
Pursuant to the provisions of Delaware General Corporation Law, Title 8, Chapter
1, Subchapter VIII, Section 242, the undersigned officer does hereby certify:
FIRST: The name of the Corporation is Immtech International, Inc.
SECOND: The Board of Directors of the Corporation duly adopted resolutions
on June 15, 1998 declaring the advisability of (i) effecting a reverse stock
split pursuant to which each issued and outstanding share of Common Stock, $0.01
par value per share ("Common Stock"), immediately prior to the effectiveness of
this amendment shall be converted into 0.645260 share of Common Stock, (ii)
reclassifying each issued and outstanding share of Series A Participating
Preferred Stock, $0.01 par value per share ("Series A Preferred") immediately
prior to the effectiveness of this amendment, into 0.645260 issued and
outstanding share of Common Stock (after giving effect to the above-referenced
reverse stock split), (iii) eliminating any authorized share of Series A
Preferred that is not outstanding immediately prior to the effectiveness of this
amendment, (iv) reclassifying each issued and outstanding share of Series B
Participating Preferred Stock, $0.01 par value per share ("Series B Preferred")
immediately prior to the effectiveness of this amendment, into 0.770086 issued
and outstanding share of Common Stock (after giving effect to the
above-referenced reverse stock split), (v) eliminating any authorized share of
Series B Preferred that is not outstanding immediately prior to the
effectiveness of this amendment, (vi) increasing the authorized capital stock of
the Corporation (after giving effect to the reverse stock split) and providing
for a class of Preferred Stock, $0.01 par value, with such designations,
preferences, qualifications and rights as may be determined by the Board of
Directors of the Corporation.
THIRD: The Stockholders of the Corporation duly adopted the following
resolution on or prior to June 30, 1998:
RESOLVED, that Article Fourth of the Certificate of Incorporation of the
Corporation be and it hereby is, amended in its entirety to read as
follows:
Section 1. AUTHORIZED CAPITAL STOCK. The total number of shares
which the Corporation shall have the authority to issue shall be
35,000,000 shares, of which 30,000,000 shares shall be Common Stock, $0.01
par value, and 5,000,000 shares shall be Preferred Stock, $0.01 par value.
Section 2. COMMON STOCK. The Board of Directors is hereby authorized
to cause shares of Common Stock to be issued from time to time for such
consideration as may be fixed from time to time by the Board of Directors,
or by way of stock split pro rata to the holders of the Common Stock. The
Board of Directors may also determine the proportion of the proceeds
received from the
<PAGE>
sale of such stock which shall be credited upon the books of the Company
to Capital or Capital Surplus.
Each share of the Common Stock shall be equal in all respects to
every other share of the Common Stock. Subject to any special voting
rights of the holders of Preferred Stock fixed by or pursuant to the
provisions of Section 3 of this Article Fourth, the shares of Common Stock
shall entitle the holders thereof to one vote for each share upon all
matters upon which stockholders have the right to vote.
No holder of shares of Common Stock shall be entitled as such as a
matter of right to subscribe for or purchase any part of any new or
additional issues of stock, or securities convertible into stock, of any
class whatsoever, whether now or hereafter authorized, and whether issued
for cash, property, services or otherwise.
After the requirements with respect to preferential dividends on
Preferred Stock (fixed by or pursuant to the provisions of Section 3 of
this Article Fourth), if any, shall have been met and after the
Corporation shall have complied with all the requirements, if any, with
respect to the setting aside of sums as sinking funds or redemption or
purchase accounts (fixed by or pursuant to the provisions of Section 3 of
this Article Fourth) and subject further to any other conditions which may
be fixed by or pursuant to the provisions of Section 3 of this Article
Fourth, then, but not otherwise, the holders of Common Stock shall be
entitled to receive dividends, if any, as may be declared from time to
time by the Board of Directors.
After distribution in full of the preferential amount (fixed by or
pursuant to the provisions of Section 3 of this Article Fourth), if any,
to be distributed to the holders of Preferred Stock in the event of
voluntary or involuntary liquidation, distribution or sale of assets,
dissolution or winding up of the Company, the holders of the Common Stock
shall be entitled to receive all the remaining assets of the Company,
tangible and intangible, of whatever kind available for distribution to
stockholders, ratably in proportion to the number of shares of Common
Stock held by each.
Section 3. PREFERRED STOCK. Shares of Preferred Stock may be divided
into and issued in such series, on such terms and for such consideration
as may from time to time be determined by the Board of Directors of the
Corporation. Each series shall be so designated as to distinguish the
shares thereof from the shares of all other series and classes. All shares
of Preferred Stock shall be identical, except as to variations between
different series in the relative rights and preferences as permitted or
contemplated by the next succeeding sentence. Authority is hereby vested
in the Board of Directors of the Company to establish out of shares of
Preferred Stock which are authorized and unissued from time to time one or
more series thereof and to fix and determine the following relative rights
and preferences of shares of each such series:
-2-
<PAGE>
(1) the distinctive designation of, and the number of shares which
shall constitute, the series and the "stated value" or "nominal value," if
any, thereof;
(2) the rate of dividend applicable to shares of such series;
(3) the price at and the terms and conditions on which shares of
such series may be redeemed;
(4) the amount payable upon shares of such series in the event of
the involuntary liquidation of the Company;
(5) the amount payable upon shares of such series in the event of
the voluntary liquidation of the Company;
(6) sinking fund provisions for the redemption or purchase of shares
of such series;
(7) the terms and conditions on which shares of such series may be
converted, if such shares are issued with the privilege of conversion;
(8) the voting powers, if any, of the holders of shares of the
series, which may, without limiting the generality of the foregoing,
include (i) the right to one or less than one vote per share on any or all
matters voted upon by the stockholders and (ii) the right to vote, as a
series by itself or together with other series of Preferred Stock or
together with all series of Preferred Stock as a class, upon such matters,
under such circumstances and upon such conditions as the Board of
Directors may fix, including, without limitation, the right, voting as a
series by itself or together with other series of Preferred Stock or
together with all series of Preferred Stock as a class, to elect one or
more directors of the Corporation in the event there shall have been a
failure to pay dividends on any one or more series of Preferred Stock or
under such other circumstances and upon such conditions as the Board of
Directors may determine; provided, however, that in no event shall a share
of Preferred Stock have more than one vote; and
(9) any other such rights and preferences as are not inconsistent
with the Delaware General Corporation Law.
No holder of any share of any series of Preferred Stock shall be entitled
to vote for the election of directors or in respect of any other matter except
as may be required by the Delaware General Corporation Law, as amended, or as is
permitted by the resolution or resolutions adopted by the Board of Directors
authorizing the issue of such series of Preferred Stock.
-3-
<PAGE>
Section 4. OTHER PROVISIONS.
(1) The relative powers, preferences, and rights of each series of
Preferred Stock shall, in each case, be as fixed from time to time by the
Board of Directors in the resolution or resolutions adopted pursuant to
authority granted in Section 3 of this Article Fourth, and the consent by
class or series vote or otherwise, of the holders of the Preferred Stock
or such of the series of the Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of
Directors of any other series of Preferred Stock whether the powers,
preferences and rights of such other series shall be fixed by the Board of
Directors as senior to, or on a parity with, powers, preferences and
rights of such outstanding series, or any of them; provided, however, that
the Board of Directors may provide in such resolution or resolutions
adopted with respect to any series of Preferred Stock that the consent of
the holders of a majority (or such greater proportion as shall be therein
fixed) of the outstanding shares of such series voting thereon shall be
required for the issuance of any or all other series of Preferred Stock.
(2) Subject to the provisions of Subsection 1 of this Section 4,
shares of any series of Preferred Stock may be issued from time to time as
the Board of Directors shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
(3) Common Stock may be issued from time to time as the Board of
Directors shall determine and on such terms and for such consideration as
shall be fixed by the Board of Directors.
(4) No holder of any of the shares of any class or series of shares
or securities convertible into such shares of any class or series of
shares, or of options, warrants or other rights to purchase or acquire
shares of any class or series of shares or of other securities of the
Company shall have any preemptive right to purchase, acquire, subscribe
for any unissued shares of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Company of any class or series, or bonds,
certificate of indebtedness, debenture or other securities convertible
into or exchangeable for shares of any class or series, or carrying any
right to purchase or acquire shares of any class or series, but any such
unissued shares, additional authorized issue of shares of any class or
series of shares or securities convertible into or exchangeable for
shares, or carrying any right to purchase or acquire shares, may be issued
and disposed of pursuant to resolution of the Board of Directors to such
persons, firms, corporations or associations, and upon such terms, as may
be deemed advisable by the Board of Directors in the exercise of its sole
discretion.
-4-
<PAGE>
(5) The Company reserves the right to increase or decrease its
authorized capital stock, or any class or series thereof or to reclassify
the same and to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation or in any amendment hereto, in the
manner now or hereafter prescribed by law, but subject to such conditions
and limitations as are hereinbefore prescribed, and all rights conferred
upon stockholders in this Certificate of Incorporation or any amendment
thereto, are granted subject to this reservation.
Each share of Common Stock which has heretofore been issued and
outstanding is, upon effectiveness of this amendment, converted into 0.645260
issued and outstanding share of Common Stock, and in lieu of any fractional
shares created by the above-provide-for reverse stock split, the Corporation
shall pay to the holders thereof the fair value of such fractional shares in
cash.
Each share of Series A Preferred which has heretofore been issued and
outstanding is, upon effectiveness of this amendment, reclassified into 0.645260
issued and outstanding share of Common Stock (after giving effect to the
above-provided-for-reverse stock split), and in lieu of any fractional shares
created by the above-provided-for reclassification, the Corporation shall pay to
the holders thereof the fair value of such fractional shares in cash.
Each share of Series A Preferred which has heretofore been authorized but
is not outstanding immediately prior to the effectiveness of this amendment, is,
upon effectiveness of this amendment, eliminated.
Each share of Series B Preferred which has heretofore been issued and
outstanding is, upon effectiveness of this amendment, reclassified into 0.770086
issued and outstanding share of Common Stock (after giving effect to the
above-provided-for reverse stock split), and in lieu of any fractional shares
created by the above-provided-for reclassification, the Corporation shall pay to
the holders thereof the fair value of such fractional shares in cash.
Each share of Series B Preferred which has heretofore been authorized but
is not outstanding immediately prior to the effectiveness of this amendment, is,
upon effectiveness of this amendment, eliminated.
FOURTH: The Corporation dispensed with the holding of a meeting of
stockholders, and this amendment was authorized and approved by a consent in
writing signed by the holders of outstanding shares of the Corporation having
the minimum voting power necessary to authorize and approve this amendment at a
meeting at which all shares entitled to vote hereon were present, all in
accordance with the provisions of Delaware General Corporate Law, Title 8,
Chapter 1, Subchapter VII, Section 228.
-5-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by T. Stephen Thompson, its President, and attested by Gary C. Parks, its
Secretary, this 30th day of June, 1998.
IMMTECH INTERNATIONAL, INC.
By: /s/ T. Stephen Thompson
------------------------------------
T. Stephen Thompson
President
Attest:
/s/ Gary C. Parks
------------------------------------
Gary C. Parks
Secretary
-6-
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "IMMTECH INTERNATIONAL, INC.", FILED IN THIS OFFICE ON THE FIFTH DAY OF
FEBRUARY, A.D. 1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2319592 8100 AUTHENTICATION: 9561061
991046770 DATE: 02-05-99
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STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/05/1999
991046770 - 2319592
Certificate of Amendment to
Certificate of Incorporation
of
IMMTECH INTERNATIONAL, INC.
Pursuant to the provisions of Delaware General Corporation Law, Title 8, Chapter
1, Subchapter VIII, Section 242, the undersigned officer does hereby certify:
FIRST: The name of the Corporation is Immtech International, Inc.
SECOND: The Board of Directors of the Corporation duly adopted resolutions
on January 25, 1999 declaring the advisability of effecting a reverse stock
split pursuant to which each issued and outstanding share of Common Stock, $0.01
par value per share ("Common Stock"), immediately prior to the effectiveness of
this amendment shall be converted into 0.5 share of Common Stock.
THIRD: The Stockholders of the Corporation duly adopted the following
resolution on or prior to February 2, 1999:
RESOLVED, that Article Fourth of the Certificate of Incorporation of the
Corporation be and it hereby is, amended to add the following paragraph to
the end thereof:
Each share of Common Stock which has heretofore been issued and
outstanding is, upon effectiveness of this amendment, converted into 0.5 issued
and outstanding share of Common Stock, and in lieu of any fractional shares
created by the above-provided-for reverse stock split, the Corporation shall pay
to the holders thereof the fair value of such fractional shares in cash. The
above-provided-for reverse stock split shall not change the total number of
authorized shares of Common Stock or the par value of Common Stock.
FOURTH: The Corporation dispensed with the holding of a meeting of
stockholders, and this amendment was authorized and approved by a consent in
writing signed by the holders of outstanding shares of the Corporation having
the minimum voting power necessary to authorize and approve this amendment at a
meeting at which all shares entitled to vote hereon were present, all in
accordance with the provisions of Delaware General Corporate Law, Title 8,
Chapter 1, Subchapter VII, Section 228.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by T. Stephen Thompson, its President, and attested by Gary C. Parks, its
Secretary, this 2nd day of February, 1999.
IMMTECH INTERNATIONAL, INC.
By: /s/ T. Stephen Thompson
----------------------------------
T. Stephen Thompson
President
Attest:
/s/ Gary C. Parks
-------------------------------------
Gary C. Parks
Secretary
-2-
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH.
Void After 3:30 P.M., Eastern Time, on 2004
Underwriter's
Warrant to Purchase
Common Stock
of
Immtech International, Inc.
This is to Certify That, FOR VALUE RECEIVED, (the "Holder")
is entitled to purchase, subject to the provisions of this Warrant, from Implant
Sciences Corporation ("Company"), a Delaware corporation, at any time on or
after 2000, and not later than 3:30 p.m., Eastern Time, on ,
2004, 30,000 shares of Common Stock of the Company ("Securities") exercisable at
a purchase price for the Securities which is 120% of the public offering price.
The number of Securities to be received upon the exercise of this Warrant and
the price to be paid for the Securities may be adjusted from time to time as
hereinafter set forth. The purchase price of a Security in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price." This Warrant is or may be one of a series of Warrants
identical in form issued by the Company to purchase an aggregate of 100,000
Shares of Common Stock. The Securities, as adjusted from time to time,
underlying the Warrants are hereinafter sometimes referred to as "Warrant
Securities". The Securities issuable upon the exercise hereof are in all
respects identical to the securities being purchased by the Underwriter for
resale to the public pursuant to the terms and conditions of the Underwriting
Agreement entered into on this date between the Company and Holder, except that
the Exercise Price per share of Common Stock to be acquired upon the exercise of
the Redeemable Warrants issuable to Holder pursuant hereto shall be $ per
share.
(a) Exercise of Warrant. Subject to the provisions of Section (g) hereof,
this Warrant may be exercised in whole or in part at anytime or from time to
time on or after , 2000, but not later than 3:30 p.m., Eastern Time on
, 2004, or if , 2004 is a day on which banking institutions are
authorized by law to close, then on the next succeeding day which shall not be
such a day, by presentation and surrender hereof to the Company or at the office
of its stock transfer agent, if any, with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
shares of Common Stock or Redeemable Warrants, as the case may be as specified
in such Form, together with all federal and state taxes applicable upon such
exercise. The Company agrees to provide notice to the Holder that any tender
offer is being made for the Securities no later than the first business day
after the day the Company becomes aware that any tender offer is being made for
the Securities. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the right of the Holder to purchase the balance of the
shares purchasable hereunder along with any additional Redeemable Warrants not
exercised. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the total Exercise Price, the Holder shall be
deemed to be the holder of record of the Securities issuable upon such
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exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such Securities shall not then
be actually delivered to the Holder.
(b) Reservation of Securities. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Securities as shall be required for issuance or
delivery upon exercise of this Warrant. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price therefor, all
Securities and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all Securities issuable upon the
exercise of the Warrants to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted on NASDAQ.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(1) If the Securities are listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(2) If the Securities are not so listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted on NASDAQ or quoted by the
National Quotation Bureau, Inc.) on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Securities are not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, such determination
to be final and binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Securities purchasable hereunder. This Warrant
may not be sold, transferred, assigned, or hypothecated until after one year
from the effective date of the registration statement except that it may be (i)
assigned in whole or in part to the officers of the "Underwriter(s)", and
(ii) transferred to any successor to the business of the "Underwriter(s)." Any
such assignment shall be made by surrender of this Warrant to the Company, or at
the office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and with funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the
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Company, whether or not the Warrant so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Notices to Warrant Holders. So long as this Warrant shall be
outstanding and unexercised (i) if the Company shall pay any dividend exclusive
of a cash dividend, or make any distribution upon the Common Stock, or (ii) if
the Company shall offer to the holders of Common Stock for subscription or
purchase by them any shares of stock of any class or any other rights, or (iii)
if any capital reorganization of the Company, reclassification of the capital
stock of the Company, consolidation or merger of the Company with or into
another corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered to the
Holder, at least ten (10) days prior to the date specified in (x) or (y) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (x) a record is to be taken for the purpose
of such dividend, distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for equivalent securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(g) Adjustment of Exercise Price and Number of Shares of Common Stock
Deliverable.
(A)(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof, issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein call a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Exercise Price of the Common Stock issuable upon the exercise of the Warrant
and the Redeemable Warrant in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number of
shares of Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the Exercise Price in effect immediately prior to such Change of
Shares, and (b) the consideration, if any, received by the Company upon such
issuance, subdivision or combination by (ii) the total number of shares of
Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section (g) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other
distribution on any capital stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(II) The number of shares of Common Stock at any one time outstanding
shall not be deemed to include the number of shares issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of options,
rights or warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this Section
(g), the number of shares of Common Stock and Redeemable Warrants purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock and Redeemable Warrants purchasable immediately
prior to such adjustment by the Exercise Price in effect prior to
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such adjustment and dividing the product so obtained by the applicable adjusted
Exercise Price.
(B) In case of any reclassification or change of outstanding Securities
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of a subdivision or combination), or in case of any consolidation or merger of
the Company with or into another corporation other than a merger with a
"Subsidiary" (which shall mean any corporation or corporations, as the case may
be, of which capital stock having ordinary power to elect a majority of the
Board of Directors of such corporation (regardless of whether or not at the time
capital stock of any other class or classes of such corporation shall have or
may have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned by the Company or by one or more Subsidiaries)
or by the Company and one or more Subsidiaries in which merger the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of subdivision or combination) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Warrant then outstanding shall have the right
thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the principal office of the Company a statement signed on its
behalf by its President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section
(g)(A). The above provisions of this Section (g)(B) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Price or
the number of Securities purchasable upon exercise of the Warrants, the Warrant
Certificates theretofore and thereafter issued shall, unless the Company shall
exercise its option to issue new Warrant Certificates pursuant hereto, continue
to express the Exercise Price per share and the number of shares purchasable
thereunder as the Exercise Price per share and the number of shares purchasable
thereunder as expressed in the Warrant Certificates when the same were
originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(g), the Company will promptly prepare a certificate signed on its behalf by the
President or Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of Securities purchasable upon
exercise of each Warrant, after such adjustment, and (iii' a brief statement of
the facts accounting for such adjustment. The Company will promptly file such
certificate in the Company's minute books and cause a brief summary thereof to
be sent by ordinary first class mail to each Holder at his last address as it
shall appear on the registry books of the Company. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. The affidavit of
an officer or the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
(E) No adjustment of the Exercise Price shall be made as a result of or in
connection with the issuance or sale of Securities if the amount of said
adjustment shall be less than $.10, provided, however, that in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment that shall amount, together with any adjustment so carried forward,
to at least $.10. In addition, Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
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(F) In the event that the Company shall at any time prior to the exercise
of all Warrants declare a dividend consisting solely of shares of Common Stock
or otherwise distribute to its stockholders any assets, property, rights, or
evidences of indebtedness, the Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the Securities or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, or evidences of indebtedness,
that they would have been entitled to receive at the time of such dividend or
distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section (g).
(G.1) Right to Exercise on a Net Issuance Basis. In lieu of exercising
this Warrant for cash, the Holder shall have the right to exercise this Warrant
or any portion thereof ( the "Net Issuance Right") into Common Stock as provided
in this Section G.1 at any time or from time to time during the period specified
on page one of this Warrant Agreement, hereof by the surrender of this Warrant
to the Company with a duly executed and completed Exercise Form marked to
reflect net issuance exercise. Upon exercise of the Net Issuance Right with
respect to a particular number of shares subject to this Warrant and noted on
the Exercise Form (the" Net Issuance Warrant Shares"), the Company shall deliver
to the Holder (without payment by the Holder of any Exercise Price or any cash
or other consideration) (X) that number of shares of fully paid and
nonassessable shares of Common Stock equal to the quotient obtained by dividing
the value of this Warrant (or the specified portion hereof) on the Net Issuance
Exercise Date, which value shall be determined by subtracting (A) the aggregate
Exercise price of the Net Issuance Warrant Shares immediately prior to the
exercise of the Net Issuance Right from (B) the aggregate fair market value of
the Net Issuance Warrant Shares issuable upon exercise of this Warrant ( or the
specified portion hereof) on the Net Issuance Exercise Date ( as herein defined)
by (Y) the fair market value one share of Common Stock on the Net Issuance
Exercise Date ( as herein defined).
Expressed as a formula, such net issuance exercise shall be computed as
follows:
X = (B-A)/Y
Where: X = the number of shares of Common Stock that may be issued to the
Holder
Y= the fair market value ("FMV") of one share of Common Stock as of
the Net Issuance Exercise Date
A= the aggregate Exercise Price (i.e. the product determined by
multiplying the Net Issuance Warrant Shares by the Exercise Price)
B= the aggregate FMV ( i.e. the product determined by multiplying
the FMV by the Net Issuance Warrant Shares.
G.1.2 Determination of Fair Market Value. For purposes of this Section G.1.2,
"fair market value" of a share of Common Stock as of the Net Issuance Exercise
Date shall mean:
(i) if the Net Issuance Right is exercised in connection
with and contingent upon a Public Offering, and if the
Company's registration Statement relating to such Public
Offering has been declared effective by the SEC, then
the initial "Price to Public" specified in the final
Prospectus with respect to such offering.
(ii) if the Net Issuance Right is not exercised in connection
with and contingent upon a Public Offering, then as
follows:
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(A) If traded on a securities exchange, the fair market value of
the Common Stock shall be deemed to be the average of the
closing prices of the Common Stock on such exchange over the
30-day period ending five business days prior to the Net
Issuance Date;
(B) If traded on the Nasdaq National Market or the Nasdaq Small
Cap Market, the fair market value of the Common Stock shall be
deemed to be the average of the last reported sales prices of
the common Stock on such Market over the 30-day period ending
five business days prior to the Net Issuance Exercise Date;
(C) If traded over-the-counter other than on the Nasdaq National
market or the Nasdaq SmallCap Market, the fair market value of
the Common Stock shall be deemed to be the average of the
midpoint between the closing bid and ask prices of the Common
Stock over the 30-day period ending five business days prior
to the Net Issuance Exercise Date; and
(D) If there is no public market for the Common Stock, then the
fair market value shall be determined by mutual agreement of
the Warrantholder and the Company, and if the Warrantholder
and the company are unable to so agree, at the Company's sole
expense, by an investment banker of national reputation
selected by the Company and reasonably acceptable to the
Warrantholder.
(h) Piggyback Registration. If, at any time commencing one year from the
effective date of the registration statement and expiring four (4) years
thereafter, the Company proposes to register any of its securities under the
Securities Act of 1933, as amended (the "Act") (other than in connection with a
merger or pursuant to Form S-8, S-4 or other comparable registration statement)
it will give written notice by registered mail, at least thirty (30) days prior
to the filing of each such registration statement, to the Holders and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Holder or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Underwriter and such Holders of
the Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement. In the event any
underwriter underwriting the sale of securities registered by such registration
statement shall limit the number of securities includable in such registration
by shareholders of the Company, the number of such securities shall be allocated
pro rata among the holders of Warrants and the holders of other securities
entitled to piggyback registration rights.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(i) Demand Registration.
(1) At any time commencing one year from the effective date of the
registration statement and expiring four (4) years thereafter, the Holders of
the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter
defined) of such securities (assuming the exercise of all of the Warrants) shall
have the right (which right is in addition to the registration rights under
Section (i) hereof), exercisable by written notice to the Company, to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Underwriter and Holders, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section (i) by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(3) In addition to the registration rights under this Section (i) at any
time commencing one year after the effective date of the registration statement
and expiring four (4) years thereafter, the Holders of Representative's
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Warrants and/or Warrant Securities shall have the right, exercisable by written
request to the Company, to have the Company prepare and file, on one occasion,
with the Commission a registration statement so as to permit a public offering
and sale for nine (9) consecutive months by such Holders of its Warrant
Securities; provided, however, that the provisions of Section (i)(2) hereof
shall not apply to any such registration request and registration and all costs
incident thereto shall be at the expense of the Holder or Holders making such
request.
(j) Covenants of the Company With Respect to Registration. In connection
with any registration under Section (h) or (i) hereof, the Company covenants and
agrees as follows:
(i) The Company shall use its best efforts to file a registration
statement within sixty (60) days of receipt of any demand therefor, shall use
its best efforts to have any registration statement declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections (h), (i) and (j) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section (j)(i), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), extend the Exercise Period by such number of days as shall equal the
delay caused by the Company's failure.
(iii) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as are reasonably requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(iv) The Company shall indemnify the Holder(s) of the Warrant Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), from
and against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter contained in Section 7 of the
Underwriting Agreement relating to the offering.
(v) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent with the
same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(vi) The Holder(s) may exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(vii) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to Section (i) hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section (i) hereof, other than a
7
<PAGE>
secondary offering of equity securities of the Company, without the prior
written consent of the Holders of the Warrants and Warrant Securities
representing a Majority of such securities (assuming an exercise of all the
Warrants underlying the Warrants).
(viii) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (x) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (y) a "cold comfort" letter dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(ix) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(x) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD") or an Exchange. Such investigation shall include access
to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(xi) The Company shall enter into an underwriting agreement with the
managing underwriters, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter; provided however, that no Holder
shall be required to make any representations, warranties or covenants or grant
any indemnity to which it shall object in any such underwriting agreement. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(xii) For purposes of this Agreement, the term " Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
(50%) of the then outstanding Warrants and Warrant Securities that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith or (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
8
<PAGE>
(xiii) Buy-Out of Registration Demand. In lieu of carrying out its
obligations to effect a Piggyback Registration or Demand Registration or any
other registration of any registrable securities pursuant to this Agreement, the
Company may carry out such obligation by offering to purchase and purchasing
such Registrable Securities requested to be registered in an amount in cash
equal to the difference between (a) 95% of the last sale price of the Common
Stock on the day the request for registration is made and (b) the Exercise Price
in effect on such day; the purchase transaction closing within three (3)
business days; provided however, that the Holder or Holders may withdraw such
request for registration rather than accept such offer by the Company.
(k) Conditions of Company's Obligations. The Company's obligation under
Section j hereof shall be conditioned as to each such public offering, upon a
timely receipt by the Company in writing of:
(A) Information as to the terms of such public offering furnished by or on
behalf of the Holders making a public distribution of their Warrant Securities;
and
(B) Such other information as the Company may reasonably require from such
Holder, or any underwriter for any of them, for inclusion in such registration
statement or offering statement or post-effective amendment.
(C) An agreement by the Holder to sell his Warrants and Warrant Securities
on the basis provided in the Underwriting Agreement.
(1) Continuing Effect of Agreement. The Company's agreements with respect
to the Warrant Securities in this Warrant will continue in effect regardless of
the exercise or surrender of this Warrant.
(m) Notices. Any notices or certificates by the Company to the Holder and
by the Holder to the Company shall be deemed delivered if in writing and
delivered personally or sent by certified mail, to the Holder, addressed to him
or sent to Westport Resources Investment Services, Inc., 315 Post Road West,
Westport, CT 06880 or, if the Holder has designated, by notice in writing to the
Company, any other address, to such other address, and, if to the Company,
addressed to Immtech International, Inc. 1890 Maple Avenue, Evanston, Illinois,
60201. The Company may change its address by written notice to Westport
Resources Investment Services, Inc.
(n) Limited Transferability. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the effective date of the Registration Statement except to underwriters of the
Offering referred to in the Underwriting Agreement or to individuals who are
either partners or officers of such an underwriter or by will or by operation of
law. and if transfer occurs after one year, the warrant must be exercised
immediately upon transfer or it shall lapse. The Warrant may be divided or
combined, upon request to the Company by the Warrant holder, into a certificate
or certificates evidencing the same aggregate number of Warrants. The Warrant
may not be offered, sold, transferred, pledged or hypothecated in the absence of
any effective registration statement as to such Warrant filed under the Act, or
an exemption from the requirement of such registration, and compliance with the
applicable federal and state securities laws. The Company may require an opinion
of counsel satisfactory to the Company that such registration is not required
and that such laws are complied with. The Company may treat the registered
holder of this Warrant as he or it appears on the Company's book at any time as
the Holder for all purposes. The Company shall permit the Holder or his duly
authorized attorney, upon written request during ordinary business hours, to
inspect and copy or make extracts from its books showing the registered holders
of Warrants.
(o) Transfer to Comply With the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to the
Company is of the opinion as to any such certificate that such legend, or one
similar thereto, is unnecessary:
"The warrants represented by this certificate are restricted securities
and may not be offered for sale, sold or otherwise transferred unless an opinion
of counsel satisfactory to the Company is obtained stating that such offer,
sale or transfer is in compliance wrath state and federal securities law.
9
<PAGE>
(p) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Connecticut, without giving effect to
conflict of law principles.
(q) Assignability. This Warrant may not be amended except in a writing
signed by each Holder and the Company.(r) Survival of Indemnification
Provisions. The indemnification provisions of this Warrant shall survive until
, 2007
Immtech International, Inc.
By
-------------------------------------
T. Stephen Thompson, President
Date:
--------------------------------
Attest:
- --------------------------------------
, Secretary
10
<PAGE>
PURCHASE FORM
Dated______________ 19__
The undersigned hereby irrevocably elects to exercise the Warrant to the extent
of purchasing ______ shares of Common Stock and hereby makes payment of $
in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name ___________________________________________________________________________
(please typewrite or print in block letters)
Address ________________________________________________________________________
Signature_______________________________________________________________________
11
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________________________________________________
hereby sells, assigns and transfers unto
Name ___________________________________________________________________________
(please typewrite or print in block letters)
Address ________________________________________________________________________
the right to purchase shares of Common Stock as represented by this
Warrant to the extent of shares of Common Stock as to which such right is
exercisable and does hereby irrevocably constitute and appoint,
________________________
attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
Signature ______________________________________________________________________
Dated: __________ 19__
12
WARRANT AGREEMENT
Agreement made as of July 24, 1998 between Immtech International, Inc., a
Delaware corporation with offices at 1890 Maple Avenue, Suite 110, Evanston,
Illinois 60201 (the "Company"), and Rade Management Corporation (hereinafter
referred to as the "Consultant").
WHEREAS, the Consultant has agreed to render certain consulting services
to the Company; and
WHEREAS, the Warrants issued pursuant to this Agreement are being issued
by the Company to the Consultant in consideration for, and as part of the
Consultant's compensation for services to the Company;
NOW, THEREFORE, in consideration of the premises and agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
(a) The Consultant is hereby granted the right to purchase, pursuant
to the provisions set forth in Section 1(b) hereof, up to 450,000 Shares
of the Common Stock of the Company (the "Shares").
(b) The Warrants represented hereby (the "Warrants") are not
currently exercisable. The 450,000 Warrants represented hereby shall
become exercisable in full on the first anniversary of the date hereof and
shall remain exercisable until the sixth anniversary of the date hereof
when they shall expire.
<PAGE>
The Warrants may not be transferred for a period of one year from their
date of issuance, except to affiliates, officers, directors, employees and
consultants of the Consultant.
2. Exercise of Warrants.
2.1 Cash Exercise. The Warrants initially are exercisable at a price
of $0.05 per Share, payable in cash or by check to the order of the
Company, or any combination of cash or check, subject to adjustment as
provided in Article 8 hereof. Upon surrender of this Warrant Agreement
with the annexed Form of Election to Purchase duly executed, together with
payment of the Exercise Price (as hereinafter defined) for the Shares
purchased, at the Company's principal offices or, if a Warrant Agent has
been appointed for this Warrant, the offices of the Warrant Agent, the
registered holder of this Warrant ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the Shares so
purchased. The purchase rights represented by this Warrant are exercisable
at the option of the Holder hereof, in whole or in part (but not as to
fractional Shares). In the case of the purchase of less than all the
Shares purchasable under any this Warrant, the Company or the Transfer
Agent shall cancel the Warrant upon the surrender thereof and shall
execute and deliver a new Warrant Agreement of like tenor for the balance
of the Shares purchasable hereunder.
2.2 Cashless Exercise. At any time during the Warrant exercise term,
the Holder may, at its option, exchange this Warrant, in whole or in part
(a "Warrant Exchange"), into the number of Shares determined in accordance
with this Section, by surrendering this Warrant at the principal office of
the Company or at the office of its transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange
shall take place on the date specified in the Notice of Exchange or, if
later, the date the Notice of Exchange is received by the Company (the
"Exchange Date") or the Warrant Agent. Certificates for the Shares
issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the Shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the
Holder within three business (3) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the
right to subscribe for and acquire the number of Shares (rounded to the
next highest integer) equal to (A) the number of Shares specified by the
Holder in its Notice of Exchange (the "Total Share Number") less (B) the
number of Shares equal to the quotient obtained by dividing (i) the
product of the Total Share Number and the existing Exercise Price per
Share (as hereinafter defined) by (ii) the current market value of a
Public Share.
3. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for
the Shares purchased shall be made forthwith (and in any event within
three business days
<PAGE>
thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article
4 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name
other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The certificates representing the Shares shall be executed on behalf
of the Company by the manual or facsimile signature of the present or any
future Chairman or Vice Chairman of the Board of Directors or President or
Vice President of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company. The Warrants
represented hereby shall not be issued in certificated form.
Upon exercise of the Warrants, in part or in whole, certificates
representing the Shares, shall bear a legend substantially similar to the
following:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be offered or sold except (i) pursuant to an effective
registration statement under the Act, (ii) to the extent applicable,
pursuant to Rule 144 under the Act (or any similar rule under such
Act relating to the disposition of securities), or (iii) upon the
delivery by the holder to the Company of an opinion of counsel,
reasonably satisfactory to counsel to the Company, stating that an
exemption from registration under such Act is available."
4. Restriction on Transfer of Warrants.
The Holder of Warrants represented hereby, by its acceptance hereof,
covenants and agrees that the Warrants are being acquired as an investment
and not with a view to the distribution thereof, and that the Warrants may
not be sold, transferred, assigned, hypothecated or otherwise disposed of,
in whole or in part, for a period of one (1) year from the date hereof,
except to directors, officers, partners, employees or consultants of the
Consultant.
5. Price.
<PAGE>
5.1 Initial and Adjusted Exercise Price. The initial exercise price
of each Warrant shall be $0.05 per Share. The adjusted exercise price
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the
provisions of the Article.
5.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
5.3 Adjustments of Exercise Price and Number of Shares. The
following adjustments apply to the Exercise Price of the Warrants with
respect to the Shares and the number of Shares purchasable upon exercise
of the Warrants.
5.4 Computation of Adjusted Price. In case the Company shall at any
time after the date hereof pay a dividend in shares of Common Stock or
make a distribution in shares of Common Stock, then upon such dividend or
distribution the Exercise Price in effect immediately prior to such
dividend or distribution shall forthwith be reduced to a price determined
by dividing:
(a) an amount equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution multiplied
by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with
the provisions of this Section, the Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed
to have been issued immediately after the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution.
5.5 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
5.6 Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Article, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Shares
issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
5.7 Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock
(other than a
<PAGE>
change in par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is
the surviving corporation and which does not result in any
reclassification or change of the outstanding shares of Common Stock,
except a change as a result of a subdivision or combination of such shares
or a change in par value, as aforesaid), or in the case of a sale or
conveyance to another corporation of the property of the Company as an
entirety, the Holders shall thereafter have the right to purchase the kind
and number of shares of stock and other securities and property receivable
upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the Shares immediately
prior to any such events, at a price equal to the product of (x) the
number of shares issuable upon exercise of the Holders' Warrants and (y)
the Exercise Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Warrants.
5.8 Determination of Outstanding Shares of Common Stock. The number
of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
5.9 Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock) or otherwise distribute to
its shareholders any monies, assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether
issued by the Company or by another person or entity, or any other thing
of value, the Holder or Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the
exercise of such Warrants, the same monies, property, assets, rights,
evidences of indebtedness, securities or any other thing of value that
they would have been entitled to receive at the time of such dividend or
distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance
of the provisions of this Subsection.
5.10 Subscription Rights for Shares of Common Stock or Other
Securities. In case the Company or an affiliate of the Company shall at
any time after the date hereof and prior to the exercise of all the
Warrants issue any rights to subscribe for shares of Common Stock or any
other securities of the Company or of such affiliate to all the
shareholders of the Company, the Holders of the unexercised Warrants shall
be entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Warrants, to receive such rights at
the time such rights are distributed to the other shareholders of the
Company.
6. Exchange and Replacement of Warrants.
<PAGE>
The Warrants represented hereby are exchangeable without expense,
upon the surrender hereof by the registered Holder at the principal
executive office of the Company or the office of the Warrant Agent,
together with the assignment form attached hereto, duly executed and
completed, and payment of all transfer taxes, if any, payable in
connection therewith.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant
Agreement, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of this Agreement, if mutilated, the Company will make and
deliver a new Agreement of like tenor, in lieu thereof.
7. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue
scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding
any fraction up to the nearest whole number of shares of Common Stock.
8. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon
the exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise thereof. The Company covenants and
agrees that, upon exercise of the Warrants and payment of the Exercise
Price therefor, all Shares issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any shareholder. As long as the Warrants shall be
outstanding, the Company shall use its reasonable best efforts to cause
all shares of Common Stock issuable upon the exercise of the Warrants to
be listed on or quoted by NASDAQ or listed on such national securities
exchanges as the Company's securities might be quoted or listed on.
9. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive
notice as a shareholder in respect of any meetings of shareholders for the
election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior
to the expiration of the Warrants and their exercise, any of the following
events shall occur:
<PAGE>
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company;
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed; then, in any one or more of said events, the Company
shall give written notice of such event at least fifteen (15) days prior
to the date fixed as a record date or the date of closing the transfer
books for the determination of the shareholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription
rights, options or warrants, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any
convertible or exchangeable securities or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
10. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to a registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the following address or to such other
address as the Company may designate by notice to the Holders:
11. Supplements and Amendments.
The Company and the Consultant may from time to time supplement or
amend this Agreement to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Consultant may deem
necessary or desirable and which the Company and the Consultant deem not
to adversely affect the interests of the Holders of Warrants.
12. Successors.
<PAGE>
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
13. Termination.
This Agreement shall terminate at the close of business on August
1, 2004. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date when all Warrants have been exercised.
14. Governing Law.
This Agreement shall be deemed to be a contract made under the laws
of the State of New York and for all purposes shall be construed in
accordance with the laws of said State.
15. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person
or corporation other than the Company and the Consultant and any other
registered holder or holders of this Warrant or the Shares any legal or
equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company and the
Consultant and any other holder or holders of the Warrant or the Shares.
16. Counterparts.
This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
IMMTECH INTERNATIONAL, INC.
By:
-----------------------------------------
Name:
Title:
Attest:
- -------------------------------
<PAGE>
RADE MANAGEMENT CORPORATION
By:
-----------------------------------------
Name:
Title:
WARRANT AGREEMENT
Agreement made as of October 12, 1998 between Immtech International, Inc.,
a Delaware corporation with offices at 1890 Maple Avenue, Suite 110, Evanston,
Illinois 60201 (the "Company"), and Rade Management Corporation (hereinafter
referred to as the "Consultant").
WHEREAS, the Consultant has agreed to render certain consulting services
to the Company; and
WHEREAS, the Warrants issued pursuant to this Agreement are being issued
by the Company to the Consultant in consideration for, and as part of the
Consultant's compensation for services to the Company;
NOW, THEREFORE, in consideration of the premises and agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
(a) The Consultant is hereby granted the right to purchase, pursuant
to the provisions set forth in Section 1(b) hereof, up to 1,500,000 Shares
of the Common Stock of the Company (the "Shares").
(b) The Warrants represented hereby (the "Warrants") are not
currently exercisable. The 1,500,000 Warrants represented hereby shall
become exercisable in full on the first anniversary of the date hereof and
shall remain exercisable until the sixth anniversary of the date hereof
when they shall expire.
<PAGE>
The Warrants may not be transferred for a period of one year from their
date of issuance, except to affiliates, officers, directors, employees and
consultants of the Consultant.
2. Exercise of Warrants.
2.1 Cash Exercise. The Warrants initially are exercisable at a price
of $0.05 per Share, payable in cash or by check to the order of the
Company, or any combination of cash or check, subject to adjustment as
provided in Article 8 hereof. Upon surrender of this Warrant Agreement
with the annexed Form of Election to Purchase duly executed, together with
payment of the Exercise Price (as hereinafter defined) for the Shares
purchased, at the Company's principal offices or, if a Warrant Agent has
been appointed for this Warrant, the offices of the Warrant Agent, the
registered holder of this Warrant ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the Shares so
purchased. The purchase rights represented by this Warrant are exercisable
at the option of the Holder hereof, in whole or in part (but not as to
fractional Shares). In the case of the purchase of less than all the
Shares purchasable under any this Warrant, the Company or the Transfer
Agent shall cancel the Warrant upon the surrender thereof and shall
execute and deliver a new Warrant Agreement of like tenor for the balance
of the Shares purchasable hereunder.
2.2 Cashless Exercise. At any time during the Warrant exercise term,
the Holder may, at its option, exchange this Warrant, in whole or in part
(a "Warrant Exchange"), into the number of Shares determined in accordance
with this Section, by surrendering this Warrant at the principal office of
the Company or at the office of its transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange
shall take place on the date specified in the Notice of Exchange or, if
later, the date the Notice of Exchange is received by the Company (the
"Exchange Date") or the Warrant Agent. Certificates for the Shares
issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the Shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the
Holder within three business (3) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the
right to subscribe for and acquire the number of Shares (rounded to the
next highest integer) equal to (A) the number of Shares specified by the
Holder in its Notice of Exchange (the "Total Share Number") less (B) the
number of Shares equal to the quotient obtained by dividing (i) the
product of the Total Share Number and the existing Exercise Price per
Share (as hereinafter defined) by (ii) the current market value of a
Public Share.
3. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for
the Shares purchased shall be made forthwith (and in any event within
three business days
<PAGE>
thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article
4 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name
other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The certificates representing the Shares shall be executed on behalf
of the Company by the manual or facsimile signature of the present or any
future Chairman or Vice Chairman of the Board of Directors or President or
Vice President of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company. The Warrants
represented hereby shall not be issued in certificated form.
Upon exercise of the Warrants, in part or in whole, certificates
representing the Shares, shall bear a legend substantially similar to the
following:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be offered or sold except (i) pursuant to an effective
registration statement under the Act, (ii) to the extent applicable,
pursuant to Rule 144 under the Act (or any similar rule under such
Act relating to the disposition of securities), or (iii) upon the
delivery by the holder to the Company of an opinion of counsel,
reasonably satisfactory to counsel to the Company, stating that an
exemption from registration under such Act is available."
4. Restriction on Transfer of Warrants.
The Holder of Warrants represented hereby, by its acceptance hereof,
covenants and agrees that the Warrants are being acquired as an investment
and not with a view to the distribution thereof, and that the Warrants may
not be sold, transferred, assigned, hypothecated or otherwise disposed of,
in whole or in part, for a period of one (1) year from the date hereof,
except to officers, directors, partners, employees or consultants of the
Consultant.
5. Price.
<PAGE>
5.1 Initial and Adjusted Exercise Price. The initial exercise price
of each Warrant shall be $0.05 per Share. The adjusted exercise price
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the
provisions of the Article.
5.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
5.3 Adjustments of Exercise Price and Number of Shares. The
following adjustments apply to the Exercise Price of the Warrants with
respect to the Shares and the number of Shares purchasable upon exercise
of the Warrants.
5.4 Computation of Adjusted Price. In case the Company shall at any
time after the date hereof pay a dividend in shares of Common Stock or
make a distribution in shares of Common Stock, then upon such dividend or
distribution the Exercise Price in effect immediately prior to such
dividend or distribution shall forthwith be reduced to a price determined
by dividing:
(a) an amount equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution multiplied
by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with
the provisions of this Section, the Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed
to have been issued immediately after the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution.
5.5 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
5.6 Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Article, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Shares
issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
5.7 Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock
(other than a
<PAGE>
change in par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is
the surviving corporation and which does not result in any
reclassification or change of the outstanding shares of Common Stock,
except a change as a result of a subdivision or combination of such shares
or a change in par value, as aforesaid), or in the case of a sale or
conveyance to another corporation of the property of the Company as an
entirety, the Holders shall thereafter have the right to purchase the kind
and number of shares of stock and other securities and property receivable
upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the Shares immediately
prior to any such events, at a price equal to the product of (x) the
number of shares issuable upon exercise of the Holders' Warrants and (y)
the Exercise Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Warrants.
5.8 Determination of Outstanding Shares of Common Stock. The number
of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
5.9 Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock) or otherwise distribute to
its shareholders any monies, assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether
issued by the Company or by another person or entity, or any other thing
of value, the Holder or Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the
exercise of such Warrants, the same monies, property, assets, rights,
evidences of indebtedness, securities or any other thing of value that
they would have been entitled to receive at the time of such dividend or
distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance
of the provisions of this Subsection.
5.10 Subscription Rights for Shares of Common Stock or Other
Securities. In case the Company or an affiliate of the Company shall at
any time after the date hereof and prior to the exercise of all the
Warrants issue any rights to subscribe for shares of Common Stock or any
other securities of the Company or of such affiliate to all the
shareholders of the Company, the Holders of the unexercised Warrants shall
be entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Warrants, to receive such rights at
the time such rights are distributed to the other shareholders of the
Company.
6. Exchange and Replacement of Warrants.
<PAGE>
The Warrants represented hereby are exchangeable without expense,
upon the surrender hereof by the registered Holder at the principal
executive office of the Company or the office of the Warrant Agent,
together with the assignment form attached hereto, duly executed and
completed, and payment of all transfer taxes, if any, payable in
connection therewith.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant
Agreement, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of this Agreement, if mutilated, the Company will make and
deliver a new Agreement of like tenor, in lieu thereof.
7. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue
scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding
any fraction up to the nearest whole number of shares of Common Stock.
8. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon
the exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise thereof. The Company covenants and
agrees that, upon exercise of the Warrants and payment of the Exercise
Price therefor, all Shares issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any shareholder. As long as the Warrants shall be
outstanding, the Company shall use its reasonable best efforts to cause
all shares of Common Stock issuable upon the exercise of the Warrants to
be listed on or quoted by NASDAQ or listed on such national securities
exchanges as the Company's securities might be quoted or listed on.
9. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive
notice as a shareholder in respect of any meetings of shareholders for the
election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior
to the expiration of the Warrants and their exercise, any of the following
events shall occur:
<PAGE>
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company;
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed; then, in any one or more of said events, the Company
shall give written notice of such event at least fifteen (15) days prior
to the date fixed as a record date or the date of closing the transfer
books for the determination of the shareholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription
rights, options or warrants, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any
convertible or exchangeable securities or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
10. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to a registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the following address or to such other
address as the Company may designate by notice to the Holders:
11. Supplements and Amendments.
The Company and the Consultant may from time to time supplement or
amend this Agreement to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Consultant may deem
necessary or desirable and which the Company and the Consultant deem not
to adversely affect the interests of the Holders of Warrants.
12. Successors.
<PAGE>
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
13. Termination.
This Agreement shall terminate at the close of business on November
1, 2004. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date when all Warrants have been exercised.
14. Governing Law.
This Agreement shall be deemed to be a contract made under the laws
of the State of New York and for all purposes shall be construed in
accordance with the laws of said State.
15. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person
or corporation other than the Company and the Consultant and any other
registered holder or holders of this Warrant or the Shares any legal or
equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company and the
Consultant and any other holder or holders of the Warrant or the Shares.
16. Counterparts.
This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
IMMTECH INTERNATIONAL, INC.
By:
-----------------------------------------
Name:
Title:
Attest:
- -------------------------------
<PAGE>
RADE MANAGEMENT CORPORATION
By:
-----------------------------------------
Name:
Title:
THIRD AMENDMENT TO LETTER AGREEMENT
This Amendment to the Letter Agreement dated January 15, 1997 among Immtech
International, Inc., The University of North Carolina at Chapel Hill and
Pharm Eco Laboratories, Inc. (the "Letter Agreement") is effective as of October
1, 1998.
RECITALS
A. Immtech has not completed an IPO or the Alternative Financing required by
Paragraph 1 of the Letter Agreement within the nine month period specified in
Paragraph 10 thereof, as extended until January 15, 1998 by the amendment to
Letter Agreement effective October 15, 1997, and further extended until
September 31, 198 by the Second Amendment to Letter Agreement effective January
15, 1998, permitting any of the parties to terminate the Letter Agreement as of
the effective date of this Amendment.
B. Immtech has requested an extension of time to permit it to complete an IPO.
C. UNC and Pharm Eco are willing to grant an extension of time to Immtech on the
conditions specified below.
AGREEMENT
1. In return for Immtech providing a $100,000 Research Grant to Dr. Richard
Tidwell's laboratory at UNC upon execution of this agreement, UNC and Pharm Eco
agree to extend the Letter Agreement until February 28, 1999, to allow Immtech
time to complete the IPO. this Research Grant will be in addition to Immtech's
obligation to provide Research Grants as described in the Letter Agreement and
subsequently amended.
2. In addition, Pharm Eco and UNC, representing the research Consortium, agree
to a reserve split, not to exceed a 1 for 3 exchange ratio, of the Immtech
common shares and warrants that they are entitled to receive from Immtech
pursuant to the Letter Agreement, as amended, upon (i) the issuance of the IPO
(pre-split 1,222,500 common shares) and (ii) achievement of specified milestones
post-IPO (pre-split 1,700,000 warrants and 300,000 common shares), provided that
such reverse split is part of a general reverse split of Immtech's entire
current capital structure of authorized, issued and outstanding stock, options
and warrants. The sole purpose of such reverse stock split is to increase the
offering price of the Units of stock and warrants to be issued pursuant to the
IPO, and such split will not have a dilutive effect on Pharm Eco's or UNC's
equity ownership in Immtech. If subsequent to the IPO, Immtech effects a stock
split that increases the number of any authorized, issued or outstanding stock,
warrants or options, all authorized, issued and outstanding stock, warrants and
options will be treated equally, including any to be issued pursuant to the
Letter Agreement.
3. Capitalized terms used herein have the same meaning given them in the Letter
Agreement.
4. Other than as amended herein and in the prior Amendment effective October 15,
1997, and in the Second Amendment effective January 15, 1998, the Letter
Agreement remains in full force and effect.
The University of North Carolina Pharm Eco Laboratories, Inc.
at Chapel Hill
By: /s/ Francis J. Mayer By: /s/ [ILLEGIBLE]
----------------------------- -------------------------------
Title: DIR. OFFICE OF TECHNOLOGY Title: CORE TEAM
DEVELOPMENT
-------------------------- ----------------------------
Date: Jan. 14, 1999 Date: 1/15/99
--------------------------- -----------------------------
Immtech International, Inc.
By: /s/ T. Stephen Thompson
-----------------------
Title: President & CEO
--------------------
Date: 1-15-1999
---------------------
FUNDING AND RESEARCH AGREEMENT
DATED AS OF SEPTEMBER 30, 1998
BY AND AMONG
NEXTERA THERAPEUTICS, INC.,
IMMTECH INTERNATIONAL, INC.
AND
FRANKLIN RESEARCH GROUP, INC.
<PAGE>
TABLE OF CONTENTS
Caption Page
Section 1. Authorization for Sale and Issuance of Shares .....................1
Section 2. Initial Sale and Purchase of Shares ...............................1
A. Initial Sale and Purchase of Class A Shares ...................1
B. Initial Sale and Purchase of Class B Shares ...................1
Section 3. Options for Purchase of Additional Shares .........................2
A. Immtech Option to Purchase Additional Class A Shares ..........2
B. Franklin Option to Purchase Additional Class B Shares .........2
Section 4. Conditional Subsequent Sale and Purchase of Class B Shares ........2
Section 5. Offerings by Company ..............................................3
A. Initial Class B Offering ......................................3
B. Subsequent Class B Offering ...................................3
C. Acknowledgment of Agreement ...................................3
Section 6. Loans to Company ..................................................3
A. Initial Franklin Loans ........................................3
B. Subsequent Franklin Loans .....................................4
Section 7. Closings ..........................................................5
A. Anticipated Closings ..........................................5
B. Location for Closings .........................................5
Section 8. Provisions Regarding mCRP and mCRP Assets .........................5
A. Descriptions ..................................................5
B. Assignment of Initial mCRP Assets .............................6
C. Licenses ......................................................6
D. Patent Expenses ...............................................6
E. Equipment .....................................................6
F. Immtech Assistance ............................................6
G. Representations and Warranties of Immtech .....................6
H. Director Approval of Certain Agreements .......................7
Section 9. Representations and Warranties of Company .........................7
A. Organization ..................................................7
B. Authority .....................................................7
C. No Violation ..................................................8
D. Capital Structure of Company ..................................8
i
<PAGE>
Section 10. General Representations and Warranties of Immtech .................8
A. Organization ..................................................8
B. Authority .....................................................8
C. No Violation ..................................................9
Section 11. General Representations and Warranties of Franklin ................9
A. Organization ..................................................9
B. Authority .....................................................9
C. No Violation ..................................................9
Section 12. Investment Representations, Etc. ..................................9
A. Purchase for Investment .......................................9
B. Legends on Certificates, Etc. ................................10
C. Rule 144 Under Act; Registration .............................10
D. Access to Information ........................................10
E. Suitability, Etc. ............................................10
F. Blue Sky Matters .............................................11
Section 13. Conditions to Obligations of Immtech and Franklin ................11
A. Representations and Warranties; Covenants ....................11
B. Delivery of Certificates .....................................11
C. Initial mCRP Assets Assignment ...............................11
D. Documents ....................................................11
E. Waiver of Conditions .........................................11
Section 14. Use of Initial Required Funding ..................................11
Section 15. Obligation to Provide and Use of Subsequent Funds ................11
Section 16. Employment Matters ...............................................12
A. Employment Agreement for Dr. Potempa .........................12
B. Shares for Dr. Potempa .......................................12
C. Stock Option Plan ............................................12
Section 17. Consequences in Event of Certain Funding Failures ................12
A. Initial Funding Failure ......................................12
B. Subsequent Funding Failure ...................................13
Section 18. Put Right of Immtech .............................................14
Section 19. Miscellaneous ....................................................14
A. Broker's and Finder's Fees ...................................14
B. Expenses .....................................................14
C. Enforcement Legal Fees .......................................14
D. Remedies .....................................................14
E. Survival of Representations and Warranties ...................15
ii
<PAGE>
F. Successors and Assigns .......................................15
G. Severability .................................................15
H. Counterparts .................................................15
I. Descriptive Headings; Interpretation .........................15
J. Governing Law ................................................15
K. Notices ......................................................15
L. Jurisdiction; Venue; Service of Process ......................17
M. Legend .......................................................17
iii
<PAGE>
FUNDING AND RESEARCH AGREEMENT
This Funding and Research Agreement (this "Agreement") is entered into as
of September 30, 1998 by and among NextEra Therapeutics, Inc., a Delaware
corporation (the "Company"), Immtech International, Inc., a Delaware corporation
("Immtech"), and Franklin Research Group, Inc., an Ohio corporation
("Franklin").
Immtech and Franklin agreed to and have formed the Company for the purpose
of contributing thereto certain medical technology and other related assets and
receiving funding, all for the purpose of conducting further research and
finding commercial application for such medical technology.
Accordingly, in pursuance of such purposes, the parties hereto agree as
follows:
Section 1. Authorization for Sale and Issuance of Shares. The Company has
authorized the sale and issuance as provided herein to (i) Immtech of up to
369,999 shares of Class A Common Stock of the Company ("Class A Shares") and
(ii) Franklin and others of up to 360,000 shares of Class B Common Stock of the
Company ("Class B Shares"). Further, the Company has previously authorized the
sale and issuance of 1 Class A Share to Immtech and 310,000 Class B Shares to
Franklin and/or its designees, and the Company has also previously authorized
and/or reserved for sale and issuance up to 163,333 shares of Class C Common
Stock of the Company ("Class C Shares," and collectively with Class A Shares and
Class B Shares, "Shares").
Section 2. Initial Sale and Purchase of Shares.
A. Initial Sale and Purchase of Class A Shares. At the Initial Immtech
Closing (defined in Section 7.A.), the Company shall sell to Immtech and Immtech
shall purchase from the Company, in consideration of assignment by Immtech to
the Company of the Initial mCRP Assets (defined in Section 8.A.) pursuant to a
General Assignment and Bill of Sale in the form of Exhibit A attached hereto
(the "Initial mCRP Assets Assignment"), and the grant of other rights by and the
other agreements of Immtech set forth herein, 329,999 Class A Shares.
B. Initial Sale and Purchase of Class B Shares. At the Initial Franklin
Closing (defined in Section 7.A.), the Company shall sell to Franklin and/or its
designees and Franklin and/or its designees shall purchase from the Company, for
the initial Franklin Consideration (defined below), the Initial Franklin Class B
Shares (defined below). For purposes hereof, the "Initial Franklin
Consideration" shall be an amount equal to: (i) if the aggregate net proceeds
(the "Initial Class B Offering Proceeds") received by the Company in the Initial
Class B Offering (defined in Section 5.A.) are equal to or more than $1,350,000
(the "initial Required Funding"), $1, or (ii) if the Initial Class B Offering
Proceeds are less than the Initial Required Funding, the Initial Required
Funding less the initial Class B Offering Proceeds. (As used in this Agreement,
"net proceeds" means the total proceeds received from an offering less any
expenses thereof borne by the Company.) Also, for purposes hereof, the "Initial
Franklin Class B Shares" shall be
<PAGE>
that number of Class B Shares as is equal to (i) the sum of (a) 200,000 Class B
Shares and (b) that number of additional Class B Shares determined by dividing
the Initial Class B Offering Proceeds in excess of the Initial Required Funding
by $40.625 (the "Additional Initial Class B Shares"), less (ii) the aggregate
number of Class B Shares sold in the Initial Class B Offering.
Section 3. Options for Purchase of Additional Shares.
A. Immtech Option to Purchase Additional Class A Shares. Immtech shall
have the option, exercisable by written notice of exercise given to the Company
at any time and from time to time on or before the Outside Option Exercise Date
(defined below), to purchase up to an aggregate of an additional 40,000 Class A
Shares at a price of $40.625 per Class A Share. For any such option exercise
occurring after the MAB Opinion Event (defined in Section 15) and on or before
the Outside Option Exercise Date (a "Post-MAB Opinion Event Exercise"), the
aggregate price shall be payable in installments as follows:
Timing of Installments (Days After Amount of Installments (As a
MAB Opinion Event) Percentage of Aggregate Loan Amount)
- ---------------------------------- ------------------------------------
90 23.07692%
180 23.07692%
270 53.84616%
For purposes hereof, "Outside Option Exercise Date" means such date as is ten
(10) days after the date on which occurs the MAB Opinion Event.
B. Franklin Option to Purchase Additional Class B Shares. Franklin shall
have the option, exercisable by written notice of exercise given to the Company
at any time and from time to time before the MAB Opinion Event, for Franklin
and/or its designees to purchase up to an aggregate of (i) an additional 120,000
Class B Shares, less (ii) the Additional Initial Class B Shares, at a price of
$40.625 per Class B Share.
Section 4. Conditional Subsequent Sale and Purchase of Class B Shares. If
the MAB Opinion Event occurs, then, at the Subsequent Franklin Closing (defined
in Section 7.A.), the Company shall sell to Franklin and/or its designees and
Franklin and/or its designees shall purchase from the Company, for the
Subsequent Franklin Consideration (defined below), the Subsequent Franklin Class
B Shares (defined below). For purposes hereof, the "Subsequent Franklin
Consideration" shall be an amount equal to: (i) if the aggregate net proceeds
(the "Subsequent Class B Offering Proceeds") received by the Company in the
Subsequent Class B Offering (defined in Section 5.B.) are equal to or more than
the Subsequent Remaining Funding (defined below), $1, or (ii) if the Subsequent
Class B Offering Proceeds are less than the Subsequent Remaining Funding, the
Subsequent Remaining Funding less the Subsequent Class B Offering Proceeds.
Also, for purposes hereof, the "Subsequent Franklin Class B Shares" shall be
that number of Class B Shares as is equal to (i) 360,000 Class B Shares less
(ii) the sum of (a) the number of Class B Shares sold in the Initial Class B
Offering, (b) the Initial Franklin Class B Shares, (c) the number of Class A
Shares sold pursuant to Section 3.A., (d) the number of Class B Shares sold
pursuant to Section 3.B. and (e) the number of Class B Shares sold in the
2
<PAGE>
Subsequent Class B Offering. Further, for purposes hereof, the "Subsequent
Remaining Funding" shall be an amount equal to (i) $7,850,000 less (ii) the sum
of (a) the Initial Franklin Consideration and the Initial Class B Offering
Proceeds (the "Initial Class B Proceeds"), (b) the aggregate proceeds received
and to be received from the sales of Class A Shares pursuant to Section 3.A. and
(c) the aggregate proceeds from the sale of Class B Shares pursuant to Section
3.B.
Section 5. Offerings by Company.
A. Initial Class B Offering. As and to the extent requested by Franklin,
the Company at its expense (it being understood that such expense shall be a
reduction from the proceeds of the offering in determining the "net proceeds"
from the offering for purposes of this Agreement) shall undertake an initial
private placement offering to accredited investors of up to 320,000 Class B
Shares at a price per Class B Share and for such number of such Class B Shares
as is determined by Franklin (the "Initial Class B Offering"). The period for
the Initial Class B Offering shall commence as soon as practicable after
Franklin's request therefor and shall terminate on such date as is requested by
Franklin (which date may not be later than December 31, 1998).
B. Subsequent Class B Offering. As and to the extent requested by
Franklin, the Company at its expense (it being understood that such expense
shall be a reduction from the proceeds of the offering in determining the "net
proceeds" from the offering for purposes of this Agreement) shall undertake a
subsequent offering of up to that number of Class B Shares which Franklin and/or
its designees would be required to purchase under Section 4 but for such
offering at a price per Class B Share and for such number of such Class B Shares
as is determined by Franklin (the "Subsequent Class B Offering"). The period for
the Subsequent Class B Offering shall commence as soon as practicable after
Franklin's request therefor and shall terminate on such date as is requested by
Franklin, (which date may not be later than 210 days after the date of
occurrence of the MAB Opinion Event).
C. Acknowledgment of Agreement. In both the Initial Class B Offering and
the Subsequent Class B Offering, any purchaser of Class B Shares shall be
required in connection with such purchase to acknowledge in writing this
Agreement so that this Agreement will be treated as a "Qualifying Agreement" for
purposes of the Company's Certificate of Incorporation.
Section 6. Loans to Company.
A. Initial Franklin Loans. Franklin and/or its designees have made and
shall make the following initial loans to or for the benefit of the Company in
the aggregate amount of the Initial Required Funding:
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Dates of Loans Amount of Loans
-------------- ---------------
April, 1998 $50,000
June 4, 1998 $100,000
July 15, 1998 $50,000
July 31, 1998 $350,000
September 30, 1998 $350,000
December 31, 1998 $250,000
March 1, 1999 $200,000
----------
Total $1,350,000
The terms of such initial loans shall be as follows:
(i) The loans shall be without interest.
(ii) The loans may and shall be repaid only out of the Initial Class B
Proceeds, and shall be repaid in whole or in part upon demand by Franklin at any
time when there are sufficient Initial Class B Proceeds for such repayment.
(iii) To the extent there are Initial Class B Proceeds available, Franklin
may elect to have them applied on a one-time basis against the above loan
obligations so that Franklin will not have to make loans to such extent, it
being understood that the Initial Class B Proceeds so applied will not then be
available to repay any of the loans otherwise made under this Section 6.A.
B. Subsequent Franklin Loans. In the event of and following the occurrence
of the MAB Opinion Event, Franklin and/or its designees shall make the following
subsequent loans to the Company in the aggregate amount of the Subsequent
Remaining Funding:
Timing of Loans (Days After Amount of Loans (As a
MAB Opinion Event) Percentage of Aggregate Price)
- --------------------------- -----------------------------
90 23.07692%
180 23.07692%
270 53.84616%
The terms of such subsequent loans shall be as follows:
(i) The loans shall be without interest.
(ii) The loans may and shall be repaid only out of the Subsequent Class B
Offering Proceeds and the Subsequent Franklin Consideration (the "Subsequent
Class B Proceeds"), and shall be repaid in whole or in part upon demand by
Franklin at any time when there are sufficient Subsequent Class B Proceeds for
such repayment.
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(iii) To the extent there are Subsequent Class B Proceeds available,
Franklin may elect to have them applied on a one-time basis against the above
loan obligations so that Franklin will not have to make loans to such extent, it
being understood that the Subsequent Class B Proceeds so applied will not then
be available to repay any of the loans otherwise made under this Section 6.B.
Section 7. Closings.
A. Anticipated Closings. The following closings are anticipated hereunder
and shall occur on the dates specified below unless the parties hereafter agree
to different dates:
(i) The "Initial Immtech Closing" pursuant to Section 2.A., which
shall occur effective as of the date hereof
(ii) The "Initial Franklin Closing" pursuant to Section 2.B., which
shall occur on the earlier of (i) such date as is designated by Franklin or (ii)
March 1, 1999.
(iii) The closings for option exercises under Section 3, which shall
occur sixty (60) days after the Company has been given written notice of an
option exercise under Section 3, except that the closing for a Post-MAB Opinion
Event Exercise shall occur ninety (90) days after the date of occurrence of the
MAB Opinion Event.
(iv) The "Subsequent Franklin Closing" pursuant to Section 4, which
shall occur on the earlier of (i) such date after the Outside Option Exercise
Date as is designated by Franklin or (ii) such date as is two hundred seventy
(270) days after the date of occurrence of the MAB Opinion Event.
B. Location for Closings. All closings hereunder shall take place at such
place as is mutually agreed to by the Company and the participating parties.
Section 8. Provisions Regarding mCRP and mCRP Assets.
A. Descriptions. The term "mCRP" is used to refer to the protein known as
"modified C-Reactive Protein." For purposes of this Agreement, the "mCRP Assets"
are the following assets of Immtech: (i) Immtech's domestic and international
patents relating to the manufacture, function and uses of mCRP, with the
exception of such patents for uses in Sepsis and uses as an adjuvant in
vaccines, as delineated in Schedule A attached hereto (the "Patents"); (ii) all
of Immtech's proprietary and non-proprietary information on mCRP, including any
records and printed material relating thereto; (iii) all licensed rights
relating to mCRP, including any rights licensed from Northwestern University;
(iv) all instruments and other equipment listed on Schedule B attached hereto
and all other instruments and other equipment currently owned by Immtech and
used in the research and manufacture of mCRP, including all personal property
located at 1890 Maple Avenue in Evanston, Illinois (the "Equipment"); and (v)
all other assets, tangible and intangible, of Immtech primarily used in
connection with mCRP. The "Initial mCRP Assets" are all of the mCRP Assets other
than the Equipment.
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B. Assignment of Initial mCRP Assets. Immtech shall assign the Initial
mCRP Assets to the Company at the Initial Immtech Closing as provided in Section
2.A., and shall also execute and deliver to the Company such patent assignments
and other documents as are requested by the Company to further document and
effect the assignment of the Initial mCRP Assets to the Company.
C. Licenses. Effective upon completion of the Initial Immtech Closing, the
Company hereby grants to Immtech a perpetual, non-exclusive, royalty-free
license for the manufacture of mCRP solely for the purpose of uses in Sepsis and
uses as an adjuvant in vaccines. In the event any of Immtech's existing licenses
as licensor to any licensee for the use by such licensee of mCRP in the
treatment of Sepsis and/or as an adjuvant in vaccines is terminated for any
reason, Immtech shall offer the Company a license therefor on the same terms as
the existing license which terminated.
D. Patent Expenses. Following assignment of the Patents to the Company as
a part of the Initial mCRP Assets Assignment, the Company shall become and
thereafter be responsible for the future maintenance and prosecution of the
Patents and the costs therefor, it being understood that the Company shall not
have any such responsibility with respect to the patents for uses in Sepsis and
uses as an adjuvant in vaccines which are not so assigned to the Company.
E. Equipment. If the MAB Opinion Event occurs, Immtech shall assign the
Equipment to the Company, pursuant to an assignment in a form substantially the
same as the Initial mCRP Assets Assignment, within ninety (90) days after the
occurrence of the MAB Opinion Event. In this regard, the representations and
warranties of Immtech set forth in Section 8.G.(i) and Section 8.G.(ii) shall be
accurate at the time of such assignment. Prior to such assignment, the Company
shall have access to and usage of all of the Equipment, and shall have the
obligation to pay its reasonable share of any maintenance costs associated with
the Equipment.
F. Immtech Assistance. During the Phase I Trials (defined in Section 14)
and thereafter through completion of the Phase II and Phase III human clinical
trials (see Section 15), Immtech shall make available to the Company, at
reasonable times and for reasonable compensation, Immtech employees and
consultants who have knowledge concerning mCRP and its development.
G. Representations and Warranties of Immtech. Immtech hereby represents
and warrants to the Company and Franklin with respect to the mCRP Assets as
follows:
(i) Immtech has good and merchantable title (and complete right of
possession) to the mCRP Assets and owns the mCRP Assets free and clear of all
mortgages, liens, pledges, encumbrances, charges or claims of any nature
whatsoever or howsoever arising. All of the mCRP Assets are in material
compliance with all applicable laws, rules, regulations and requirements of
governmental authorities having jurisdiction.
(ii) Upon assignment of any of the mCRP Assets to the Company as
provided herein, the mCRP Assets so assigned will, in the possession of the
Company, be free and clear of
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all mortgages, liens, pledges, encumbrances, charges or claims of any nature
whatsoever or howsoever arising, except those created by the Company (if any).
(iii) There are no unpaid taxes, assessments or public charges of
any type or nature whatsoever due or payable to a federal, state or local
government or agency which are or will become a lien or charge against or which
will otherwise affect any of the mCRP Assets.
(iv) There are no actions, suits, proceedings, claims or
investigations pending or threatened against Immtech in any court or before any
governmental body or agency nor is Immtech subject to any order, judgment or
decree, stipulation or consent or any agreement with any governmental body or
agency which adversely affects or may adversely affect the mCRP Assets, and
there is no basis or grounds for any such action, suit, proceeding, claim,
investigation, order, judgment or decree, stipulation or consent or agreement.
(v) Except for this Agreement, Immtech has not entered into any
agreement with any person to sell, assign, transfer or in any way encumber the
mCRP Assets or any part thereof.
(vi) The Equipment is in good and operable condition and has been
maintained properly and, where applicable, in accordance with standard industry
maintenance procedures.
(vii) To the best of Immtech's knowledge, no Patent infringes upon
any patent or patent application of any third party and no Patent has been or is
now currently involved in any interference or opposition proceeding. Immtech is
not aware of any interfering patent or patent application of any third party
with respect to the Patents or of any infringement by any third party of the
Patents.
H. Director Approval of Certain Agreements. Until completion of the Phase
I Trials, any agreement (other than this Agreement and all agreements and
instruments contemplated herein) entered into by the Company relating to mCRP,
including any license or sublicense with respect thereto, with any person or
entity that is related in any way to Immtech or Franklin or any other
shareholder or any director of the Company shall require approval by a Special
Director Vote (as such term is defined in the Company's Certificate of
Incorporation).
Section 9. Representations and Warranties of Company. The Company hereby
represents and warrants to Immtech and Franklin as follows:
A. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has delivered to each of Immtech and Franklin true and complete copies
of the Company's Certificate of Incorporation and By-Laws (the "Company
Organizational Documents"), in each case as amended to the date hereof, and the
Company Organizational Documents are in full force and effect on the date
hereof.
B. Authority. The Company has all requisite corporate power and authority
to execute and deliver this Agreement and to perform all of its obligations
hereunder, and no
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consent or approval of any other person or governmental authority is required
therefor. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of the Company. This Agreement is a valid and binding
obligation of the Company, and is enforceable against it in accordance with its
terms and conditions, except as the enforceability thereof may be limited by the
following "Enforceability Limitations": bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
C. No Violation. The execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated hereby will not,
and with the giving of notice or lapse of time will not, (i) violate, constitute
a default under or cause the termination of (a) the Company Organizational
Documents, (b) any agreement, mortgage, license, permit or other instrument or
obligation to which the Company is bound or to which any of the assets of the
Company is subject or (c) any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority, or (ii) result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of the assets of the Company or the
Shares.
D. Capital Structure of Company. The authorized capital stock of the
Company as of the date hereof consists of (i) 1,000,000 Class A Shares, of which
1 Class A Share is issued and outstanding and held by Immtech, (ii) 1,000,000
Class B Shares, of which 310,000 Class B Shares are issued and outstanding and
held by Franklin and/or its designees, and (iii) 500,000 Class C Shares, of
which 33,333 Class C Shares are issued and outstanding and held by Lawrence A.
Potempa ("Dr. Potempa"), 30,000 Class C Shares are reserved for issuance
pursuant to options granted or to be granted to Dr. Potempa and 100,000 Class C
Shares are reserved for issuance pursuant to options to be granted under the
Company Stock Option Plan (defined in Section 16.C.). All of the Shares that are
issued and outstanding are duly authorized, validly issued, fully paid and
non-assessable. The Shares to be issued at all closings pursuant hereto will,
upon issuance, be duly authorized, validly issued, fully paid and
non-assessable. Except as contemplated by this Agreement and except as set forth
above, there are no outstanding subscriptions, options, rights, warrants,
convertible securities or other agreements or commitments obligating the Company
to issue or to transfer from its treasury any additional shares of its capital
stock of any class, nor are there any agreements or commitments obligating the
Company to repurchase or redeem any of the shares of its capital stock.
Section 10. General Representations and Warranties of Immtech. Immtech
hereby represents and warrants to the Company and Franklin as follows:
A. Organization. Immtech is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
B. Authority. Immtech has all requisite corporate power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder, and no consent or approval of any other person or governmental
authority is required therefor. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been
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<PAGE>
duly authorized by all necessary corporate action of Immtech. This Agreement is
a valid and binding obligation of Immtech, and is enforceable against it in
accordance with its terms and conditions, except as the enforceability thereof
may be limited by the Enforceability Limitations.
C. No Violation. The execution and delivery of this Agreement and the
consummation by Immtech of the transactions contemplated hereby will not, and
with the giving of notice or lapse of time will not, violate, constitute a
default under or cause the termination of (i) the Certificate of Incorporation
or By-Laws of Immtech, (ii) any agreement, mortgage, license, permit or other
instrument or obligation to which Immtech is bound or (iii) any statute or law
or any judgment, decree, order, regulation or rule of any court or governmental
authority.
Section 11. General Representations and Warranties of Franklin. Franklin
hereby represents and warrants to the Company and Immtech as follows:
A. Organization. Franklin is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio.
B. Authority. Franklin has all requisite corporate power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder, and no consent or approval of any other person or governmental
authority is required therefor. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate action of Franklin. This Agreement is a valid and
binding obligation of Franklin, and is enforceable against it in accordance with
its terms and conditions, except as the enforceability thereof may be limited by
the Enforceability Limitations.
C. No Violation. The execution and delivery of this Agreement and the
consummation by Franklin of the transactions contemplated hereby will not, and
with the giving of notice or lapse of time will not, violate, constitute a
default under or cause the termination of (i) the Articles of Incorporation or
Regulations of Franklin, (ii) any agreement, mortgage, license, permit or other
instrument or obligation to which Franklin is bound or (iii) any statute or law
or any judgment, decree, order, regulation or rule of any court or governmental
authority.
Section 12. Investment Representations, Etc. Each of Immtech and Franklin
severally represents, warrants and acknowledges to the Company as follows:
A. Purchase for Investment. The Shares being purchased by it hereunder
(the "Securities") have not been registered under the Securities Act of 1933, as
amended (the "Act"), in reliance on the nonpublic offering exemption contained
in Section 4(2) of the Act. The Securities are being and will be acquired by it
for its own account, for investment purposes (meaning to hold for an indefinite
period) and without any intention to distribute or otherwise dispose of the
same. It will not sell, hypothecate, assign, transfer or otherwise dispose of
the Securities in violation of any federal or state securities law, and in any
event not unless (i) the Securities are registered under the Act pursuant to an
effective registration statement contemplating the transaction or transactions
in which the Securities are to be disposed of or (ii) the Company shall have
received an opinion of counsel (both the opinion and such counsel being
reasonably satisfactory to the Company) to the effect that the sale or other
proposed disposition
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<PAGE>
of the Securities may be accomplished without such registration. It understands
that it must bear the economic risk of the investment in the Securities for an
indefinite period of time. It has not offered or reoffered the Securities to any
other person, and has taken no action which of itself would cause the aforesaid
nonpublic offering exemption not to be available to the Company with respect to
the offer and sale of the Securities to it.
B. Legends on Certificates, Etc. The Company shall appropriately note its
stock records and may give instructions to any transfer agent for its securities
consistent with Section 12.A., and the certificates for the issued Securities
shall bear an appropriate legend in that regard.
C. Rule 144 Under Act: Registration. Rule 144 under the Act (the "Rule")
is not available for resales of the Securities by it because the Company does
not satisfy certain conditions of the Rule. For so long as the Rule is not
available any resale or other transfer of the Securities, under circumstances
in which the seller or the person through whom the sale is made may be deemed to
be an underwriter as that term is used in the Act, may require compliance with
some other exemption under the Act or the rules and regulations of the
Securities and Exchange Commission, or any governmental authority succeeding
thereto or substituted therefor, and any resale or other transfer of the
Securities at such time in the future as the Rule may be available which is made
in reliance upon the Rule can be made only in limited amounts in accordance with
the terms and conditions of the Rule (including the fact that the Securities
must be held for minimum periods of time). It understands that the Securities
are characterized as "restricted securities" under the United States securities
law inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
the Securities may be resold without registration under the Act only in certain
circumstances. In this connection, it represents that it understands the resale
limitations imposed by the Rule. The Company is under no obligation to register
any of the Securities under the Act.
D. Access to Information. It and representatives of it such as its
attorneys, accountants and other financial advisors, if any, have received
access to such information (financial and other) concerning the Company and its
business and prospects as shall have been requested by it and its
representatives; the Company has made available thereto the officers,
accountants and employees of the Company for the purpose of discussing and
responding to questions concerning the Company and its business, operations,
market potential, capitalization, financial condition and prospects, and all
other matters deemed relevant by it and its representatives; and the Company has
provided thereto copies of all material corporate documents, records, financial
statements and other data pertaining to the foregoing as shall have been
requested thereby.
E. Suitability, Etc. It has evaluated the risks of purchasing the
Securities, and has determined that the Securities are a suitable investment for
it. It has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of its purchase of and
investment in the Securities. It has not been formed for the purpose of
investing in the Company. It has sufficient financial resources to bear the loss
of its entire investment in the Securities.
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F. Blue Sky Matters. All offers or sales of the Securities to it have
taken or will take place in no state or jurisdiction other than in the State of
Delaware, and it intends that the state securities or blue sky laws of only such
State shall govern the offer and sale of the Securities to it.
Section 13. Conditions to Obligations of Immtech and Franklin. The
obligations of each of Immtech and Franklin to perform hereunder are subject to
the satisfaction of the following conditions:
A. Representations and Warranties: Covenants. The representations and
warranties of the other parties hereto contained herein shall be true and
correct, and the other parties hereto shall have performed in all material
respects all of the covenants then required to be performed by them hereunder.
B. Delivery of Certificates. The Company shall have delivered share
certificates evidencing the Shares purchased by Immtech or Franklin and/or its
designees in connection with any closing therefor.
C. Initial mCRP Assets Assignment. Immtech shall have executed and
delivered to the Company the Initial mCRP Assets Assignment at the Initial
Immtech Closing.
D. Documents. The parties hereto shall have delivered such documents
relating to the transactions contemplated by this Agreement as the other parties
hereto or counsel therefor may reasonably request.
E. Waiver of Conditions. Any condition specified in this Section 13 for
the benefit of a party may be waived if consented to by such party, provided
that no waiver shall be effective against any party unless it is set forth in a
writing executed by that party.
Section 14. Use of Initial Required Funding. The Company shall use the
Initial Required Funding to prepare for and conduct Phase I human clinical
trials on the safety and effectiveness of mCRP (the "Phase I Trials"). The Phase
I Trials shall include at least 30 patients and shall be conducted primarily as
safety tests, and it is anticipated that the Phase I Trials will also provide
preliminary but statistically significant data evidencing that mCRP is
therapeutically efficacious in the treatment of cancer in humans. The Phase I
Trials will commence in 1999, and it is anticipated that the Phase I Trials will
be completed before the end of 1999.
Section 15. Obligation to Provide and Use of Subsequent Funds. Following
completion of the Phase I Trials, a Medical Advisory Board (the "MAB") having no
fewer than three qualified members shall be appointed by the Company's Board of
Directors. The MAB shall be requested to render an opinion as to whether or not
the results of the Phase I Trials indicate that mCRP is safe for use in humans
and has a statistically significant and therapeutically efficacious effect on
cancer in humans. The MAB shall render its opinion within thirty (30) days of
receipt of the data from the Phase I Trials. If a majority of the MAB members
render an opinion that the results of the Phase 1 Trials indicate that mCRP is
safe for use in
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humans and has a statistically significant and therapeutically efficacious
effect on cancer in humans (the rendering of such opinion shall be considered
the "MAB Opinion Event"), then Franklin shall be obligated to make the loans
pursuant to Section 6.B. and purchase the Subsequent Franklin Class B Shares
pursuant to Section 4. These funds and all other funds provided pursuant to this
Agreement in excess of the Initial Required Funding and amounts applied to the
repayment of loans pursuant to Section 6 shall be used by the Company to conduct
Phase II and Phase III human clinical trials.
Section 16. Employment Matters.
A. Employment Agreement for Dr. Potempa. The Company shall enter into an
employment agreement with Dr. Potempa in such form as is mutually agreed to by
Dr. Potempa and the Company (the "Potempa Employment Agreement"). The Potempa
Employment Agreement shall (i) have an initial term of three (3) years
commencing October 1, 1998, (ii) provide an option for the Company to renew the
term for an additional two (2) years, (iii) provide for an initial annual salary
of $120,000 plus benefits provided to other employees of the Company, (iv)
provide for bonuses and salary increases as determined by the Company's Chief
Executive Officer and/or Board of Directors and (v) contain appropriate
competition restriction provisions.
B. Shares for Dr. Potempa. Dr. Potempa currently owns 33,333 Class C
Shares. Further, Dr. Potempa shall be granted an option for an additional 30,000
Class C Shares pursuant to an option agreement in such form as is approved by
the Company's Board of Directors (the "Potempa Option Agreement"). The Potempa
Option Agreement shall provide for an option price of $.10 per Class C Share
and have vesting provisions. The vesting provisions shall provide for vesting of
such option in four (4) equal annual installments of 7,500 Class C Shares each
on April 1, 1999 and thereafter on each anniversary of such date, provided that
any portion of the option which is unvested automatically shall become fully
vested (i) upon the submission of a "new drug application" by the Company in any
major industrialized country for regulatory approval of a product based upon
mCRP, (ii) if the Company enters into a license with any person who is required
by the terms of the license to file such a "new drug application" or (iii) if
there is a change in control of the Company as specified in the Potempa Option
Agreement.
C. Stock Option Plan. The Company has established a stock option plan (the
"Company Stock Option Plan") for employees and consultants pursuant to which
100,000 Class C Shares have been reserved by the Company for option grants and
issuance.
Section 17. Consequences in Event of Certain Funding Failures.
A. Initial Funding Failure. If Franklin fails to make any of the loans
provided for in Section 6.A. or the purchase of Initial Franklin Class B Shares
pursuant to Section 2.B. as required by either of said Sections, and if any such
failure continues uncured for thirty (30) days after Immtech or the Company
notifies Franklin in writing of such failure, then Immtech shall have the
option, exercisable by written notice given by Immtech to Franklin (the "Immtech
Notice") at any time while such failure thereafter continues, of (i) if Immtech
is publicly traded (trading on the OTC Bulletin Board service or any other
electronic bulletin board providing an
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electronic quotation medium for securities not listed on the Nasdaq Stock Market
or a registered national securities exchange shall not constitute "publicly
traded" for this purpose) at such time, exchanging, for all of the outstanding
Class B Shares and the outstanding loans from Franklin under Section 6.A.,
Immtech stock which has a value (based on the average price for the Immtech
stock over the thirty (30) trading days immediately preceding the day the
Immtech Notice is given) which is 90% of the aggregate amount contributed to the
Company for the purchase of such Class B Shares and outstanding as loans from
Franklin under Section 6.A. or (ii) purchasing all of the outstanding Class B
Shares and the outstanding loans from Franklin under Section 6.A. for cash in an
amount which is 90% of the aggregate amount contributed to the Company for the
purchase of such Class B Shares and outstanding as loans from Franklin under
Section 6.A. If Immtech exercises either such option, it must close thereon
within ninety (90) days after it gives the Immtech Notice.
B. Subsequent Funding Failure. If Franklin fails to make any of the loans
provided for in Section 6.B. or the purchase of the Subsequent Franklin Class B
Shares pursuant to Section 4 as required by either of said Sections, and if any
such failure continues uncured for thirty (30) days after Immtech or the Company
notifies Franklin in writing of such failure, then Immtech shall have the
option, exercisable by an Immtech Notice given at any time while such failure
thereafter continues, of purchasing an additional number of Class A Shares at a
price of $1.00 per Class A Share such that Immtech would have a simple majority
of the issued and outstanding Class A Shares and Class B Shares on a combined
basis, and in the event Immtech exercises and closes on such option then (i) the
Company shall be deemed to have sold and Franklin shall be deemed to have
purchased, effective immediately prior to Immtech's closing on such option, in
consideration of the outstanding amount of the subsequent loans to the Company
by Franklin under Section 6.B. which loans shall be deemed paid by Franklin as
consideration therefor, that number of Class B Shares as such consideration
would have purchased under Section 4 if the Subsequent Franklin Closing had
occurred as of such sale and purchase, (ii) all outstanding Class B Shares
(including without limitation the Class B Shares deemed sold and purchased
pursuant to clause (i)) automatically shall thereupon convert to Class A Shares
pursuant to provision therefor in the Company's Certificate of Incorporation and
(iii) Franklin and the Company shall cease to have any further rights or
obligations under Section 4, Section 5.B. and Section 6.B.
Franklin agrees to, and hereby grants to Immtech, with full power of
substitution, an irrevocable proxy pursuant to the provisions of the Delaware
General Corporation Law to vote, and to execute and deliver written consents or
otherwise act with respect to, all Shares and all other voting securities of the
Company now owned or hereafter acquired by Franklin as fully, to the same extent
and with the same effect as Franklin might or could do under any applicable laws
or regulations governing the rights and powers of stockholders of a Delaware
corporation, in connection with any matter necessary to give Immtech the full
benefit of the option provided for above in this Section 17.B., including
without limitation voting with respect to an amendment to the Company's
Certificate of Incorporation to increase the number of authorized Class A
Shares. Franklin hereby affirms that this proxy is coupled with an interest and
is irrevocable. The Company agrees to take such action as may be necessary to
give Immtech the full benefit of such option, including without limitation a
vote by the Board of Directors with respect to, and
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the filing of such documents necessary to evidence, an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
Class A Shares.
Section 18. Put Right of Immtech. At any time during the Put Period
(defined below), Immtech shall have the right (but not the obligation) to
require the Company to purchase all (but not less than all) of Immtech's Shares
at a purchase price equal to the lesser of (i) the fair market value of such
Shares as determined by a national investment banking firm selected by Immtech
and the Company and approved by Franklin which has experience in valuing
biotechnology companies (the "Value Determination") or (ii) $5.00 per Share. The
cost of such Value Determination shall be borne by Immtech. If Immtech exercises
its right to require the Company to purchase all of its Shares, then the closing
of the Company's purchase of such Shares shall occur within sixty (60) days
after the Company's receipt of the Value Determination. At such closing, Immtech
shall deliver certificates representing the Shares being acquired by the
Company, duly endorsed for transfer, and such Shares shall be free and clear of
any liens, claims, options, charges, encumbrances or rights of others, and
Immtech shall so represent and warrant and shall further represent and warrant
that it is the beneficial owner of such Shares. The Company shall deliver at
such closing, by official bank check or by wire transfer of immediately
available funds, payment in full for such Shares. At such closing, all parties
to the transaction shall execute and deliver such documents as are reasonably
requested and otherwise appropriate. For purposes hereof, the "Put Period" shall
be from July 8, 2003 through and including August 6, 2003.
Section 19. Miscellaneous.
A. Broker's and Finder's Fees. Each party hereto represents and warrants
to the other parties hereto that neither they nor any of their affiliates have
engaged or dealt with any broker, finder or other person who may be entitled to
any brokerage fee or commission in respect of the execution of this Agreement or
the consummation of the transactions contemplated hereby. Each of the parties
hereto shall indemnify and hold harmless the other parties hereto against any
and all claims for brokerage commissions or finder's fees incurred by reason of
any action taken by the indemnifying party.
B. Expenses. The Company agrees to pay and hold Immtech and Franklin
harmless from liability for the payment of the fees and expenses of Squire,
Sanders & Dempsey L.L.P. and [Immtech Counsel] arising in connection with the
negotiation, execution and consummation of this Agreement and the other
agreements and documents contemplated hereby.
C. Enforcement Legal Fees. In the event of any dispute arising out of the
subject matter of this Agreement, a party which obtains a judgment in its favor
shall be entitled to recover from the adverse party to the judgment, in addition
to any other damages assessed, its reasonable attorneys' fees and other costs
and expenses incurred in obtaining such judgment.
D. Remedies. Each party hereto shall have all rights and remedies set
forth in this Agreement and all rights and remedies which such party has under
any law. Any party having rights under any provision of this Agreement shall be
entitled to enforce such rights specifically
14
<PAGE>
(without posting a bond or other security), to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
granted by law.
E. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any party or on behalf of any party.
F. Successors and Assigns. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto shall bind and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, and whether or not any express assignment has
been made, the provisions of this Agreement which are for any party's benefit as
a purchaser or holder of Shares are also for the benefit of, and enforceable by,
any subsequent holder of such Shares.
G. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
H. Counterparts. This Agreement may be executed in separate counterparts,
any one of which need not contain the signatures of more than one party, but all
such counterparts taken together shall constitute one and the same agreement.
I. Descriptive Headings; Interpretation. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation.
J. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters.
K. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each party at the address indicated below:
15
<PAGE>
If to the Company, to:
NextEra Therapeutics, Inc.
2035 Riverside Drive
Columbus, Ohio 43221
Attention: Philipp D. Nick
President
With a copy to:
Squire, Sanders & Dempsey L.L.P.
1300 Huntington Center
41 South High Street
Columbus, Ohio 43215
Attention: Daniel M. Maher, Esq.
If to Immtech, to:
Immtech International, Inc.
1890 Maple Avenue
Suite 110
Evanston, Illinois 60201
Attention: T. Stephen Thompson
President
With a copy to:
Gardner, Carton & Douglas
321 North Clark Street
Chicago, Illinois 60610-4795
Attention: John P. Goebel, Esq.
If to Franklin, to:
Franklin Research Group, Inc.
2035 Riverside Drive
Columbus, Ohio 43221
Attention: Philipp D. Nick
President
16
<PAGE>
With a copy to:
Squire, Sanders & Dempsey L.L.P.
1300 Huntington Center
41 South High Street
Columbus, Ohio 43215
Attention: Daniel M. Maher, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
L. Jurisdiction; Venue; Service of Process. Each of the parties
irrevocably submits to the exclusive jurisdiction of any State of Ohio or United
States Federal Court sitting in Franklin County, Ohio in any action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. Each of the parties irrevocably waives, to the fullest
extent it may effectively do so, the defense of an inconvenient forum to the
maintenance of any such action or proceeding. Each of the parties consents to
the service of copies of the summons and complaint and any other process which
may be served in any such action or proceeding by the mailing or delivering of a
copy of such process to such party at its address specified in or pursuant to
Section 19.K. Each of the parties agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
M. Legend. All certificates issued for Shares shall contain an appropriate
legend providing notice of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
NEXTERA THERAPEUTICS, INC. IMMTECH INTERNATIONAL, INC.
By: /s/ Philipp D. Nick By: /s/ T. Stephen Thompson
---------------------------- ----------------------------
Name: Philipp D. Nick Name: T. Stephen Thompson
--------------------------- ---------------------------
Title: President Title: President
-------------------------- --------------------------
FRANKLIN RESEARCH GROUP, INC.
By: /s/ Philipp D. Nick
---------------------------
Name: Philipp D. Nick
--------------------------
Title: President
-------------------------
17
OFFICE LEASE
1890 MAPLE AVENUE
EVANSTON, ILLINOIS
Between
SHAW REALTY SERVICES, INC.,
as agent for
CHS EVANSTON ONE ASSOCIATES, LIMITED PARTNERSHIP ("Landlord")
and
IMMTECH INTERNATIONAL, INC.("Tenant")
<PAGE>
Section Page
1. Basic Lease Provisions ................................................. 3
2. Leasing Agreement ...................................................... 4
3. Term and Possession .................................................... 4
4. Rent--Annual Base Rent ................................................. 4
5. Adjustments to Annual Base Rent ........................................ 5
6. Services ............................................................... 7
7. Recording-Liens by Tenant .............................................. 8
8. Security Deposit ....................................................... 8
9. Mortgage by Landlord ................................................... 8
10. Certain Rights Reserved to Landlord .................................... 9
11. Insurance and Waiver of Claims ......................................... 10
12. Condition of Premises .................................................. 11
13. Alterations ............................................................ 12
14. Repairs by Landlord .................................................... 12
15. Laws, Rules and Regulations ............................................ 12
16. Condemnation, Fire and Other Casualty .................................. 13
17. Holding Over ........................................................... 13
18. Landlords Remedies ..................................................... 13
19. Air Conditioning, Heating and Ventilating .............................. 14
20. Subletting and Assigning ............................................... 15
21. Notices ................................................................ 16
22. Quiet Possession ....................................................... 16
23. Miscellaneous .......................................................... 16
24. Landlord's Liability ................................................... 18
<PAGE>
1. BASIC LEASE PROVISIONS
(a) Building Address: 1890 Maple Avenue; Evanston, Illinois 60201 ("Building")
----------------------------------------------------------
(b) Landlord and Address: CHS Evanston One Associates, Limited Partnership;
676 St. Clair Street, Suite 2200, Evanston, Illinois
60611
------------------------------------------------------
(c) Tenant and Current Address: Immtech International, Inc., 906 University
Place Evanston, Illinois 60201
------------------------------------------------
(d) Date of Lease Execution: December 5, 1991
---------------------------------------------------
(e) Commencement Date (if the Premises are subject to new construction, this
date to be inserted when determined and the representatives of both parties
should sign here):
December 1, 1991
- --------------------------------------------------------------------------------
(f) Lease Term: 1 year
----------------------------------------------------------------
(g) Expiration Date: November 30, 1992
-----------------------------------------------------------
(h) Floor(s) or Room(s) of Premises: Suite 110
-------------------------------------------
(i) Net Rentable Area (in Square Feet): 2,952
----------------------------------------
(j) Tenant's Business and Permitted Uses: General office, subject to provisions
set forth herein re: research.
--------------------------------------
(k) Annual Base Rent $17.00 per RSF for $50,184.00 per annum.
-----------------------------------------------------------
(l) Monthly Installments of Annual Base Rent: $4,182.00
----------------------------------
(m) Tenant's Proportion: 7.29%
-------------------------------------------------------
(n) Initial Consumer Price Index: N/A
----------------------------------------------
(0) Date Tenant Plans Due: N/A
-----------------------------------------------------
(p) Broker Referred to in Paragraph 23(k): N/A
-------------------------------------
(q) Security Deposit: $8,364.00
----------------------------------------------------------
3
<PAGE>
2. LEASING AGREEMENT. Landlord hereby leases to Tenant and Tenant hereby
accepts and leases from Landlord the premises (the "Premises") in the Building
described in Section 1(a) herein, which is contained in the research park known
as the Northwestern University/Evanston Research Park (the "Park"), for the term
and upon the conditions provided in this Lease, to be occupied and used by
Tenant to conduct, promote, encourage and stimulate scientific research and
development, including provision for offices and other facilities incidental to
or supportive of such scientific research and development, and for no other
purposes. The floor plan of the Premises is described in the plan attached
hereto as Exhibit A.
3. TERM AND POSSESSION.
(a) The term of this Lease shall commence on the date specified in
Section 1(e) (the "Commencement Date") and shall expire on the date specified in
Section 1(g) (the "Expiration Date") unless sooner terminated as otherwise
provided in this Lease.
(b) In the event the Premises are not completed and ready for
occupancy on the Commencement Date or in the event Landlord is unable to deliver
possession on such date by reason of the holding over or retention of possession
by any tenant or occupant, this Lease shall nevertheless continue in force and
effect, but Rent (as hereinafter defined) shall abate until the Premises are
ready for occupancy or until Landlord is able to deliver possession, as the case
may be, and Landlord shall have no other liability whatsoever on account hereof,
provided, however, there shall be no abatement of Rent if the Premises are not
ready for occupancy as a result of the failure to complete the installation of
special equipment, fixtures or materials ordered by Tenant, or as the result of
any delays resulting from Tenant's failure to promptly submit plans that are
suitable in all respects for submission to the City of Evanston in order to
obtain a building permit, or resulting from changes or additions to Tenant's
plans after the date specified in Section 1(o). The Premises shall not be deemed
incomplete or not ready for occupancy if only non-material details of
construction, decoration or mechanical adjustments remain to be completed. The
determination of Landlord's architect or interior space planner for the Building
shall be final and conclusive as to whether the Premises are completed and ready
for occupancy.
(c) In the event Tenant takes possession of the Premises or any part
thereof prior to the Commencement Date (which Tenant may not do without
Landlord's prior written consent), all of the covenants and conditions of this
Lease shall be binding upon the parties hereto with respect to such whole or
part of the Premises as if the Commencement Date had been fixed as of the date
when Tenant took possession of such whole or part of the Premises and Tenant
shall pay Rent for the period of such occupancy prior to the Commencement Date
at the rate of the Annual Base Rent set forth in Section 1(k) herein prorated
for such period of occupancy and, if less than the whole Premises are occupied,
for the proportionate area of the total Premises so occupied.
(d) Under no circumstances shall the occurrence of any of the events
described in this Section 3(b) or 3(c) be deemed to accelerate or defer the
Expiration Date.
4. RENT - ANNUAL BASE RENT. Tenant shall pay without offset, deduction or
credit, to the managing agent of Landlord, c/o Shaw Realty Services. Inc., 676
St. Clair, Suite 2200, Chicago, Illinois 60611, or to such other place or such
other person as Landlord may designate, the Annual Base Rent set forth in
Section 1(k), as it may be adjusted from time to time in accordance with the
terms of this Lease, and any additional rent ("Additional Rent") which shall
mean and include all sums of money which shall become due from and payable by
Tenant, excluding Adjusted Annual Base Rent as hereinafter defined. Annual Base
Rent shall be subject to adjustment in accordance with the terms of Section 5
herein, and as adjusted is hereinafter called "Adjusted Annual Base Rent." The
Adjusted Annual Base Rent and Additional Rent (together with such other amounts
payable to Landlord hereunder as elected by Landlord pursuant to provisions of
Section 23(b)), shall herein be collectively referred to as "Rent." Except as
otherwise specifically provided, all Rent shall be paid without notice or
demand. The Adjusted Annual Base Rent shall be paid in equal monthly
installments payable in advance promptly on or before the first day of each
calendar month during the term of this Lease, except that Tenant shall pay the
first such full monthly installment on the execution hereof. If any payment of
Rent or any part thereof or any other payment to be made by Tenant to Landlord
pursuant to the terms hereof shall become overdue, a "late charge" of five cents
($.05), or such lesser amount as represents the maximum Landlord lawfully may
charge, for each dollar so overdue may be charged by Landlord, together with
interest from the date when such payment or part thereof was due until the date
such amount is actually paid at the rate which is the lesser of two percent (2%)
over the reference rate as quoted from time to time by Continental Bank, N.A. or
the highest rate per annum permitted under applicable law. If the term should
commence or terminate on a day other than the first date of the month, the
monthly installment of Adjusted Annual Base Rent for such month shall be
prorated for such fractional month. Tenant's covenant to pay Rent shall be
independent of every other covenant in this Lease.
4
<PAGE>
5. ADJUSTMENTS TO ANNUAL BASE RENT.
(a) For the purpose of this Section 5, the following words and
phrases shall have the following meanings:
(i) "Initial Calendar Year" shall mean the Calendar Year
(as hereinafter defined) in which the Commencement Date occurs.
(ii) "Calendar Year" shall mean each calendar year
(subsequent to the Initial Calendar Year) in which any part of the
Term falls, through and including the year in which the Term
expires.
(iii) "Consumer Price Index" shall mean the Consumer
Price Index--U.S. City Averages for Urban Wage Earners and Clerical
Workers--All items of the United States Bureau of Labor Statistics.
The 1967 average shall be used as an index of 100.
(iv) "Expenses" shall mean and include all those costs
and expenses of every kind and nature associated with the
management. maintenance, repair, replacement, insurance, ownership
and operation of the Building, including any Park expenses allocated
to the Building. Expenses shall not include: the costs of
alterations of the premises of other tenants: depreciation charges;
interest and principal payments on mortgages; expenditures for which
Landlord has been reimbursed by a third party or by insurance
proceeds; and capital improvement costs, except that Expenses shall
include (a) the cost during the Term, as reasonably amortized by
Landlord with interest at 2% over the reference rate of interest
quoted from time to time by Continental Bank, N.A. on the
unamortized amount, of any capital improvements which are intended
to reduce any component cost included within Expenses, and (b) the
cost of any capital improvements which are necessary to keep the
Building and Park in compliance with all governmental or other rules
and regulations applicable from time to time thereto.
(v) "Taxes" shall mean real estate taxes, assessments,
sewer rents, rates and charges, transit taxes, taxes based upon the
receipt of rent, and any other federal, state or local governmental
charge, general, special, ordinary or extraordinary (but not
including income or franchise taxes or any other taxes imposed upon
or measured by Landlord's income or profits, unless the same shall
be imposed in lieu of real estate taxes and other ad valorem taxes),
which may now or hereafter be levied or assessed against the
Building. In case of special taxes or assessments which may be
payable in installments, only the amount of each installment (plus
any interest payable thereon) paid during a calendar year shall be
included in Taxes for that year. Taxes shall also include any
personal property taxes imposed upon the furniture, fixtures,
machinery, equipment, apparatus, systems and appurtenances used in
connection with the Building for the operation thereof. Taxes shall
also include amounts paid to anyone hired by Landlord to contest the
amount of any assessment of the Building, the rate of taxation or
the legality of the imposition of any component of the Taxes upon
the Building. Taxes "attributable to" or "for" a calendar year, for
the purposes of this Lease, shall be those paid during such year
without regard to when such Taxes are assessed or levied.
(vi) "Tenant's Proportion" as set forth in Section 1(m)
is the percentage calculated by dividing the Net Rentable Area
contained in the Premises by 40.521 (being 100% of the rentable area
in the Building) provided, however, should the Building be less than
95% occupied during all or a portion of any Calendar Year, then
Landlord shall make a reasonable and equitable adjustment of the
Expenses and Taxes for the Calendar Year, employing sound accounting
and management principles to determine the amount of Expenses and
Taxes that would have been paid or incurred by Landlord had the
Building been fully occupied, and the amount so determined shall be
deemed to have been the amount of Expenses and Taxes for the
Calendar Year.
Notwithstanding the terms and conditions specified in Section 5(b)
of the Lease, the Tenant shall not pay more than 7.29% of actual
Expenses or Taxes.
5
<PAGE>
(b) Tenant shall pay to Landlord as Additional Rent, in addition to
the Annual Base Rent required by Section 4 hereof, an amount ("Expense
Adjustment Amount") equal to Tenant's Proportion of Expenses actually paid
during or attributable to each Calendar Year. The Expense Adjustment Amount with
respect to each Calendar Year shall be paid in monthly installments in an amount
estimated by Landlord from time to time and communicated by written notice to
Tenant. Landlord shall keep, or cause to be kept, books and records of such
Expenses, in accordance with an appropriate system of accounts and accounting
practices consistently maintained. As promptly as practical following the close
of each Calendar Year, Landlord shall cause the amount of the Expense Adjustment
Amount for such Calendar Year to be computed based on actual Expenses for such
Calendar Year for the Building and Landlord shall deliver to Tenant a statement
of such amount. If the total of the estimated monthly installments paid by
Tenant during any Calendar Year is less than the actual Expense Adjustment
Amount due from Tenant for such Calendar Year, Tenant shall pay any deficiency
to Landlord as shown by such statement within thirty (30) days after receipt of
such statement. If the total of the estimated monthly installments paid by
Tenant during any Calendar Year exceeds the actual Expense Adjustment Amount due
from Tenant for such Calendar Year, Landlord shall credit such excess against
payments next due hereunder, provided Tenant is not then in default hereunder.
If this Lease shall expire prior to full application of such excess, Landlord
shall pay to Tenant the balance thereof after all payments of Rent have been
made by Tenant.
Tenant acknowledges that Landlord's estimate of the Expense
Adjustment Amount is based on the assumption that Landlord will be providing
identical services to all tenants in the Building. If this assumption is not in
fact correct, that is, if Landlord is not furnishing any particular work or
service (the cost of which, if performed by Landlord, would be included in
Expenses) to a tenant who has undertaken to perform such work or service in lieu
of the performance thereof by Landlord, Expenses shall be deemed to be increased
by an amount equal to the additional expenses which would reasonably have been
incurred during such period by Landlord if it had at its own expense furnished
such work or service to such tenant.
(c) Tenant shall pay to Landlord as Additional Rent, in addition to
the Annual Base Rent required by Section 4 hereof, an amount ("Tax Adjustment
Amount") equal to Tenant's Proportion of Taxes paid during each Calendar Year.
The Tax Adjustment Amount with respect to each Calendar Year shall be paid in
monthly installments in an amount estimated by Landlord from time to time and
communicated by written notice to Tenant. Landlord shall keep, or cause to be
kept, books and records of such Taxes, in accordance with an appropriate system
of accounts and accounting practices consistently maintained. As promptly as
practical following the close of each Calendar Year, Landlord shall cause the
amount of the Tax Adjustment Amount for such Calendar Year to be computed based
on Taxes paid during such Calendar Year for the Building and Landlord shall
deliver to Tenant a statement of such amount. If the total of the estimated
monthly installments paid by Tenant during any Calendar Year is less than the
actual Tax Adjustment Amount due from Tenant for such Calendar Year, Tenant
shall pay any deficiency to Landlord as shown by such statement within thirty
(30) days after receipt of such statement. If the total of the estimated monthly
installments paid by Tenant during any Calendar Year exceeds the actual Tax
Adjustment Amount due from Tenant for such Calendar Year, Landlord shall credit
such excess against payments next due hereunder, provided Tenant is not then in
default hereunder. If this Lease shall expire prior to full application of such
excess, Landlord shall pay to Tenant the balance thereof after all payments of
Rent have been made by Tenant.
6
<PAGE>
(e) All amounts due under this Section 5 as Additional Rent shall be
payable for the same periods and in the same manner, time and place as the
Adjusted Annual Base Rent. Without limitation on other obligations of Tenant
which shall survive the expiration of the Term, the obligations of Tenant to pay
the Additional Rent shall survive the expiration of the Term. Tenant may examine
Landlord's books and records with respect to items in this Section 5 at any time
within thirty (30) days following Landlord's furnishing to Tenant the statements
informing Tenant of the Expense Adjustment Amount, Tax Adjustment Amount and CPI
Adjustment, during normal business hours upon reasonable prior notice to
Landlord. Unless Tenant asserts a specific error or errors by written notice to
Landlord within such thirty (30) day period, the statements shall be deemed to
be correct.
6. SERVICES.
(a) Provided Tenant is not in default under the terms of this Lease,
Landlord shall provide the following services to Tenant, and the cost of
providing such services shall be included as part of the Expenses:
(i) Janitor service and customary cleaning in and about
the Premises, Saturdays, Sundays and holidays excepted.
(ii) Air conditioning, heating and ventilating in
accordance with the provisions of Section 19 hereof.
(iii) Water from City mains for drinking, lavatory and
toilet-purposes drawn through fixtures installed by Landlord. Tenant
shall not waste or permit the waste of water.
(iv) Operatorless elevator service in common with other
tenants at all times.
(v) Window washing of all windows in the Premises, both
inside and out, weather permitting, at such times as shall be
required in Landlord's sole judgment, but not less than three (3)
times a year on the outside and not less than two (2) times a year
on the inside of the windows in the Premises.
(vi) Adequate electrical wiring and facilities for
standard building lighting fixtures and a connected tenant
electrical load not to exceed an average of 5 watts per square foot
of the Premises. Tenant shall pay for the use of all electrical
service to the Premises.
Tenant shall be separately metered and billed directly
by the electric utility company supplying electricity and electric
heat to the Premises and Tenant agrees to pay each bill promptly in
accordance with its terms. In the event that for any reason Tenant
cannot be billed directly, Landlord shall forward each bill with
respect to the Premises and Tenant shall pay it promptly in
accordance with its terms.
If Tenant cannot be separately metered for any reason,
Tenant shall pay Landlord as Additional Rent, in monthly
installments at the time prescribed for monthly installments of
Rent, an amount, as estimated by Landlord from time to time, which
Tenant would pay for such electricity if the same were separately
metered to the Premises.
(b) Landlord does not warrant that any of the services above
mentioned will be free from interruptions or diminutions in quality or quantity
caused by repairs, renewals, improvements, alterations, strikes, lockouts,
accidents, inability of Landlord to obtain fuel, energy or supplies, or any
other cause or causes beyond the reasonable control of Landlord. Any such
interruption of service shall never be deemed an eviction or disturbance of
Tenant's use and possession of the Premises or any part thereof, or render
Landlord liable to Tenant for damages, or relieve Tenant from performance of
Tenant's obligations under this Lease, provided, however, that Landlord will at
all times use reasonable efforts promptly to remedy any situation which might
interrupt such services.
(c) Notwithstanding anything to the contrary in this Section 6 or
elsewhere in this Lease, Landlord shall have the right to institute such
policies, programs and measures as may be necessary or desirable, in Landlord's
discretion, for the conservation and/or preservation of energy or
7
<PAGE>
energy-related services, or as may be required to comply with any applicable
codes, rules and regulations, whether mandatory or voluntary.
7. RECORDING--LIENS BY TENANT. Neither this Lease, nor any memorandum,
affidavit, or other writing with respect thereto, shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant without Landlord's prior
written consent and the recording thereof in violation of this Section 7 shall
make this Lease null and void at Landlord's election. Tenant has no authority to
and shall not cause any lien or encumbrance to attach to or be placed against
the land on which the Building is located, the Building or the Premises. In the
event that such lien is not immediately released and removed, Landlord may
elect, but shall not be obligated, to take all action necessary to release and
remove such lien (without any duty to investigate the validity thereof) and
Tenant shall promptly, upon notice, reimburse Landlord for all sums, costs and
expenses (including reasonable attorneys' fees) incurred by Landlord in
connection with such lien.
8. SECURITY DEPOSIT. Tenant agrees to deposit with Landlord, upon the
execution of this Lease, the sum set forth in Section 1(q) as security (the
"Deposit") for the full and faithful performance by Tenant of each and every
term, provision, covenant, and condition of this Lease. Landlord shall have no
obligation to segregate the amount so deposited from its other funds. If Tenant
defaults in respect to any of the terms, provisions, covenants and conditions of
this Lease, including, but not limited to, payment of Rent, Landlord may use,
apply, or retain the whole or any part of the Deposit for the payment of any
such Rent in default, or for any other sum which Landlord may expend or be
required to expend by reason of Tenant's default including, without limitation,
any damages or deficiency in the reletting of the Premises, whether such damages
or deficiency shall have occurred before or after any re-entry by Landlord. The
use, application or retention of the Deposit, or any portion thereof, by
Landlord shall not prevent Landlord from exercising any other right or remedy
provided by this Lease or by law (it being intended that Landlord shall not
first be required to proceed against the Deposit) and shall not operate as a
limitation on any recovery to which Landlord may otherwise be entitled. If any
of the Deposit shall be so used, applied or retained by Landlord at any time or
from time to time, Tenant shall promptly in each such instance, on written
demand therefor by Landlord, pay to Landlord such additional sum as may be
necessary to restore the Deposit to the original amount set forth in the first
sentence of this Section 8. If Tenant shall fully and faithfully comply with all
the terms, provisions, covenants and conditions of this Lease, the Deposit, or
any balance thereof, shall be returned to Tenant after the later of:
(a) within thirty (30) days following the Expiration Date;
(b) within thirty (30) days following the date by which Tenant has
vacated the Premises;
(c) the time required for the escalation charges due pursuant to the
Lease to have been computed by Landlord and paid by Tenant, provided that such
charges shall be computed and forwarded to Tenant no later than thirty (30) days
after receipt of information needed by Landlord to compute such charges.
Except as otherwise required by law, Tenant shall not be entitled to
any interest on the aforesaid Deposit. In the absence of evidence satisfactory
to Landlord of an assignment of the right to receive the Deposit or the
remaining balance thereof, Landlord shall return the Deposit to the original
Tenant, regardless of one or more assignments of this Lease in accordance with
the provisions hereof. Upon the return of the Deposit or the remaining balance
thereof to the original Tenant, Landlord shall be completely relieved of
liability under this Section 8 or otherwise with respect to the Deposit. If
Tenant receives notice of sale of the Building and a notice to attorn to the new
owner, it shall look solely to the new owner for return of the Deposit.
9.MORTGAGE BY LANDLORD. Tenant agrees that this Lease and rights of Tenant
hereunder are subject and subordinate to any mortgage or deed of trust in the
nature of a mortgage that is now or may hereafter be placed upon or affect the
property in which the Building containing the Premises is located, and to any
and all advances made thereunder, and interest thereon, and all modifications,
renewals, supplements, consolidations and replacements thereof (hereinafter
referred to as "mortgage") and to any ground lease (whether existing now or in
the future) under which Landlord leases the property from the owner of the land
on which the Building is located (hereinafter referred to as a "ground lease").
Tenant also agrees that the holder of any such mortgage or the landlord under
such ground lease may, at its option, unilaterally elect to partially
subordinate, by an instrument in form and substance satisfactory to such
mortgagee, such mortgage or ground lease to this Lease. Tenant also agrees to
execute promptly and to deliver to Landlord or such mortgagee or landlord of
such ground lease any such subordination instrument or instruments requested by
such mortgagee or landlord, and agrees that if it fails or refuses to do so
within fifteen (15) days after written request therefor by Landlord or such
mortgagee or landlord, Tenant hereby irrevocably authorizes Landlord to execute
and deliver in the name of Tenant any such instrument or instruments, provided
that such shall in no way relieve Tenant from the obligation of executing such
instruments of subordination.
In the event that said mortgagee or landlord does not elect to so
subordinate such mortgage, as hereinabove provided, and a deed or assignment of
lease is delivered in lieu of foreclosure or
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proceedings are brought for the foreclosure of any such mortgage, or if the
underlying ground lease be terminated, at the option of the grantee, mortgagee,
purchaser or landlord in any such case, Tenant agrees to attorn to such grantee,
mortgagee, purchaser or landlord, as the case may be, and to recognize it as
Landlord hereunder and agrees that such grantee, mortgagee, purchaser or
landlord shall not be liable for (1) any past act or omission of any prior
landlord hereunder and (2) any prepayment of rent, deposit or other sum not
actually delivered to it [Illegible] for the return of the Deposit. Should any
such mortgage be foreclosed, or if the underlying ground lease be terminated,
the liability of the mortgagee, trustee, purchaser or landlord at such
foreclosure sale or the liability of a subsequent owner designated as Landlord
under this Lease shall exist only so long as such trustee, mortgagee, purchaser
or owner is the owner of the subject real estate and such liability shall not
continue or survive after further transfer of ownership.
Tenant agrees that if Landlord notifies Tenant of any mortgage or trust
deed against the real property of which the Premises form a part, in the event
of any act or omission by Landlord which would give Tenant the right to
terminate this Lease or to claim a partial or total eviction, Tenant shall not
exercise any right (i) until it has notified in writing the holder of any such
mortgage which at the time shall be a lien on the Premises, if the name and
address of such holder shall previously have been furnished by written notice to
Tenant, of such act or omission, and (ii) until a reasonable period for
commencing the remedying of such act or omission shall have lapsed following the
giving of such notice, including, if necessary, the commencement and prosecution
of foreclosure proceedings, and (iii) such holder, with reasonable diligence
shall not have so commenced and continued to remedy such act or omission or to
cause the same to be remedied. During the period between the giving of such
notice and the remedying of such act or omission, the Rent shall be abated and
apportioned to the extent that any part of the Premises shall be untenantable
because of Landlord's fault.
10. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves and may
exercise the following rights without affecting Tenant's obligations hereunder:
(a) Occupancy. If Tenant vacates the Premises, to decorate, remodel,
repair, alter or otherwise prepare the Premises for reoccupancy without thereby
reducing or eliminating Tenant's other obligations under this Lease.
(b) Door Keys. To have door keys to the Premises.
(c) Access for Repairs. To have access for and to make repairs,
alterations, additions and improvements to the Premises or to the Building,
including the rights set forth in Section 14, providing that such actions shall
not unreasonably interfere with Tenant's use of the Premises.
(d) Show Premises. To show the Premises to prospective tenants or
brokers during the last year of the term of this Lease as extended, and to
prospective purchasers at all reasonable times provided prior notice is given to
Tenant in each case and Tenant's use and occupancy of the Premises shall not be
materially inconvenienced by any such action of Landlord.
(e) Service Contracts. To designate all sources furnishing
janitorial, sign painting, ice, drinking water, beverages, foods, vending
services, towels or toilet supplies used or consumed in the Building or on the
Premises.
(f) Heavy Equipment. To approve the weight, size and location of
safes or heavy equipment or other articles, which safes, equipment or articles
may be moved, in, about, or out of the Building or the Premises only at such
times and in such manner as Landlord shall direct and in all events, however, at
Tenant's sole risk and responsibility.
(g) Close Building. To close the Building after customary working
hours and on holidays, subject, however, to Tenant's right to admittance under
such reasonable regulations as Landlord may prescribe from time to time.
(h) Name of Building--Signs. To name and change the name or street
address of the Building from time to time as Landlord elects during the term of
this Lease and to identify the Building's name by such sign or signs on the
exterior and public areas thereof as Landlord may elect. To install and maintain
any signs as Landlord may elect on the exterior or interior of the Building.
(i) Environmental Inspections. To have access to the Premises to
conduct environmental inspections as required by the Environment and Safety
Policy of the Park, as amended from time to time, or as otherwise required by
the Park.
(j) Delivery and Removal. To establish reasonable controls for the
purpose of regulating the movement of all property and packages into or out of
the Building or the Premises.
The Landlord may enter upon the Premises and may exercise any or all
of the foregoing rights hereby reserved without being deemed guilty of an
eviction or disturbance of Tenant's use or possession and without being liable
in any manner to Tenant.
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11. INSURANCE AND WAIVER OF CLAIMS.
(a) Landlord shall keep the Building insured for the benefit of
Landlord in an amount equivalent to the full replacement value thereof
(excluding foundation, grading and excavation costs) against:
(i) loss or damage by fire and all risk perils,
including theft;
(ii) such other risk or risks of a similar or dissimilar
nature as are now, or may in the future be, customarily covered with
respect to buildings and improvements similar in construction,
general location, use, occupancy and design to the Building,
including, but without limiting the generality of the foregoing,
windstorms, hail, explosion, vandalism, malicious mischief, civil
commotion, and such other coverage as may be deemed necessary by
Landlord, providing such additional coverage is obtainable and
providing such additional coverage is such as is customarily carried
with respect to buildings and improvements similar in construction,
general location, use, occupancy and design to the Building.
In addition, Landlord shall maintain, for its benefit
and the benefit of its agents and employees, general public
liability insurance to afford protection to Landlord and Landlord's
agent and employees against claims for personal injury, death or
property damage occurring upon, in or about the Building. Insurance
premiums paid for all such coverage shall be a portion of the
Expenses described in Section 5 hereof. These insurance provisions
shall in no way limit or modify any of the obligations of Tenant
under any provision of this Lease. Landlord agrees that such policy
or policies of insurance shall contain a waiver of subrogation
clause as to Tenant and Tenant's agents and employees. Landlord
hereby waives, releases and discharges Tenant, Tenant's agents and
employees, from all claims or demands whatsoever which Landlord may
have or acquire arising out of damage to or destruction of the
Building or Landlord's business therein occasioned by fire or other
cause which such claim or demand may arise because of the negligence
or fault of Tenant, its agents, employees, customers or business
invitees, or otherwise to the extent such damage or destruction is
covered by insurance. Landlord agrees to look to the insurance
coverage only in the event of such loss. Notwithstanding the
foregoing, Tenant shall be obligated to pay the rental called for
hereunder in the event of damage to or destruction of the Premises
or the Building, if such damage or destruction is occasioned by the
negligence or fault of Tenant, its agents or employees.
(b) Tenant shall keep all of its machinery, equipment, furniture,
fixtures, personal property (including also property under the care, custody, or
control of Tenant) and business interests which may be located in, upon, or
about the Premises insured against, for the benefit of Tenant in an amount
equivalent to the full replacement value or insurable value thereof:
(i) loss or damage by fire and all risk perils,
including theft; and
(ii) such other risk or risks of a similar or dissimilar
nature as are now, or may in the future be, customarily covered with
respect to Tenant's machinery, equipment, furniture, fixtures,
personal property (including but not limited to Tenant's
improvements to the Premises) and business located in a building,
similar in construction, general location, use, occupancy and design
to the Building, including, but without limiting the generality of
the foregoing, windstorms, hail, explosions, vandalism, theft,
malicious mischief, civil commotion, and such other coverage as
Tenant may deem appropriate or necessary.
Tenant agrees that such policy or policies of insurance
shall contain a waiver of subrogation clause as to Landlord,
Landlord's agent and their respective employees and Tenant waives,
releases and discharges Landlord, Landlord's agent and their
employees from all claims or demands whatsoever which Tenant may
have or acquire arising out of damage to or destruction of the
machinery, equipment, furniture, fixtures, personal property and
business of Tenant occasioned by fire or other cause, whether such
claim or demand may arise be-
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cause of the negligence or fault of Landlord, or Landlord's agent or
employees, subcontractors or otherwise, and Tenant agrees to look to
the insurance coverage only in the event of such loss.
Tenant shall, at Tenant's sole cost and expense, for the
benefit of Landlord, Landlord's agent and Tenant, maintain
comprehensive general liability insurance, with broad liability
endorsement coverage, against claims for personal injury, death or
property damage occurring upon, in or about the Premises, such
insurance to afford protection to Landlord, its managing agent and
Tenant to the limit of not less than 1,000,000 per occurrence,
3,000,000 aggregate, combined single limit bodily injury and
property damage. Such policies of insurance shall be written by
companies reasonably satisfactory to Landlord, naming Landlord and
its agents and employees as additional insureds thereunder, and such
policies, or a memorandum or certificate of such insurance, shall,
prior to Tenant taking possession of the Premises, be delivered to
Landlord endorsed "Premium Paid" by the company or agency issuing
the same or accompanied by other evidence satisfactory to Landlord
that the premium thereon has been paid. At such time as insurance
limits required of tenants in office buildings in the Chicago
Metropolitan area are generally increased to greater amounts,
Landlord shall have the right to require such greater limits as may
then be customary. Tenant agrees to include in such policy the
contractual liability coverage insuring Tenant's indemnification
obligations provided for herein. Any such coverage shall be deemed
primary to any liability coverage secured by Landlord.
Tenant agrees to indemnify and save Landlord, Landlord's
agent and their employees harmless against and from any and all
claims by or on behalf of any person or persons, firm or firms,
corporation or corporations, arising from any breach or default on
the part of Tenant in the performance of any covenant or agreement
on the part of Tenant to be performed, pursuant to the terms of this
Lease, or arising from any act or negligence on the part of Tenant
or its agents, contractors, servants, employees or licensees,
arising from any accident, injury or damage to the extent caused by
Tenant, its agents, and employees to any person, firm or corporation
occurring during the term of this Lease or any renewal thereof, in
or about the Premises and Building, and from and against all costs,
reasonable counsel fees, expenses and liabilities incurred in
connection with any such claim or action or proceeding brought
thereon; and in case any action or proceeding be brought against
Landlord, its agents and employees by reason of any such claim,
Tenant, upon notice from Landlord, covenants to resist or defend
such action or proceeding by counsel reasonably satisfactory to
Landlord.
Tenant agrees, to the extent not expressly prohibited by
law, that Landlord, its agents and employees shall not be liable,
and Tenant waives all claims for damage to property and business
sustained during the term of this Lease by Tenant occurring in or
about the Premises, resulting directly or indirectly from any
existing or future condition, defect, matter or thing in the
Premises, the Building, or any part thereof, or from equipment or
appurtenances becoming out of repair or from accident, or from any
occurrence of act or omission of Landlord, its agents or employees,
or any tenant or occupant of the Building or any other person. This
paragraph shall apply especially, but not exclusively, to damage
caused as aforesaid or by the flooding of basements or other
subsurface areas, or by refrigerators, sprinkling devices, air
conditioning apparatus, water, snow, frost, steam, excessive heat or
cold, falling plaster, broken glass, sewage, gas, odors or noise, or
the bursting or leaking of pipes or plumbing fixtures, and shall
apply equally, whether any such damage results from the act or
omission of other tenants or occupants in the Building or any other
persons, and whether such damage be caused by or result from any of
the aforesaid, or shall be caused by or result from other
circumstances of a similar or dissimilar nature.
12. CONDITION OF PREMISES. Tenant's taking possession shall be conclusive
evidence that the Premises were in good order and satisfactory condition when
Tenant took possession. No promise of Landlord to alter, remodel, decorate,
clean or improve the Premises or the Building and no representation concerning
the condition of the Premises or the Building have been made by Landlord to
Tenant, unless the same is contained herein, or made a part hereof, or in a
punch list signed by Landlord or its agent. During the term of this Lease,
Tenant shall maintain the Premises in as good
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condition as when Tenant took possession, or as when completed after possession,
loss or damage caused by action of the elements, acts of God and the public
enemy, structural defects not caused by Tenant or its agents, servants,
employees, contractors, invitees or licensees or caused by or attributable to
Tenant's failure to perform its obligations under this Lease, ordinary wear, and
fire and other casualty insured against by Landlord excepted, failing which
Landlord may, but need not, restore the Premises to such condition and Tenant
shall pay the cost thereof. At the termination of this Lease, Tenant shall
return the Premises to Landlord in good condition as just above described,
provided, however, that Tenant may remove trade fixtures and other like
equipment installed and paid for by Tenant. Such removals shall be done in a
good and workmanlike manner and all surfaces shall be restored by Tenant to a
smooth condition.
13, ALTERATIONS. Tenant may not do any painting or decorating, or erect
any partitions, make any alterations in or additions to the Premises or do any
nailing, boring or screwing into the ceilings, walls or floors unless Tenant has
obtained Landlord's prior written permission to do so. Landlord's decision to
refuse such consent shall be conclusive. Unless otherwise agreed by Landlord and
Tenant in writing, all such work shall be performed by Landlord, but at the cost
of Tenant. If Landlord consents to such repairs, alterations or additions,
before commencement of the work or delivery of materials to the Premises or the
Building, Tenant shall furnish Landlord for Landlord's approval plans and
specifications, and, if Landlord has agreed Tenant may perform the work, names
and addresses of contractors, copies of contracts, necessary permits and
indemnification in form and amount satisfactory to Landlord, waivers of lien
against any and all claims, costs, damages, liabilities and expenses which may
arise in connection with the alterations or additions, indemnification and
payment or evidence of ability to make payment in form and amount reasonably
satisfactory to Landlord, and certificates of insurance from all contractors
performing labor or furnishing materials, insuring against any and all claims,
costs, damages, liabilities and expenses which may arise in connection with the
repairs, alterations or additions. Whether Tenant furnished Landlord the
foregoing or not, Tenant hereby agrees to indemnify and hold Landlord harmless
from any and all liabilities of every kind and description which may arise out
of or be connected in any way with such alterations or additions.
Upon completing any alterations or additions, Tenant, if requested by
Landlord, shall furnish Landlord with contractors' affidavits and full and final
waivers of lien and receipted bills covering all labor and material expended and
used. All alterations and additions shall comply with all insurance requirements
and with all relevant laws, ordinances or regulations of municipalities,
counties, state, or departments and agencies thereof. All alterations and
additions shall be constructed in a good and workmanlike manner and only good
grades of materials shall be used. All additions, including fixtures other than
trade fixtures, shall become Landlord's property and shall remain upon the
Premises at the termination of this Lease by lapse of time or otherwise without
compensation or allowance or credit to Tenant. If Tenant does not remove
Tenant's furniture, equipment, machinery, trade fixtures, and floor coverings,
and all other items of personal property of every kind and description from the
Premises prior to the end of the term, however ended, or any extension thereof,
at Landlord's option such property may be removed from the Premises at Tenant's
expense or the Tenant shall be conclusively presumed to have conveyed the same
to Landlord under this Lease as a bill of sale without further payment or credit
by Landlord to Tenant. All changes made by Tenant shall be restored to their
original condition at Tenant's expense if Landlord so requests.
14. REPAIRS BY LANDLORD. At all times, Landlord, either voluntarily or
pursuant to governmental requirement, may at Landlord's own expense make
repairs, alterations or improvements in or to the Building or any part thereof,
including the Premises, which may, amongst other changes, include changes in
entrances, common areas or docks and, during operations, may close entrances,
doors, corridors, elevators and other facilities and may have access to and open
the ceilings, all without any liability to the Tenant by reason of interference,
inconvenience or annoyance.
15. LAWS, RULES AND REGULATIONS. Tenant agrees to strictly comply with all
pertinent laws, ordinances, statutes and regulations whatsoever of any
governmental body or subdivision incident to the occupation of the Premises or
incident to the location of the Premises in the Park or its use thereof and to
strictly comply with all relevant requirements of any board of underwriters or
similar body and of the insurance carriers issuing Landlord's insurance or other
insurance with respect to the Building or the Premises. The provisions of this
Section 15 are applicable to all such laws, ordinances, statutes, regulations or
requirements now in effect or in effect at any time during the term of this
Lease. Tenant shall abide by the terms and conditions of that certain
Declaration of Covenants, Conditions, Restrictions and Easements for
Northwestern University/Evanston Research Park including, but not limited to,
those provisions of Section 5.2 of such Declaration prohibiting the conduct of
any research in the Park which is directly and solely for the production,
storage or processing of munitions or their unique components, and shall abide
by Landlord's rules and regulations attached to this Lease as Exhibit B, as they
may be amended from time to time and all other rules and regulations of the
Park. Tenant shall abide by all other reasonable rules and regulations hereafter
adopted by Landlord pertaining to the operation and management of the Building
or imposed by the manager of the Park.
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16. CONDEMNATION, FIRE AND OTHER CASUALTY.
(a) Condemnation.
(i) Entire Taking. If all of the Premises, or such
portions of the Building as may be required for the reasonable use
of the Premises, are taken by eminent domain or by conveyance in
lieu thereof, this Lease shall automatically terminate as of the
date title vests in the condemning authority and all Rent,
Additional Rent and other payments shall be paid to that date.
(ii) Partial Taking. In case of a taking by eminent
domain or conveyance in lieu thereof of a part of the Premises or a
portion of the Building not required for the reasonable use of the
Premises, then this Lease shall continue in full force and effect
and the Rent shall be equitably reduced based on the proportion by
which the floor area of the Premises is reduced, such Rent reduction
to be effective as of the date title to such portion vests in the
condemning authority.
(iii) Awards and Damages. Landlord reserves all rights
to damages to the Premises for any partial or entire taking by
eminent domain or such a conveyance, and Tenant hereby assigns to
Landlord any right Tenant may have to such damages, award or
compensation and Tenant shall make no claim against Landlord or the
condemning authority for damages for termination of the leasehold
interest or interference with Tenant's business. Tenant shall have
the right, however, to claim and recover from the condemning
authority compensation for any loss for Tenant's moving expenses or
taking of Tenant's personal property (not including Tenant's
leasehold interest) provided that such damages may be claimed only
if they are awarded separately in the eminent domain proceedings and
not out of or as part of the damages recoverable by Landlord.
(b) Fire and Other Casualty.
If the Premises or the Building are made untenantable by fire or
extended coverage perils, Landlord shall with reasonable promptness take such
action as is necessary to reconstruct, repair and rehabilitate them, provided,
however, that if a registered architect selected by Landlord licensed to do
business in the State of Illinois should certify that such repair and
rehabilitation cannot be accomplished by using standard working methods and
procedures so as to make the Premises tenantable within six (6) months from the
date reconstruction, repair or rehabilitation is started, either party shall
have the right to terminate this Lease by giving to the other notice of such
election within ten (10) days after receipt of the architect's certificate.
Notwithstanding the foregoing, in the event such fire or casualty is caused by
any act of Tenant or anyone acting through Tenant, Tenant shall not have the
right to terminate this Lease. If neither party elects to terminate this Lease,
then Landlord shall repair, reconstruct or rehabilitate the Premises by use of
reasonable diligence. In case of fire or other casualty not resulting in
termination of this Lease, Rent shall be apportioned on a per diem basis and be
paid to the date of the fire or other casualty. Furthermore, if destruction or
damage is caused by casualty other than by fire or extended coverage perils,
then Landlord shall have the right to terminate the term of this Lease by notice
to Tenant given within ninety (90) days after said casualty. Notwithstanding
anything to the contrary herein set forth, in the event the Premises are
repaired, reconstructed or rehabilitated by Landlord, Landlord shall have no
obligation to restore any leasehold improvements not initially installed and
paid for by Landlord.
17. HOLDING OVER. If Tenant retains possession of the Premises or any part
thereof after the termination of the term or any extension thereof, by lapse of
time or otherwise, Tenant shall pay Landlord all actual damages, consequential
as well as direct, sustained by reason of Tenant's retention of possession.
Tenant shall also pay Landlord monthly installments of Annual Base Rent at the
higher of (i) market rent for comparable space, or (ii) double the rate payable
for the month immediately preceding said holdover for the time Tenant thus
remains in possession. Any retention of the Premises after the termination of
this Lease at the sole election of Landlord shall be considered as a
month-to-month holdover. However, the provisions of this Section 17 do not waive
the Landlords rights to re-entry or to obtain possession of the Premises by
legal proceedings or any other right hereunder or by operation of law.
18. LANDLORD'S REMEDIES. All rights and remedies of Landlord herein
enumerated shall be cumulative, none shall exclude any other right or remedy
allowed herein or bylaw, and if any provision shall be invalid or unenforceable,
it shall apply only to such provisions and the remainder of this Lease shall
continue valid and enforceable.
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(a) If Tenant defaults in the payment of Rent or any other sums due
Landlord and if the default is not remedied within five (5) days after such
amount is due, then and in any such event, Landlord may, if Landlord so elects
but not otherwise, either forthwith terminate this Lease and Tenant's right to
possession of the Premises or, without terminating this Lease, forthwith
terminate Tenant's right to possession of the Premises.
(b) If Tenant defaults in the prompt and full performance of any
other provision of this Lease and if such default is not remedied or prompt and
full performance is not accomplished by Tenant or Tenant has not promptly
instituted and is not vigorously pursuing such remedies as are necessary to
rectify such default within twenty (20) days after demand is made by Landlord,
or if Tenant abandons the Premises, then and in any such event, Landlord may, if
Landlord so elects but not otherwise, forthwith terminate this Lease and
Tenant's right to the Premises or, without terminating this Lease, forthwith
terminate Tenant's right to possession of the Premises.
(c) Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession without
termination of this Lease, Tenant shall surrender possession and vacate the
Premises and deliver possession thereof to Landlord, and Tenant hereby grants to
Landlord full and free license to enter into and upon the Premises in such event
with or without process of law, and to repossess the Premises and to expel or
remove Tenant and any others who may be occupying or be within the Premises and
to remove any and all property therefrom, using such force as may be necessary,
without being deemed in any manner guilty of trespass, eviction or forcible
entry or detainer, and without relinquishing Landlord's rights to Rent or any
other right given to Landlord hereunder or by operation of law.
(d) If Tenant voluntarily abandons the Premises or otherwise
entitles Landlord so to elect, and Landlord elects to terminate Tenant's right
to possession only, without terminating the Lease, Landlord may, at Landlord's
option, enter into the Premises, remove Tenant's signs and other evidences of
tenancy, and take and hold possession thereof as in Subparagraph (c) of this
Section 18, without such entry and possession terminating this Lease or
releasing Tenant, in whole or part, from Tenant's obligation to pay Rent
hereunder for the full term. Upon and after entry into possession without
termination of this Lease, Landlord may relate the Premises or any part thereof
for the account of Tenant, to any person, firm or corporation other than Tenant
for such Rent, for such time and upon such terms as Landlord in Landlord's sole
discretion shall determine. If the consideration collected by Landlord upon any
such reletting for Tenant's account is not sufficient to pay monthly the full
amount of Rent reserved in this Lease, Tenant shall pay to Landlord the amount
of each monthly deficiency as it becomes due upon demand. Tenant shall also pay
to Landlord any and all costs, charges and expenses associated with the
reletting of the Premises.
(e) Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of the Lease or of law, to which Tenant is or
may be entitled may be handled, removed and stored by Landlord at the risk, cost
and expense of Tenant, provided, however, that Landlord shall use reasonable
care to prevent any damage or loss to such property in removing and storing such
property. Tenant shall pay to Landlord, upon demand, any and all reasonable
expenses incurred in such removal and all reasonable storage charges against
such property so long as the same shall be in Landlord's possession or under
Landlord's control. Any such property of Tenant not removed from the Premises or
retaken from storage by Tenant within thirty (30) days after the end of Tenant's
possession or of the term, however terminated, or any extension thereof, shall
be conclusively deemed to have been forever abandoned by Tenant.
(f) If any voluntary or involuntary petition or similar pleading
under any section or sections of any bankruptcy act shall be filed by or against
Tenant, or any voluntary or involuntary proceeding in any court or tribunal
shall be instituted to declare Tenant insolvent or unable to pay Tenant's debts,
or Tenant makes an assignment for the benefit of its creditors, and in the case
of an involuntary petition or proceeding, the petition or proceeding is not
dismissed within thirty (30) days from the date it is filed, Landlord may elect,
but is not required, to terminate this Lease with or without notice of such
election and with or without entry or other action by Landlord.
(g) If Tenant should default under the terms of this Lease and such
default is not cured in accordance with the terms hereof, Tenant shall pay to
Landlord all reasonable costs, charges, expenses and attorney's fees incurred by
Landlord in connection therewith.
19. AIR CONDITIONING, HEATING AND VENTILATING. The Building shall contain
an air conditioning, heating and ventilating system and, so long as Tenant is
not in default under the provisions of this Lease, Landlord shall operate said
air conditioning, heating and ventilating system in the Premises daily
throughout the year from 8:00 am. to 6:00 p.m. (Saturdays from 8:00 a.m. to 1:00
p.m. only), Sundays and holidays excepted, or during such other reasonable hours
of operation as determined by Landlord, as may be reasonably required for
comfortable occupancy of the Premises under normal business operations by
Tenant. Tenant shall pay for all heating and air conditioning requested and
furnished prior to or following such hours at rates to be established from time
to time by Landlord, subject to all governmental rules, regulations and
guidelines applicable thereto. Tenant agrees to keep and cause to be kept closed
all windows in the Premises during the time the heating or air conditioning
systems are operating and at all times when it would otherwise be reasonable to
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keep such windows closed. Landlord reserves the right to lock and seal the
windows in the Premises. Tenant agrees at all times to cooperate fully with the
Landlord in the operation of said systems and to abide by all reasonable
regulations and requirements which Landlord may prescribe to permit the proper
functioning and protection of said air conditioning, heating and ventilating
systems. Landlord reserves the right to stop the air conditioning, heating and
ventilating systems when necessary by reason of accident or emergency or for
repairs, alterations, replacements or improvements, which in the judgment of
Landlord are desirable or necessary, until said repairs, alterations,
replacements or improvements shall have been completed. Landlord shall have no
responsibility or liability for failure to supply air conditioning, heating or
ventilating during said period mentioned just above or when prevented from so
doing by any cause beyond Landlord's control or by laws, orders or regulations
of any Federal, State, County or Municipal authorities and Tenant shall be
entitled to no diminution or abatement of Rent by reason of the stoppage of such
air cooling or conditioning, heating or ventilating for any of the aforesaid
reasons whatsoever, nor shall the same in any wise affect the obligation of
Tenant to perform and fulfill its covenants under this Lease. Landlord agrees to
make any repairs to the air conditioning, heating or ventilating system promptly
and with due diligence, provided, however, that during the respective heating or
cooling season, Landlord will exercise its best efforts to complete said repairs
as quickly as possible.
20, SUBLETTING AND ASSIGNING. Tenant shall not assign, sublet, mortgage,
pledge, hypothecate or otherwise transfer or permit the transfer of this Lease
or the interest of Tenant in this Lease in whole or in part, by operation of law
or otherwise, nor shall Tenant permit the use of the Premises by any parties
other than Tenant and its employees, without the prior written consent of
Landlord, which consent may be withheld in Landlord's sole discretion. If Tenant
is a corporation, any dissolution, merger, consolidation or reorganization of
Tenant or sale or transfer of a controlling percentage of the capital stock of
Tenant, whether by a single transaction or event or by cumulative transactions
or events, shall be deemed an assignment of this Lease. If Tenant is a
partnership, a withdrawal or change, voluntary, involuntary or by operation of
law, of any partner or partners owning 51% or more of the partnership interest,
whether by a single transaction or event or by cumulative transactions or
events, or the dissolution of the partners, shall be deemed an assignment of
this Lease.
In the event Tenant intends to assign or sublease all or any portion of
the Premises, Tenant shall take the following actions:
(a) Tenant shall first notify Landlord in writing of its intention
prior to any advertising of same, hiring of brokers or contacting of potential
assignees or subtenants. Such notice shall identify the space proposed to be
assigned or sublet, which space must be a legally leasable unit in compliance
with all applicable ordinances and codes, and shall state the date on which
Tenant requests that the assignment or sublet commence, which date shall be no
less than one hundred eighty (180) days from the date of Tenant's notice.
(b) Landlord shall have thirty (30) days following the receipt of
such notice to notify Tenant whether it elects to recapture the space Tenant has
proposed to assign or sublet. Landlord's failure to send such notice within such
thirty (30) day period shall be deemed to mean Landlord has not elected to
recapture the space.
(c) In the event the Landlord elects to recapture the space, it
shall notify Tenant of its intent by service of a written notice of cancellation
terminating that portion of the Lease covering the space Landlord has chosen to
recapture, which may include all or any lesser portion of the space Tenant has
proposed to assign or sublet. In such event Landlord agrees that the space not
recaptured by Landlord shall be a legally leasable unit. Tenant shall pay all
costs of any construction necessary to accomplish the division of the space, if
necessary. The termination of this Lease as to the recaptured space shall be
effective on the date specified by Landlord in its notice.
(d) In the event that Landlord elects to recapture any proposed
space under these provisions, the Annual Base Rent and Tenant's Proportion shall
be adjusted as of the termination date designated in the cancellation notice on
the basis of the number of square feet of Net Rentable Area retained by Tenant,
if any, in proportion to the number of square feet of Net Rentable Area
contained in the Premises, as described in this Lease, and this Lease as so
amended shall continue thereafter in full force and effect.
(e) In the event that Landlord elects not to recapture part or all
of the proposed assignment or sublet space, Landlord shall so notify Tenant as
set forth in (b) above. Provided Tenant is not in default under this Lease and
has fully complied with all of the terms of this Section 20, Tenant may then
proceed to contact potential assignees or subtenants and shall have the option
to assign or sublet the non-recaptured space in accordance with the following
provisions:
(i) Tenant shall bear all costs and expenses associated
with the assignment or subletting, including, without limitation,
any and all costs and expenses incurred by Landlord (if any).
(ii) Upon locating a suitable potential assignee or
subtenant, Tenant shall notify Landlord in writing. Such notice
shall state
15
<PAGE>
the name and address of the proposed assignee or subtenant and shall
include a true and complete copy of the proposed assignment or
sublease. Tenant also shall deliver to Landlord copies of all
financial statements, credit reports and other such information in
its possession relating to the prospective assignee or subtenant. At
Landlord's request, Tenant shall promptly secure and deliver any
additional information Landlord deems necessary in order to evaluate
the potential assignee or subtenant.
(iii) Landlord shall have fifteen (15) days from the
date of its receipt of the last information provided by Tenant on
the proposed assignee or subtenant during which to evaluate such
assignee or subtenant and decide whether to consent to the
assignment or sublease. Landlord shall notify Tenant of its decision
in writing, and, in the event that Landlord does not consent to the
assignment or sublease, its notice thereof to Tenant shall include
an explanation of its reasons for denying consent. In the event that
Landlord consents to the assignment or sublease, Tenant may execute
the assignment or sublease and collect all rents due thereunder
subject to the provisions of Subparagraph (iv) below.
(iv) Following the execution of any assignment sublease
to which Landlord has consented and throughout the term thereof,
Tenant shall pay Landlord all amounts received by Tenant in
connection with such assignment or subletting in excess of the Rent
Tenant is obligated to pay Landlord hereunder.
(v) The use for which the Premises or any part thereof
may be assigned or sublet shall be only to promote, encourage and
stimulate scientific research and development, including the use of
the Premises for offices and other facilities incidental to or
supportive of such scientific research and development, and for no
other purpose.
(vi) The granting of consent by Landlord to Tenant's
assignment or subletting of the Premises or any part thereof shall
not release Tenant from direct and primary liability under this
Lease for the performance of all of the covenants, duties and
obligations of Tenant hereunder, and Landlord shall retain its
rights to enforce the provisions of this Lease against Tenant or any
assignee or subtenant without demand upon or proceeding in any way
against any other person. Consent to a particular assignment or
sublease shall not be deemed a consent to any other or subsequent
transaction.
21. NOTICES. All notices to be given by one party to the other party under
this Lease shall be given in writing, mailed or delivered as follows:
(a) To Landlord in care of Shaw Realty Services, Inc. at 676 St.
Clair, Chicago, Illinois 60611, and after commencement of the term at the
address to which Rent is payable or to such other person at such other address
designated by notice sent by Landlord to Tenant.
(b) To Tenant at the place set forth in Section 1(c) until Tenant
takes possession of the Premises, and thereafter at the Premises or at such
other address designated by notice to Landlord.
Mailed notices shall be sent by United States Certified or
Registered Mail, postage prepaid: Such notice shall be deemed to have been given
upon posting in the United States mails.
22. QUIET POSSESSION. So long as Tenant shall observe and perform the
covenants and agreements binding on it hereunder, Tenant shall, at all times
during the term herein granted, peacefully and quietly have and enjoy the
possession of the Premises without any hindrance by, from or through Landlord,
its successors or assigns, subject to the terms and conditions of this Lease.
23. MISCELLANEOUS
(a) Succession. Each provision hereof shall extend to and shall, as
the case may require, bind and inure to the benefit of Landlord and Tenant and
their respective heirs, legal representatives and successors, and assigns.
(b) Payments. All amounts payable to the Landlord hereunder shall,
at the election of Landlord, be deemed to be Rent and if the date of payment is
not expressly fixed herein, shall be paid
16
<PAGE>
within ten (10) days from the date Landlord renders statements of account
therefor and shall bear interest at the rate of two percent (2%) over the
reference rate per annum as quoted from time to time by Continental Bank, N.A.
from the date such payment is due until paid. In the event Continental Bank,
N.A. no longer publishes a reference rate, then Landlord shall substitute a
similar rate in lieu thereof.
(c) Time of the Essence. Time is of the essence under this Lease.
(d) Estoppel Certificates. Tenant shall deliver to Landlord or to
its mortgagee, auditors, or any prospective purchaser when requested by
Landlord, a certificate to the effect that this Lease is in full force and
effect and has not been amended and that Landlord is not in default thereunder,
or stating specifically any exceptions thereto, the date to which Rent and other
charges have been paid, and such facts as such mortgagee customarily requests.
Failure to give such a certificate within two (2) weeks after written request
shall be conclusive evidence that this Lease is in full force and effect and has
not been amended and Landlord is not in default and Tenant shall be estopped
from asserting any defaults known to it at that time.
(e) Relocation of Tenant. At any time hereafter. Landlord may
relocate Tenant to another area in the Park (herein referred to as "the new
premises") provided the new premises shall be similar to the Premises in area
and use for Tenant's purposes, and if Tenant is already in occupancy of the
Premises, then in addition:
(i) Landlord shall pay the expense of Tenant for moving
from the Premises to the new premises and for improving the new
premises so that they are substantially similar to the Premises;
(ii) Such move shall be made during evenings, weekends,
or otherwise so as to incur the least inconvenience to Tenant; and
(iii) Landlord shall first give Tenant at least thirty
(30) days' notice before making such change. Tenant shall cooperate
with Landlord in all reasonable ways to permit the necessary action
to make the changes including, by way of example only, designating
locations for furniture and equipment, supervising moving of files
or fragile equipment, designating location of telephone outlets, and
listing colors of paint and of flooring desired in the new premises.
If Tenant fails to so cooperate, Landlord shall be relieved of all
responsibility for damage or injury for such move to Tenant or its
property except as caused by Landlord's actual negligence.
(f) Dram Shop. Tenant agrees not to sell, give away or otherwise
dispose of alcoholic liquors on the Premises except with Landlord's prior
written consent and after Tenant has purchased and paid for Dram Shop insurance
covering Landlord in such reasonable amounts as Landlord designates. Tenant
further agrees to fully and completely indemnify and hold Landlord harmless from
any and all claims, causes of action or otherwise founded on any liability of
Tenant accruing to Landlord under the so called "Illinois Dram Shop Act."
(g) Rent Not Based on Income. It is agreed by Landlord and Tenant
that no rental or other payment for the use, occupancy or utilization of the
Premises demised hereunder shall be, or is, based in whole or in part on the net
income or profits derived by any person from the Building or the Premises so
leased, used, occupied or utilized, and Tenant further agrees that it will not
enter into any sublease, license, concession or other agreements for any use,
occupancy or utilization of the Premises which provides for a rental or other
payment for such use, occupancy or utilization based in whole or in part on the
net income or profits derived by any person from the Premises so leased, used,
occupied or utilized.
(h) Force Majeure. The time of performance of any of the obligations
of Landlord hereunder shall be extended to the extent of any delay which occurs
because of fire, lightning, earthquake, war, enemy action, acts of God or
similar catastrophe, or because of the unavailability of material, strikes,
lockouts or other causes beyond Landlord's reasonable control. Landlord shall
use due diligence to remove any such obstacle to its performance hereunder, and
at the expiration or removal of such obstacle, Landlord's obligations hereunder
shall remain in full force and effect.
(i) Headings. The captions of the paragraphs or sections of this
Lease are inserted only as a matter of convenience and for reference. Said
captions are not intended and shall not be construed so as to define, limit or
describe the scope of this Lease or the scope or intent of any paragraph or
section hereof.
(j) Submission of Lease for Examination. Submission of this Lease
for examination shall not bind Landlord or Tenant in any manner, and no
obligations of Landlord or Tenant shall arise until this Lease is executed and
delivered by Landlord and Tenant.
(k) Brokers. Tenant represents that no broker was involved in or was
the procuring cause of this Lease who is entitled to a broker's fee, commission
or other compensation except for the broker named in Section 1(p). Tenant will
indemnify, defend and hold Landlord harmless from any
17
<PAGE>
claims for such fees, commissions or other compensation which may be claimed in
contradiction of this representation.
(l) Entire Agreement. This Lease constitutes the entire agreement
between the parties hereto, and there are no collateral understandings,
representations or agreements other than those contained herein. No modification
or amendment of this Lease shall be binding or effective except as made in
writing signed by the parties hereto.
(m) Landlord's Performance of Tenant's Obligations. In the event
Tenant fails to perform any of its obligations hereunder, Landlord may, at its
sole election, but need not, perform such obligations and the entire cost and
expense to Landlord therefor, including reasonable expenses, costs and legal
fees, shall be immediately due and payable by Tenant as Additional Rent
hereunder.
(n) Application of Funds. Landlord, at its own election, may apply
any funds received from Tenant as payment of any sums due hereunder.
(o) Definition of Landlord. Landlord, as used in this Lease, so far
as covenants and liabilities on the part of Landlord are concerned, shall be
limited to mean and include the owner or owners at the time or times in question
of the beneficial or of the fee title to the Building. In the event of any
transfer or transfers of Landlord's interest in the Premises or in the Building,
other than a transfer for collateral purposes only, the transferor (and in the
case of any subsequent transfers the last transferor), its agent or agents,
beneficiaries, partners and their respective heirs, legal representatives,
successors and assigns shall be automatically discharged and relieved of any and
all obligations and liabilities on the part of Landlord contained in this Lease
accruing from and after the date of such transfer and Tenant agrees to attorn to
the transferee.
(p) No Waiver. No failure by Landlord to insist upon the strict
performance of any term of this Lease or exercising the right, power or remedy
in connection therewith, and no acceptance of full or partial Rent or other
payment during the continuance of any such breach shall constitute a waiver of
any such breach or such Lease term. Any waiver by Landlord shall only be
effective if evidenced by a written instrument executed by Landlord, and any
such waiver shall be limited only to the particular and specific item at that
time waived. No receipt of money by Landlord from Tenant after the termination
of this Lease or after the service of any notice or after the commencement of
any suit, or after final judgment for possession of the Premises shall
reinstate, continue or extend the term of this Lease or affect any such notice,
demand or suit.
(q) Severability. If any term, covenant or condition of this Lease
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Lease shall be valid and be enforced to
the fullest extent permitted by law.
(r) Financing Modifications. Should any financing require a
modification or modifications to this Lease, which modification or modifications
will not bring about any increased cost or expense to Tenant or in any other way
substantially change the rights and obligations of Tenant hereunder, then, and
in such event, Tenant agrees that this Lease may be so modified.
(s) Employees. If Landlord so requests at any time or from time to
time during the term of this Lease, Tenant will provide to Landlord reasonable
information relating to employees that Tenant anticipates will be employed at
the Premises, for the purpose of assisting Landlord in carrying out any job
training programs relating to the Park that Landlord may adopt or implement from
time to time.
(t) No Discrimination. Tenant hereby agrees that it will not
discriminate in its operations carried on in the Premises against any employee
or applicant for employment because of race, color, religion, sex or national
origin.
(u) No Prepaid Rent. Tenant will not pay at any time and Landlord
will not accept at any time prepaid Rent for a period greater than twelve (12)
months.
(v) Riders. All riders, exhibits and attachments to this Lease,
initialled by Landlord and Tenant, are hereby made a part of this Lease as
though inserted in this Lease.
24. LANDLORD'S LIABILITY. Any and all covenants, undertakings and
agreements herein made on the part of Landlord are made and intended not as
personal covenants, undertakings and agreements or for the purpose of binding
Landlord personally or the assets of Landlord except Landlord's interest in the
Premises and the Building, but are made and intended for the purpose of binding
only Landlord's interest in the Premises and the Building, as the same may from
time to time be encumbered. No personal liability or personal responsibility is
assumed by, nor shall at any time be asserted or enforceable against Landlord or
its agent or agents, beneficiaries, partners or their respective heirs, legal
representatives, successors and assigns on account of this Lease or on account
of any
18
<PAGE>
covenant, undertaking or agreement of Landlord in this Lease contained, all such
liability being specifically waived by Tenant.
Executed by the parties hereto the day first above set forth.
LANDLORD: CHS EVANSTON ONE ASSOCIATES, L.P.
---------------------------------
By: SHAW REALTY SERVICES, INC.,
as agent for Landlord
By /s/ [ILLEGIBLE]
---------------------------------------
Its Vice President
---------------------------------------
TENANT: Immtech International, Inc.
---------------------------------------
By /s/ [ILLEGIBLE]
---------------------------------------
Its President
---------------------------------------
19
<PAGE>
[FLOOR PLAN OMITTED]
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, lobbies, passages, elevators and stairways shall not be
obstructed by Tenant or used by Tenant for any purpose other than ingress and
egress from and to Tenant's Premises. Landlord shall in all cases retain the
right to control or prevent access thereto of all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, peace, character or
reputation of the building or of any of the Tenants.
2. The toilet rooms, water closets, sinks, faucets, plumbing or other service
apparatus of any kind shall not be used by Tenant for any purposes other than
those for which they were installed, and no sweepings, rubbish, rags, ashes,
chemicals or other refuse or injurious substances shall be placed therein or
used in connection therewith by Tenant or left by Tenant in the lobbies,
passages, elevators or stairways.
3. Nothing shall be placed by Tenant on the outside of the building or on its
windowsills or projections. Skylights, windows, doors and transoms shall not be
covered or obstructed by Tenant, and no window shades, blinds, curtains,
screens, storm windows, awnings or other materials shall be installed or placed
on any of the windows or in any of the window spaces, except as approved in
writing by Landlord.
4. No sign, lettering, insignia, advertisement or notice shall be inscribed,
painted, installed or placed on any windows or in any window spaces or any other
part of the outside or inside of the Building, unless first approved in writing
by Landlord.
5. Tenant shall not place additional locks upon any doors and shall surrender
all keys for all locks at the end of the tenancy.
6. Tenant shall not do or commit, or suffer to be done or committed, any act or
thing whereby, or in consequences whereof, the rights of other tenants will be
obstructed or interfered with, or other tenants will in any other way be injured
or annoyed. Tenant shall not use nor permit to be used or kept in the Building
any matter having an offensive odor, nor any kerosene, gasoline, benzine,
camphene, fuel or other explosive or highly flammable material. Tenant shall
neither bring, keep nor use in the Building any chemical reagent except as the
same may be a component of commercial products normally used or consumed by
occupants of office Buildings. No birds, dogs, monkeys, rats, mice, fish or
other animals shall be brought into or kept in or about the demised Premises. No
bicycles shall be brought into the Building or the Premises.
7. In order that the Premises may be kept in a good state of preservation and
cleanliness, Tenant shall, during the continuance of its possession, permit the
Landlord's employees and contractors and no one else to clean the Premises.
Landlord shall be in no way responsible to Tenant for any damage done to
furniture or other effects of Tenant or others by any of Landlord's employees,
or any other person, or for any loss of Tenant's employees, or for any loss of
property of any kind in or from the Premises, however occurring. Tenant shall
see each day that the windows are closed and the doors securely locked before
leaving the Premises.
8. If Tenant desires to introduce signalling, telegraphic, telephonic,
protective alarm or other wires, apparatus or devices, Landlord shall direct
where and how the same are to be placed, and except as so directed, no
installation, boring or cutting shall be permitted. Landlord shall have the
right to prevent and to cut off the transmission of excessive or dangerous
current of electricity, power surges or annoyances into or through the Building
or Premises and to require the changing of wiring connections or layout at
Tenant's expense, to the extent that Landlord may deem necessary, and further to
require compliance with such reasonable rules as Landlord may establish relating
thereto, and in the event of non-compliance with the requirements or rules,
Landlord shall have the right immediately to cut wiring or do what it considers
necessary to remove the danger, annoyance or electrical interference with
apparatus in any part of the Building. All wires installed by Tenant must be
clearly tagged at the distributing boards and junction boxes and elsewhere where
required by Landlord, with the number of the office to which said wires lead,
and the purpose for which each respectively is used, together with the name of
the concern, if any, operating same. Tenant shall not engage in any activity
which may cause unusual noise or vibration in the Building.
9. A directory or a bulletin board on the ground floor shall be provided by
Landlord, on which the name of Tenant shall be placed.
10. No furniture, packages, equipment, supplies or merchandise of Tenant will be
received in the Building, or carried up or down in the elevators or stairways,
except during such hours as shall be designated by Landlord, and Landlord in all
cases shall also have the exclusive right to prescribe the method and manner in
which the same shall be brought in or taken out of the Building. Landlord shall
in all cases have the right to exclude heavy furniture, safes, and other
articles which may be hazardous from the Building or to require them to be
located at designated places in the Premises. The
B-1
<PAGE>
cost of repairing any damages to the Building caused by taking in or out
furniture, safes or any other articles, or any damage caused while the same
shall be in the Premises, shall be paid by Tenant.
11. Without Landlord's written consent, nothing shall be fastened to, nor shall
holes be drilled or nails or screws driven into walls or partitions; nor shall
walls or partitions be painted, papered or otherwise covered or moved in any way
or marked or broken; nor shall any connection be made to electric wires for
running fans or motors or other apparatus, devices or equipment; nor shall
machinery of any kind other than customary small business or Landlord approved
laboratory equipment machines be allowed in the Premises; nor shall Tenant use
any other method of heating, air conditioning or air cooling than that provided
by Landlord. Telephones, switchboards and telephone wiring and equipment shall
be placed only where designated by Landlord. No mechanics shall be allowed to
work in or about the Building other than those employed by Landlord without the
written consent of Landlord first having been obtained.
12. Access to the Premises may be had by Tenant during normal business hours
which shall be Monday through Friday between the hours of 8:00 a.m. and 6:00
p.m., excepting legal holidays. At times other than when permitted as stated
above, access may be obtained only with Landlord's permission. Landlord shall in
no case be responsible for the admission or exclusion of any person. In case of
invasion, hostile attack, insurrection, mob violence, riot, public excitement or
other commotion, explosion, fire or any casualty Landlord reserves the right to
bar or limit access to the building for the safety of occupants or protection of
property.
13. Landlord reserves the right to rescind, suspend or modify any rules or
regulations and to make other such rules or regulations as, in Landlord's
judgment, may from time to time be necessary for the safety, care, maintenance,
operation and cleanliness of the Building, or for the preservation of good order
therein. Notice by any action by Landlord referred to in this paragraph, given
to Tenant, shall have the same force and effect as if originally made a part of
the foregoing Lease. But new rules or regulations will not, however, be
unreasonably inconsistent with the proper and rightful enjoyment of the Premises
by Tenant under the Lease.
14. The use of rooms as sleeping quarters is prohibited at all times.
15. The delivery of towels, ice, water, food, beverages, newspapers and other
supplies will be permitted only under the direction, control and supervision of
Landlord.
16. The Tenant shall not advertise the business, profession or activities of the
Tenant conducted in the Building in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities, and shall
not use the name of the Building for any purpose other than that of business
address of the Tenant, and shall never use any picture or likeness of the
Building in any circulars, notices, advertisements or correspondence without the
Landlord s express consent in writing.
17. The Tenant shall not overload any floor. Safes, furniture and all large
articles shall be brought through the Building and into the Premises at such
times and in such manner as the Landlord shall direct and at the Tenant's sole
risk and responsibility. The Tenant shall list all furniture, equipment and
similar articles to be removed from the Building, and the list must be approved
by Landlord before any articles may be removed.
18. Unless the Landlord gives advance written consent in each and every
instance, the Tenant shall not install or operate any steam or internal
combustion engine, boiler, machinery, refrigerating or heating device or
air-conditioning apparatus which may effect the performance or operation of the
Building air conditioning, heating and ventilation system, in or about the
Premises, or carry on any mechanical which may business therein, or use the
Premises for housing accommodations or lodging or sleeping purposes, or do any
cooking therein or install or permit the installation of any vending machines or
use any illumination other than electric light.
19. The Tenant shall not place or allow anything to be against or near the glass
partitions, doors or windows of the Premises which may diminish the light in, or
be unsightly from the exterior, public halls or corridors of the Building.
20. Tenant shall comply with all rules and regulations promulgated from time to
time by the manager of the Park which concern the use of the Park by Tenant, its
employees, agents and visitors, including but not limited to those terms and
conditions of that certain Environment and Safety Policy of the Park, as amended
from time to time, and those relating to the use and disposal of any hazardous
or toxic materials or substances.
21. The rules and regulations are not intended to give tenant any rights or
claims in the event that Landlord does not enforce any of them against other
tenants or if Landlord does not have the right to enforce them against any other
tenants and such non-enforcement will not constitute a waiver as to Tenant.
B-2
<PAGE>
RIDER TO LEASE
This Rider is entered into as of December 5, 1991, by and between
Shaw Realty Services, Inc. as agent for Landlord, and Immtech International,
Inc., as Tenant.
1. Equipment, Fixtures and Furnishings. All equipment, fixtures and
furnishings located in the Premises, as described in the inventory attached
hereto as Exhibit B, are attached to and made part of the Premises, and shall
not be removed from the Premises at the termination of the Lease or at any time
prior to the termination of the Lease. Tenant shall maintain said equipment,
fixtures and furnishings in good working order, and upon termination of the
Lease, shall return to the Landlord all equipment, fixtures and furnishings in
good working order, ordinary wear and tear excepted. All equipment, fixtures and
furnishings shall be provided to Tenant by Landlord without warranty or
guarantee as to their condition.
SHAW REALTY SERVICES, INC TENANT: IMMTECH INTERNATIONAL, INC.
as agent for Landlord
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
--------------------- -------------------------------
Its: Vice President Its: President
--------------------- -------------------------------
Date: 12-5-91 Date: Dec 2, 1991
-------------------- ------------------------------
<PAGE>
EXHIBIT B
INVENTORY OF PREMISES
Conference Room #106:
Item Safety Diagnostics Control #
---- ----------------------------
1 - 5.5 ft wood & glass display cabinet 020
1 - 8 ft conference table 002
1 - 10.5 ft counter-top table 021
1 - 6 ft open metal shelf 001
2 - 6 foot wood open shelf 019, 018
1- metal cabinet 017
1 - voice projector 35 lectern 022
14 - yellow cloth conference chairs
1 - Kodak ektagraphic model 410
Reception Area #108:
Item Safety Diagnostics Control #
---- ----------------------------
1 - typing table 074
1 - wood desk with return 028
1 - reception desk chair 040
3 - three-drawer brown lateral files
with wood cap 037, 038, 039
1 - Amerex halon fire extinguisher
Director's Office #105:
Item Safety Diagnostics Control #
---- ----------------------------
1 - wood desk with return 051
1 - small round conference table 050
1 - open metal shelf 054
1 - microscope table 055
1 - desk chair 057
1 - conference room chair 031
1 - 5 ft wall mounted chalk board 060 60
Office #104:
Item Safety Diagnostics Control #
---- ----------------------------
1 - brown three drawer lateral file 041
1 - metal desk 042
1 - metal counter-top table 043
1 - desk chair 049
1 - wall mounted cork board
<PAGE>
Office #103:
Item Safety Diagnostics Control #
---- ----------------------------
1 - metal desk 064
1 - open metal shelf 066
1 - desk chair 067
2 - black four-drawer file 061, 062
1 - wall mounted cork board
Office #102:
Item Safety Diagnostics Control #
---- ----------------------------
1 - metal desk 071
1 - metal counter-top table 070
1 - two-drawer rust metal file cabinet 069
1 - desk chair 077
1 - open metal shelving 075
1 - orange sofa
1 - wall mounted cork board
Research Lab #110:
Item Safety Diagnostics Control #
---- ----------------------------
approximately 9 ft lab counter-top
with metal cabinets below and above
approximately 7 ft lab counter-top
with metal cabinets below
approximately 6 ft lab counter with
sink with cabinets below
1 - Worthington Diagnostic Milli-R04
Water System 115
1 - Damen/IEC Centerfuge Control 119
1 - metal & glassware display case 089
1 - Environetti Control Environment Room
1 - Justrite flammable cabinet 082
1 - Narco Model 322
1 - counter-top refrigerator 099
1 - Precision Scientific counter-top Waterbath 113
2 - lab stools 090, 091
Quality Control Lab #111:
Item Safety Diagnostics Control #
---- ----------------------------
approximately 15 ft of lab counter top
with wooden cabinets above & below
1 - metal desk 226
1 - Revco refrigerator
1 - 8 ft metal lab counter-top table 222
1 - swivel chair 231
1 - Contamination Control Inc. stand
alone fume hood 234
two green metal cabinets 159, 160
<PAGE>
Manufacturing Lab #101:
Item Safety Diagnostics Control #
---- ----------------------------
1 - enclosed Clean Room with fume hood and
1 - 8 ft metal counter-top table
1 - Microvoid II Air Control Unit
1 - Gem Refrigerator Co. - Blood Bank
refrigerator 265
1 - metal shelving unit with sliding doors 262
1 - set of 9 ft lab counter-top with
cabinets below double sided 244, 245
1 - 15 ft wooden counter-top table
1 - stool 257
1 - stool 258
1 - lab chair 230
1 - lab chair 229
1 - 6 ft table 240
1 - lab chair -
1 - stool 256
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment"), dated December 15,
1992, by and among SHAW REALTY SERVICES, INC., as agent for CHS EVANSTON ONE,
LIMITED PARTNERSHIP ("Landlord") and IMMTECH INTERNATIONAL, INC. ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant have entered into that certain lease
dated December 5, 1991, (the "Lease") which leases to Tenant certain real
property in the building located at 1890 Maple Avenue, Evanston, Illinois (the
"Building"); and
WHEREAS, Tenant desires to extend the term ("Term") of the Lease,
and Landlord desires to grant such extension to Tenant upon the terms and
conditions contained herein and in the Lease; and
WHEREAS, the parties hereto desire to amend the Lease to reflect
their agreement as hereinafter described.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, the sum of Ten Dollars ($10.00) by each party in
hand paid to the other and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Landlord and Tenant intending
to be legally bound, do hereby mutually agree as follows:
1. Extension of Lease Term. Section 1(g) of the Lease is hereby
amended by deleting the date "November 30, 1992" and reinserting the date
"December 31, 1992", thereby changing the expiration date to December 31, 1992.
Thereafter the Lease shall be automatically extended on a quarterly basis with
the following anniversary dates; March 31, 1993; June 30, 1993; September 30,
1993; December 31, 1993. Said extension shall be renewed automatically upon each
anniversary date unless Landlord or Tenant delivers thirty (30) days advance
written notice to the other of its intent to terminate the Lease upon the
anniversary date.
2. Increase in Monthly installments of Annual Base Rent. Section
1(l) of the Lease is hereby amended by deleting the number "$4,182.00" and
reinserting the number "$4,307.46", thereby increasing the monthly installment
of Annual Base Rent to $4,307.46.
3. Full Force and Effect. Except as amended hereby, the Lease shall
remain in full force and effect.
4. Applicable Law. This Amendment will for all purposes be construed
in accordance with and governed by the laws of the State of Illinois applicable
to agreements made and performed wholly therein.
<PAGE>
5. Undefined Terms. Unless otherwise defined herein, terms in this
Amendment shall have the meanings ascribed to them in the Lease.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.
LANDLORD:
CHS EVANSTON ONE, LIMITED PARTNERSHIP
By: SHAW REALTY SERVICES, INC.
as agent for Landlord
By: /s/ [ILLEGIBLE]
----------------------------------
Its: Vice President
----------------------------------
TENANT:
IMMTECH INTERNATIONAL, INC.
By: /s/ [ILLEGIBLE]
----------------------------------
Its: President 12-7-92
----------------------------------
<PAGE>
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Amendment"), dated December 14, 1993, by
and among SHAW REALTY SERVICES, INC. as agent for CHS EVANSTON ONE, LIMITED
PARTNERSHIP ("Landlord") and IMMTECH INTERNATIONAL, INC. ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant have entered into that certain lease dated
December 5, 1991, and that certain First Amendment to Lease dated December 15,
1992 (together referred to as the "Lease"), which leases to Tenant certain real
property in the building located at 1890 Maple Avenue, Evanston, Illinois (the
"Building"); and
WHEREAS, Tenant desires to lease additional space within, the Building,
and Landlord desires to lease such additional space to Tenant upon the terms and
conditions contained herein and in the Lease; and
WHEREAS, the parties hereto desire to amend the Lease to reflect their
agreement as hereinafter described.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein, the sum of Ten Dollars ($10.00) by each party in hand paid to
the other and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant intending to be legally
bound, do hereby mutually agree as follows:
1. Leasing of Additional Space. Tenant hereby leases from Landlord and
Landlord hereby leases to Tenant the additional space as shown on Exhibit A
attached hereto and made a part hereof.
2. Increase in Net Rentable Square Feet. Paragraph 1(i) of the Lease is
hereby amended by deleted the number "2,952" and reinserting the number "4,568",
thereby increasing the amount of Net Rentable Area of the Premises (in Square
Feet) to 4,568 square feet.
3. Increase in Monthly Installments of Annual Base Rent. Section 1(l) of
the Lease is hereby amended by deleting the number $4,307.46 and reinserting the
number $6,665.47, thereby increasing the monthly installment of Annual Base Rent
to $6,665.47.
4. Increase in Tenant's Proportion. Paragraph 1(m) of the Lease is hereby
amended by deleting the number "7.29" and reinserting the number "11.27",
thereby increasing Tenant's proportion to 11.27 percent.
5. Condition of Additional Space. Landlord shall deliver additional space
to Tenant in its present condition, as is. Furthermore, all costs associated
with modifications or improvements made to the additional space by the Tenant
will be the responsibility of the Tenant. Tenant must receive prior written
approval by the Landlord for all modifications and improvements made to the
additional space.
<PAGE>
6. Delivery of Premises. Not withstanding the provisions of Paragraph 3 of
the Lease, Landlord will deliver the additional space to Tenant on January 1,
1994.
7. Payment of Rent and Additional Rent. Tenant shall pay to Landlord the
amount of Rent, Additional Rent, and any other charges or expenses set forth in
the Lease based on the increased amounts of Net Rentable Square Feet and
Tenant's Proportion set forth in Paragraphs 2, 3 and 4 hereof, respectively, in
accordance with the terms and conditions of the Lease.
8. Full Force and Effect. Except as amended hereby, the Lease shall remain
in full force and effect.
9. Applicable Law. This Amendment will for all purposes be construed in
accordance with and governed by the laws of the State of Illinois applicable to
agreements made and performed wholly therein.
10. Undefined Terms. Unless otherwise defined herein, terms in this
Amendment shall have the meanings ascribed to them in the Lease.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
LANDLORD:
CHS EVANSTON ONE, LIMITED PARTNERSHIP
By: SHAW REALTY SERVICES, INC.
as agent for Landlord
By: /s/ [ILLEGIBLE]
----------------------------------
Its: Vice President
----------------------------------
TENANT:
IMMTECH INTERNATIONAL, INC.
By: /s/ [ILLEGIBLE]
----------------------------------
Its: President
----------------------------------
<PAGE>
October 4, 1995
Immtech International, Inc.
1890 Maple Avenue, Suite 110
Evanston, Illinois 60201
Attention: Mr. Steve Thompson
RE: Office Lease for certain premises at
1890 Maple Avenue, Evanston, Illinois
between CHS Evanston One Associates,
Limited Partnership (the "Landlord") and
Immtech International, Inc. (the
"Tenant"), dated December 5, 1991 (the
"Lease").
Gentlemen:
We are writing this letter to you in connection with the existing defaults under
the Lease; specifically the failure of Tenant to pay Landlord the sum of
$63,298.86 (the "Default Amount"), which is, as of this date, due and payable
under the terms of the Lease.
As you know, we have discussed this issue extensively, and this letter is
intended to set forth our agreement, and to amend the terms of the Lease.
1. The Premises leased under the Lease shall be Suite 110, with a total
square footage of 2,952.
2. The Annual Base Rent shall be $7,380 (rent for the remaining six-month
term), $5,00 per RSF, which shall be paid in equal monthly installments of
$1,230.00.
3. Any options that Tenant may have had under the Lease to renew the Lease
or expand the Premises are hereby deleted from the Lease.
4. Concurrently with the execution of this letter, Tenant shall pay
landlord the sum of $20,000, which shall be applied towards the Default Amount.
In addition to the monthly payments of Annual Base Rent and Additional Rent
which are required to be paid to Landlord under the terms of the Lease, Tenant
shall pay to the Landlord the sum of $2,000 per month during the remaining term
of the Lease, to applied toward the Default Amount. The failure of Tenant to
make any such payment shall be deemed to be a default under the Lease.
<PAGE>
Immtech International, Inc.
Attention: Mr. Steve Thompson
October 2, 1995
Page -2-
5. The term of the Lease shall expire, if not sooner terminated, on
February 29, 1996.
6. Landlord agrees that, from the date hereof until February 29, 1996, it
shall not exercise any remedies under the Lease solely as the result of the
failure of Tenant to pay the Landlord the Default Amount; provided, however,
that nothing herein shall be deemed to be a waiver by Landlord of any other
default by Tenant under the Lease of which Landlord is now aware or of any
future default under the Lease as hereby amended, or be deemed to be a waiver by
Landlord of its claim against Tenant for the balance of the Default Amount.
If this reflects our agreement, please indicate by signing the enclosed copy of
this letter and returning it to the undersigned, by Monday, October 9, 1995.
Sincerely,
/s/ [ILLEGIBLE]
Shaw Realty Services, Inc.
as Agent for Landlord
Agreed and accepted this 24th day of October 1995
Immtech International, Inc.
By: /s/ [ILLEGIBLE]
-----------------------
Its C.F.O.
-----------------------
<PAGE>
Mr. Steve Thompson
Immtech International, Inc.
1890 Maple Avenue, Suite 110
Evanston, Illinois 60201
RE: Office Lease for certain premises at 1890 Maple Avenue, Evanston,
Illinois, between CHS Evanston One Associates, Limited Partnership (the
"Landlord") and Immtech International, Inc. (the "Tenant"), dated December
5, 1991 (the "Lease") and as amended by that certain letter dated October
4, 1995 and as further amended by that certain letter dated February 29,
1996 and as further amended by that certain letter dated September 3,
1996.
Dear Mr. Thompson:
We are writing this letter to you in connection with the renewal of the Lease
for a one year term and all other modifications as set forth herein. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed thereto in the Lease.
As we have discussed and agreed to, this letter is intended to set forth our
agreement and to amend the terms of the Lease.
1. The Lease is hereby extended for a term of one year from December 1,
1996 to November 30, 1997.
2. The rent for the renewal term beginning on December 1, 1996 and
ending on December 31, 1996 shall be $1,913.73. From January 1, 1997
to November 30, 1997 the Annual Base Rent shall increase to
$23,587.50, $12.50 per RSF, which shall be paid in equal monthly
installments of $1,965.63.
3. From and after December 1, 1996, Landlord or Tenant may terminate
the Lease upon 30 days written notice to the other party.
<PAGE>
If this reflects our agreement, please indicate by signing the enclosed copy of
this letter and returning it to the undersigned by Tuesday, November 26, 1996.
Very truly yours,
/s/ [ILLEGIBLE]
Shaw Realty Services, Inc.
as Agent for Landlord
Agreed and accepted this 21st day of March, 1996.
Immtech International, Inc.
By /s/ [ILLEGIBLE]
------------------------
Its President
------------------------
2
<PAGE>
Mr. Steve Thompson
Immtech International, Inc.
1890 Maple Avenue, Suite 110
Evanston, Illinois 60201
Re: Office Lease for certain premises at 1890 Maple Avenue, Evanston,
Illinois, between CHS Evanston One Associates, Limited Partnership (the
"Landlord") and Immtech International, Inc. (the "Tenant"), dated December
5, 1991 (the "Lease") and as amended by that certain letter dated October
4, 1995 and as further amended by that certain letter dated February 29,
1996 and as further amended by that certain letter dated September 3, 1996
and as further amended by that certain letter dated November 21, 1996.
Dear Mr. Thompson:
We are writing this letter to you in connection with the renewal of the Lease
for a one year term and all other modifications as set forth herein. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed thereto in the Lease.
As we have discussed and agreed to, this letter is intended to set forth our
agreement and to amend the terms of the Lease.
1. The Lease as hereby extended for a term of one year from December 1,
1997 to November 30, 1998.
2. The rent for the renewal term beginning on December 1, 1997 and
ending on November 30, 1998 shall be $25,474.50, $13.50 per RSF,
which shall be paid in equal month installments of $2,122.88.
3. From and after December 1, 1997, Landlord or Tenant may terminate
the Lease upon 30 days written notice to the other party.
If this reflects our agreement, please indicate by signing the enclosed copy of
this letter and returning it to the undersigned by Tuesday, November 11, 1997.
Very truly yours,
Shaw Realty Services, Inc.
as Agent for Landlord
Agreed and accepted this 1st day of December, 1997.
Immtech International, Inc.
By: /s/ [ILLEGIBLE]
-----------------------
Its: President
-----------------------
<PAGE>
November 18, 1998
Mr. Steve Thompson
Immtech International, Inc.
1890 Maple Avenue, Suite 110
Evanston, Illinois 60201
Re: Office Lease for certain premises at 1890 Maple Avenue, Evanston,
Illinois, between CHS Evanston One Associates, Limited Partnership (the
"Landlord") and Immtech International, Inc. (the "Tenant"), dated
December 5, 1991 (the "Lease") and as amended by that certain letter dated
October 4, 1995 and as further amended by that certain letter dated
February 29, 1996 and as further amended by that certain letter dated
September 3, 1996, and as further amended by that certain letter dated
November 21, 1996, and as further amended by that certain letter dated
December 1, 1997 and as further amended by that certain letter dated
February 4, 1998.
Dear Mr. Thompson:
We are writing this letter to you in connection with the renewal of the Lease
for a one year term and all other modifications as set forth herein. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed thereto in the Lease.
As we have discussed and agreed to, this letter is intended to set forth our
agreement and to amend the terms of the Lease.
1. The Lease is hereby extended for a term of one year from December 1,
1998 to November 30, 1999.
2. The rent for the renewal term beginning on December 1, 1998 and
ending on November 30, 1999 shall be $28,191.78, $14.94 per RSF,
which shall be paid in equal month installments of $2,349.32.
3. From and after December 1, 1998, Landlord or Tenant may terminate
the Lease upon 30 days written notice to the other party.
If this reflects our agreement, please indicate by signing the enclosed copy of
this letter and returning it to the undersigned by Tuesday, December 1, 1998.
Very truly yours,
/s/ [ILLEGIBLE]
Shaw Realty Services, Inc.
as Agent for Landlord
Agreed and accepted this 19th day of November 1998.
Immtech International, Inc.
By: T. Stephen Thompson
-------------------
Its: President & CEO
-------------------
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-64393 of Immtech International, Inc. on Form SB-2 of our report dated August
29, 1998, appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 11, 1999
