UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
___________________________________
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the period ended October 31,
1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
__________ to _________
Commission file number 0-20772
CYPROS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
California 33-0476164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2714 Loker Avenue West
Carlsbad, California 92008
(Address of principal executive offices)(Zip Code)
Registrant's telephone number,
including area code:(760) 929-9500
Indicate by mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities
Exchange Act 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
[ X ] YES [ ] NO
As of December 12, 1997, the Registrant had 15,475,118 shares of
Common Stock, no par value, outstanding.
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Table of Contents
Item Page
Part I
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1. Financial Statements:
a. Balance Sheets -- October 31, 1997 and
July 31, 1997 3
b. Statements of Operations -- Three Months Ended
October 31, 1997 and 1996 4
c. Statements of Cash Flows -- Three Months Ended
October 31, 1997 and 1996 5
d. Notes to Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 8
Part II
1. Legal Proceedings *
2. Changes in Securities *
3. Defaults Upon Senior Securities *
4. Submission of Matters to a Vote of Securities
Holders *
5. Other Information *
6. Exhibits and Reports on Form 8-K 10
Signatures 11
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* No information provided due to inapplicability of item.
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PART I.
Item 1. Financial Statements
Cypros Pharmaceutical
Corporation
Balance Sheets
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October 31, July 31,
1997 1997
Assets (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 2,743,054 $5,101,710
Short-term investments, held
to maturity 9,719,764 9,465,561
Accounts receivable 381,730 355,425
Inventories 85,236 93,177
Other current assets 25,822 75,038
Total current assets 12,955,606 15,090,911
Property, equipment and
leasehold improvements, net 626,336 675,686
Purchased technology, net 4,836,528 5,060,875
Deferred financing costs, net 72,438 259,127
Licenses and patents, net 186,238 162,592
Other assets 80,632 95,525
Total assets $ 18,757,778 $21,344,716
Liabilities and shareholders'
equity
Current liabilities:
Accounts payable $ 322,992 $ 365,386
Accrued compensation 152,730 121,605
Other accrued liabilities 107,617 131,800
Purchased asset obligations - 1,272,000
Current portion of long-term
debt 16,547 41,367
Current portion of capital
lease obligations 102,518 106,206
Total current liabilities 702,404 2,038,364
Capital lease obligations 126,147 148,787
Deferred rent 130,795 104,196
Mandatorily convertible notes 1,114,400 4,027,461
Shareholders' equity:
Common stock, 30,000,000 shares
authorized, 14,521,121 and
13,650,405 shares issued and
and outstanding as of October
31, 1997 and
July 31,1997,respectively 35,356,234 32,344,793
Deferred compensation (122,938) (161,950)
Accumulated deficit (18,549,264) (17,156,935)
Total shareholders' equity 16,684,032 15,025,908
Totalliabilities and
shareholders'equity $18,757,778 $21,344,716
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Note: The balance sheet at July 31, 1997 has been derived
from the audited financial statements at that date but
but does not include all of the information and footnotes
required by generally accepted accounting principles
for complete financial statements.
See accompanying notes.
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Cypros Pharmaceutical Corporation
Statements of Operations
(Unaudited)
Three Months
Ended
October 31,
1997 1996
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Net sales $ 771,417 $ 367,131
Cost of sales 167,944 105,122
Gross Profit 603,473 262,009
Operating expenses:
Sales and marketing 356,696 162,456
General and administrative 701,740 621,510
Clinical testing and regulatory 456,902 339,135
Research and development 252,973 215,401
Depreciation and amortization 300,431 187,887
Total operating expenses 2,068,742 1,526,389
Loss from operations (1,465,269) (1,264,380)
Research grant income 25,037 47,400
Interest and other income, net 234,592 284,496
Amortization of discount and costs
on mandatorily convertible notes (186,689) (676,515)
Net loss $ (1,392,329) $ (1,608,999)
Net loss per share $ (0.10) $ (0.14)
Shares used in computing net loss
per share 14,024,710 11,613,748
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See accompanying notes.
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Cypros Pharmaceutical Corporation
Statements of Cash Flows
(Unaudited)
Three Months Ended
October 31
1997 1996
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Operating activities
Net Loss $(1,392,329) $(1,608,999)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Amortization of deferred
compensation 137,392 74,272
Depreciation and amortization 301,822 187,886
Amortization of discount and
costs on mandatorily convertible
notes 186,689 676,515
Deferred rent 26,599 2,053
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable (26,305) (30,229)
Inventories 7,941 (2,331)
Other current assets 49,216 36,798
Accounts payable (42,394) (5,493)
Accrued liabilities (65,058) (116,345)
Net cash flows used in operating
activities (816,427) (785,873)
Investing activities
Short-term investments (254,203) (1,574,086)
Installment payment for purchased
technology (1,200,000) (200,000)
Purchase of property, equipment
and leasehold improvements (15,661) (12,513)
Increase in licenses and patents (36,110) (14,172)
Decrease in other assets 14,893 4,701
Net cash flows used in investing
activities (1,491,081) (1,796,070)
Financing activities
Repayments of long-term debt (26,328) (24,820)
Repayments of capital leases/
obligations (24,820) (19,248)
Net cash flows used by financing
activities (51,148) (44,068)
Decrease in cash and cash
equivalents (2,358,656) (2,626,011)
Cash and cash equivalents at
beginning of period 5,101,710 8,306,752
Cash and cash equivalents at end
of period $2,743,054 $5,680,741
Supplemental disclosures of cash
flow information:
Cash paid for interest $103,887 $12,723
Noncash investing and financing
activities:
Equipment financed under capital
leases $ - $79,992
Notes converted to common stock $2,913,061 $ -
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See accompanying notes
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization and Business Activity
Cypros Pharmaceutical Corporation (the "Company") is engaged in
the development and marketing of acute-care, hospital-based
products. The Company is currently marketing three products,
Ethamolin, Glofil and Inulin, and developing two drugs, CPC-111
and Ceresine (formerly CPC-211). The Company's pre-clinical and
clinical development programs focus on cytoprotective drugs
designed to reduce ischemia (low blood flow) induced tissue
damage in acute-care settings. The Company expects to be in late-
phase clinical trials with CPC-111 and Ceresine in 1998.
Basis of Presentation
The unaudited financial statements for the three months ended
October 31, 1997 and 1996 have been prepared on the same basis as
the Company's audited financial statements for the year ended
July 31, 1997 and reflect all adjustments (consisting only of
normal recurring accruals) which are, in the opinion of
management, necessary for the fair presentation of the results of
the interim periods presented. Results for the interim periods
are not necessarily indicative of the results for the entire
year.
For more complete financial information, these financial
statements should be read in conjunction with the audited
financial statements and the related notes thereto for the year
ended July 31, 1997 included in the Company's Annual Report on
Form 10-K.
The Company has experienced significant quarterly fluctuations in
operating results and increases in expenses and losses since
inception and it expects these fluctuations, expenses and losses
will continue.
Inventory
Inventory is stated at the lower of cost (first-in, first-out
method) or market and is comprised of raw materials of $10,326
and finished goods of $74,910.
Revenue Recognition
Revenues from product sales of Ethamolin and whole vials of
Glofil and Inulin are recognized upon shipment. Revenues from
Glofil unit sales are recognized upon receipt by the Company of
monthly sales reports from its third-party distributor. The
Company is not obligated to accept returns of products sold that
have reached their expiration date.
Net Loss Per Share
Net loss per share is computed using the weighted average number
of common shares outstanding during the periods.
Reclassifications
Certain previously reported amounts have been reclassified to
conform with the 1997 presentation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and disclosures made in the
accompanying notes to the financial statements. Actual results
could differ from those estimates.
2. Subsequent Events
On November 3, 1997, the Company's Redeemable Class B Warrants
trading on the Nasdaq National Market System under the symbol
"CYPRZ" expired. Prior to expiration, 856,026 of them were
exercised into the same number of shares of the Company's Common
Stock at an exercise price of $5.50 each and the Company raised
$4.7 million in new capital.
On November 25, 1997, the Company acquired a license to the New
Drug Application and a 510(k) application for Sildimac and
Medimac, two burn and wound care products, and two U.S. patents
on a proprietary drug delivery technology known as "DIMAC" for
future royalties and other considerations from Enquay, Inc. In
addition, the Company purchased various items of equipment
necessary to manufacture products using the DIMAC controlled
release technology. The purchase price for the equipment is
payable in installments with the post-closing installments
evidenced by a promissory note, whose principal and interest is
secured by a security interest. The Company expects to launch one
or both of Sildimac and Medimac in 1998.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties, including statements regarding
the period of time during which the Company's existing capital
resources and income from various sources will be adequate to
satisfy its capital requirements. The Company's actual results
could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include but are not
limited to, those discussed in this section, as well as in the
sections entitled "Business", "Licenses", "Manufacturing", "Sales
and Marketing", "Competition", "Government Regulation", "Patents
and Proprietary Rights" of the Company's Annual Report (Form 10-
K) for the fiscal year ended July 31, 1997 and those discussed in
the S-3 Registration Statement File No. 333-25661 filed with U.S.
Securities and Exchange Commission, as well as those discussed in
any documents incorporated by reference herein or therein..
The Company was founded in 1990, commenced its research and
development activities in 1991, completed an initial public
offering (the "IPO") in November 1992, commenced clinical trials
in December 1994, acquired two FDA-cleared products, Glofil and
Inulin in August 1995, and acquired a third FDA-cleared product,
Ethamolin, in November 1996. The Company has sustained an
accumulated deficit of $18,549,264 from inception through October
31, 1997. As the Company will not have significant positive net
operating cash flow for the next few years and the Company's
research and development, clinical testing and regulatory, sales
and marketing and general and administrative expenses during
these years will be substantial and increasing, the Company
expects to incur increasing losses for the foreseeable future.
Results of Operations
During the fiscal quarter ended October 31, 1997, the Company
sustained a loss of $1,392,329 (or $.10 per share) compared to a
loss of $1,608,999 (or $.14 per share) for the prior-year
quarter. Because of the introduction of Ethamolin to the
Company's product portfolio, sales, gross profit and gross profit
margin for the current quarter were $771,417, $603,473 and 78.2%,
respectively, a 110.1%, 130.3% and 9.7% increase over the
$367,131, $262,009 and 71.3% reported, respectively, in the prior-
year quarter. Sales and marketing expense increased by 120% to
$356,696 in the current quarter from $162,456 in the prior-year
quarter due to increased payroll and commission expense related
to additional sales and marketing personnel, their travel and
related expense and increased promotional expense.
General and administrative expense increased by 12.9% to $701,740
in the current quarter from $621,510 in the prior-year quarter
with decreases in investment banking fees and deferred
compensation amortization being offset by increases in investor
relations expense, securities fees and legal fees.
Clinical testing and regulatory expense increased by 34.7% to
$456,902 in the current quarter from $339,135 in the prior-year
quarter, principally as a result of increased site costs and use
of data input and management, statistical and other consultants
to accelerate, finish and report on the Company's various Phase
II clinical trials.
Depreciation and amortization expense increased by 59.9% to
$300,431 from $187,887 in the prior-year quarter as a result of
the expense related to the amortization of the Ethamolin
purchased technology.
Net interest and other income for the current quarter decreased
by 17.5% to $234,592 in the current quarter from $284,496 in the
prior-year quarter, as rental revenue from the sublease of the
Company's former executive offices was offset by lower interest
income from the Company's investment portfolio and increased
interest expense from the accrual of the interest on the
$1,200,000 promissory note issued to Schwarz Pharma as part of
the Ethamolin acquisition (the "Schwarz Note").
Amortization of discount and costs on mandatorily convertible
notes (the "Notes") decreased 72.5% to $186,689 in the current
quarter from $676,515 in the prior-year quarter principally as a
result of the fact that the amortization charges on the Notes
were allocated over the lock-up periods for the Noteholders which
began on the date of closing of the transactions in April and
July 1996 and ended on the first possible conversion dates which
ranged from January 1997 to July 1997. Thus, all of the
amortization charges were taken by fiscal year end 1997, and the
current quarter's amortization is completely financing costs.
The financing costs of the Notes are amortized as Notes are
converted in proportion to the percentage of outstanding Notes
converted but no less than on a straight-line basis over the
three-year maturity of the Notes. At the end of the current
quarter only $72,438 of these costs remained to be amortized.
During the quarter, $2,913,061 in principal amount of the Notes
was exercised into 870,716 shares of Common Stock and $1,114,400
in principal amount remained.
Liquidity and Capital Resources
The Company has principally funded its activities to date
through its initial public offering ("IPO") in November 1992,
which raised $5,951,000, subsequent exercises of its Redeemable
Class A Warrants in 1994 and early 1995, which raised
$10,497,000, exercises by the underwriter of the IPO of its unit
purchase options (and the Redeemable Class A Warrants within such
options), which raised $1,681,000, three private placements of
mandatorily convertible notes during April and July 1996, which
raised net proceeds of $7,458,000, and a private placement of
Common Stock to the President and Fellows of Harvard College and
another institutional investor during March 1997, which raised
net proceeds of $4,715,000.
At October 31, 1997, the Company had cash, cash equivalents and
short-term investments of $12,462,818 compared to $14,567,271 at
July 31, 1997. At October 31, 1997, working capital was
$12,253,202 compared to $13,052,547 at July 31, 1997. The
decline in both balance sheet items was principally due to the
payment of the Schwarz Note during the current quarter.
The Company expects that its cash needs will increase
significantly in future periods due to expansion of research and
development programs, increased clinical testing activity, growth
of administrative, clinical and laboratory staff and expansion
of facilities to accommodate increased numbers of employees. The
Company's management believes that the Company's working capital
will be sufficient to fund the operations of the Company for more
than two years dependent, in part, on the timing of the
commencement of each phase of the clinical trials on CPC-111 and
Ceresine and the funding priorities that it gives its various
research programs, the results of clinical tests and research
programs; competing technological and market developments; the
time and costs involved in obtaining regulatory approvals and in
obtaining, maintaining and enforcing patents; the cost of product
acquisitions and their resulting cash flows and other factors.
The Company is funding a significant portion of its operating
expenses through cash flow from product sales, but expects to
seek additional funds through exercises of its currently
outstanding options, public or private equity financings,
collaborations or from other sources. There can be no assurance
that additional funds can be obtained on desirable terms or at
all. The Company may seek to raise additional capital whenever
conditions in the financial markets are favorable, even if the
Company does not have an immediate need for additional cash at
that time.
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Part II.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits.
The following exhibit is required to be filed by Item
601 of Regulation S-K.
Exhibit
Number Description
10.1 Employment Agreement dated
December 6, 1997 between the Registrant and Zofia E.
Dziewanowska, M.D., Ph.D.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Carlsbad, County of San
Diego, State of California, on the 12th day of December, 1997.
CYPROS PHARMACEUTICAL CORPORATION
By /s/ Paul J. Marangos
- ---------------------------
Paul J. Marangos
Chairman of the Board,
President and Chief Executive Officer
/s/ David W. Nassif
- ---------------------------
David W. Nassif
Senior Vice President, Chief Financial Officer
and Secretary
(Principal Financial and Accounting Officer)
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Exhibit Index
Exhibit Number Description Page
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10.1 Employment Agreement dated December 6, 13
1997 between the Registrant and Zofia E.
Dziewanowska,M.D., Ph.D.
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Exhitit 10.1
EMPLOYMENT AGREEMENT
between
CYPROS PHARMACEUTICAL CORPORATION,
a California Corporation
and
Zofia Dziewanowska, M.D., Ph.D.
December 6, 1997
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TABLE OF CONTENTS
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1. Employment............................................. 3
2. Loyal and Conscientious Performance: Noncompetion..... 4
3. Term of Employment..................................... 4
4. Compensation of Executive.............................. 4
5. Termination............................................ 5
6. Death or Disability During Term of Employment.......... 6
7. Confidential Information: Executive's Duties Upon
Termination............................................ 7
8. Assignment and Binding Effect.......................... 9
9. Notices................................................ 9
10. Choice of Law.......................................... 10
11. Intergration........................................... 10
12. Amendment.............................................. 10
13. Waiver................................................. 10
14. Severability........................................... 11
15. Interpretation; Construction........................... 11
16. Representations and Warranties......................... 11
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into effective as of December 6, 1997 by and between Cypros
Pharmaceutical Corporation, a California corporation (the
"Company"), and Zofia Dziewanowska, M.D., Ph.D., ("Executive").
The Company and Executive are hereinafter collectively referred
to as the "Parties", and individually referred to as "Party".
RECITALS:
A. The Company desires to hire Executive as an executive with
the Company.
B. The Executive desires to be employed by the Company pursuant
to an employment agreement with the Company and the Compensation
Committee of the Board of Directors of the Company has determined
that it is in the best interests of the Company to award such an
agreement to Executive.
AGREEMENT:
In consideration of the foregoing premises and the mutual
covenants herein contained, and for other good and valuable
consideration, the Parties, intending to be legally bound, agree
as follows:
1. Employment.
1. 1. The Company hereby employs Executive, and Executive hereby
accepts employment by the Company, upon the terms and conditions
set forth in this Agreement.
1.2. Executive shall be the Senior Vice President, Drug
Development and Regulatory Affairs of the Company and shall serve
in such other capacity or capacities as the President and/or the
Board of Directors of the Company may from time to time
prescribe.
1.3. Executive shall do and perform all services, acts or things
necessary or advisable to manage and conduct the business of the
Company, provided, however, that at all times during his
employment Executive shall be subject to the direction and
policies from time to time established by the Board of Directors
of the Company.
1.4. Unless the Parties otherwise agree in writing, during the
term of this Agreement, Executive shall perform the services she
is required to perform pursuant to this Agreement at the
Company's offices, located at 2714 Loker Avenue West, Carlsbad,
Califomia, 92008, or at any other place at which the Company
maintains an office; provided, however, that the Company may from
time to time require Executive to travel temporarily to other
locations in connection with the Company's business.
2. Loyal and Conscientious Performance: Noncompetition.
2.1. During her employment by the Company, Executive shall
devote her full energies, interest, abilities and productive time
to the proper and efficient performance of his duties under this
Agreement.
2.2. During the term of this Agreement, Executive shall not
engage in competition with the Company, either directly or
indirectly, in any manner or capacity, as adviser, principal,
agent, partner, officer, director, employee, member of any
association or otherwise, in any phase of the business of
developing, manufacturing and marketing medical products which
are in the same field of use or which otherwise compete with the
products or proposed products of the Company. Ownership by
Executive, as a passive investment, of less than one percent (1%)
of the outstanding shares of capital stock of any corporation
with one or more classes of its capital stock listed on a
national securities exchange or publicly traded in the over-the-
counter market shall not constitute a breach of this paragraph.
3. Term of Employment.
3.1. Subject to earlier termination as provided in this
Agreement, Executive shall be employed pursuant to the terms of
this Agreement for a term beginning December 6, 1997 and expiring
at midnight on December 5, 2000. After the expiration of such
term, this Agreement shall continue from month to month in the
absence of written notice to the contrary from either Party to
the other.
4. Compensation of Executive
4.1. During the term of this Agreement, the Company shall pay
Executive a salary (the "Base Salary") of One Hundred Eighty-Five
Thousand Dollars ($185,000) per year, payable in regular periodic
payments in accordance with Company policy. Such salary shall be
prorated for any partial year of employment on the basis of a 365-
day fiscal year.
4.2. Executive's compensation may be changed from time to time
by mutual agreement of Executive and the Board of Directors of
the Company.
4.3. Executive's performance shall be reviewed by the Board of
Directors of the Company on a periodic basis (but not less than
once in each fiscal year during the term of this Agreement) and
the Board may in its sole discretion, award such bonuses to
Executive as shall be appropriate or desirable based on
Executive's performance.
4.4. All of Executive's compensation shall be subject to
customary withholding taxes and any other employment taxes as are
commonly required to be collected or withheld by the Company.
4.5. The Company will also convert the stock option previously
granted to Executive during her status as a consultant to the
Company into an incentive stock option. Such option shall be
subject to a stock option agreement in the form approved by the
Board of Directors. Any such option shall be subject to a
vesting schedule as described in the employee stock option
agreement. Further, if Executive leaves the employment of the
Company for any reason within one year of the date of the
commencement of her employment, then she will lose the vesting of
any stock options vested to the date of termination. If
Executive leaves thereafter, she will have 90 days to exercise
those options which have vested.
In addition, upon the enrollment of the first patient in a Phase
III trial of either CPC-111 or Ceresine, the Company will award
Executive a bonus equal to 26,250 options (with the same terms as
above except for the exercise price, which will be equal to 100%
of the bid on the date of such enrollment).
4.6. Executive shall be eligible to participate in and be
covered by any vacation, pension and profit sharing, life
insurance, accident insurance, health insurance, hospitalization,
disability, medical reimbursement or other plan(s) maintained
from time to time by the Company
for its employees.
5. Termination.
5.1. The Company may terminate Executive's employment under this
Agreement "for cause" by delivery of written notice to Executive
specifying the cause or causes relied upon for such termination.
Grounds for the Company to terminate this Agreement "for cause"
shall be limited to the occurrence of any of the following
events:
5.1.1. Executive's engaging or in any manner participating in any
activity which is competitive with or intentionally injurious to
the Company or which violates any provision of Section 7 of this
Agreement;
5.1.2. Executive's commission of any fraud against the Company or
use or appropriation for her personal use or benefit of any funds
or properties of the Company not authorized by the Board of
Directors to be so used or appropriated;
5.1.3. Executive's conviction of any crime involving moral
turpitude; or
5.1.4. Executive willfully breaches or habitually neglects duties
she is required to perform after written demand for the
performance of such duties is made by the Chief Executive Officer
of the Company, provided that Executive shall be given a thirty
(30) day opportunity to cure any such claim hereunder pursuant to
a written notice by the Chief Executive Officer. In the case of
any termination under this paragraph, the Company will have no
liability or responsibility to Executive for salary, bonus or any
other employee benefits.
The Company may also terminate Executive's employment without
cause upon delivery of written notice. In such case, Executive
shall be entitled to receive Base Salary and other accrued
benefits including continued vesting of Executive's stock for a
period of six (6) months from the date of termination specified
in the written notice.
Any notice of termination given pursuant to this Section 5.1
shall effect termination as of the date specified in such notice
or, in the event no such date is specified, on the last day of
the month in which such notice is delivered or deemed delivered
as provided in Section 9 below.
5.2. The parties may mutually agree at any time to terminate
this Agreement upon such terms and conditions as may be agreed
upon in writing.
5.3. This Agreement shall terminate without notice upon the date
of Executive's death or the date when Executive becomes
"completely disabled" as that term is defined in Section 6.2.
6. Death or Disability During Term of Employment.
6.1. Upon termination of Executive's employment pursuant to
Section 5.3, Executive or her estate or personal representative,
as the case may be, shall be entitled to receive Executive's Base
Salary for a period of three (3) months following the date of
death or the date when Executive becomes completely disabled,
unless the Company has equivalent life insurance or disability
insurance in place.
6.2. The term "completely disabled" as used in this Agreement
shall mean the inability of Executive to perform her duties under
this Agreement because she has become permanently disabled within
the meaning of any policy of disability income insurance covering
employees of the Company then in force. In the event the Company
has no policy of disability income insurance covering employees
of the Company in force when Executive becomes disabled, the term
"completely disabled" shall mean the inability of Executive to
perform her duties under this Agreement by reason of any
incapacity, physical or mental, which the Board of Directors of
the Company, based upon medical advice or an opinion provided by
a licensed physician acceptable to the Board of Directors of the
Company, determines to have incapacitated Executive from
satisfactorily performing all of her usual services for the
Company during the foreseeable future. Based upon such medical
advice or opinion, the action of the Board of Directors of the
Company shall be, final and binding and the date such action is
taken shall be the date of such complete disability for purposes
of this Agreement.
7. Confidential Information: Executive's Duties Upon
Termination.
7.1. Executive recognizes that her employment with the Company
will involve contact with information of substantial value to the
Company, which is not old and generally known in the trade, and
which gives the Company an advantage over its competitors who do
not know or use it, including but not limited to, techniques,
designs, drawings, processes, inventions, developments,
equipment, prototypes, sales and customer information, and
business and financial information relating to the business,
products, practices and techniques of the Company, (hereinafter
referred to as "Confidential Information"). Executive will at
all times regard and preserve as confidential such Confidential
Information obtained by Executive from whatever source and will
not, either during her employment with the Company or thereafter,
publish or disclose any part of such Confidential Information in
any manner at any time, or use the same except on behalf of the
Company, without the prior written consent of the Company.
Further, both during Executive's employment and thereafter,
Executive will refrain from any acts or omissions that would
reduce the value of such Confidential Information to the Company.
7.2. Executive will promptly disclose in writing to the official
designated by the Company to receive such disclosures, complete
information concerning each and every invention, discovery,
improvement, device, design, apparatus, practice, process, method
or product (hereinafter referred to as "Inventions"), whether
Executive considers them patentable or not, made, developed,
perfected, devised, conceived or first reduced to practice by
Executive, either solely or in collaboration with others, during
the period of Executive's employment by the Company and up to and
including a period of twelve (12) months after termination of
Executive's employment with the Company, whether or not during
regular working hours, relating either directly or indirectly to
the business, products, practices or techniques of the Company,
or to the Company's actual or demonstrably anticipated research
or development, or resulting from any work performed by Executive
for the Company.
7.3. Executive hereby agrees that any and all of said Inventions
made, developed, perfected, devised, conceived or reduced to
practice by Executive during the period of Executive's employment
by the Company, and any other Inventions made, developed,
perfected, devised, conceived or reduced to practice by Executive
during said period of twelve (12) months after termination of
Executives employment with the Company, if based upon the
Confidential Information of the Company, relating either directly
or indirectly to the business, products, practices or techniques
of the Company or the Company's actual or demonstrably
anticipated research or development, or resulting from any work
performed by Executive for the Company, are the sole property of
the Company, and Executive hereby assigns and agrees to assign to
the Company, its successors and assigns, any and all of
Executive's right, title and interest in and to any and all of
said Inventions, and any patent applications or Letters Patent
thereon.
This Agreement shall not apply to any Inventions which qualify
fully under the provisions of Section 2870 of the California
Labor Code, as amended from time to time. Executive understands
that Section 2870 provides that no assignment is required of any
Invention for which no equipment, supplies, facilities, or trade
secret information of the Company was used and which was
developed entirely on Executive's own time without using any of
the Company's equipment, supplies, facilities, or trade secret
information, except for those Inventions that either:
(i) relate at the time of conception or reduction to practice of
the invention to the Company's business, or actual or
demonstrably anticipated research or development of the Company;
or
(ii) result from any work performed by Executive for the
Company.
7.4. Nothing in this Agreement shal1 limit or be construed to
limit Executive's right to use or publish information which (a)
was in the public domain before Executive's employment commenced,
(b) was known to Executive free from any claim of other third
parties before Executive's employment, (c) was developed or
acquired independently by the Executive, or (d) becomes public
knowledge without breach by Executive of any obligations of
confidence to the Company.
7.5. Executive will, at any time during her employment or
thereafter, upon request and without further compensation
therefor, but at no expense to Executive, do all lawful acts
including the execution of papers and oaths and the giving of
testimony, that in the opinion of the Company, its successors and
assigns, may be necessary or desirable for obtaining, sustaining,
reissuing, or enforcing Letters Patent in the United States and
throughout the world for any and all of said Inventions, and for
perfecting, recording, and maintaining the title of the Company,
its successors and assigns, to the Inventions, and to any patent
applications made and any Letters Patent granted for the
Inventions in the United States and throughout the world.
7.6. Executive will keep complete, accurate and authentic
accounts, notes, data, and records of any and all of the
Inventions in the manner and form requested by the Company. Such
accounts, notes, data and records, including all copies thereof,
shall be the property of the Company, and, upon its request,
Executive will promptly surrender the same to it, or if not
previously surrendered, Executive will promptly surrender the
same to the Company at the conclusion of his employment.
7.7. Executive agrees that she will also surrender to the
Company, at its request, or at the conclusion of her employment,
all accounts, notes, data, sketches, drawings and other documents
and records, and all material and physical items of any kind,
including all reproductions and copies thereof, that relate in
any way to the business, products, practices or techniques of the
Company or contain Confidential Information, whether created by
Executive, or which come into Executive's possession by reason of
Executive's employment with the Company, and Executive agrees
further that all. of the foregoing are the property of the
Company.
7.8. Executive agrees that she will not disclose to the Company
or induce the Company to use any invention or confidential
information belonging to any third party.
7.9. Executive understands that the Company may enter into
agreements or arrangements that may be subject to laws and
regulations which impose obligations, restrictions and
limitations on it with respect to Inventions and patents which
may be acquired by it or which may be conceived or developed by
employees, consultants or other agents rendering services to it.
Executive agrees that she shall be bound by all such obligations,
restrictions and limitations applicable to any said invention
conceived or developed by Executive during the period of her
employment with the Company and shall take any and all further
action which may be required to discharge such obligations and to
comply with such restrictions and limitations.
7.10. Executive will exercise reasonable care, consistent with
good business judgment, to preserve in good working order subject
to reasonable wear and tear from authorized usage, and to prevent
loss of any equipment, instruments or accessories of the Company
in Executive's custody for the purpose of making demonstrations,
implementing trials, carrying out development work, or otherwise
conducting the business of the Company. Upon request, Executive
will promptly surrender the same to the Company at the conclusion
of Executive's employment with the Company, or if not
surrendered, Executive will account to the Company to its
reasonable satisfaction as to the present location of all such
instruments or accessories giving the business purpose of their
placement at such location. At the conclusion of Executive's
employment with the Company, Executive agrees to return such
instruments or accessories to the Company or to account for the
same to the Company's reasonable satisfaction.
7.11. Executive affirms that she has no agreement with any other
party that would preclude her compliance with her obligations
under this Agreement as set forth above.
7.12. At the conclusion of her employment with the Company,
Executive agrees to give a written statement to the company
certifying that she has complied with her obligations under this
Section 7 as set forth above and acknowledging her continuing
obligations to disclose Inventions, to do certain lawful acts
relating to United States and foreign Letters Patent on the
Inventions, and to preserve as confidential and refrain from
using the Company's Confidential Information.
8. Assignment and Binding Effect.
8.1. This Agreement shall be binding upon and inure to the
benefit of Executive and Executive's heirs, executors,
administrators and legal representatives. Neither this Agreement
nor any rights or obligations under this Agreement shall be
assignable by Executive. This Agreement shall be binding upon
and inure to the benefit of the Company and its successors,
assigns and legal representatives.
9. Notices.
9.1. All notices or demands of any kind required or permitted to
be given by the Company or Executive under this Agreement shall
be given in writing and shall be personally delivered (and
receipted for) or mailed by certified mail, return receipt
requested, postage prepaid, addressed as follows:
(i) If to the Company:
Chief Executive Officer
Cypros Pharmaceutical Corporation
2714 Loker Avenue West
Carlsbad, CA 92008
(ii) If to Executive:
Zofia Dziewanowska, M.D., Ph.D.
765 Bonair Place
La Jolla, CA 92037
Any such written notice shall be deemed received when personally
delivered or three (3) days after its deposit in the United
States mail as specified above. Either Party may change its
address for notices by giving notice to the other Party in the
manner specified in this section.
10. Choice of Law.
10.1. This Agreement is made in San Diego, California. This
Agreement shall be
construed and interpreted in accordance with the laws of the
State of California.
11. Integration.
11.1. This Agreement contains the entire agreement of the
parties relating to the subject matter of this Agreement, and
supersedes all prior oral and written employment agreements or
arrangements between the Parties.
12. Amendment.
12.1. This Agreement cannot be amended or modified except by a
written agreement signed by Executive and the Company.
13. Waiver.
13.1. No term, covenant or condition of this Agreement or any
breach thereof shall be deemed waived, except with the written
consent of the Party against whom the waiver is claimed, and any
waiver of any such term, covenant, condition or breach shall not
be deemed to be a waiver of any preceding or succeeding breach of
the same or any other term, covenant, condition or breach.
14. Severability.
14. 1. The unenforceability, invalidity or illegality of any
provision of this Agreement shall not render any other provision
of this Agreement unenforceable, invalid or illegal.
15. Interpretation: Construction.
15.1. The headings set forth in this Agreement are for
convenience of reference only and shall not be used in
interpreting this Agreement. This Agreement has been drafted by
legal counsel representing the Company, but Executive has been
encouraged, and has had the opportunity to consult with, her own
independent counsel and tax advisors with respect to the terms of
this Agreement. The Parties acknowledge that each Party and its
counsel has reviewed and revised, or had an opportunity to review
and revise, this Agreement, and the normal rule of construction
to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of
this Agreement.
16. Representations and Warranties
16.1. Executive represents and, warrants that she is not
restricted or prohibited, contractually or otherwise, from
entering into and performing each of the terms and covenants
contained in this Agreement, and that his execution and
performance of this Agreement will not violate or breach any
other agreement between Executive and any other person or entity.
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the date first above written.
The Company:
Cypros Pharmaceutical Corporation,
a California corporation
By: /s/ Paul J. Marangos
- ---------------------------
Paul J. Marangos
President and Chief Executive Officer
Executive:
/s/ Zofia Dziewanowska
- ---------------------------
Zofia Dziewanowska, M.D., Ph.D.
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