As filed with the Securities and Exchange Commission on February 11, 1998
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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CELLEGY PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
California 82-0429727
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
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1065 E. Hillsdale Blvd., Suite 418
Foster City, California 94404
(650) 524-1600
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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K. Michael Forrest
President and Chief Executive Officer
Cellegy Pharmaceuticals, Inc.
1065 E. Hillsdale Blvd., Suite 418
Foster City, California 94404
(650) 524-1600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
C. Kevin Kelso, Esq.
Fenwick & West LLP
Two Palo Alto Square, Suite 700
Palo Alto, California 94306
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement. [ ]
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [X]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
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CALCULATION OF REGISTRATION FEE
<CAPTION>
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Title of Each Class of Securities Amount to be Registered Proposed Maximum Proposed Maximum Amount of Registration
to be Registered Offering Price per Aggregate Offering Fee
Share Price
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<S> <C> <C> <C> <C>
Common Stock, no par value 2,000,000 $ 7.44 (1) $ 14,880,000 $ 4,390 (1)
- ------------------------------------ ------------------------ ----------------------- ------------------------ ---------------------
Common Stock issuable upon
exercise of warrants 94,063 $ 9.75 (2) 917,114 271 (2)
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Common Stock issuable upon
exercise of warrants 48,000 $ 7.44 (3) 357,120 105 (3)
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Total $ 4,766
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<FN>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457(c) under the Securities Act of 1933,
as amended (the "Securities Act"), based on the last sales price of the
Common Stock on the Nasdaq National Market on February 6, 1998.
(2) For the purpose of calculating the amount of the registration fee pursuant
to Rule 457(g) under the Securities Act, based on the exercise price of the
warrants.
(3) For the purpose of calculating the amount of the registration fee pursuant
to Rule 457(c) under the Securities Act, based on the last sales price of
the Common Stock on the Nasdaq National Market on February 6, 1998.
</FN>
</TABLE>
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
This Prospectus and the information contained herein are subject to completion
or amendment. These securities may not be sold, nor may offers to buy be
accepted, prior to the time the prospectus is delivered in final form. Under no
circumstances shall this Preliminary Prospectus constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such jurisdiction.
Subject to Completion dated February 11, 1998
PROSPECTUS
2,142,063 Shares of Common Stock
CELLEGY PHARMACEUTICALS, INC.
This prospectus (this "Prospectus") covers the registration for possible
resale of shares (the "Shares") of Common Stock, no par value (the "Common
Stock"), of Cellegy Pharmaceuticals, Inc. ("Cellegy" or the "Company") that have
either been issued to, or that may in the future be issued to, certain persons
("Shareholders") named in this Prospectus, including shares of Common Stock
issuable upon the exercise of certain common stock purchase warrants (the
"Warrants") held by certain of the Shareholders. (The Shares and Warrants are
referred to collectively as the "Securities.")
The Shareholders have represented in the agreements relating to the
purchase of their Shares or Warrants that they were acquiring such Securities
for investment and with no present intention of selling the Securities.
Nevertheless, in recognition of the fact that each such Shareholder wishes to be
legally permitted to sell the Shares when the Shareholder deems it appropriate,
the Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement of which this Prospectus forms a part
(the "Registration Statement") with respect to the sale of the Shares from time
to time. See "Plan of Distribution." To the Company's knowledge, as of the date
of this Prospectus, no Shareholder has entered into any agreement, arrangement
or understanding with any particular broker, market maker or other person with
respect to sale of any of the Shares offered hereby.
This Prospectus covers 462,809 shares of Common Stock that were issued,
and 1,537,191 shares of Common Stock that may be issued in the future, to
certain Shareholders pursuant to an asset purchase transaction completed on
December 31, 1997, see "Selling Shareholders." In addition, this Prospectus
includes 142,063 shares of Common Stock that are issuable, subject to certain
conditions, upon exercise of Warrants held by certain Shareholders. While the
Company will receive proceeds from the exercise of the Warrants, it will not
receive any of the proceeds from the resale of the Shares. See "Selling
Shareholders" for information with respect to Shares held or acquirable by the
Shareholders.
Of the 2,142,063 Shares covered by this Prospectus, 462,809 Shares have
been issued as of the date of this Prospectus, 94,063 Shares may be acquired
upon the exercise of Warrants held by one of the Shareholders, 48,000 Shares are
issuable upon the exercise of Warrants held by two other Shareholders (if
certain conditions specified in such Warrants are satisfied), and up to
approximately 1,537,191 Shares may be issued over time in the future to certain
of the Shareholders if certain milestones and other conditions are satisfied in
the agreement relating to issuance of such Shares. See "Selling Shareholders"
and "Plan of Distribution." If all of such Shares were issued and all of such
Warrants were exercised, the Shares covered by this Prospectus would represent
approximately 18.1% (5.9% if the 1,537,191 shares are not issued and are deemed
not covered by the Prospectus) of the Company's currently outstanding Common
Stock. The Shares are being offered on a continuous basis pursuant to Rule 415
under the Securities Act of 1933, as amended (the "Securities Act"). The Company
will pay the expenses of registration estimated at $37,000. No underwriting
discounts, commissions or expenses are payable or applicable in connection with
the sale of the Shares. The Common Stock of Cellegy is quoted on the Nasdaq
National Market under the symbol "CLGY." The Shares offered hereby may be sold
from time to time at then prevailing market prices, at prices relating to
prevailing market prices or at negotiated prices. On February 6, 1998 the
closing price of the Common Stock on the Nasdaq National Market was $7.44 per
share. This Prospectus may be used by the Shareholders or by any broker-dealer
who may participate in sales of the Common Stock covered hereby. In addition,
any Shares offered hereby which qualify for sale pursuant to Rule 144 under the
Securities Act or any other exemption may be sold under Rule 144 or an other
exemption rather than pursuant to this Prospectus.
See "RISK FACTORS" commencing on page 5 for a discussion of certain
factors that should be considered in connection with an investment in the Common
Stock offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ____________________.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be
obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a World Wide Web site (located at
http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding the Company. The Company's Common Stock is listed on
the Nasdaq National Market and reports, proxy statements and other information
concerning the Company may be inspected at the offices of the Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006-1500.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Shares offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits filed therewith or incorporated therein
by reference. Regarding statements contained in this Prospectus as to the
contents of any contract or any other document referred to herein, in each
instance where such contract or other document is filed as an exhibit to the
Registration Statement or incorporated therein by reference, reference is made
to such contract or document. A copy of the Registration Statement may be
inspected, without charge, at the offices of the Commission in Washington, D.C.
and copies of all or any part of the Registration Statement may be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, upon the payment of the fees
prescribed by the Commission.
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not 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 Shareholder. 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 the information herein is correct as
of any time subsequent to the date hereof or that there has been no change in
the affairs of the Company since such date.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated herein
by reference:
(a) The Company's annual report on Form 10-KSB for the fiscal year ended
December 31, 1996.
(b) The Company's quarterly report on Form 10-QSB for the three months ended
March 31, 1997.
(c) The Company's quarterly report on Form 10-QSB for the three months ended
June 30, 1997.
(d) The Company's quarterly report on Form 10-QSB for the three months ended
September 30, 1997.
(e) The Company's Proxy Statement for the Annual Meeting of Shareholders filed
with the Commission on April 21, 1997.
(f) All other documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act following the fiscal year ended December
31, 1996 and prior to the termination of the offering contemplated hereby.
(g) The description of the Company's Common Stock contained in the Company's
registration statement on Form 8-A filed with the Commission on August 1,
1995.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the information
that has been incorporated by reference in this Prospectus (not including the
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Requests should be directed to Mr. A. Richard
Juelis, Chief Financial Officer, 1065 East Hillsdale Boulevard, Suite 418,
Foster City, California 94404; telephone number (650) 524-1600.
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<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," "estimates," "expects"
and words of similar import, constitute "forward-looking statements." Such words
and expressions are intended to identify such forward-looking statements, but
are not intended to constitute the exclusive means of identifying such
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These risks, uncertainties and other factors
include, but are not limited to, those discussed below under the heading "Risk
Factors." Given these uncertainties, prospective investors are cautioned not to
place undue reliance on such forward-looking statements. The Company disclaims
any obligation to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect any events or developments. Investors should also review forward-looking
statements contained in the Company's most recent Annual Report on Form 10-KSB
and subsequent quarterly reports on Form 10-QSB.
THE COMPANY
The Company was founded in 1989 and is engaged in the development of
prescription drugs and cosmeceutical products based upon its patented topical
and transdermal drug delivery technologies. The principal executive offices of
the Company are located at 1065 E. Hillsdale Blvd., Suite 418, Foster City, CA
94404 and its telephone number is (650) 524-1600. In this Prospectus, the term
"Cellegy" or "Company" refers to Cellegy Pharmaceuticals, Inc., a California
corporation, unless the context otherwise requires.
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<PAGE>
RISK FACTORS
An investment in the Shares of Common Stock offered hereby is speculative
in nature and involves a high degree of risk. In addition to the information
contained in this Prospectus, the following factors should be considered
carefully in evaluating the Company and its business before purchasing the
Shares of Common Stock offered hereby. This Prospectus contains forward-looking
statements which involve risks and uncertainties, including, but not limited to,
statements concerning the commencement and completion of clinical trials, the
commencement of commercial sales of the Company's products, the timing of
planned regulatory filings, the applicability to the Company's products of drug
and cosmetic laws and regulations, the Company's intent to enter into
collaborative arrangements and the planned activities of collaborative partners,
the Company's strategic plans, the scope of the Company's patent coverage,
anticipated expenditures and the need for additional funds. Discussions
containing such forward-looking statements may be found in the material set
forth under "Risk Factors" and in the reports that the Company files with the
Commission that are incorporated herein by reference. Actual events or results
may differ materially from those discussed in this Prospectus.
Uncertainty of Clinical Trial Results. Before obtaining regulatory approval
for the commercial sale of many of its potential drug products, the Company must
demonstrate through preclinical studies and clinical trials that the product is
safe and efficacious for use in the clinical indication for which approval is
sought. There can be no assurance that the Company will be permitted to
undertake or continue clinical trials for any of its potential products or, if
such trials are permitted, that such products will be demonstrated to be safe
and efficacious. Moreover, the results from preclinical studies and early
clinical trials may not be predictive of results that will be obtained in
later-stage clinical trials, such as the Phase III trials being conducted by
Glaxo Wellcome Inc. ("Glaxo") relating to GlylorinTM. Thus, there can be no
assurance that the Company's present or future clinical trials will demonstrate
statistically significant safety and efficacy or will result in approval to
market products.
The Company's most advanced topical prescription candidate, Glylorin, has
been licensed by Cellegy to Glaxo and is currently near completion of Phase III
clinical trials in the United States. There can be no assurance that the outcome
of the current Phase III clinical trial will be favorable, that further clinical
studies will not be needed for Glylorin, that the United States Food and Drug
Administration ("FDA") will approve Glylorin for marketing or that current or
future clinical trials of any of the Company's other product candidates, will be
successfully completed or lead to FDA approval. The failure of Glylorin to
produce statistically significant efficacy results in its current Phase III or
any future clinical testing, including toxicology studies, could have a material
adverse effect on the Company.
The evaluation of animal and human clinical test results involves making
judgments about data and other information that often are not conclusive. Later
testing may show those judgments to have been erroneous. For example, the
Company's beliefs regarding the potential comparative therapeutic benefits of
its products compared to currently marketed products may be erroneous, or the
FDA may not agree with the Company's conclusions regarding such matters.
Furthermore, due to the independent and blind nature of certain human clinical
testing, there will be extended periods during the testing process when the
Company will have only limited, or no, access to information about the status or
results of the tests. Other pharmaceutical companies have believed that their
products performed satisfactorily in early tests, only to find their performance
in later tests, including Phase III clinical trials, to be inadequate or
unsatisfactory, or that FDA Advisory Committees have declined to recommend
approval of the drugs, or that the FDA itself refused approval, with the result
that such companies' stock prices have fallen precipitously. The Company
believes that an unsuccessful Glylorin Phase III clinical result could result in
a substantial reduction in the Company's stock price.
History of Losses; Future Profitability Uncertain. The Company has a
history of operating losses and expects to incur substantial additional expenses
with resulting quarterly losses over at least the next several years as it
continues to develop its potential products and to devote significant resources
to preclinical studies, clinical trials and manufacturing. As of September 30,
1997, the Company had accumulated net losses of approximately $17.4 million. To
date, the Company has not sought regulatory approval to distribute any products.
The time and resource commitment required to achieve market success for any
individual product is extensive and uncertain. No assurance can be given that
the Company's product development efforts will be successful, that required
regulatory
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<PAGE>
approvals can be obtained, that potential products can be manufactured at an
acceptable cost and with appropriate quality or that any approved products can
be successfully marketed.
The Company has not generated any significant revenues from product sales
or royalties from licenses of the Company's technology, and most of the
potential products that may be marketed by the Company, if any, are not expected
to be marketed or approved for marketing for at least the next several years.
Moreover, the Company anticipates that its operating expenses will continue to
increase significantly as the Company increases its research and development,
preclinical, clinical, administrative and patent activities. Accordingly, in the
absence of substantial revenues from new corporate collaborations, royalties on
product sales or other sources, the Company expects to incur substantial and
increased operating losses in the foreseeable future as certain of its earlier
stage potential products move into clinical development, as additional potential
products are selected as clinical candidates for further development, as the
Company invests in additional facilities or capacity, and as the Company invests
in research or acquires additional technologies, product candidates or
businesses. The amount of net losses and the time required to reach sustained
profitability are highly uncertain. To achieve sustained profitable operations,
the Company, alone or with its collaborative partners, must successfully
discover, develop, obtain regulatory approvals for and market its potential
pharmaceutical products. No assurances can be given that the Company will be
able to achieve or sustain profitability, and results are expected to fluctuate
from quarter to quarter.
Early Stage of Product Development. With the exception of certain skin care
cosmeceutical products, Cellegy has not yet completed the development of its
proposed products or sought regulatory approval for the marketing of drug
products and has not begun to market or generate revenues from the
commercialization of products. Development of most of the Company's products
will require significant additional research and development. All of the
Company's product development efforts are based upon technologies and
therapeutic approaches that have not been widely tested or used. Moreover, the
Company's beliefs regarding the therapeutic and commercial potential for its
products are based on studies conducted to date, and later studies may not
support the Company's current beliefs. In addition, results of the Company's
studies have not been published in medical journals or reviewed by independent
third parties, and as a result have not been subjected to the same degree of
scrutiny as results that have been published or subjected to review by
independent parties.
The Company's potential products are subject to the risks of failure
inherent in the development of products based on new technologies. These risks
include the possibilities that the Company's therapeutic approaches will not be
successful; that the results from future clinical trials may not correlate with
any safety or effectiveness results from prior clinical studies conducted by the
Company or others; that some or all of the Company's potential products will not
be successfully developed or will not be found to be safe and effective by the
FDA, or otherwise will fail to meet applicable regulatory standards or receive
necessary regulatory clearances; that the products, if safe and effective, will
be difficult to manufacture in commercial quantities at reasonable costs or will
be uneconomical to market; that proprietary rights of third parties will
preclude the Company from commercializing such products; or that third parties
will market superior or equivalent products. There can be no assurance the
Company's research and development activities will result in any commercially
viable products.
Possible FDA Regulation of Cosmeceutical Products as Drugs. The Company
intends to introduce products that will compete in the cosmeceutical market.
"Cosmeceuticals" are not defined in the federal Food, Drug and Cosmetic Act (the
"FD&C Act"). The FDA has not defined the term by regulation and may consider use
of the term to imply drug-like qualities. Cosmeceuticals (a hybrid of the words
"cosmetics" and "pharmaceuticals") are products that contain active ingredients
which, when applied to the skin, will enhance appearance. Cosmeceuticals which
satisfy the definition of a cosmetic under the FD&C Act and which are not also
drugs under that statute are not subject to the same FDA requirements as drug
products. For example, cosmeceutical products that constitute cosmetics (but not
drugs as well) as defined by applicable federal laws may be marketed to
consumers without prior approval by the FDA, and without requiring a
prescription from a physician. The Company intends to develop a number of
cosmeceutical products, including a product that will compete in what is
generally referred to as the "anti-wrinkling" market.
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<PAGE>
The FDA has at times in the past contended, and may in the future contend,
that one or more cosmeceutical products, including the Company's or competitors'
anti-wrinkling products that are currently marketed or may in the future be
marketed, are not cosmetics but instead are subject to regulation as drugs. Even
if the FDA were not ultimately to prevail with regard to such a contention, such
a claim by the FDA could have a material adverse effect on the Company's ability
to market its proposed cosmeceutical products and could significantly delay or
prohibit marketing of such products. The extent to which different kinds of
current or future cosmeceutical products of the Company or its competitors are
subject to FDA regulation as drugs, and the extent to which the FDA will seek to
become more active in regulating cosmeceutical products, such as products that
compete in the "anti-wrinkling" market, is uncertain, but will depend in part on
the claims made for the cosmeceuticals by their manufacturers and marketers. The
inability of the Company to market its proposed cosmeceutical products as
cosmetics without prior FDA approval could have a material adverse effect on the
Company's business and financial condition.
Competition and Technological Change. The pharmaceutical industry is
subject to rapid and significant technological change. In the development and
marketing of topical prescription drugs, skin care and other cosmeceutical
products and drug delivery systems, Cellegy faces intense competition.
Competitors of the Company in the United States and abroad are numerous and
include, among others, major pharmaceutical, chemical, cosmetic, consumer
product, and biotechnology companies, specialized firms, universities and other
research institutions. There can be no assurance that the Company's competitors
will not succeed in developing technologies and products that are more effective
than any which are being developed by the Company or that would render the
Company's technology and potential products obsolete and noncompetitive. Many of
these competitors have substantially greater financial and technical resources,
production and marketing capabilities and regulatory experience than the
Company. In addition, many of the Company's competitors have significantly
greater experience than the Company in preclinical testing and human clinical
trials of pharmaceutical products and in obtaining FDA and other regulatory
approvals of products for use in health care. There can be no assurance that the
Company's products under development will be able to compete successfully with
existing products or products under development by other companies, universities
and other institutions or that they will obtain regulatory approval in the
United States or elsewhere. The Company also competes with universities
developing drug delivery technologies and with several companies which have been
formed to develop unique delivery systems. In addition, these companies and
academic and research institutions compete with Cellegy in recruiting and
retaining highly qualified scientific and management personnel.
Patents and Proprietary Technology. The Company's success depends, in part,
on its ability to obtain patent protection for its products and methods, both in
the United States and in other countries. Several of the Company's products are
based on existing compounds with a history of use in humans but which are being
developed by the Company for new therapeutic use in skin diseases unrelated to
the systemic diseases for which the compounds were previously approved. The
Company cannot obtain composition patent claims on the compound itself, and will
instead need to rely on patent claims, if any, directed to use of the compound
to treat certain conditions or to specific formulations. The Company may not be
able to prevent a competitor from using that formulation or compound for a
different purpose. No assurance can be given that any additional patents will be
issued to the Company, that the protection of any patents issued in the future
will be significant or that current or future patents will be held valid if
subsequently challenged.
The patent position of companies engaged in businesses such as the
Company's business generally is uncertain and involves complex legal and factual
questions. There is a substantial backlog of patent applications at the United
States Patent and Trademark Office ("USPTO"). Further, issued patents can later
be held invalid by the patent office issuing the patent or by a court. There can
be no assurance that any patent applications relating to the Company's products
or methods will issue as patents, or, if issued, that the patents will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide a competitive advantage to the Company. In addition, many other
entities are engaged in research and product development efforts in drug
delivery, skin biology and cosmeceutical fields that may overlap with the
Company's currently anticipated and future products, and such other entities may
currently have, or may obtain in the future, legally blocking proprietary
rights, including patent rights, in one or more products or methods under
development or consideration by the Company. These rights may prevent the
Company from commercializing technology, or may require the
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<PAGE>
Company to obtain a license from the entity to practice the technology. There
can be no assurance that the Company will be able to obtain any such licenses
that may be required on commercially reasonable terms, if at all, or that the
patents underlying any such licenses will be valid or enforceable. Moreover, the
laws of certain foreign countries do not protect intellectual property rights
relating to United States patents as extensively as those rights are protected
in the United States. As with other companies in the pharmaceutical industry,
the Company is subject to the risk that persons located in such countries will
engage in development, marketing or sales activities of products that would
infringe the Company's patent rights if such activities were in the United
States.
The agreements with the University of California pursuant to which the
Company has exclusive license rights to certain drug delivery and other
technology contain certain development and performance milestones which the
Company must satisfy in order to retain such rights. While the Company currently
believes it will be able to satisfy the milestone dates, a loss of rights to
these technologies could have a material adverse effect on the Company.
Dependence on Collaborative Partners. In view of the early stage of the
Company and its research and development programs, the Company has restricted
hiring to research and development scientists and a small administrative staff
and has made limited or no investment in marketing, product sales and regulatory
compliance resources. The Company has granted to Glaxo certain exclusive rights
to commercialize Glylorin for the indications covered by the Company's agreement
with Glaxo, and may in the future enter into agreements with certain of its
collaborative partners granting similar rights with respect to other products.
The Company has other collaborative agreements with certain third party
companies or academic institutions, and intends to enter into other
collaborative agreements in the future, relating to the research, development,
manufacture and marketing of certain potential products. In some cases, the
Company is relying, and in the future will rely, on its collaborative partners
to conduct clinical trials, to compile and analyze the data received from such
trials, to obtain regulatory approvals and, if approved, to manufacture and
market these products. As a result, the Company may have little or no control
over the development of these potential products, including Glylorin, and little
opportunity to review clinical data before or after public announcement. The
Company believes that an unsuccessful Phase III clinical result with Glylorin
could result in the termination of the license agreement by Glaxo. There can be
no assurance that the Company will be able to establish any other collaborative
arrangements or that they will be successful. Failure to enter into any such
arrangements that in the future might be necessary could have a material adverse
effect on the Company's business and financial condition.
Government Regulation and Drug Product Approvals. The research,
development, testing, manufacture, labeling, distribution, marketing and
advertising of products such as the Company's products and its ongoing research
and development activities are subject to extensive regulation by governmental
regulatory authorities in the United States and other countries. The extensive
preclinical and clinical testing requirements and regulatory approval process of
the FDA in the United States and of certain foreign regulatory authorities
require a number of years and the expenditure of substantial resources. There
can be no assurance that the Company will be able to obtain the necessary
approvals for clinical testing or for the marketing of products on a timely
basis or at all. Moreover, additional government regulations may be established
that could prevent or delay regulatory approval of the Company's products.
Delays in obtaining regulatory approvals could have a material adverse effect on
the Company's business and results of operations. Even if regulatory approval of
a product is granted, such approval may include significant limitations on the
indicated uses of the product or the manner in which or conditions under which
the product may be marketed. For example, even if the Company seeks FDA approval
of a product for non-prescription consumer sales, the FDA could instead require
that the product be distributed by means of a prescription before considering
approval for distribution as a non-prescription product. Prescription only
approval, which the Company believes is common where a company seeks approval
for a product involving a new compound or a compound previously approved for
other uses, could delay for several years, or indefinitely, distribution through
the non-prescription channel of the Company's products which are subject to
premarket review and approval by the FDA. Moreover, failure to comply with
regulatory requirements for marketing drugs, or if the Company's cosmeceutical
products are deemed to be drugs by the FDA, could subject the Company to
regulatory or judicial enforcement actions, including, but not limited to,
product recalls or seizures, injunctions against production, distribution, sales
and marketing, civil penalties, criminal prosecution of the Company, its
officers or employees, refusals to approve new products and suspensions and
withdrawals of existing approvals, as well as potentially increased product
liability exposure. Sales of the Company's products outside the United States
will be
8
<PAGE>
subject to regulatory requirements governing clinical trials and marketing
approval. These requirements vary widely from country to country and could delay
introduction of the Company's products in those countries.
Limited Experience with Clinical Trials. The Company has conducted only a
limited number of clinical trials to date. There can be no assurance that the
Company will be able to successfully commence and complete all of its planned
clinical trials without significant additional resources and expertise. In
addition, there can be no assurance that the Company will meet its contemplated
development schedule for any of its potential products. The inability of the
Company or its existing or any future collaborative partners to commence or
continue clinical trials as currently planned, to complete the clinical trials
on a timely basis or to demonstrate the safety and efficacy or its potential
products, would have a material adverse effect on the business and the financial
condition of the Company.
Future Capital Needs; Uncertainty of Additional Funding. The Company's
operations to date have consumed substantial amounts of cash. The Company's cash
needs are expected to continue to increase significantly over at least the next
several years in order to fund the additional expenses the Company will incur as
it expands its current research and development programs, particularly in the
drug delivery, prescription pharmaceutical and cosmeceutical product areas. The
Company has no current source of significant ongoing revenues or capital beyond
existing cash, and payments, if any, that may be received pursuant to the
existing licensing agreements with Glaxo. In order to complete the research and
development and other activities necessary to commercialize its products,
additional financing may be required. The Company's future expenditures and
capital requirements depend on numerous factors, including without limitation
the progress of its research and development programs, the progress of
preclinical and clinical testing, the time and costs involved in obtaining
regulatory approvals and complying with pre- and post-regulatory approval
requirements, the costs of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights, competing technological
and market developments, changes in the Company's existing research
relationships, the ability of the Company to establish collaborative
arrangements, the development of commercialization activities and arrangements,
the purchase of capital equipment and any funding that may be received from
third parties pursuant to license, development or other agreements that the
Company may enter into in the future and the level of royalties or revenues, if
any, from commercial product sales.
As a result, the Company may seek private or public equity investments and
future collaborative arrangements with third parties to help fund its future
cash needs. There is no assurance that such funding will be available on
acceptable terms, if at all. Insufficient funding may require the Company to
delay, reduce or eliminate some or all of its research and development
activities, planned clinical trials and administrative programs. The Company
believes that available cash resources will be adequate to satisfy its
anticipated capital needs through at least December 31, 1999.
Limited Sales and Marketing Experience. The Company may market certain of
its products, if successfully developed and approved, through a direct sales
force in the United States and through sales and marketing partnership
arrangements or distribution arrangements outside the United States. The Company
has no history or experience in sales, marketing or distribution. To market its
products directly, the Company must either establish a marketing group and
direct sales force or obtain the assistance of one or more third parties. There
can be no assurance that the Company will be able to establish sales and
distribution capabilities or succeed in gaining market acceptance for its
products. If the Company enters into marketing or licensing arrangements with
established pharmaceutical companies, the Company's revenues will be subject to
the payment provisions of such arrangements and will be dependent on the efforts
of third parties. There can be no assurance that the Company will be able to
successfully establish a direct sales force or that its collaborators will
effectively market any of the Company's potential products, and the inability of
the Company or its collaborators to do so could have a material adverse effect
on the business and financial condition of the Company.
Manufacturing Limitations; Suppliers. The Company has no experience in
manufacturing commercial quantities of its potential products and currently does
not have any capacity to manufacture potential products on a commercial scale
itself. The Company currently relies on a third party to manufacture unprocessed
compounds into therapeutic products. Although the Company believes that there
will be adequate third party manufacturers,
9
<PAGE>
there can be no assurance that the Company will be able to enter into acceptable
agreements with third party manufacturers, and the Company is and will be
dependent upon third party contract manufacturers for such production. There can
be no assurance that the Company will continue to be able to obtain contract
manufacturing on commercially acceptable terms for compounds or products and
quantities currently obtainable. There can be no assurance that manufacturing or
quality control problems will not arise at the manufacturing plants of the
Company's contract manufacturers or that such manufacturers will be able to
maintain the compliance with the FDA's current good manufacturing practice
requirements necessary to continue manufacturing the Company's products.
Uncertainty Related to Health Care Industry. The health care industry is
subject to changing political, economic and regulatory influences that may
significantly affect the purchasing practices and pricing of human therapeutics.
Cost containment measures, whether instituted by health care providers or
enacted as a result of government health administration regulators or new
regulations, such as pricing limitations or formulating eligibility for
dispensation by medical providers, could result in greater selectivity in the
availability of treatments. Such selectivity could have an adverse effect on the
Company's ability to sell its prescription products and there can be no
assurance that adequate third party coverage will be available for the Company
to maintain price levels sufficient to generate an appropriate return on its
investment in product development. Third-party payors are increasingly focusing
on the cost-benefit profile of alternative therapies and prescription drugs and
challenging the prices charged for such products and services. Also, the trend
towards managed health care in the United States and the concurrent growth of
organizations such as health maintenance organizations which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices or proposals to reform health
care or reduce government insurance programs or result in lower prices or
reduced markets for the Company's products. The cost containment measures and
reforms that government institutions and third party payors are considering
instituting could result in significant and unpredictable changes to the
marketing, pricing and reimbursement practices of prescription drugs marketed by
bio-pharmaceutical companies such as the Company. The adoption of any such
measures or reforms could have a material adverse effect on the business and
financial condition of the Company. However, cosmeceutical products generally
are not reimbursed by third party payors.
Dependence Upon Key Employees. The success of the Company is dependent upon
the efforts of its senior management team, including Dr. Carl R. Thornfeldt,
Chairman of the Board of Directors and Medical Director of the Company, and K.
Michael Forrest, Chief Executive Officer of the Company. A change in the
association of these individuals or other officers and directors of the Company
could adversely affect the Company if suitable replacement personnel could not
be employed. The success of the Company also depends upon its ability to
continue to attract and retain qualified scientific and technical personnel.
There is intense competition for qualified personnel in the areas of the
Company's activities, and there can be no assurance that the Company will be
able to continue to attract and retain the qualified personnel necessary for the
development or expansion of its business.
Environmental Regulation. The Company is subject to federal, state and
local laws and regulations governing the use, generation, manufacture, storage,
discharge, handling and disposal of certain materials and wastes used in its
operations, some of which are classified as "hazardous." There can be no
assurance that the Company will not be required to incur significant costs to
comply with environmental laws, the Occupational Safety and Health Act, and
state, local and foreign counterparts to such laws, rules and regulations as its
activities are increased or that the operations, business and future
profitability of the Company will not be adversely affected by current or future
laws, rules and regulations. The risk of accidental contamination or injury from
hazardous materials cannot be eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company. In any event, the cost of defending
claims arising from such contamination or injury could be substantial. In
addition, the Company cannot predict the extent of the adverse effect on its
business or the financial and other costs that might result from any new
government requirements arising out of future legislative, administrative or
judicial actions.
Risk of Product Liability; Limited Product Liability Insurance. The
testing, marketing and sale of human health care products entails an inherent
risk of allegations of product liability. There can be no assurance that
10
<PAGE>
substantial product liability claims will not be asserted against the Company.
The Company has obtained limited amounts of insurance relating to its clinical
trials. There can be no assurance that the Company will be able to obtain or
maintain insurance on acceptable terms for its clinical and commercial
activities or that any insurance obtained will provide adequate protection
against potential liabilities.
Anti-Takeover Provisions. Certain provisions of the Company's Amended and
Restated Articles of Incorporation, as well as the California General
Corporation Law, could discourage a third party from attempting to acquire, or
make it more difficult for a third party to acquire, control of the Company
without approval of the Company's Board of Directors. Such provisions could also
limit the price that certain investors might be willing to pay in the future for
shares of the Common Stock. Certain of such provisions allow the Board of
Directors to authorize the issuance of preferred stock with rights superior to
those of the Common Stock. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation. The Company has no current plans to issue shares of preferred
stock. The Company is also subject to the provisions of Section 1203 of the
California General Corporation Law which requires that a fairness opinion be
provided to the Company's shareholders in connection with their consideration of
any proposed "interested party" reorganization transaction.
Volatility of Stock Price. The stock market has from time to time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of particular companies. In addition, the market price
of the Common Stock, like the stock prices of many publicly-traded
pharmaceutical, chemical, consumer, and biotechnology companies, may prove to be
highly volatile. Announcements of technological innovations or new commercial
products by the Company or its competitors, developments or disputes concerning
patent or proprietary rights, publicity regarding actual or potential medical
results relating to products under development by the Company or its
competitors, regulatory developments in both the United States and foreign
countries, public concern as to the safety of pharmaceutical products, sales of
a large number of shares of Common Stock in the market and economic and other
external factors, as well as period-to-period fluctuations in financial results,
among other factors, may have a significant impact on the market price of the
Common Stock.
11
<PAGE>
SELLING SHAREHOLDERS
The Shareholders consist of (i) Neptune Pharmaceutical Corporation
("Neptune"), which received Shares and which has the right to receive additional
Shares under the terms of an Asset Purchase Agreement with the Company dated
December 31, 1997 (the "Neptune Agreement") and certain persons who may receive
some or all of such Shares as the result of ownership of shares of, or
agreements with, Neptune, (ii) CIBC Oppenheimer Corp. which holds a warrant (the
"Underwriter Warrant") to purchase up to 94,063 shares of Common Stock, (iii)
The Trout Group LLC, which holds a warrant (the "Trout Warrant") to purchase
24,000 shares of Common Stock, and (iv) BMC, Inc., which holds a warrant (the
"BMC Warrant") to purchase 24,000 shares of Common Stock.
Neptune sold and transferred certain assets to Company pursuant to the
Neptune Agreement relating primarily to a topical product candidate for the
treatment for anal fissures and hemorrhoids and certain other related
intellectual property. CIBC Oppenheimer Corp. acted as the underwriter in
connection with the Company's November 1997 public offering of shares of Common
Stock. The Trout Group LLC is an investment relations firm and BMC, Inc., is a
media relations firm, both of which provide services to the Company pursuant to
an agreement with the Company.
The Registration Statement of which this Prospectus is a part is being
filed, and the Shares offered hereby are included herein, pursuant to
registration rights included in the Neptune Agreement, the Underwriter Warrant,
the Trout Warrant, and the BMC Warrant (together, the "Registration Rights"). In
recognition of the fact that each such Shareholder, even though subject to
certain lock-up restrictions or other conditions prohibiting exercise or sale of
underlying Shares, wishes to be legally permitted to sell the Shares when it
deems appropriate, the Company has filed the Registration Statement with the
Commission with respect to the sale of such Shares from time to time. To the
Company's knowledge, as of the date of this Prospectus, no Shareholder has
entered into any agreement, arrangement or understanding with any particular
broker or market maker with respect to sale of any of the Shares offered hereby.
Under the terms of the Underwriter Warrant the Underwriter has the right to
acquire up to 94,063 shares of Common Stock at an exercise price of $9.75 per
share. The Underwriter Warrant is exercisable for a period of four years
commencing November 19, 1998, and includes certain registration rights with
respect to the Common Stock issuable upon the exercise of the Underwriter
Warrant. The Underwriter Warrant includes provisions restricting sale, transfer,
assignment or hypothecation of any shares acquired upon exercise of the
Underwriter Warrant until November 19, 1998, except as to officers of CIBC
Oppenheimer Corp. The exercise price and number of shares issuable upon exercise
of the Underwriter Warrant may be subject to adjustment pursuant to
anti-dilution provisions.
Under the terms of the Trout Warrant and BMC Warrant, each Warrantholder
has the right to acquire up to 24,000 shares of Common Stock, with such Warrants
becoming exercisable at the rate of 2,000 Shares each month commencing October
1, 1997. The exercise price varies with the actual Common Stock market price on
the dates the Warrants become exercisable. However, the exercise prices will be
no greater than $15 per Share or less than $8.75 per Share. The Trout Warrant
and BMC Warrant are exercisable for a period of five years commencing on October
1, 1997, but subject to earlier termination under certain circumstances,
including cancellation of the service agreement.
As of the date of this Prospectus, 462,809 shares have been issued to
Neptune. Under the Neptune Agreement, the Company is obligated to issue
additional shares to Neptune from time to time upon the attainment of various
milestones, and subject to the satisfaction of certain other conditions
specified in the Neptune Agreement. This Prospectus covers 1,537,191 of such
shares. As of the date of this Prospectus, none of these potentially issuable
additional shares have been issued and there can be no assurance that any of
such shares will be issued in the future.
<TABLE>
The following table and accompanying footnotes identify each Shareholder
based upon information provided to the Company, set forth as of February 6,
1998, with respect to the Shares beneficially held by or acquirable within 60
days of the date of the information in the table by, each Shareholder and the
shares of Common Stock
12
<PAGE>
beneficially owned by the Shareholders which are not covered by this Prospectus.
Except as described above, based on information supplied to the Company, no
Shareholder has had any position, office or other material relationship with the
Company within the past three years. With respect to beneficial ownership of the
Shareholders identified in the table below, the table does not reflect
beneficial ownership of any of the 1,537,191 shares described above since such
Shareholders do not have the right to receive such shares within 60 days of the
date of the table.
<CAPTION>
Shares Beneficially Owned Number of Shares Beneficially Owned
Prior to Offering Shares Being After Offering
Name Number Percent Offered Number Percent
---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Neptune Agreement
- -----------------
Neptune Pharmaceutical Corp. 462,809 4.6 462,809 0 *
Stephen R. Gorfine (1) 226,591 2.2 226,591 0 *
Nine other persons, none of whom
individually owns more than 1%
of the outstanding common stock
(1) 236,218 2.4 236,218 0 *
Warrants
- --------
CIBC Oppenheimer Corp. 94,063 * 94,063 0 *
The Trout Group LLC 24,000 * 24,000 0 *
BMC, Inc. 24,000 * 24,000 0 *
<FN>
* Less than 1%.
(1) Represents such person's percentage beneficial ownership interest of shares
originally issued to Neptune Pharmaceutical Corporation pursuant to the
Neptune Agreement.
</FN>
</TABLE>
13
<PAGE>
PLAN OF DISTRIBUTION
The Registration Statement of which this Prospectus forms a part has been
filed pursuant to the Registration Rights. To the Company's knowledge, as of the
date hereof, no Shareholder has entered into any agreement, arrangement or
understanding with any particular broker or market maker with respect to the
Shares offered hereby, nor does the Company know the identity of any of the
brokers or market makers that any Shareholder may utilize in connection with the
sale of any Shares. The Shares covered hereby may be offered and sold from time
to time by the Shareholders. The Shareholders will act independently of the
Company in making decisions concerning sales or other disposition of any Shares,
and will act independently of the Company in making decisions with respect to
the timing, manner and size of each sale. Such sales may be made on the Nasdaq
National Market or otherwise, at prices and on terms then prevailing or at
prices related to the then market price, or in negotiated transactions. In
addition, any Shares offered hereby which qualify for sale pursuant to Rule 144
under the Securities Act of 1933 or any other exemption may be sold under Rule
144 or an other exemption rather than pursuant to this Prospectus.
The Shares may be sold by one or more of the following methods: (a) a block
trade in which the broker-dealer engaged by the Shareholder will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) through privately negotiated
transactions; (c) purchases by the broker-dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; and (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
To the Company's knowledge, the Shareholders have not, as of the date hereof,
entered into any arrangement with a broker-dealer for the sale of shares through
a block trade, special offering, or secondary distribution of a purchase by a
broker-dealer. In effecting sales, broker-dealers engaged by the Shareholders
may arrange for other broker-dealers to participate. Broker-dealers will receive
commissions or discounts from the Shareholders in amounts to be negotiated.
In offering their Shares, the Shareholders and any broker-dealers who
execute sales for the Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, and any profits
realized by the Shareholders and the compensation of such broker-dealer may be
deemed to be underwriting discounts and commissions.
The Shareholders have advised the Company that, during such time as they
may be engaged in a distribution of the shares of Common Stock included herein,
they will comply with the applicable provisions under Regulation M under the
Securities Exchange Act of 1934, as amended ("Regulation M"), and, in connection
therewith, each of the Shareholders has agreed not to engage in any
stabilization activity in connection with any securities of the Company, to
furnish copies of this Prospectus to each broker-dealer through which the shares
of Common Stock included herein may be offered, and not to bid for or purchase
any securities of the Company or attempt to induce any person to purchase any
securities of the Company except as permitted under Regulation M. Each of the
Shareholders has also agreed to inform the Company and broker-dealers through
whom sales may be made hereunder when the distribution of the shares is
completed.
Rule 102 and 103 under Regulation M prohibit participants in a distribution
from bidding for or purchasing for an account in which the participant has a
beneficial interest, any of the securities that are the subject of the
distribution. Rule 104 under Regulation M governs bids and purchases made to
stabilize the price of a security in connection with a distribution of the
security.
This offering will terminate as to each Shareholder on the earlier of (a)
the date on which such Shareholder's shares may be resold without volume
restrictions under the Securities Act; or (b) the date on which all Shares
offered hereby have been sold by the Shareholders. There can be no assurance
that any of the Shareholders will sell any or all of the shares of Common Stock
offered hereby.
Pursuant to the registration rights granted in the Neptune Agreement,
Neptune and the Shareholders identified in this Prospectus as persons who may
receive Shares from Neptune have agreed to sell their Shares (referred to for
this purpose as "Registrable Securities") pursuant to this Prospectus only
during a "Permitted Window."
14
<PAGE>
A "Permitted Window" is a period of 60 consecutive calendar days commencing
upon delivery to the Neptune Shareholder of the Company's written notification
to the Neptune Shareholder in response to a Notice of Resale that the Prospectus
contained in the Registration Statement is available for resale. In order to
cause a Permitted Window to commence, the Neptune Shareholder must first give
written notice to the Company of its present intention to sell part or all of
the Registrable Securities pursuant to such registration (a "Notice of Resale").
Upon receipt of such Notice of Resale, the Company will give written notice to
the Neptune Shareholders as soon as practicable, but in no event not more than
three business days after such receipt, that (A) the Permitted Window will
commence on the date such notice is received by the Neptune Shareholder, (B) it
is necessary for the Company to supplement the Prospectus or make an appropriate
filing with the Commission so as to cause the Prospectus to become current
(unless the Company exercises its deferral rights as provided in the Neptune
Agreement), or (C) the Company is required under the Securities Act to amend the
Registration Statement in order to cause the Prospectus to be current (unless
the Company exercises its deferral rights as provided in the Neptune Agreement).
If the Company determines that a supplement to the Prospectus, the filing of a
report pursuant to the Exchange Act or an amendment to the Registration
Statement is necessary, it will take such actions as soon as reasonably
practicable (subject to certain exceptions), and the Company will notify the
Neptune Shareholder of the filing of such supplement, report or amendment, and,
in the case of an amendment, the effectiveness thereof, and the Permitted Window
will then commence. The Company is also permitted in certain circumstances and
upon notice to the Neptune Shareholders to suspend a Permitted Window after it
has opened for up to 30 days (and fewer days in certain circumstances).
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Two Palo Alto Square,
Suite 700, Palo Alto, California 94306.
EXPERTS
The financial statements of Cellegy Pharmaceuticals, Inc. appearing in
Cellegy Pharmaceuticals, Inc.'s Annual Report (Form 10-KSB) for the year ended
December 31, 1996, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon, incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
15
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not 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. 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 the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of the
Company since such date.
------------------
TABLE OF CONTENTS
Availabe Information ...................................................... 2
Incorporation of Certain Documents by Reference ........................... 3
Forward-looking Statements ................................................ 4
The Company ............................................................... 4
Risk Factors .............................................................. 5
Selling Shareholders ...................................................... 12
Plan of Distribution ...................................................... 14
Legal Matters ............................................................. 15
Experts ................................................................... 15
[CELLEGY PHARMACEUTICALS, INC. LOGO]
2,142,063 Shares of
Common Stock
------------------
PROSPECTUS
------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses to be paid in
connection with the sale of the shares of Common Stock being registered hereby,
all of which will be paid by the Registrant. All amounts are estimates except
for the Securities and Exchange Commission registration fee.
Securities and Exchange Commission registration fee $ 4,766
Nasdaq National Market filing fee 4,628
Accounting fees and expenses 3,500
Legal fees and expenses 20,000
Printing and miscellaneous 4,106
-------
Total $37,000
-------
ITEM 15. Indemnification of Directors and Officers.
The Registrant's Amended and Restated Articles of Incorporation (the
"Restated Articles") include a provision that eliminates the personal liability
of its directors to the Registrant and its shareholders for monetary damages for
breach of the directors' fiduciary duties to the maximum extent permitted under
California law. This limitation has no effect on a director's liability (i) for
acts or omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interests of the Registrant or its shareholders or that
involve the absence of good faith on the part of the director, (iii) for any
transaction from which a director derived an improper personal benefit, (iv) for
acts or omissions that show a reckless disregard for the director's duty to the
Registrant or its shareholders in circumstances in which the director was aware,
or should have been aware, in the ordinary course of performing a director's
duties, of a risk of a serious injury to the Registrant or its shareholders, (v)
for acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Registrant or its
shareholders, (vi) under Section 310 of the California Corporations Code (the
"California Code") (concerning contracts or transactions between the Registrant
and a director) or (vii) under Section 316 of the California Code (concerning
directors' liability for improper dividends, loans and guarantees). The
provision does not extend to acts or omissions of a director in his capacity as
an officer. Further, the provision has no effect on claims arising under federal
or state securities laws and will not affect the availability of injunctions and
other equitable remedies available to the Registrant's shareholders for any
violation of a director's fiduciary duty to the Registrant or its shareholders.
The Restated Articles also include an authorization for the Registrant to
indemnify its agents (as defined in Section 317 of the California Code), through
bylaws provisions, by agreement or otherwise, to the fullest extent permitted by
law. Pursuant to this latter provision, the Registrant's Bylaws provide for
indemnification of the Registrant's directors, officers and employees.
Indemnification may only be authorized by a majority of Registrant's directors
or shareholders or by order of a court, unless the agent has been successful on
the merits. In addition, the Registrant's policy is to enter into
indemnification agreements with each of its officers and directors. These
indemnification agreements provide that directors and officers will be
indemnified and held harmless to the fullest extent permitted by law. These
agreements, together with the Restated Articles, may require the Registrant,
among other things, to indemnify such directors, officers and employees against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities resulting from willful misconduct
of a culpable nature), to advance expenses to them as they are incurred,
provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification, and to
obtain directors' and officers' insurance if available on reasonable terms.
<PAGE>
Section 317 of the California Code makes provisions for the indemnification
of officers, directors and other corporate agents in terms sufficiently broad to
indemnify such persons, under certain circumstances, for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act.
The Underwriting Agreement referred to below sets forth certain provisions
with respect to the indemnification of the Registrant and certain directors,
officers, and controlling persons against certain losses and liabilities,
including certain liabilities under the Securities Act.
The Amended and Restated Registration Rights Agreement dated April 10,
1992, entered into by and among the Registrant and various investors, and the
Amended and Restated Registration Rights Agreement dated February 10, 1995,
entered into by and among the Registrant and various investors provide for cross
indemnification of certain holders of Registrant's securities, and of Registrant
and its officers and directors for certain liabilities existing under the
Securities Act and otherwise.
The Registrant also maintains a director and officer liability policy.
<PAGE>
ITEM 16. Exhibits.
The following exhibits are filed herewith or incorporated by reference
herein:
Exhibit
Number Exhibit Title
------ -------------
4.1 Amended and Restated Articles of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-93288 LA)
declared effective on August 11, 1995 (the "SB-2").)
4.2 Bylaws of the Company. (Incorporated by reference to Exhibit 3.3 to
the SB-2.)
4.3 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 to the SB-2.)
4.4 Asset Purchase Agreement dated December 31, 1997 between the
Company and Neptune Pharmaceutical Corporation. (Incorporated by
reference to Exhibit 99.1 to the Company's Report on Form 8-K filed
on January 14, 1998. (The Company has requested confidential
treatment with respect to portions of such exhibit.))
4.5 Common Stock Purchase Warrant dated November 24, 1997 between the
Company and CIBC Oppenheimer Corp.
5.1 Opinion of Fenwick & West LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (See signature page.)
<PAGE>
ITEM 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of
1933 (the "Securities Act"); (ii) to reflect in the prospectus any
facts or events arising after the effective date of the Registration
Statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information in the Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material
change to such information in the Registration Statement; provided,
however, that (i) and (ii) do not apply if the information required to
be included in a post-effective amendment thereby is contained in
periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering
of the securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in this Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Foster City, State of California, on February 11,
1998.
CELLEGY PHARMACEUTICALS, INC.
By: /s/ K. MICHAEL FORREST
----------------------------------
K. Michael Forrest
President and Chief
Executive Officer
<PAGE>
<TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints K. Michael Forrest and A. Richard Juelis, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement on Form S-3, and to file the same with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all of said attorneys-in-fact and agents, or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ K. MICHAEL FORREST President, Chief Executive Officer and February 11, 1998
- ----------------------------------------- Director
K. Michael Forrest
Principal Financial Officer
and Principal Accounting Officer:
/s/ A. RICHARD JUELIS Vice President, Finance, Chief Financial February 11, 1998
- ----------------------------------------- Officer and Secretary
A. Richard Juelis
Directors:
/s/ CARL R. THORNFELDT, M.D. Chairman of the Board of Directors February 11, 1998
- -----------------------------------------
Carl R. Thornfeldt, M.D.
/s/ JACK L. BOWMAN Director February 11, 1998
- -----------------------------------------
Jack L. Bowman
/s/ DENIS R. BURGER, PH.D. Director February 11, 1998
- -----------------------------------------
Denis R. Burger, Ph.D.
/s/ TOBI B. KLAR, M.D. Director February 11, 1998
- -----------------------------------------
Tobi B. Klar, M.D.
/s/ ALAN A. STEIGROD Director February 11, 1998
- -----------------------------------------
Alan A. Steigrod
/s/ LARRY J. WELLS Director February 11, 1998
- -----------------------------------------
Larry J. Wells
</TABLE>
EXHIBIT 4.5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON NOVEMBER 24, 2002 OR IF NOT A BUSINESS
DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT FOLLOWING
BUSINESS DAY.
WARRANT TO PURCHASE
94,063 SHARES OF COMMON STOCK
NO. 407
WARRANT TO PURCHASE
COMMON STOCK
OF
CELLEGY PHARMACEUTICALS, INC.
TRANSFER RESTRICTED -- SEE SECTION 5.2
This certifies that, for good and valuable consideration, CIBC Oppenheimer Corp.
and its registered, permitted assigns (collectively, the "Warrantholder") is
entitled to purchase from Cellegy Pharmaceuticals, Inc., a California
corporation (the "Company"), subject to the terms and conditions hereof, at any
time on or after 9:00 A.M., New York time, on the date one year from the date of
this Warrant, and before 5:00 P.M., New York time, on the Expiration Date (as
defined below), the number of fully paid and non-assessable shares of Common
Stock stated above at the Exercise Price. The Exercise Price and the number of
shares purchasable hereunder are subject to adjustment from time to time as
provided in Article III hereof.
ARTICLE I
SECTION 1.1 DEFINITION OF TERMS. As used in this Warrant, the following
capitalized terms shall have the following respective meanings:
(a) Business Day. A day other than a Saturday, Sunday or other day on
which banks in the State of New York are authorized by law to remain closed.
(b) Common Stock. Common Stock, no par value per share, of the Company.
(c) Common Stock Equivalents. Securities that are convertible into or
exercisable for shares of Common Stock.
<PAGE>
(d) Demand Registration. See Section 6.2.
(e) Exchange Act. The Securities Exchange Act of 1934, as amended.
(f) Exercise Price. $9.75 per Warrant Share, as such price may be
adjusted from time to time pursuant to Article III hereof.
(g) Expiration Date. 5:00 P.M., New York time, on the date five years
from the date hereof, or if such day is not a Business Day, the next succeeding
day which is a Business Day.
(h) 25% Holders. At any time as to which a Demand registration is
requested, the Holder and/or the holders of any other Warrants and/or the
holders of Warrant Shares who have the right to acquire or hold, as the case may
be, not less than 25% of the combined total of Warrant Shares issuable and
Warrant Shares outstanding at the time such Demand Registration is requested.
(i) Holder. A Holder of Registrable Securities.
(j) NASD. National Association of Securities Dealers, Inc., and NASDAQ:
NASD Automatic Quotation System.
(k) Person. An individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
(l) Piggyback Registration. See Section 6.1.
(m) Prospectus. Any prospectus included in any Registration Statement,
as amended or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the Registrable Securities covered by
such Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments and all materials incorporated
by reference in such Prospectus.
(n) Public Offerings. A public offering of any of the Company's equity
or debt securities pursuant to a registration statement under the Securities
Act.
(o) Registration Expenses. Any and all expenses incurred in connection
with any registration or action incident to performance of or compliance by the
Company with Article VI, including, without limitation, (i) all SEC, national
securities exchange and NASD registration and filing fees; all listing fees and
all transfer agent fees; (ii) all fees and expenses of complying with state
securities or blue sky laws (including the fees and disbursements of counsel for
the underwriters in connection with blue sky qualifications of the Registrable
Securities; (iii) all printing, mailing, messenger and delivery expenses and
(iv) all fees and disbursements of counsel for the Company and of its
accountants, including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance, but
excluding underwriting discounts and commissions, brokerage fees and transfer
taxes, if any, and fees of counsel or accountants retained by the holders of
Registrable Securities to advise them in their capacity as Holders of
Registrable Securities.
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<PAGE>
(p) Registrable Securities. Any Warrant Shares issued to CIBC
Oppenheimer Corp. and/or its designees or transferees as permitted under Section
5.2 and/or other securities that may be or are issued by the Company upon
exercise of this Warrant, including those which may thereafter be issued by the
Company in respect of any such securities by means of any stock splits, stock
dividends, recapitalizations, reclassifications or the like, and as adjusted
pursuant to Article III hereof.
(q) Registration Statement. Any registration statement of the Company
filed or to be filed with the SEC which covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
(r) SEC. The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
(s) Securities Act. The Securities Act of 1933, as amended.
(t) Transfers. See Section 5.2.
(u) Warrants. This Warrant, all other warrants issued on the date
hereof and all other warrants that may be issued in its or their place (together
evidencing the right to purchase an aggregate of 94,063 shares of Common Stock),
originally issued as set forth in the definition of Registrable Securities.
(v) Warrantholder. The person(s) or entity(ies) to whom this Warrant is
originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(w) Warrant Shares. Common Stock, Common Stock Equivalents and other
securities purchased or purchasable upon exercise of the Warrants.
ARTICLE II
DURATION AND EXERCISE OF WARRANT
SECTION 2.1 DURATION OF WARRANT. Subject to the limitations specified in Section
2.2(a)(ii) regarding a Cashless Exercise, the Warrantholder may exercise this
Warrant at any time and from time to time after 9:00 A.M., New York time, on the
date one year from the date of this Warrant, and before 5:00 P.M., New York
time, on the Expiration Date. If this Warrant is not exercised on or prior to
the Expiration Date, it shall become void, and all rights hereunder shall
thereupon cease.
SECTION 2.2 EXERCISE OF WARRANT.
(a) The Warrantholder may exercise this Warrant, in whole or in part,
as follows:
(i) By presentation and surrender of this Warrant to the
Company at its principal executive offices or at the office of its stock
transfer agent, if any, with the Subscription
3
<PAGE>
Form annexed hereto duly executed and accompanied by payment of the full
Exercise Price for each Warrant Share to be purchased; or
(ii) By presentation and surrender of this Warrant to the
Company at its principal executive offices with a Cashless Exercise Form annexed
hereto duly executed (a "Cashless Exercise"). In the event of a Cashless
Exercise, the Warrantholder shall exchange its warrant for that number of shares
of Common Stock determined by multiplying the number of Warrant Shares by a
fraction, the numerator of which shall be the amount by which the then current
market price per share of Common Stock exceeds the Exercise Price, and the
denominator of which shall be the then current market price per share of Common
Stock. For purposes of any computation under this Section 2.2(a)(ii), the then
current market price per share of Common Stock at any date shall be deemed to be
the last sale price of the Common Stock on the business day prior to the date of
the Cashless Exercise or, in case no such reported sales take place on such day,
the average of the last reported bid and asked prices of the Common Stock on
such day, in either case on the principal national securities exchange on which
the Common Stock is admitted to trading or listed, or if not listed or admitted
to trading on any such exchange, the representative closing bid price of the
Common Stock as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price of the Common Stock as determined by the Board of Directors.
(b) Upon receipt of this Warrant, in the case of Section 2.2(a)(i),
with the Subscription Form duly executed and accompanied by payment of the
aggregate Exercise Price for the Warrant Shares for which this Warrant is then
being exercised, or, in the case of Section 2.2(a)(ii), with the Cashless
Exercise Form duly executed, the Company shall cause to be issued certificates
for the total number of whole shares of Common Stock for which this Warrant is
being exercised (adjusted to reflect the effect of the anti-dilution provisions
contained in Article III hereof, if any, and as provided in Section 2.4 hereof)
in such denominations as are required for delivery to the Warrantholder, and the
Company shall thereupon deliver such certificates to the Warrantholder.
Notwithstanding the foregoing, in lieu of issuing such shares of Common Stock
for which the Warrant is being exercised, the Company may, in its sole
discretion, pay the Warrantholder cash (in the form of a check) in an amount
equal to the total number of Warrant Shares being exercised by the Warrantholder
multiplied by the then current market price per share of Common Stock and upon
and to the extent of such payment such Warrant shall be deemed exercised. For
purposes of this subsection 2.2(b), the then current market price per share of
Common Stock shall be the last sale price of the Common Stock on the business
day prior to the date on which such Warrant is exercised (either under
subsection 2.2(a)(i) or subsection (a)(ii), or in case no such reported sales
takes place on such day, the average of the last reported bid and asked prices
of the Common Stock on such day, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading or listed,
or if not listed or admitted to trading on any such exchange, the representative
closing bid price of the Common Stock as reported by NASDAQ, or other similar
organizations if NASDAQ is no longer reporting such information, or if not so
available, the fair market price of the Common Stock as determined by the Board
of Directors.
4
<PAGE>
In the event that shares of Common Stock are issued to the Warrantholder upon
exercise of this Warrant, the Warrantholder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Warrantholder. If at the time this Warrant is
exercised, a Registration Statement is not in effect to register under the
Securities Act the Warrant Shares issuable upon exercise of this Warrant, the
Company may require the Warrantholder to make such representations, and may
place such legends on certificates representing the Warrant Shares, as may be
reasonably required in the opinion of counsel to the Company to permit the
Warrant Shares to be issued without such registration.
(c) In case the Warrantholder shall exercise this Warrant with respect
to less than all of the Warrant Shares that may be purchased under this Warrant,
the Company shall execute a new warrant in the form of this Warrant for the
balance of such Warrant Shares and deliver such new warrant to the
Warrantholder.
(d) The Company shall pay any and all stock transfer and similar taxes
which may be payable in respect of the issue of this Warrant or in respect of
the issue of any Warrant Shares.
SECTION 2.3 RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and delivery upon exercise of this Warrant
such number of shares of Common Stock or other shares of capital stock of the
Company from time to time issuable upon exercise of this Warrant. All such
shares shall be duly authorized, and when issued upon such exercise, shall be
validly issued, fully paid and nonassessable, free and clear of all liens,
security interests, charges and other encumbrances or restrictions on sale and
free and clear of all preemptive rights (except the restrictions imposed by the
legend appearing at the top of Page 1 of this Warrant).
SECTION 2.4 FRACTIONAL SHARES. The Company shall not be required to issue any
fraction of a share of its capital stock in connection with the exercise of this
Warrant, and in any case where the Warrantholder would, except for the
provisions of this Section 2.4, be entitled under the terms of this Warrant to
receive a fraction of a share upon the exercise of this Warrant, the Company
shall, upon the exercise of this Warrant and tender of the Exercise Price (as
adjusted to cover the balance of the share), issue the larger number of whole
shares purchasable upon exercise of this Warrant. The Company shall not be
required to make any cash or other adjustment in respect of such fraction of a
share to which the Warrantholder would otherwise be entitled.
SECTION 2.5 LISTING. Prior to the issuance of any shares of Common Stock upon
exercise of this Warrant, the Company shall secure the listing of such shares of
Common Stock upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance upon exercise of this Warrant) and shall maintain,
so long as any other shares of Common Stock shall so be listed, such listing of
all shares of Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange or
automated quotation system, and shall maintain such listing of, any other shares
of capital stock of the
5
<PAGE>
Company issuable upon the exercise of this Warrant if and so long as any shares
of the same class shall be listed on such national securities exchange or
automated quotation system.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND OF EXERCISE PRICE
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article III.
SECTION 3.1 MECHANICAL ADJUSTMENTS.
(a) If at any time prior to the exercise of this Warrant in full, the
Company shall (i) pay a dividend or make a distribution in the Common Stock;
(ii) subdivide, reclassify or recapitalize outstanding Common Stock into a
greater number of shares; (iii) combine, reclassify or recapitalize its
outstanding Common Stock into a smaller number of shares; or (iv) issue any
shares of its capital stock by reclassification of its Common Stock (including
any such reclassification in connection with a consolidation or a merger in
which the Company is the continuing corporation), the Exercise Price in effect
at the time of the record date of such dividend, distribution, subdivision,
combination, reclassification or recapitalization shall be adjusted so that the
Warrantholder shall be entitled to receive the aggregate number and kind of
shares which, if this Warrant had been exercised in full immediately prior to
such event, he would have owned upon such exercise and been entitled to receive
by virtue of such dividend, distribution, subdivision, combination,
reclassification or recapitalization. Any adjustment required by this paragraph
3.1(a) shall be made successively immediately after the record date, in the case
of a dividend or distribution, or the effective date, in the case of a
subdivision, combination, reclassification or recapitalization to allow the
purchase of such aggregate number and kind of shares.
(b) If at any time prior to the exercise of this Warrant in full, the
Company shall make a distribution to all holders of the Common Stock of stock of
a subsidiary or securities convertible into or exercisable for such stock, then
in lieu of an adjustment in the Exercise Price or the number of Warrant Shares
purchasable upon the exercise of this warrant, each Warrantholder, upon the
exercise hereof at any time after such distribution, shall be entitled to
receive from the Company, such subsidiary or both, as the Company shall
determine, the stock or other securities to which such Warrantholder would have
been entitled if such Warrantholder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in this Article III, and
the Company shall reserve, for the life of the Warrant, such securities of such
subsidiary or other corporation; provided, however, that no adjustment in
respect of dividends or interest on such stock or other securities shall be made
during the term of this Warrant or upon its exercise.
(c) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to paragraph (a) of this Section 3.1, the Warrant Shares
shall simultaneously be adjusted by multiplying the number of Warrant Shares
initially issuable upon exercise of each Warrant by the Exercise Price in effect
on the date of such adjustment and dividing the product so obtained by the
Exercise Price, as adjusted.
6
<PAGE>
(d) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($.10) in
such price; provided, however, that any adjustments which by reason of this
paragraph (d) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
3.1 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Notwithstanding anything in this Section 3.1 to the
contrary, the Exercise Price shall not be reduced to less than the then existing
par value of the Common Stock as a result of any adjustment made hereunder.
(e) In the event that at any time, as a result of any adjustment made
pursuant to Section 3.1(a), the Warrantholder thereafter shall become entitled
to receive any shares of the Company other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Section 3.1(a).
SECTION 3.2 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or the
Exercise Price is adjusted as herein provided, the Company shall prepare and
deliver forthwith to the Warrantholder a certificate signed by its President,
and by any Vice President, Treasurer or Secretary, setting forth the adjusted
number of shares purchasable upon the exercise of this Warrant and the Exercise
Price of such shares after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which adjustment was made.
SECTION 3.3 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 3.1 of
this Agreement, no adjustment in respect of any cash dividends paid by the
Company shall be made during the term of this Warrant or upon the exercise of
this Warrant.
SECTION 3.4 PRESERVATION OF PURCHASE RIGHTS IN CERTAIN TRANSACTIONS. In case of
any reclassification, capital reorganization or other change of outstanding
shares of Common Stock (other than a subdivision or a combination of the
outstanding Common Stock and other than a change in the par value of the Common
Stock or in case of any consolidation or merger of the Company with or into
another corporation (other than a merger with a subsidiary in which the Company
is the continuing corporation and said merger does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant)) or in case
of any sale, lease, transfer or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to such transaction, cause
such successor or purchasing corporation, as the case may be, to execute with
the Warrantholder an agreement granting the Warrantholder the right thereafter,
upon payment of the Exercise Price in effect immediately prior to such action,
to receive upon exercise of this Warrant the kind and amount of shares and other
securities and property which he would have owned or have been entitled to
receive after the happening of such reclassification, change, consolidation,
merger, sale or conveyance had this Warrant been exercised immediately prior to
such action. Such agreement shall provide for adjustments in respect of such
shares of stock and other securities and property, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
III. In the event that in connection with any such reclassification, capital
reorganizations, change, consolidation, merger, sale or conveyance,
7
<PAGE>
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for, or of, a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of Article III. The provisions of this
Section 3.4 shall similarly apply to successive reclassification, capital
reorganization, consolidations, mergers, sales or conveyances.
SECTION 3.5 FORM OF WARRANT AFTER ADJUSTMENTS. The form of this Warrant need not
be changed because of any adjustments in the Exercise Price or the number or
kind of the Warrant Shares, and Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in this Warrant, as initially issued.
SECTION 3.6 TREATMENT OF WARRANTHOLDER. Prior to due presentment for
registration of transfer of this Warrant, the Company may deem and treat the
Warrantholder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for all purposes and shall not be
affected by any notice to the contrary.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF WARRANTHOLDER
SECTION 4.1 NO RIGHTS AS SHAREHOLDERS; NOTICE TO WARRANTHOLDERS. Nothing
contained in this Warrant shall be construed as conferring upon the
Warrantholder or his or its transferees the right to vote or to receive
dividends or to consent to or receive notice as a shareholder in respect of any
meeting of shareholders for the election of directors of the Company or any
other matter, or any other rights whatsoever as shareholders of the Company. The
Company shall give notice to the Warrantholder by registered mail if at any time
prior to the expiration or excise in full of the Warrants, any of the following
events shall occur:
(a) the Company shall authorize the payment of any dividend upon shares
of Common Stock payable in any securities or authorize the making of any
distribution (other than a cash dividend subject to the parenthetical set forth
in Section 3.1(c)) to all holders of Common Stock;
(b) the Company shall authorize the issuance to all holders of Common
Stock of any additional shares of Common Stock or Common Stock Equivalents or of
rights, options or warrants to subscribe for or purchase Common Stock or Common
Stock Equivalents or of any other subscription rights, options or warrants;
(c) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation, merger, or sale or conveyance of the
property of the Company as an entirety or substantially as an entirety); or
(d) a capital reorganization or reclassification of the Common Stock
(other than a subdivision or combination of the outstanding Common Stock and
other than a change in the par value of the Common Stock) or any consolidation
or merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
that does not result in any reclassification or change of Common Stock
outstanding) or in the case of any sale or conveyance to another corporation of
the property of the Company as an entirety or substantially as an entirety.
8
<PAGE>
Such giving of notice shall be initiated (i) at least 10 Business Days
prior to the date fixed as a record date or effective date or the date of
closing of the Company's stock transfer books for the determination of the
shareholders entitled to such dividend, distribution or subscription rights, or
for the determination of the shareholders entitled to vote on such proposed
merger, consolidation, sale, conveyance, dissolution, liquidation or winding up.
Such notice shall specify such record date or the date of closing the stock
transfer books, as the case may be. Failure to provide such notice shall not
affect the validity of any action taken in connection with such dividend,
distribution or subscription rights, or proposed merger, consolidation, sale,
conveyance, dissolution, liquidation or winding up.
SECTION 4.2 LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If this Warrant is
lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as and in substitution for this Warrant.
ARTICLE V
SPLIT-UP, COMBINATION EXCHANGE AND TRANSFER OF WARRANTS
SECTION 5.1 SPLIT-UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS. Subject to
the provisions of Section 5.2 hereof, this Warrant may be split up, combined or
exchanged for another Warrant or Warrants containing the same terms to purchase
a like aggregate number of Warrant Shares. If the Warrantholder desires to split
up, combine or exchange Warrants, he or it shall make such request in writing
delivered to the Company and shall surrender to the Company any Warrants to be
so split up, combined or exchanged. Upon any such surrender for a split up,
combination or exchange, the Company shall execute and deliver to the person
entitled thereto a Warrant or Warrants, as the case may be, as so requested. The
Company shall not be required to effect any split up, combination or exchange
which will result in the issuance of a Warrant entitling the Warrantholder to
purchase upon exercise a fraction of a share of Common Stock or a fractional
Warrant. The Company may require such Warrantholder to pay a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
split up, combination or exchange of Warrants.
SECTION 5.2 RESTRICTIONS ON TRANSFER. Neither this Warrant nor the Warrant
Shares may be disposed of or encumbered (any such action, a "Transfer"), except
(i) to CIBC Oppenheimer Corp., any successor to the business of such company, or
any officer of such company, or (ii) to any underwriter in connection with a
Public Offering of the Common Stock provided (as to (ii)) that this Warrant is
exercised upon such Transfer and any shares of Common Stock issued upon such
exercise are sold by such underwriter as part of such Public Offering and, as to
both (i) and (ii), only in accordance with and subject to the provisions of the
Securities Act and the rules and regulations promulgated thereunder. If at the
time of a Transfer, a Registration Statement is not in effect to register this
Warrant or the Warrant Shares, the Company may require the Warrantholder to make
such representations, and may place such legends on certificates representing
this Warrant, as may be reasonable required in the opinion of counsel to the
Company to permit a Transfer without such registration.
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ARTICLE VI
REGISTRATION UNDER THE SECURITIES ACT OF 1933
SECTION 6.1 PIGGYBACK REGISTRATION
(a) Right to Include Registrable Securities. If at any time or from
time to time after the date of this Warrant and prior to the Expiration Date,
the Company proposes to register any of its securities under the Securities Act
on any form for the registration of securities under such Act, whether or not
for its own account (other than by a registration statement on Form S-8 or other
form which does not include substantially the same information as would be
required in a form for the general registration of securities or would be
available for the Registrable Securities) (a "Piggyback Registration"), it shall
as expeditiously as possible give written notice to all Holders of its intention
to do so and of such Holders' rights under this Section 6.1. Such rights are
referred to hereinafter as "Piggyback Registration Rights." Upon the written
request of any such Holder made within 20 days after receipt of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such Holder), the Company shall include in the Registration Statement the
Registrable Securities which the Company has been so requested to register by
the Holders thereof and the Company shall keep such registration statement in
effect and maintain compliance with each Federal and state law or regulation for
the period necessary for such Holder to effect the proposed sale or other
disposition (but in no event for a period greater than 120 days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time
after giving written notice of its intention to register any securities in a
Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give written notice of such
determination to each Holder and, thereupon, shall be relieved of its obligation
to register any Registrable Securities in connection with such Piggyback
Registration. All best efforts obligations of the Company pursuant to Section
6.4 shall cease if the Company determines to terminate prior to such effective
date any registration where Registrable Securities are being registered pursuant
to this Section 6.1.
(c) Piggyback Registration of Underwritten Public Offerings. If a
Piggyback Registration involves an offering by or through underwriters, then,
(i) all Holders requesting to have their Registrable Securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than three Business Days prior to the effectiveness of the
Registration Statement filed in connection with such registration, not to have
his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 6.1.
(e) Priority in Piggyback Registration. If a Piggyback Registration
involves an offering by or through underwriters, the Company shall not be
required to include Registrable
10
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Shares therein if and to the extent the underwriter managing the offering
reasonably believes in good faith and advises each Holder requesting to have
Registrable Securities included in the Company's Registration Statement that
such inclusion would materially adversely affect such offering; provided that
(i) if other selling shareholders who are employees, officers, directors or
other affiliates of the Company have requested registration of securities in the
proposed offering, the Company will reduce or eliminate such other selling
shareholders' securities before any reduction or elimination of Registrable
Securities; (ii) any such reduction of elimination (after taking into account
the effect of clause (i) shall be pro rata to all other holders of the
securities of the Company exercising "piggyback registration rights" similar to
those set forth herein in proportion to the respective number of shares they
have requested to be registered, and (iii) in such event, such Holders may delay
any offering by them of all Registrable Shares requested to be included (or that
portion of such Registrable Shares eliminated for such period, not to exceed 60
days, as the managing underwriter shall request) and the Company shall file such
supplements and post-effective amendments and take such other action necessary
under Federal and state law or regulation as may be necessary to permit such
Holders to make their proposed offering for a period of 90 days following such
period of delay.
SECTION 6.2 DEMAND REGISTRATION
(a) Request for Registration. If, at any time subsequent to the date of
this Warrant and prior to the Expiration Date, any 25% Holders request that the
Company file a registration statement under the Securities Act, the Company as
soon as practicable shall use its best efforts to file a registration statement
with respect to all Warrant Shares that it has been so requested to include and
to obtain the effectiveness thereof, and to take all other action necessary
under any Federal or state law or regulation to permit the Warrant Shares that
are then held and/or that may be acquired upon the exercise of the Warrants
specified in the notices of the Holders or holders thereof to be sold or
otherwise disposed of, and the Company shall maintain such compliance with each
such Federal and state law and regulation for the period necessary for such
Holders or holders to effect the proposed sale or other disposition (but in no
event for more than 120 days); provided, however, the Company shall be entitled
to defer such registration for a period of up to 60 days if and to the extent
that its Board of Directors shall determine that such registration would
interfere with a pending corporate transaction. The Company shall also promptly
give written notice to the Holder and the holders of any other Warrants and/or
the holders of any Warrant Shares who or that have not made a request to the
Company pursuant to the provisions of this subsection (a) of its intention to
effect any required registration or qualification and shall use its best efforts
to effect as expeditiously as possible such registration or qualification of all
other such Warrant Shares that are then held and/or that may be acquired upon
the exercise of the Warrants, the Holder or holders of which have requested such
registration or qualification, within 15 days after such notice has been given
by the Company, as provided in the preceding sentence. The Company shall be
required to effect a registration or qualification pursuant to this subsection
(a) on one occasion only.
(b) Payment of Registration Expenses for Demand Registration. The
Company shall pay all Registration Expenses in connection with the Demand
Registration.
(c) Selection of Underwriters. If any Demand Registration is requested
to be in the form of an underwritten offering, the managing underwriter shall be
CIBC Oppenheimer Corp.
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and the co-manager (if any) and the independent pricer required under the rules
of the NASD (if any) shall be selected and obtained by the Holders of a majority
of the Warrant Shares to be registered. Such selection shall be subject to the
Company's consent, which consent shall not be unreasonably withheld. All fees
and expenses (other than Registration Expenses otherwise required to be paid) of
any managing underwriter, any co-manager or any independent underwriter or other
independent pricer required under the rules of the NASD shall be paid for by
such underwriters or by the Holders or holders whose shares are being
registered. If CIBC Oppenheimer Corp. should decline to serve as managing
underwriter, the Holders of a majority of the Warrant Shares to be registered
may select and obtain one or more managing underwriters. Such selection shall be
subject to the Company's consent, which consent shall not be unreasonably
withheld.
SECTION 6.3 BUY-OUTS OF REGISTRATION DEMAND. In lieu of carrying out its
obligations to effect a Piggyback Registration or Demand Registration of any
Registrable Securities pursuant to this Article VI, the Company may carry out
such obligation by offering to purchase and purchasing such Registrable
Securities requested to be registered at an amount in cash equal to the
difference between (a) 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.
SECTION 6.4 REGISTRATION PROCEDURES. If and whenever the Company is required to
use its best efforts to take action pursuant to any Federal or state law or
regulation to permit the sale or other disposition of any Warrant Shares that
are then held or that may be acquired upon exercise of the Warrants, in order to
effect or cause the registration of any Registrable Securities under the
Securities Act as provided in this Article VI, the Company shall, as
expeditiously as practicable:
(a) furnish to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Registration
Statement, the Prospectus or the Prospectuses (including each preliminary
prospectus) and any amendment or supplement thereto as they may reasonably
request;
(b) enter into such agreements (including an underwriting agreement)
and take all such other actions reasonably required in connection therewith in
order to expedite or facilitate the disposition of such Registrable Securities
and in such connection, if the registration is in connection with an
underwritten offering (i) make such representations and warranties to the
underwriters in such form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions in form, scope and substance shall be
reasonably satisfactory to the underwriters) addressed to the underwriters and
the Holders covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such underwriters; (iii) obtain "cold comfort" letters and updates thereof from
the Company's accountants addressed to the underwriters such letters to be in
customary form and to cover matters of the type customarily covered in "cold
comfort" letters to underwriters and the Holders in connection with underwritten
offerings; (iv) set forth in full, in any underwriting agreement entered into,
the indemnification provisions and procedures of Section 6.5 hereof with respect
to all parties to be indemnified pursuant to said Section; and (v) deliver such
documents and
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certificates as may be reasonably requested by the underwriters to evidence
compliance with clause (i) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company; the
above shall be done at each closing under such underwriting or similar agreement
or as and to the extent required thereunder;
(c) make available for inspection by one or more representatives of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by such Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the company, and cause the
company's officers, directors and employees to supply all information reasonably
requested by any such representatives in connection with such;
(d) otherwise use its best efforts to comply with all applicable
Federal and state regulations; and take such other action as may be reasonably
necessary or advisable to enable each such Holder and each such underwriter to
consummate the sale or disposition in such jurisdiction or jurisdiction, in
which any such Holder or underwriter shall have requested that the Registrable
Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters,
and the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders;
Each seller of Registrable Securities as to which any registration is
being effected shall furnish to the Company such information regarding the
distribution of such securities and such other information as may otherwise be
required by the Securities Act to be included in such Registration Statement.
SECTION 6.5 INDEMNIFICATION.
(a) Indemnification by Company. In connection with each Registration
Statement relating to disposition of Registrable Securities, the Company shall
indemnify and hold harmless each Holder and each underwriter of Registrable
Securities and each Person, if any, who controls such Holder or underwriter
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) against any and all losses, claims, damages and liabilities, joint
or several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other Federal or
state law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or any amendment
thereof or supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that such indemnity shall not inure to the benefit of any Holder or underwriter
(or any Person controlling
13
<PAGE>
such Holder or underwriter within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) on account of any losses, claims, damages
or liabilities arising from the sale of Registrable Securities if such untrue
statement or omission or alleged untrue statement or omission was made in such
Registration Statement, Prospectus or preliminary prospectus, or such amendment
or supplement, in reliance upon and in conformity with information furnished in
writing to the company by the Holder or underwriter specifically for use
therein. The Company shall also indemnify selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the Indemnification of the Holders of Registrable Securities, if
requested. This indemnity agreement shall be in addition to any liability which
the Company may otherwise have.
(b) Indemnification by Holder. In connection with each Registration
Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 6.5(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act) but only insofar as such losses, claims,
damages and liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in the
Registration Statement, the Prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the Company specifically for
use therein. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary prospectus or any amendment
thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section, notify each such indemnifying party of the commencement of
such action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 6.5(a) or 6.5(b) shall be available to
any party who shall fail to give notice as provided in this Section 6.5(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice, but the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any liability that it may
have to any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified
14
<PAGE>
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and the approval by the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, except as provided below and except for the reasonable costs
of investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any settlement of any
action, suit, proceeding or claim effected without its written consent.
(d) Contribution. In connection with each Registration Statement
relating to the disposition of Registrable Securities, if the indemnification
provided for in subsection (a) hereof is unavailable to an indemnified party
thereunder in respect of any losses, claims, damages or liabilities referred to
therein, then the Company shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities. The amount to be contributed by
the Company hereunder shall be an amount which is in the same proportionate
relationship to the total amount of such losses, claims, damages or liabilities
as the total net proceeds from the offering (before deducting expenses) of the
Registrable Securities bears to the total price to the public (including
underwriters' discounts) for the offering of the Registrable Securities covered
by such registration.
(e) Specific Performance. The Company and the Holder acknowledge that
remedies at law for the enforcement of this Section 6.5 may be inadequate and
intend that this Section 6.5 shall be specifically enforceable.
ARTICLE VII
OTHER MATTERS
SECTION 7.1 AMENDMENTS AND WAIVERS. The provisions of this Warrant, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waiver or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of holders of at least a
majority of the outstanding Registrable Securities. Holders shall be bound by
any consent authorized by this Section whether or not certificates representing
such Registrable Securities have been marked to indicate such consent.
15
<PAGE>
SECTION 7.2 COUNTERPARTS. This Warrant may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
so executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
SECTION 7.3 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 7.4 SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provisions in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
SECTION 7.5 ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provisions of this Warrant, or where any provisions hereof or thereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees and disbursements in addition to its costs and
expenses and any other available remedy.
SECTION 7.6 COMPUTATIONS OF CONSENT. Whenever the consent or approval of Holders
of a specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or its affiliates (other than the
Warrantholder or subsequent Holders is they are deemed to be such affiliates
solely by reason of their holdings of such Registrable Securities) shall not be
counted in determinant whether such consent or approval was given by the Holders
of such required percentage.
SECTION 7.7 NOTICE. 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 in person or by registered mail (return receipt requested) to the
Holder addressed to him in care of CIBC Oppenheimer Corp., CIBC Oppenheimer
Tower, World Financial Center, New York, New York 10281 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 it at 1065 E. Hillsdale
Blvd., Suite 418, Foster City, California 94404. The Company may change its
address by written notice to the Holder and the Holder may change his or its
address by written notice to the Company.
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IN WITNESS WHEREOF, this Warrant has been duly executed by the parties
as of the 24th day of November, 1997.
CELLEGY PHARMACEUTICALS, INC.
By:
-------------------------------
A. Richard Juelis
Vice President, Finance,
Chief Financial Officer and
Secretary
AGREED TO
AND ACCEPTED BY:
CIBC OPPENHEIMER CORP.
By:
-------------------------------
Michael Fekete
Managing Director
17
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ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, _______________ hereby sells, assigns and transfers
unto ____________________________ the within Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint _______________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company with respect to the number
of Warrants set forth below, with full power of subscription in the premises:
Name(s) of Assignees(s) Address No.of Warrants
- ----------------------- ------- --------------
And if said number of Warrants shall not be all the Warrants
represented by the Warrant Certificate, a new Warrant Certificate is to be
issued in the name of said undersigned for the balance remaining of the Warrants
represented by said Warrant Certificate.
Dated:
-------------------------------
Signature
----------------------------
Note: The above signature should correspond exactly with the name on the face of
this Warrant Certificate.
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<PAGE>
SUBSCRIPTION FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT
PURSUANT TO SECTION 2.2(a)(i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder shares of Common Stock, as provided for
------------------------------
therein, and tenders herewith payment of the purchase price in full in the form
of cash or a certified or official bank check in the amount of $ .
---------------
Please issue a certificate or certificates for such Common Stock in the
name of, or in lieu of issuing such shares of Common Stock, make the appropriate
cash payment (in the form of a check) to:
Name
-------------------------------------------------------------------
(Please Print Name, Address and Social Security Number)
Signature
--------------------------------------------------------------
NOTE: The above signature should respond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares covered by this exercise shall not be all
the shares purchasable under the within Warrant Certificate, a new Warrant
Certificate is to be issued in the name of said undersigned for the balance
remaining of the shares purchasable thereunder rounded up to the next higher
number of shares.
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<PAGE>
CASHLESS EXERCISE FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
PURSUANT TO SECTION 2.2(a)(ii))
The undersigned hereby irrevocably elects to Exchange its Warrant for
such shares of Common Stock pursuant to the Cashless Exercise provisions of the
within Warrant Certificate, as provided for in Section 2.2(a)(ii) of such
Warrant Certificate.
Please issue a certificate or certificates for such Common Stock in the
name of, or in lieu of issuing such shares of Common Stock, make the appropriate
cash payment (in the form of a check) to:
Name
-------------------------------------------------------------------
(Please Print Name, address and Social Security Number)
Signature
--------------------------------------------------------------
NOTE: The above signature should correspond exactly with the name on the
first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares covered by this exercise shall not be all
the shares exchangeable or purchasable under the within Warrant Certificate, a
new Warrant Certificate is to be issued in the name of the undersigned for the
balance remaining of the shares purchasable rounded up to the next higher number
of shares.
20
EXHIBIT 5.1
February 11, 1998
Cellegy Pharmaceuticals, Inc.
1065 E. Hillsdale Blvd.
Suite 418
Foster City, CA 94404
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement") to be filed by you with the Securities and
Exchange Commission (the "Commission") on or about February 11, 1998 in
connection with the registration under the Securities Act of 1933, as amended,
for resale of an aggregate of 2,142,063 shares of your Common Stock (the
"Stock"), all of which will be sold by the selling shareholders named in the
Prospectus included within the Registration Statement (the "Selling
Shareholders"), including 462,809 shares that are presently issued and
outstanding (the "Outstanding Shares"), 1,537,191 shares that may be issued in
the future to certain of the Selling Shareholders (the "Contingent Shares")
pursuant to the Asset Purchase Agreement dated as of December 31, 1997 between
Neptune Pharmaceutical Corporation and you (the "Neptune Agreement") and 142,063
shares (the "Warrant Shares") that are issuable upon the exercise of certain
warrants (the "Warrants") held by certain of the Selling Shareholders. The
Outstanding Shares, Contingent Shares and Warrant Shares will be referred to
collectively herein as the "Shares."
In rendering this opinion, we have examined the following:
(1) the Registration Statement (including the Prospectus included
therein), together with the Exhibits filed as a part thereof;
(2) the articles of incorporation of the Company, as amended through
the date hereof, certified by the Company's Secretary;
(3) the bylaws of the Company, as amended through the date hereof,
certified by the Company's Secretary;
(4) common stock purchase warrant dated November 24, 1997 between the
Company and CIBC Oppenheimer Corp.;
(5) common stock purchase warrant dated October 1, 1997 between the
Company and BMC, Inc.;
(6) common stock purchase warrant dated October 1, 1997 between the
Company and The Trout Group LLC;
(7) the Neptune Agreement;
(8) your registration statement on Form 8-A filed with the Commission
in connection with the Company's initial public offering in August
1995;
(9) the minutes of meetings and actions by written consent of the Board
of Directors that are contained in your minute books and that are
in our possession, that relate to issuance of the Shares, the
Warrants and the Warrant Shares; and
(10) a Management Certificate (the "Management Certificate") addressed
to us and dated of even date herewith executed by the Company
containing certain factual and other representations, including,
without limitation, information concerning the number of
outstanding shares of Common Stock and shares of common stock
issuable upon exercise of outstanding options, warrants and similar
rights.
<PAGE>
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all natural persons executing the same, the lack
of any undisclosed terminations, modifications, waivers or amendments to any
documents reviewed by us and the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof.
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from records included in
the documents referred to above. We have made no independent investigation or
other attempt to verify the accuracy of any of such information or to determine
the existence or non-existence of any other factual matters; however, we are not
aware of any facts that would lead us to believe that the opinion expressed
herein is not accurate.
In rendering any opinion that the Shares are, or will when issued be,
"fully paid," we have assumed that such shares were or will be issued in
accordance with the terms of the Warrants or the Neptune Agreement, and that the
Company has received (with respect to outstanding Shares) or will receive (with
respect to Shares that may be issued in the future) full consideration for the
issuance of such Shares provided for in the Warrants or the Neptune Agreement
(as the case may be), and we have relied solely, without independent
investigation, upon the representation of the Company to that effect in the
Management Certificate referred to above.
Based upon the foregoing, it is our opinion that the Outstanding Shares to
be sold by the Selling Shareholders pursuant to the Registration Statement are,
and the Contingent Shares when and if issued pursuant to the Neptune Agreement,
and the Warrant Shares when and if issued upon exercise of the Warrants and
fully paid for as provided in the Warrants will be (assuming no change in such
documents or applicable law), legally issued and nonassessable and, to our
knowledge, fully paid.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and is intended solely for your use
as an exhibit to the Registration Statement for the purpose of the above sale of
the Stock and is not to be relied upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
/s/ Fenwick & West LLP
------------------
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Cellegy
Pharmaceuticals, Inc. for the registration of 2,142,063 shares of its common
stock and to the incorporation by reference therein of our report dated February
5, 1997 with respect to the financial statements of Cellegy Pharmaceuticals,
Inc. included in its Annual Report on Form 10-KSB for the year ended December
31, 1996, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Jose, California
February 11, 1998
