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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter Ended June 30, 1996
Commission File Number 1-12584
----------------------------------
SHEFFIELD MEDICAL TECHNOLOGIES INC.
DELAWARE 13-3808303
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
30 Rockefeller Plaza, Suite 4515 10112
New York, New York (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (212) 957-6600
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
Yes /X/ No / /
The number of shares outstanding of the Issuer's Common Stock is
11,175,397 shares of Common Stock as of June 30, 1996.
Transitional Small Business Disclosure Format:
Yes / / No /X/
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
PART I. Financial Information Page
ITEM 1. Financial Statements
Consolidated Balance Sheet - June 30, 1996 1
Consolidated Statements of Operations For the 2
three and six months ended June 30, 1996 and
1995 and for the period from October 17, 1986
(inception) to June 30, 1996
Consolidated Statements of Cash Flows For the 3
three and six months ended June 30, 1996 and
1995 and for the period from October 17, 1986
(inception) to June 30, 1996
Notes to Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis or Plan of 13
Operation
PART II. Other Information 16
SIGNATURES 18
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
Current Assets:
<S> <C>
Cash and cash equivalents $ 5,158,751
Prepaid expenses and other current assets 84,367
------------
Total current assets 5,243,118
------------
Property and Equipment:
Laboratory equipment 185,852
Office equipment 85,700
Leasehold improvements 61,390
------------
332,942
Less accumulated depreciation 126,727
------------
Net property and equipment 206,215
------------
Other Assets 234,786
------------
============
Total assets $ 5,684,119
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 247,669
Sponsored research payable 415,000
Deferred license fee 100,000
Capital lease obligation-current portion 24,422
------------
Total current liabilities 787,091
------------
Capital lease obligation - non-current portion 34,991
Stockholders' equity
Preferred stock, $.01 par value. Authorized, 3,000,000 shares; none issued --
Common stock, $.01 par value. Authorized, 30,000,000 shares; issued and
outstanding, 11,175,397 shares 111,754
Additional paid-in capital 27,643,656
Deficit accumulated during development stage (22,893,373)
------------
4,862,037
------------
Total liabilities and stockholders' equity $ 5,684,119
============
</TABLE>
1
See accompanying notes to unaudited consolidated financial statements
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 AND FOR THE PERIOD
FROM OCTOBER 17, 1986 (INCEPTION) TO JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
October 17, 1986
Three months ended Six months ended inception) to
June 30, June 30, June 30,
-------------------------------------------------------- --------------
1996 1995 1996 1995 1996
------------ -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 52,724 $ 12,702 $ 69,239 $ 13,301 $ 302,488
Expenses:
Research and development 924,439 1,045,469 2,164,230 1,926,968 13,845,609
General and administrative 783,675 789,239 1,214,223 1,335,493 9,277,711
Interest 2,567 60,057 4,396 62,871 115,328
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item 1,657,957 1,882,063 3,313,610 3,312,031 22,936,160
Extraordinary item -- -- -- -- 42,787
=========== =========== =========== =========== ===========
Net Loss $ 1,657,957 $ 1,882,063 $ 3,313,610 $ 3,312,031 $22,893,373
=========== =========== =========== =========== ===========
Loss per share of common stock:
Loss before extraordinary item $ 0.15 $ 0.25 $ 0.32 $ 0.46 $ 5.90
Extraordinary item -- -- -- -- 0.01
=========== =========== =========== =========== ===========
Net Loss $ 0.15 $ 0.25 $ 0.32 $ 0.46 $ 5.89
=========== =========== =========== =========== ===========
Weighted average common shares outstanding 10,873,102 7,646,747 10,264,818 7,223,721 3,890,116
=========== =========== =========== =========== ===========
</TABLE>
-2-
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 AND FOR THE PERIOD
FROM OCTOBER 17, 1986 (INCEPTION) TO JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
October 17, 1986
Three months ended Six months ended (inception) to
June 30 June 30 June 30
----------------------------- --------------------------- --------------
1996 1995 1996 1995 1996
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Cash outflows from development stage activities
and extraordinary gain:
Loss before extraordinary item $ (1,657,957) $ (1,882,063) $ (3,313,610) $ (3,312,031) $(22,936,160)
Extraordinary gain on extinguishment of debt -- -- -- -- 42,787
------------ ------------ ------------ ------------ ------------
Net loss (1,657,957) (1,882,063) (3,313,610) (3,312,031) (22,893,373)
Adjustments to reconcile net loss to net cash used by
development stage activities:
Issuance of common stock, stock options/warrants
for services -- 266,407 -- 266,407 900,241
Non-cash interest expense -- 50,000 -- 50,000 50,000
Issuance of common stock for license -- -- -- -- 5,216
Issuance of common stock for intellectual
property rights -- -- -- -- 866,250
Amortization of organizational and debt
issuance costs -- -- -- -- 77,834
Depreciation 17,835 12,023 36,372 24,045 126,727
Increase in debt issuance and organizational
costs -- -- -- -- (77,834)
Decr.(incr.) in prepaid expenses and other
current assets (22,266) (36,958) 69,418 (71,125) (143,408)
(Incr.) decr. in other assets (33,696) -- (150,416) 49,941 (175,745)
(Incr.) decr. in accounts payable and accrued
liabilities 72,960 -- 46,384 -- (329,401)
Incr. (decr.) in sponsored research payable 170,061 (542,368) 187,598 (367,111) 992,070
Increase in deferred license fee 100,000 -- 100,000 -- 100,000
------------ ------------ ------------ ------------ ------------
Net cash used by development stage activities (1,353,063) (2,132,959) (3,024,254) (3,359,874) (20,501,423)
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Acquisition of laboratory and office equipment (3,502) -- (47,816) (8,543) (260,489)
------------ ------------ ------------ ------------ ------------
Net cash used by investing activities (3,502) -- (47,816) (8,543) (260,489)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Principal payments under capital lease (7,549) -- (13,040) -- (13,040)
Conversion of convertible, subordinated notes -- -- -- -- 749,976
Proceeds from issuance of debt -- -- -- 550,000 550,000
Proceeds from issuance of common stock -- (377,284) -- 2,915,395 13,268,035
Proceeds from exercise of stock options -- -- 137,175 -- 1,003,302
Proceeds from exercise of warrants 4,480,106 -- 6,246,109 -- 10,361,306
------------ ------------ ------------ ------------ ------------
Net cash provided (used) by financing
activities 4,472,557 (377,284) 6,370,244 3,465,395 25,919,579
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 3,115,992 (2,510,243) 3,298,174 96,978 5,157,667
Cash and cash equivalents at beginning of period 2,042,759 2,687,351 1,860,577 80,130 1,084
============ ============ ============ ============ ============
Cash and cash equivalents at end of period $ 5,158,751 $ 177,108 $ 5,158,751 $ 177,108 $ 5,158,751
============ ============ ============ ============ ============
Noncash investing and financing activities:
Common stock, stock options and warrants issued
for services $ -- $ 266,407 $ -- $ 266,407 $ 900,241
Common stock issued for license -- -- -- -- 5,216
Common stock issued for intellectual property rights -- -- -- -- 866,250
Common stock issued to retire debt -- 600,000 -- 600,000 600,000
Equipment acquired under capital lease -- -- 72,453 -- 72,453
Notes payable converted to common stock -- -- -- -- 749,976
============ ============ ============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 2,567 $ 60,057 $ 4,396 $ 62,871 $ 115,328
============ ============ ============ ============ ============
</TABLE>
-3-
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of June 30, 1996 and
the accompanying consolidated statements of operations and cash
flows for the three and six months ended June 30, 1996 and 1995 and
for the period from October 17, 1986 (inception) to June 30, 1996
have been prepared by Sheffield Medical Technologies Inc. (the
"Company"), without audit. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary
to present fairly the financial position, results of operations, and
changes in cash flows at June 30, 1996, and for all periods
presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is
suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included
in the Company's annual report on Form 10-KSB for the year ended
December 31, 1995. The results of operations for the three and six
months ended June 30, 1996 and 1995 are not necessarily indicative
of the operating results for the full years.
Sheffield Medical Technologies Inc. ("Sheffield") was incorporated
on October 17, 1986, under the Canada Business Corporations Act. The
Company's wholly-owned subsidiary, U-Tech Medical Corporation
("U-Tech") was incorporated in the state of Texas on January 13,
1992. The Company commenced its biotechnology operations in the
United States in January 1992 under new management and Sheffield
became domesticated as a Wyoming corporation in May 1992. At the
Annual Meeting of shareholders of the Company held on January 26,
1995, the Company's shareholders approved the proposal to
reincorporate the Company in Delaware, which was effected on June
13, 1995. On January 10, 1996, Ion Pharmaceuticals, Inc., a Delaware
corporation ("Ion"), was formed as a wholly-owned subsidiary of the
Company. At that time, Ion acquired the Company's rights with
respect to the anti-proliferative technology. Unless the context
requires otherwise, Sheffield, U-Tech and Ion are referred to
collectively as "the Company". All significant intercompany
transactions are eliminated in consolidation.
The Company is in the development stage and as such has been
principally engaged in licensing and research efforts. The Company
has not generated any operating revenue and requires additional
capital, which it intends to obtain through equity and debt
offerings to continue to operate its business. The likelihood of the
success of the Company must be considered in light of the expenses,
difficulties and delays frequently encountered in emerging
technology-related businesses, particularly since the Company will
focus on research, development and unproven technologies which may
require a lengthy period of time and substantial expenditures to
complete. Even if the Company is able to successfully develop new
products or technologies, there can be no assurance that the Company
will generate sufficient revenues from the sale or licensing of such
products and technologies to be profitable.
4
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
2. CAPITAL STOCK TRANSACTIONS
The following table represents the issuance of common stock since the
Company's incorporation:
Number of common
shares issued
----------------
Date of incorporation 900,000
Issued during year ended December 31, 1986 990,000
Issued during year ended December 31, 1991 412,500
Issued during year ended December 31, 1992 850,000
Issued during year ended December 31, 1993 2,509,171
Issued during year ended December 31, 1994 1,134,324
Issued during year ended December 31, 1995 2,765,651
Issued during six months ended June 30, 1996 1,613,751
------------
Balance outstanding at June 30, 1996 11,175,397
============
On March 15, 1996, the Company offered holders of warrants issued in private
placements completed in 1995 the opportunity to exercise such warrants at up to
a 12 1/2 % discount from the actual exercise prices of such warrants. This
warrant discount offer expired on April 30, 1996. A total of $5,567,781 was
received from the exercise of 1,373,250 of the Company's stock purchase warrants
under the warrant discount program. In addition to proceeds received from the
warrant discount program, $755,428 was received from the exercise of 240,501 of
the Company's stock purchase warrants and options during the six months ended
June 30, 1996.
At the Annual Meeting of shareholders of the Company held on June 20, 1996, the
Company's shareholders approved the proposal to increase the number of
authorized shares of Common Stock from 20,000,000 shares to 30,000,000 shares.
3. STATUS OF RESEARCH AND DEVELOPMENT ACTIVITIES
RBC-CD4 ELECTROINSERTION TECHNOLOGY
BACKGROUND. The Company is the worldwide licensee of certain technology
(the "RBC-CD4 Electroinsertion Technology") relating to the
electroinsertion of full-length CD4 protein into the red blood cell
membrane ("RBC-CD4") for use as a potential therapeutic in the treatment
of human immunodeficiency virus ("HIV") that leads to Acquired Immune
Deficiency Syndrome ("AIDS"). The electroinsertion process inserts CD4,
the protein that serves as the binding site of the HIV virus, into a red
blood cell. This altered cell complex acts as a decoy and is designed to
cleanse the blood of infection by binding to and removing the HIV virus
from circulation before it can infect other cells in the human immune
system.
TECHNOLOGY. A number of AIDS research projects have studied CD4, which is
a glycoprotein found on the surface of T4 lymphocytes. T4 lymphocytes are
helper cells that mediate antigen presentation of the immune system. CD4
attaches to a glycoprotein on the surface of HIV known as gp120. HIV binds
the CD4 glycoprotein, which enables it to enter the T4 cells, where it can
replicate. By this process, HIV
5
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
attacks T4 cells and, as a result, debilitates the immune system by
rendering the immune system incapable of neutralizing HIV. Eventually, the
number of T4 cells decrease and the level of HIV in the blood increases.
This typically leads to the development of AIDS which is characterized by
the ultimate collapse of the immune system. Once the immune system is
destroyed, other germs and viruses that ordinarily would be successfully
neutralized by the immune system lead to opportunistic diseases. These
opportunistic diseases are ultimately the cause of death in AIDS patients.
A number of approaches have been used in the search for a treatment for
AIDS. Scientific efforts have focused principally on the use of compounds
or vaccines with the ability to stop the multiplication or replication of
HIV. The four principal compounds that have been approved by the FDA to
date are AZT, ddI, ddC and d4T.
The use of CD4 as a potential treatment for AIDS is not new. Previous
research by many others focused on the soluble form of CD4. This technique
has proved ineffective because: (i) the half-life of soluble CD4 or hybrid
molecules such as CD4-IgG is short in blood circulation; (ii) the binding
of soluble CD4 to HIV appears to tear some of the viral envelope
glycoprotein without reducing infectivity; and (iii) the amounts of
soluble CD4 needed to establish therapeutic concentrations are very large.
The Company's RBC-CD4 Electroinsertion Technology differs from the
traditional focus on compounds and vaccines that inhibit the replication
of HIV. RBC-CD4 Electroinsertion Technology has its basis in studies that
indicate that HIV will bind to red blood cells ("RBC") containing CD4 in
its membrane and that once so internalized into the RBC, may disintegrate.
In simplest terms, the technology focuses on incorporating the full-length
CD4 into the RBC membrane. The technology is intended to slow the spread
of HIV in the body of an infected patient and diminish or eliminate the
possibility of HIV infection being spread to others by contact with the
infected person, and to help eliminate cells that produce HIV from
circulation. Because the technology may slow or eliminate the advancement
of HIV infection to AIDS, it is a potential therapeutic, but may not be a
cure.
The Company's RBC-CD4 Electroinsertion Technology was originated in 1987
by Dr. Y. Claude Nicolau and other scientists then associated with The
Texas A&M University System ("TAMUS"). Dr. Nicolau is the principal
investigator for the RBC-CD4 Electroinsertion Technology research
sponsored by the Company. RBC-CD4 Electroinsertion Technology exposes RBC
to a pulsed electric field that allows the incorporation of certain
proteins into the cell membrane. Many types of proteins can be used as
therapeutics. Proteins which contain a sequence called a "hydrophobic
membrane spanning sequence" can be attached to RBC by the electroinsertion
technique. The hydrophobic membrane spanning sequence is a portion of the
protein that is not water soluble. This is critical in order for the
protein to immerse itself into the membrane during the electroinsertion
procedure. The electroinsertion process causes a temporary disordering of
the cell membrane lipid bilayer. When this disordering of the membrane
occurs in the presence of a protein with a hydrophobic sequence, the
hydrophobic portion of the protein immerses itself into the membrane at
the point of disordering, resulting in a cell with the protein inserted in
the membrane. One such protein that contains a hydrophobic sequence is
"full-length" CD4. Significantly, full-length CD4 consists of the
hydrophobic portion and a soluble extracellular domain and a cytoplasmic
domain. When the hydrophobic sequence is deleted, CD4 is secreted as a
soluble protein which, as described below, is the protein that has been
unsuccessful in research for the development of HIV/AIDS therapeutics. The
Company's licensed technology is for insertion of the potentially more
effective "full-length" CD4 into red blood cells for use as a therapeutic
for the treatment of HIV/AIDS. In the research funded by the Company, Dr.
Nicolau has successfully electroinserted full-length CD4 into rabbit,
mouse, pig and human red blood cell membranes to determine the affinity
and binding strength of the RBC-CD4 with the HIV virus. These tests have
shown that RBC-CD4 may overcome the problems associated with
6
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
soluble CD4, including: (i) RBC-CD4 has shown no immune response in
animals or humans; (ii) RBC-CD4 remains in the body for almost the normal
half life span of a RBC, which is 60 days; and (iii) RBC-CD4 has shown a
significantly improved binding affinity and indicates the capacity to
inhibit HIV infection of susceptible cells.
Because infection also occurs in the lymph nodes, the Company is
developing a companion technology, Liposome-CD4, to address the
elimination of HIV in the lymphatic system. In addition, the Company is
developing an AIDS Vaccine for preventing HIV infection.
PROGRESS OF RESEARCH AND DEVELOPMENT. The IND and test protocols were
submitted in 1991 and were approved by the FDA in 1992. Phase I Clinical
Trials with HIV-infected patients began in February 1992 on four patients.
Researchers affiliated with TAMUS, the Center for Blood Research
Laboratories, Inc. ("CBRL"), a wholly owned subsidiary of The Center for
Blood Research, Inc. (an affiliate of Harvard Medical School), and Baylor
College of Medicine, in conjunction with the Veterans Affairs Medical
Center, completed these Phase I Clinical Trials in Houston, Texas, in
April 1992. The 60-day trial included meeting three criteria: (i) adequate
residence time in the blood stream by RBC-CD4 (the red blood cells into
which the CD4 protein has been inserted that act as the binding site for
HIV) to permit the HIV virus to bind with the cells and potentially be
eliminated from the circulation; (ii) no reduction in the normal
functioning of the red blood cell; and (iii) no adverse immune response or
toxicity.
The completion of Phase I Clinical Trials essentially confirmed that there
are no significant adverse human responses to the process at
sub-therapeutic doses. Results indicated that (i) the red blood cell's
normal functioning is not altered by the electroinsertion procedure; (ii)
the life span of the RBC-CD4 is equal to the life span of normal red blood
cells; (iii) the majority of the electroinserted CD4 remains on the red
blood cell surface for the entire life span and little shedding of CD4
occurs, if any; and (iv) no side effects or immune responses were
observed. The companion studies demonstrated that RBC-CD4 reproducibly
inhibits the transmission of primary "wild type" HIV strains cultured from
HIV-infected patients, or cell-to-cell transmission of the virus, up to
nearly 100 percent. IN VITRO studies also have shown that the RBC-CD4
loaded with HIV virus does not infect macrophages during phagocytosis, the
process of normally removing foreign particles and red cells at the end of
their life span (approximately 120 days). Phase I Clinical Trials did not
confirm anti-viral activity in humans, which is the purpose of additional
trials.
The IND for Phase I/IIA Clinical Trials was submitted by the Company to
the FDA on August 18, 1994 for approval to conduct Phase I/II human
clinical studies at the Johns Hopkins University Schools of Public Health
and Medicine ("Johns Hopkins") to test the product's safety and anti-viral
activity at various doses and the Company received approval from the FDA
to commence the trial on July 17, 1995. The Phase I/IIA Clinical Trial
consists of a safety study with two patients at the lowest dose of RBC-CD4
and a safety and activity study with two parts: (1) five patients being
dosed with a middle dose of RBC-CD4, one of which receives placebo; and
(2) 12 patients being dosed at the highest dose of RBC-CD4, two of which
receive placebo.
RECENT DEVELOPMENTS. The first patient under the Phase I/IIA Clinical
Trials was dosed on August 8, 1995, the first patient to be dosed with the
middle dose of RBC-CD4 was dosed on November 16, 1995, and the first
patient to be dosed at the highest dose of RBC-CD4 was dosed on January
29, 1996. No significant adverse events have been reported to date, and
the last portion of the trial with patients receiving the highest dose of
RBC-CD4 is ongoing. The Company is currently participating in discussions
with certain third parties regarding the possibility of partnering or
licensing this technology.
7
<PAGE>
LIPOSOME-CD4 TECHNOLOGY
BACKGROUND. The Company is the worldwide licensee of certain technology
(the "Liposome-CD4 Technology") relating to the incorporation of CD4
antigens into liposome bilayers and their use as a potential therapeutic
agent in the treatment of HIV/AIDS. While RBC-CD4 Electroinsertion
Technology is being developed by the Company to target HIV and
HIV-infected cells in the blood, Liposome-CD4 Technology is being
developed by the Company to target infections in the human lymphatic
system, a major reservoir for infection not directly reached by blood
circulation.
TECHNOLOGY. CD4 is a glycoprotein found on the surface of T4 lymphocytes,
which are helper cells that mediate antigen presentation of the immune
system. CD4 also acts as the receptor for a glycoprotein on the surface of
the human immunodeficiency virus (HIV) known as gp120. HIV binds to the
CD4 glycoprotein which enables the virus to enter the T4 cells where it
can replicate. By this process, HIV attacks T4 cells and debilitates the
immune system, which typically leads to the development of AIDS. Once the
immune system is destroyed, other germs and viruses that would ordinarily
be successfully neutralized by the immune system lead to opportunistic
diseases, which ultimately cause death to AIDS patients.
Lipids consist of two layers (bilayers) of fatty acids surrounded by
water; such bilayers are fluid and very flexible. Liposomes can be formed
by agitating phospholipids in water suspensions at high frequencies to
form a closed vesicle surrounded by a continuous lipid bilayer. Liposomes
have properties that are very similar to those of natural membranes and
have been studied for carrying, in their interior, specific drugs for the
purpose of increasing their potency and safety. Liposomes are eventually
broken down and metabolized by the body, or fuse with their target, at
which time the content of the liposome is released. The Company is
researching the use of liposomes in treating HIV/AIDS because the virus is
not only found in the circulatory system, but the lymphatic system as
well, which is an area that liposomes can reach. It is believed that the
lymph nodes, which are a reservoir of HIV infection, could be targeted for
removal of HIV and HIV-infected cells. Liposomes inserted with CD4
("Liposome-CD4") would be used in conjunction with the Company's RBC-CD4
Electroinsertion Technology which targets the circulatory system, thereby
providing a treatment package for both the blood stream and the lymph
nodes.
The strategy of Liposome-CD4 is to incorporate CD4 in the bilayer of the
liposomes, providing a specific target (I.E., HIV and HIV-infected cells)
for liposome fusion. The Liposome-CD4 may also be loaded with cytotoxic
agents, or agents that will kill the target cell. When the free-floating
HIV comes in contact with Liposome-CD4, the virus fuses with Liposome-CD4
and is inactivated. The remains of the killed infected T4 cell and
inactivated virus fused with Liposome-CD4 would then be removed by
macrophages (white blood cells). The therapeutic aim, as with RBC-CD4, is
to reduce HIV infectivity and slow or eliminate the advancement of HIV
infection to AIDS.
PROGRESS OF RESEARCH AND DEVELOPMENT. The first milestone of the
Liposome-CD4 research, which included IN VITRO studies of Liposome-CD4
interaction with HIV from patient (and simian immunodeficiency virus
("SIV") from M. Rhesus monkeys) isolate studies with Liposome-CD4
encapsulating a cytotoxic agent, was completed in August 1994 with the IN
VITRO studies demonstrating promising anti-viral activity. IN VITRO HIV
inactivation results have shown favorable viral inhibition against HIV
patient isolates and a new SHIV (hybrid virus of SIV containing the HIV
envelope) isolate.
RECENT DEVELOPMENTS. On July 18, 1996, the Company entered into a
Sublicense Agreement with SEQUUS Pharmaceuticals, Inc. for the continued
development and commercialization of the Liposome-CD4 Technology.
8
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
HIV/AIDS VACCINE
BACKGROUND. The Company holds an option to acquire an exclusive worldwide
license to a potential HIV/AIDS vaccine (the "HIV/AIDS Vaccine") under
development at the French National Institute of Health and Medical
Research ("INSERM"). This research project is headed by Professor
Jean-Claude Chermann, one of the original Pasteur Institute discoverers of
the HIV virus. The vaccine concept developed by Professor Chermann
utilizes a portion of b2 microglobulin (the epitope), a cellular antigen,
that is presented on the HIV viral coating after the HIV virus has
reproduced in a human cell. This cellular antigen does not appear to vary
across the various strains of the virus and may provide a stable target to
develop antibodies that can prevent infection. The Company believes this
approach may also protect against both blood-born and sexual transmission
of HIV. The Company's goal is to develop an oral formulation that would
make the vaccine potentially less costly and easier to distribute to a
broad population.
TECHNOLOGY. When the HIV virus infects a cell, it replicates and then it
buds from the infected cell's surface. A protein which is present on the
cell's surface then becomes incorporated in HIV's viral envelope as it
leaves the infected cell. The classical path of vaccine development to
date has been one of raising antibodies against a viral protein in an
attempt to neutralize the pathogen. All these attempts have been largely
unsuccessful. The HIV/AIDS Vaccine encompasses a new and different
approach directed toward immunization against HIV/AIDS. The HIV/Vaccine is
designed to be different than previous attempts for two basic reasons: (i)
it would use a cellular versus a viral antigenic approach and is
therefore, common to all strains of HIV, and (ii) it would utilize a
delivery system that would offer both humoral (blood transmission) and
mucosal (sexual transmission) protection, as opposed to other vaccines now
being investigated as therapeutics for preventing cell to cell
transmission of the virus.
PROGRESS OF RESEARCH AND DEVELOPMENT. Research has been directed toward
HIV/AIDS prevention following isolation of the virus in 1983. Research
began in 1988 in this area and in the use of a cellular antigenic approach
directed toward conquering the disease. Preclinical research has
demonstrated neutralization of HIV IN VITRO. The peptide sequence that
encodes this portion of a cellular protein has been identified and
sequenced and will be incorporated in a vaccine to test for production of
antibodies against the epitope. The Company plans to produce a vaccine for
humans that will elicit mucosal as well as humoral immunity and that can
be delivered orally. Upon the successful completion of pre-clinical animal
studies, the Company plans to submit an IND for conducting human clinical
trials. The Company entered into an agreement with an unaffiliated third
party in December of 1995 to develop a commercial diagnostic assay for
detection of the antibody. This assay would be used in animal and human
clinical studies for the vaccine and could be sold for research purposes
prior to receiving approval from the FDA. Upon approval from the FDA, the
assay could be sold to physicians and clinical laboratories. The Company
entered into an agreement with an unaffiliated third party in December of
1995 to develop a commercial diagnostic assay for detection of the
antibody. This assay would be used in animal and human clinical studies
for the vaccine and could be sold for research purposes prior to receiving
approval from the FDA. Upon approval from the FDA, the assay could be sold
to physicians and clinical laboratories.
RECENT DEVELOPMENTS. The Company is in the final stage of development of
the assay and expects to commence large-scale testing in the near future.
In April, 1996, researchers published data on the isolation and
characterization of the novel binding site of the cellular protein and
reported that antibodies to this binding site inhibited replication of
several strains of HIV in IN VITRO studies.
9
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
UGIF TECHNOLOGY - PROSTATE CANCER
BACKGROUND. The Company holds an exclusive worldwide license to a growth
regulatory factor, termed Urogenital Sinus Derived Growth Inhibitory
Factor ("UGIF/ps20"), which could serve as a potential prostate cancer
therapy (the "UGIF Technology").
TECHNOLOGY. Based on studies at Baylor College of Medicine directed at
understanding how one particular tissue type influences the growth of an
adjacent tissue in the development of the prostate gland, UGIF/ps20 was
identified. Specifically, UGIF/ps20 has been isolated and purified from
rat fetal urogenital sinus tissue which differentiates into the mature
prostate gland as a result of tissue-tissue interactions. Since UGIF/ps20
was demonstrated to be active in human cells, it was believed that
UGIF/ps20 isolated from the rat would be essentially identical to human
UGIF/ps20. Commercial application and economic feasibility of UGIF/ps20 is
not dependent upon the availability of either rat or human fetal
urogenital sinus tissue, but rather the successful cloning, expression and
testing of recombinant UGIF/ps20.
The discovery of UGIF/ps20 indicates that urogenital sinus tissue, and
more specifically UGIF/ps20, may possibly be effective in altering the
phenotype (state of cell differentiation) of cells that affect the
secretion of newly synthesized proteins. UGIF/ps20 has shown inhibition of
the growth of transformed cells and tumors in culture including human
prostate cancer cells with non-toxic and reversible effects. In addition
to the treatment of cancer, there exists a potential use of UGIF/ps20 or
its analogues in the treatment of other diseases or conditions dealing
with abnormalities of the genitourinary system. For example, since
UGIF/ps20 induces changes in the state of cellular differentiation to that
more suggestive of what should be normal, UGIF/ps20 may be effective in
treating diseases that are manifested by the loss or change in normal
tissue or normal cell differentiation.
Dr. David R. Rowley is the principal investigator for the UGIF Technology
project. Dr. Rowley is an Associate Professor in the Department of Cell
Biology at the Baylor College of Medicine.
PROGRESS OF RESEARCH AND DEVELOPMENT. A method for successfully purifying
UGIF/ps20 was identified in April 1992 by Dr. David R. Rowley and
biological activity of the factor was demonstrated in mice in May 1992.
Research to date has shown that UGIF/ps20 inhibits the growth of
transformed cells and tumors in culture including human prostate cancer
cells with non-toxic and reversible effects. In addition, in preliminary
animal studies, UGIF/ps20 has shown an ability to inhibit DNA synthesis
and cell proliferation of human prostatic carcinoma cells. Results
confirmed that there is a human form of UGIF/ps20 and that it is a growth
factor associated with the prostate gland. The rat and human genes for
UGIF/ps20 were sequenced in late 1995.
RECENT DEVELOPMENTS. The Company recently exercised its option to acquire
an exclusive worldwide license to the UGIF/ps20 technology. The rat gene
for UGIF/ps20 has been incorporated into an expression system and
recombinant rat UGIF/ps20 is currently being produced. The human gene for
UGIF/ps20 has been incorporated into an expression system and recombinant
human UGIF/ps20 is currently being produced. Once sufficient quantifies of
recombinant UGIF/ps20 are produced and purified, the activity of the
UGIF/ps20 protein will be tested for verification in IN VITRO and IN VIVO
studies. It is anticipated that additional animal studies will be
conducted to determine the modes of delivery and biological effects of
recombinant UGIF/ps20 on prostate cancer in "nude" mice. In the event that
recombinant UGIF/ps20 is verified in these studies, additional preclinical
studies with a delivery system, and toxicity tests, will be conducted
prior to commencement of human clinical trials.
10
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
ION PHARMACEUTICALS, INC. TECHNOLOGIES
BACKGROUND. The Company, through its wholly-owned subsidiary, Ion
Pharmaceuticals, Inc. ("Ion"), holds exclusive worldwide license rights to
certain compounds and their uses for the treatment of conditions
characterized by abnormal cell proliferation and holds exclusive options
to license certain compounds and their uses for the treatment of sickle
cell anemia and gastrointestinal disorders, such as secretory diarrhea.
Ion's intellectual property portfolio consists of parent compounds, their
analogues and metabolites, and a number of proprietary new chemical
entities termed the TrifensTM. Such compounds have demonstrated promise in
therapeutic applications for treating a number of conditions characterized
by abnormal cell proliferation, such as cancer and certain proliferative
dermatological conditions, as well as sickle cell anemia and secretory
diarrhea. Ion has an ongoing collaborative program with an unaffiliated
company to develop the Trifens.TM
TECHNOLOGY. The parent compounds and the TrifensTM are active through ion
transport modulation and may be applicable for treating, either by
topical, oral, or intravenous administration, a number of diseases and
conditions. Through research conducted by Dr. Jose Halperin at Harvard
Medical School, new potential uses for the parent compounds and the
TrifensTM have been identified based on inhibition of cell proliferation,
including the use of such compounds in treating cancer, proliferative
dermatological conditions, cardiovascular disorders, such as
arteriosclerotic conditions, and diseases caused by neovascularization,
such as diabetic retinopathy. In addition to the compounds' ability to
inhibit cell proliferation, the parent compounds and the TrifensTM have
also been shown to inhibit the Ca++-activated K+ channel in the human red
blood cell membrane. Dr. Carlo Brugnara at Children's Hospital in Boston
has studied and is continuing to study the effects of such compounds in
blocking this channel, one of the erythrocyte's principal dehydration
pathways, to prevent the sickling tendency of erythrocytes. Such an
approach could potentially be used in the treatment of sickle cell anemia.
In addition, Dr. Wayne Lencer at Children's Hospital in Boston is studying
the effects of the TrifensTM in inhibiting intestinal chloride secretion,
which is the primary transport event of secretory diarrhea in both humans
and animals.
It is anticipated that the parent compounds and/or the TrifensTM would be
formulated in three new formulations, an oral formulation, an intravenous
or injectable formulation, and a topical formulation. The new oral and/or
intravenous formulation could be used in the study and potential treatment
of cancers, sickle cell anemia, diarrhea, and atherosclerotic conditions,
including restenosis after balloon angioplasty. The new topical
formulation will be used by Ion in the study and potential treatment of
proliferative dermatological conditions, such as actinic keratosis,
certain cancers, such as basal cell carcinoma and Kaposi's sarcoma, and,
possibly, other dermatological conditions.
PROGRESS OF RESEARCH AND DEVELOPMENT. An initial human efficacy study with
a preliminary topical formulation of one of the parent compounds at a low
concentration in comparison with a placebo was conducted by the Company in
Kaposi's sarcoma patients which led to inconclusive results. Results
showed that the topical formulation was not optimized. Ion entered into an
agreement with an unaffiliated company to develop an optimal topical
formulation at a higher concentration of drug for use in additional
clinical trials for actinic keratosis and Kaposi's sarcoma.
Dr. Halperin has demonstrated that IN VITRO proliferation of numerous
human cancer cell lines were strongly inhibited by one of the parent
compounds in a dose-dependent manner. Dr. Halperin's group has also
studied the effects of one of the parent compounds in experimental models
for lung metastasis and squamous cell carcinoma, both resulting in
favorable results.
11
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
For the sickle cell application, IN VITRO studies performed by Dr.
Brugnara have demonstrated that one of the parent compounds blocked ion
transport in homozygous sickle cells, and studies in a transgenic mouse
model for sickle cells have demonstrated that the compound given orally
produced inhibition of the red cell Gardos channel, increased red cell
potassium content, and decreased mean corpuscular hemoglobin
concentration. A pilot Phase I clinical trial has been completed in which
four normal subjects were given the compound orally and the peak
inhibition of the Gardos channel was measured.
RECENT DEVELOPMENTS. Ion entered into a sponsored research and license
option agreement with Children's Hospital in Boston which grants Ion an
option to license the use of the parent compounds, their metabolites and
analogues, and the TrifensTM in treating gastrointestinal disorders.
A topical formulation of one of the parent compounds has been developed
for Ion pursuant to an agreement with an unaffiliated company. Clinical
trial material has been manufactured under GMP conditions for use in Ion's
Phase I/II Clinical Trial for the treatment of actinic keratosis. The
Phase I/II Clinical Trial is currently underway at two clinical sites in
Israel. Upon successful results of this study, Ion plans to file an IND
application with the FDA for conducting a clinical trial in the U.S. for
the treatment of actinic keratosis.
Additional IN VITRO and animal tumor model studies are underway, some of
which will be conducted under contract with an unaffiliated third party,
to test the effects of the TrifensTM in the treatment of certain cancers.
Results from the first stage of a Phase II Clinical Trial supported by the
National Institutes of Health and the FDA were reported in March in which
five sickle cell anemia patients were given one of the parent compounds
orally. The administration of the compound resulted in a reduction of the
dehydration and sickling of red blood cells associated with sickle cell
anemia. The next phase of the ongoing Phase II Clinical Trial will assess
the survival of red blood cells and hemoglobin levels over a longer-term
period. Ion plans to initiate additional laboratory and clinical studies
to further assess the use of the TrifensTM in the treatment of sickle cell
anemia.
4. SUBSEQUENT EVENT
On July 17, 1996, SEQUUS Pharmaceuticals, Inc. exercised its option to
license the Company's liposome-CD4 technology as a potential HIV/AIDS
therapeutic. Terms include a signing fee, payable to the Company in SEQUUS
common stock, milestone payments and royalties on product sales. In
addition, SEQUUS will continue funding of certain liposome CD4-related
laboratory work under the direction of Dr. Y. Claude Nicolau, Director of
CBRL.
12
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
PLAN OF OPERATIONS
The Company, being a development enterprise, has incurred a net loss in each of
the fiscal years since its inception and has had to rely on outside sources of
funds to maintain its liquidity. Substantial operating losses are expected to be
incurred for the next several years as the Company expends its resources for
product acquisition, sponsored research and development and preclinical and
clinical testing.
As a development stage company without revenues, the Company has financed its
technology development activities and operations primarily through public and
private offerings of securities. In connection with this, the Company completed
two private offerings in 1995, raising total gross proceeds of $8.8 million. On
March 15, 1996, the Company offered holders of warrants issued in private
placements completed in 1995 the opportunity to exercise such warrants at up to
a 12 1/2% discount from the actual exercise prices of such warrants. As of the
close of business on April 30, 1996, the expiration date of the warrant discount
program, a total of $5.6 million was received. Management estimates that based
on its current cash position, its plans to seek additional funds through planned
offerings, and the continued focus on selling, licensing and commercialization
of its technologies, the Company will have sufficient resources to fund its
activities for at least the next twelve months. There can be no assurance that
planned offerings will be completed or, if not completed as planned, that other
sources of capital can be obtained in amounts and upon terms acceptable to the
Company during the twelve month plan period. In the event that such funds are
not available when needed, the Company would be required to reduce or delay its
funding of current research projects and delay making commitments for future
research projects. The Company's operating results have fluctuated significantly
during each quarter since its reorganization, and the Company anticipates that
such fluctuations, largely attributable to varying sponsored research and
development commitments and expenditures, will continue into the foreseeable
future.
The Company continues to conduct scientific research, clinical trials,
development, and intellectual property protection. During the three months ended
June 30, 1996, the Company paid $0.9 million for research and development on its
projects. During the succeeding 12-month period, approximately $4.0 million in
additional funding is projected to be spent on clinical and laboratory research
and development.
Of the $4.0 million estimated to be spent on clinical and laboratory research
and development during the next 12 months, approximately $100,000 is expected to
be applied to RBC-CD4 Technology, $800,000 to the HIV/AIDS project, $200,000 to
the UGIF Technology, and $2,900,000 to the Ion Technologies.
In addition to clinical and laboratory research development, the Company expects
to incur ongoing costs in connection with its intellectual property protection
and patent prosecution, which costs are expected to approximate $100,000 over
the next 12 months.
13
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
REVENUES AND EXPENSES
Interest Income:
From inception through the period ended June 30, 1996, the Company has earned
interest income of $302,488 and an extraordinary item from gain on early
extinguishment of debt of $42,787. The Company's ability to generate material
revenues is contingent on the successful commercialization of the RBC-CD4
Electroinsertion Technology, the Liposome-CD4 Technology, the HIV/AIDS Vaccine,
UGIF Technology, Ion Technologies and other technologies which it may acquire,
followed by the successful marketing and commercialization of such technologies
through licenses, joint ventures or other arrangements.
Income for the three months ended June 30, 1996 was $52,724 compared to $12,702
for the same period ended June 30, 1995. The increase in interest earned is
attributable to a higher amount of cash invested. In each period interest income
represented all of the Company's income.
Operating Expenses:
From inception through the period ended June 30, 1996, the Company incurred
$23,238,648 of operating expenses. Sixty percent (60%) or $13,845,609 of the
total operating expenses for that period were costs of research and development
for the Company's technologies. The remainder of expenses for the same period
were incurred principally as consulting costs, costs of management, legal and
other professional support for the Company's technologies, and for its completed
and proposed financing plans. Research and development costs will remain high as
the Company implements later-stage research projects of its technologies and
such costs will continue to be expensed for financial reporting purposes.
Operating expenses for the three months ended June 30, 1996, were $1,710,681
compared to $1,894,765 for the same period ended June 30,1995. The decrease was
due to lower research and development expenditures ($121,030), a reduction in
interest expense ($57,490) and lower general and administrative expenses
($5,564). The lower research and development costs were attributable to last
years high costs of CD4 production for the Company's RBC-CD4 and Liposome-CD4
projects.
LIQUIDITY AND CAPITAL RESOURCES
In February 1993, the Company conducted its initial United States public
offering of 833,334 Units, each Unit consisting of two shares of Common Stock
and one Redeemable Common Stock Purchase Warrant exercisable for one share of
Common Stock at a price of $3.75, subject to adjustment in certain
circumstances, at any time until February 10, 1998 (the "public offering"). The
net proceeds of the public offering to the Company, after payment of
Underwriter's discounts and commissions, non-accountable expenses and
reimbursable expenses, and other expenses of the offering, were approximately
$4,190,000. Also, during fiscal year 1993, the Company received $762,833 in
total proceeds from the exercise of warrants. In March 1994 a total of
$3,121,164 was received from the exercise of 832,324 of the Company's Redeemable
Stock Purchase Warrants. Each warrant was exercisable for one share of
Sheffield's Common Stock at an exercise price of $3.75.
In April 1995, the Company completed a private placement of 410,075 units to
accredited investors at a price of $8.00 per unit for gross proceeds of
$3,280,600. Each unit consists of two shares of the Company's common stock and a
warrant to purchase one share of common stock at a price of $5.00 at any time to
and including February 10, 2000. The warrants are redeemable by the Company
under certain circumstances. Proceeds are being used for funding research and
development for projects and licensing arrangements, patent prosecution and
working capital and general corporate purposes.
14
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
In July 1995, the Company completed a second private placement of 1,375,000
units at $4.00 per unit, which grossed $5,500,000. Each unit consists of one
share of the Company's common stock and one warrant to purchase one share of
common stock at a price of $4.50 at any time from March 1, 1996 to and including
February 10, 2000. The warrants are subject to redemption under certain
conditions.
On April 30, 1996, the Company completed its warrant discount program through
which the Company offered holders of warrants issued in private placements
completed in 1995 the opportunity to exercise such warrants at up to a 12 1/2%
discount from the actual exercise prices of such warrants. At the expiration of
the discount program, on April 30, 1996, a total of $5.6 million was received
from the exercise of such warrants and the related issuance of 1,373,250 shares
of common stock.
In addition to the potential commercialization of its technologies, the Company
plans to seek additional funds through exercise of outstanding warrants and
options, financings and/or public grants, joint ventures or other commercial
arrangements to obtain necessary working capital. It is not uncommon, for
instance, for a third-party commercial partner to enter into a license agreement
with a development company, on the merits of successful research relating to a
given technology, which would yield up-front royalty advances to such company
before market-ready products are developed. It is also not uncommon for a
third-party commercial partner to enter into an agreement with a development
company whereby a third party will contribute funds in support of the research
and operating needs of such development companies in consideration for rights
related to the technologies.
At June 30, 1996, the Company's assets were $5.7 million of which $5.2 million
was cash and cash equivalents.
15
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
An annual Meeting of Stockholders was held on June 20,
1996. All of management's nominees for Director, as
listed in the Proxy Statement for the Annual Meeting,
were elected. Listed below are the matters voted on by
stockholders and the number of votes cast at the Annual
Meeting:
(a) Election of five members of the Board of Directors.
---------------------------------------------------
<TABLE>
<CAPTION>
Name Voted For Voted Against Votes Withheld Broker Non-Votes
and Abstentions
<S> <C> <C> <C> <C>
Douglas R. Eger 8,161,784 0 198,075 0
Michael Zeldin 8,161,684 0 198,175 0
Anthony B. Alphin, Jr. 8,161,684 0 198,175 0
Dr. Stephen Sohn 8,161,784 0 198,075 0
Bernard Laurent 8,161,684 0 198,175 0
</TABLE>
(b) Ratification of the appointment of Ernst & Young LLP as independent
-------------------------------------------------------------------
auditors of the Company for the Fiscal Year ending
---------------------------------------------------
December 31, 1996.
------------------
Voted For: 8,179,141
Voted Against: 128,043
Voted Abstained: 52,675
Broker Non-Votes 0
(c) Approval of the 1996 Directors Stock Option Plan.
-------------------------------------------------
Voted For: 2,353,304
Voted Against: 298,503
Voted Abstained: 112,225
Broker Non-Votes 5,595,827
(d) Approval of the Amendment of the Company's 1993 Stock Option Plan.
------------------------------------------------------------------
Voted For: 2,256,341
Voted Against: 469,816
Voted Abstained: 148,525
Broker Non-Votes 5,485,177
(e) Approval of the Amendment to the Company's Certificate of
-------------------------------------------------------------
Incorporation to increase the number of authorized shares of the
-------------------------------------------------------------------
Company's Common Stock from 20,000,000 shares to 30,000,000 shares.
-------------------------------------------------------------------
Voted For: 7,905,311
Voted Against: 403,448
Voted Abstained: 51,100
Broker Non-Votes 0
16
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits:
Employment Agreement dated as of June 6, 1996 between the Company
and Thomas M. Fitzgerald.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1996.
17
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHEFFIELD MEDICAL TECHNOLOGIES INC.
Dated: August 7, 1996 /s/ Douglas R. Eger
-------------------
Douglas R. Eger
Chairman & Chief Executive Officer
/s/ George Lombardi
Dated: August 7, 1996 -------------------
George Lombardi
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
18
Exhibit to FORM 10-QSB
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 6th day of June, 1996, by and between
Sheffield Medical Technologies Inc., a Delaware corporation with its principal
offices at 30 Rockefeller Plaza, Suite 4515, New York, New York 10112 (the
"Corporation"), and Thomas M. Fitzgerald residing at 4 St. Andrews Hill,
Pittsford, New York 14534
("Executive").
W I T N E S S E T H :
WHEREAS, the Corporation desires to employ and retain the
Executive as its Chief Operating Officer, upon the terms and subject to the
conditions of this Agreement; and
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT OF EXECUTIVE. Effective as of June 17, 1996 the
Corporation hereby employs Executive as its Chief Operating Officer, to perform
the duties and responsibilities traditionally incident to such office, subject
at all times to the control and direction of the Board of Directors of the
Corporation.
2. ACCEPTANCE OF EMPLOYMENT; OFFICES; TIME AND ATTENTION, ETC.
(a) Executive hereby accepts such employment and agrees that throughout the
period of his employment hereunder, except as hereinafter provided, he will
devote his full business and professional time in utilizing his business and
professional expertise, with proper attention, knowledge and skills faithfully,
diligently and to the best of his ability in furtherance of the business of the
Corporation and its subsidiaries and will perform the duties assigned to him
pursuant to Paragraph 1 hereof. As Chief Operating Officer, Executive shall also
perform such specific duties and shall exercise such specific authority related
to the management of the day-to-day operations of the Corporation and its
subsidiaries as may be reasonably assigned to Executive from time to time by the
Board of Directors of the Corporation.
(b) Executive shall at all times be subject to, observe and
carry out such rules, regulations, policies, directions and restrictions as the
Board of Directors of the Corporation shall from time to time establish. During
the period of his employment hereunder, Executive shall not, directly or
indirectly, accept employment or compensation from, or perform services of any
nature for, any business enterprise other than the Corporation and its
subsidiaries. Notwithstanding the foregoing in this Paragraph 2, Executive shall
not be precluded from (i) engaging in recreational, eleemosynary, educational
and other activities which do not materially interfere with his duties hereunder
during vacations,
<PAGE>
holidays and other periods outside of business hours or (ii) working on projects
and receiving compensation which arise from Permitted Projects (as hereinafter
defined), but only to the extent that such work does not interfere with
Executive's duties hereunder. As used herein, "Permitted Projects" shall mean
(a) the completion of existing projects by Executive on behalf of
RhonePoulenc-Rorer Corp. ("RPR") and Fisons Corporation ("Fisons") relating to
(i) the sale of RPR's pharmaceutical business (formerly owned by Fisons)
location in Rochester, New York (ii) the termination of Fisons' ophthalmic
products joint venture with Allergan and (iii) the sale of Fison's aerosol
manufacturing business located in Massachusetts and (b) such other projects as
may be agreed to in advance in writing between Executive and the Corporation.
(c) It is anticipated that the Corporation's principal
executive office shall remain in New York City, but that Executive shall be
required to spend substantial amounts of time at locations in and outside of New
York City relating to the business of the Corporation and its subsidiaries. It
is understood that Executive shall continue to reside in the vicinity of
Rochester, New York until Executive is relocated to the Corporation's executive
offices in New York City, New York as described below. The Corporation agrees to
reimburse Executive for his reasonable expenses, including hotel and travel
costs, associated with his business travel outside Rochester, New York until
completion of such relocation. It is understood that the Executive may, to the
extent practicable, perform his duties and fulfill his obligations hereunder
from his office in Rochester, New York until completion of his relocation to New
York City as described below. It is understood that the Corporation will lease
an office to be utilized by Executive at a monthly rent of up to $1,000 per
month in Rochester, New York until the earlier to occur of Executive's
relocation to New York City as described below or the termination of Executive's
employment hereunder. The location of such office (the "Rochester Office") shall
be mutually acceptable to Executive and the Corporation. In addition, until
completion of such relocation, it is understood that Executive shall visit the
Corporation's executive office in New York City on a regular basis for meetings
and to conduct Corporation business that is more appropriately conducted from
such executive office. Upon 60 days notice to Executive, Executive shall
relocate his principal residence to the New York City metropolitan area. Upon
completion of such relocation, Executive shall be headquartered in the Company's
executive offices located in the New York City metropolitan area and shall
continue to fulfill his obligations under this Agreement from such offices
rather than from the Rochester Office. In no event shall the Company deliver
such notice of relocation prior to April 1, 1997. The Company shall reimburse
Executive for all appropriately documented and reasonable out-of-pocket expenses
associated with moving his possessions in connection with such relocation.
(d) The Corporation shall reimburse Executive for all
appropriately documented operating expenses (i.e., telephone, fax,
personal computer, copier, etc.) incurred by Executive on behalf of
-2-
<PAGE>
the Corporation after the date of this Agreement as may be necessary for the
efficient operation of the Rochester, New York office referred to in
subparagraph (c) of this Paragraph 2; PROVIDED, HOWEVER, that Executive will not
incur any such individual expense in excess of $1,000 without the prior written
approval of the Chairman, Chief Executive Officer or Chief Financial Officer of
the Corporation.
(e) It is understood the Corporation will pay an annual salary
of up to $40,000 for an administrative assistant to Executive during the term of
Executive's employment under this Agreement. Such administrative assistant shall
be an employee of the Corporation selected by Executive and approved by the
Corporation.
3. TERM. Except as otherwise provided herein, the term of
Executive's employment hereunder shall commence on June 17, 1996 and shall
continue to and including June 16, 1999. Unless terminated earlier in accordance
with the terms hereof, this Agreement shall automatically be extended for one or
more additional consecutive one year terms unless either party notifies the
other party in writing at least six months before the end of the then current
term (including the initial term) of its or his desire to terminate this
Agreement. The last day of the term of this Agreement pursuant to this Paragraph
3 is referred to herein as the "Termination Date."
4. COMPENSATION. (a) As compensation for his services
hereunder, the Corporation shall pay to Executive (i) a base annual salary at
the rate of $175,000, payable in equal installments in accordance with the
normal payroll practices of the Corporation but in no event less frequently than
semi-monthly, and (ii) such incentive compensation and bonuses, if any, as the
Board of Directors of the Corporation in its absolute discretion may determine
to award Executive (it being understood that this Agreement shall in no event be
construed to require the payment to Executive of any incentive compensation or
bonuses). The Corporation agrees to consider the appropriateness of granting
Executive a bonus at such time as any other executive officer of the Corporation
is being considered for a bonus. All compensation paid to Executive shall be
subject to withholding and other employment taxes imposed by applicable law.
(b) As additional compensation for his services hereunder, the
Corporation shall grant to Executive an option under the Corporation's 1993
Stock Option Plan (the "Plan") to acquire a total of 150,000 shares of the
Corporation's common stock, with the terms of such option to be evidenced by an
option letter agreement to be delivered on or before June 21, 1996 by the
Corporation to Executive in the form annexed as Exhibit "A" hereto. In the event
that there are not sufficient shares of the Corporation's common stock available
for such grant under the Plan at such date, the Corporation shall issue
Executive an option letter in its customary form on such date providing
Executive with a comparable stock option grant that is issued independent of the
Plan.
-3-
<PAGE>
(c) During the period of Executive's employment hereunder,
Executive shall not be entitled to any additional compensation for rendering
employment services to subsidiaries of the Corporation or for serving in any
office of the Corporation or any of its subsidiaries to which he is elected or
appointed.
(d) In the event that Executive is elected to the
Corporation's Board of Directors, Executive will receive compensation and
benefits as a director of the Corporation consistent with the compensation and
benefits received by the Corporation's other directors who are also employees of
the
Corporation.
5. ADDITIONAL BENEFITS; VACATION. (a) In addition to such base
salary, Executive shall receive and be entitled to participate, to the extent he
is eligible under the terms and conditions thereof, in any profit sharing,
pension, retirement, hospitalization, disability, medical service, insurance or
other employee benefit plan generally available to the executive officers of the
Corporation that may be in effect from time to time during the period of
Executive's employment hereunder. The Corporation agrees to cover Executive
under any directors' and officers' liability policy maintained by the
Corporation.
(b) Executive shall be entitled to four (4) weeks' paid
vacation in respect of each 12-month period during the term of his employment
hereunder, such vacation to be taken at times mutually agreeable to Executive
and the Board of Directors of the Corporation. Vacation time shall not be
cumulative from one 12- month period to the next, but Executive shall receive
vacation pay at the then current salary rate for any vacation time not taken by
him.
(c) Executive shall be entitled to recognize as holidays all
days recognized as such by the Corporation.
6. REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse
Executive in accordance with applicable policies of the Corporation for all
expenses reasonably incurred by him in connection with the performance of his
duties hereunder and the business of the Corporation, upon the submission to the
Corporation of appropriate receipts or vouchers.
7. RESTRICTIVE COVENANT. (a) In consideration of the
Corporation's entering into this Agreement, Executive agrees that during the
period of his employment hereunder and, in the event of termination of this
Agreement (i) by the Corporation upon Executive becoming Disabled (as that term
is defined in Paragraph 12 hereof), (ii) by the Corporation for Cause (as that
term is defined in Paragraph 13 hereof) or (iii) by Executive otherwise than for
Employer Breach (as that term is defined in Paragraph 14 hereof), for a further
period of six months thereafter, he will not (x) directly or indirectly own,
manage, operate, join, control, participate in, invest in, whether as an
officer, director, employee, partner, investor or otherwise, any business entity
that is engaged in a directly competitive business (as hereinafter
-4-
<PAGE>
defined) to that of the Corporation or any of its subsidiaries within the United
States of America, (y) for himself or on behalf of any other person,
partnership, corporation or entity, call on any customer of the Corporation or
any of its subsidiaries for the purpose of soliciting away, diverting or taking
away any customer from the Corporation or its subsidiaries, or (z) solicit any
person then engaged as an employee, representative, agent, independent
contractor or otherwise by the Corporation or any of its subsidiaries, to
terminate his or her relationship with the Corporation or any of its
subsidiaries. For purposes of this Agreement, the term "directly competitive
business" shall mean any business that is involved in the research, development,
manufacturing or commercialization in any way of any technology, product,
compound, device or method that acts or functions by, through or on the same
active, binding or receptor site, mechanism of action, signaling pathway or
channel as any technology, product, compound, device or method that is or
becomes a part of the Corporation's business or the business of any of its
subsidiaries during Executive's employment by the Corporation or any of its
subsidiaries. Nothing contained in this Agreement shall be deemed to prohibit
Executive from investing his funds in securities of an issuer if the securities
of such issuer are listed for trading on a national securities exchange or are
traded in the over-the-counter market and Executive's holdings therein represent
less than 10% of the total number of shares or principal amount of the
securities of such issuer outstanding.
(b) Executive acknowledges that the provisions of this
Paragraph 7 are reasonable and necessary for the protection of the Corporation,
and that each provision, and the period or periods of time, geographic areas and
types and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 7,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect.
8. CONFIDENTIAL INFORMATION.
(a) Executive shall hold in a fiduciary capacity
for the benefit of the Corporation and its subsidiaries all confidential
information, knowledge and data relating to or concerned with its operations,
sales, business and affairs, and he shall not, at any time during his employment
hereunder and for two years thereafter, use, disclose or divulge any such
information, knowledge or data to any person, firm or corporation other than to
the Corporation and its subsidiaries or their respective designees or except as
may otherwise be reasonably required or desirable in connection with the
business and affairs of the Corporation and its subsidiaries.
(b) Notwithstanding anything to the contrary
contained herein, Executive's obligations under Paragraph 8(a) hereof shall not
apply to any information which:
-5-
<PAGE>
(i) becomes rightfully known to Executive subsequent or prior
to his employment by the Corporation;
(ii) is or becomes available to the public other than as a
result of wrongful disclosure by Executive;
(iii) becomes available to Executive subsequent to his
employment by the Corporation on a nonconfidential basis from a source
other than the Corporation or its agents which source has a right to
disclose such information; or
(iv) results from research and development and/or commercial
operations at any time by or on behalf of any person, company or other
entity with which or with whom Executive shall become associated (in a
manner consistent with the terms of this Agreement) subsequent to his
employment by the Corporation or its agents totally independent from
any disclosure from the Corporation or its agents.
(c) Notwithstanding anything to the contrary
contained herein, in the event that Executive becomes legally compelled to
disclose any confidential information, Executive will provide the Corporation
with prompt notice so that the Corporation may seek a protective order or other
appropriate remedy. In the event that such protective order or other remedy is
not obtained, Executive shall furnish only such confidential information which
is legally required to be disclosed.
9. INTELLECTUAL PROPERTY. Any idea, invention, design,
written material, manual, system, procedure, improvement, development or
discovery conceived, developed, created or made by Executive alone or with
others, during the period of his employment hereunder and applicable to the
business of the Corporation or any of its subsidiaries, whether or not
patentable or registrable, shall become the sole and exclusive property of the
Corporation or such subsidiary. Executive shall disclose the same promptly and
completely to the Corporation and shall, during the period of his employment
hereunder and at any time and from time to time hereafter at no cost to
Executive (i) execute all documents reasonably requested by the Corporation for
vesting in the Corporation or any of its subsidiaries the entire right, title
and interest in and to the same, (ii) execute all documents reasonably requested
by the Corporation for filing and prosecuting such applications for patents,
trademarks, service marks and/or copyrights as the Corporation, in its sole
discretion, may desire to prosecute, and (iii) give the Corporation all
assistance it reasonably requires, including the giving of testimony in any
suit, action or proceeding, in order to obtain, maintain and protect the
Corporation's right therein and thereto. The provisions of this Paragraph 9
shall not apply to any idea, invention, design, written material, manual,
system, procedure, improvement, development or discovery conceived, developed,
created or made by Executive exclusively from his work on Permitted Projects.
10. EQUITABLE RELIEF. The parties hereto acknowledge
that Executive's services are unique and that, in the event of a
-6-
<PAGE>
breach or a threatened breach by Executive of any of his obligations under
Paragraphs 7, 8 or 9 this Agreement, the Corporation shall not have an adequate
remedy at law. Accordingly, in the event of any such breach or threatened breach
by Executive, the Corporation shall be entitled to such equitable and injunctive
relief as may be available to restrain Executive and any business, firm,
partnership, individual, corporation or entity participating in such breach or
threatened breach from the violation of the provisions of Paragraph 7, 8 or 9
hereof. Nothing herein shall be construed as prohibiting the Corporation from
pursuing any other remedies available at law or in equity for such breach or
threatened breach, including the recovery of damages and the immediate
termination of the employment of Executive hereunder, if and to the extent
permitted hereunder.
11. TERMINATION OF AGREEMENT; Termination of Employment;
Severance; Survival; (a) This Agreement and Executive's employment hereunder
shall terminate upon the first to occur of the following: (i) Executive becoming
Disabled (as that term is defined in Paragraph 12 hereof); (ii) Executive's
death; (iii) termination of Executive's employment by the Corporation for Cause
or pursuant to subparagraph (b) of this Paragraph 11; (iv) termination of
Executive's employment for Employer Breach and (v) the termination of this
Agreement at the end of the term of this Agreement pursuant to Paragraph 3.
(b) Notwithstanding anything to the contrary
contained in this Agreement, in the event of the termination of the Executive's
employment by the Corporation for any reason (other than for Cause), Executive
shall be paid a severance payment of $87,500 payable in six equal monthly
installments, with the first installment being payable on the date falling two
weeks after the date of such termination and each additional installment being
paid every month after such date until such severance is paid in full. In the
event of such termination of the Executive's employment by the Corporation, the
Corporation shall have no further obligation to the Executive under this
Agreement other than the Corporation's obligation to make such severance payment
to the Executive and to maintain Executive's hospitalization and medical service
insurance coverage provided by the Corporation until the payment in full of such
severance payments.
(c) Paragraphs 6, 7, 8 and 9 of this Agreement shall
survive the termination of Executive's employment hereunder, except in the case
of termination pursuant to Paragraph 14.
12. DISABILITY. In the event that during the term of his
employment by the Corporation Executive shall become Disabled (as that term is
hereinafter defined) he shall continue to receive the full amount of the base
salary to which he was theretofore entitled for a period of six months after he
shall be deemed to have become Disabled (the "First Disability Payment Period").
If the First Disability Payment Period shall end prior to the Termination Date,
Executive thereafter shall be entitled to receive salary at an annual rate equal
to 80% of his then current base salary for a further period ending on the
earlier of (i) six months
-7-
<PAGE>
thereafter or (ii) the Termination Date (the "Second Disability Payment
Period"). Upon the expiration of the Second Disability Payment Period, Executive
shall not be entitled to receive any further payments on account of his base
salary until he shall cease to be Disabled and shall have resumed his duties
hereunder and provided that the Corporation shall not have theretofore
terminated this Agreement as hereinafter provided. The Corporation may terminate
Executive's employment hereunder at any time after Executive is Disabled, upon
at least 10 days' prior written notice; PROVIDED, HOWEVER, that such termination
shall not relieve the Corporation from its obligation to make the payments to
Executive described above in this Paragraph 12. For the purposes of this
Agreement, Executive shall be deemed to have become Disabled when (x) by reason
of physical or mental incapacity, Executive is not able to perform his duties
hereunder for a period of 90 consecutive days or for 120 days in any consecutive
180-day period or (y) when Executive's physician or a physician designated by
the Corporation shall have determined that Executive shall not be able, by
reason of physical or mental incapacity, to perform a substantial portion of his
duties hereunder. In the event that Executive shall dispute any determination of
his disability pursuant to clauses (x) or (y) above, the matter shall be
resolved by the determination of three physicians qualified to practice medicine
in the United States of America, one to be selected by each of the Corporation
and Executive and the third to be selected by the designated physicians. If
Executive shall receive benefits under any disability policy maintained by the
Corporation, the Corporation shall be entitled to deduct the amount equal to the
benefits so received from base salary that it otherwise would have been required
to pay to Executive as provided above.
13. TERMINATION FOR CAUSE. The Corporation may at any
time upon written notice to Executive terminate Executive's employment for
Cause. For purposes of this Agreement, the following shall constitute Cause: (i)
the willful and repeated failure of Executive to perform any material duties
hereunder or gross negligence of Executive in the performance of such duties,
and if such failure or gross negligence is susceptible to cure by Executive, the
failure to effect such cure within twenty (20) days after written notice of such
failure or gross negligence is given to Executive; (ii) except as permitted
hereunder, unexplained, willful and regular absences of Executive from the
Corporation; (iii) excessive use of alcohol or illegal drugs, interfering with
the performance of Executives duties hereunder; (iv) indictment for a crime of
theft, embezzlement, fraud, misappropriation of funds, other acts of dishonesty
or the violation of any law or ethical rule relating to Executive's employment;
(v) indicted for any other felony or other crime involving moral turpitude by
Executive; or (vi) the breach by Executive of any other material provision of
this Agreement, and if such breach is susceptible of cure by Executive, the
failure to effect such cure within twenty (20) days after written notice of such
breach is given to Executive. For purposes of this Agreement, an action shall be
considered "willful" if it is done intentionally, purposely or knowingly,
distinguished from an act done carelessly, thoughtlessly or inadvertently. In
any such event, Executive shall be entitled to receive his base
-8-
<PAGE>
salary to and including the date of termination. Should Executive in good faith
dispute his termination for Cause, he shall give prompt written notice thereof
to the Corporation, in which event such dispute shall be submitted to and
determined by arbitration in New York City. Such arbitration shall be conducted
before a single arbitrator agreed upon between the Corporation and Executive;
provided, however, that if the parties are unable to agree on a single
arbitrator, the dispute shall be conducted before a panel of three arbitrators
consisting of one arbitrator selected by the Corporation, one the second
arbitrator selected by Executive and the third arbitrator selected by the other
two arbitrators. Such arbitration shall be conducted in accordance with such
rules as shall be promulgated by the arbitrator (or panel), which may include
any or all of the rules then obtaining of the American Arbitration Association.
Any award or decision of the arbitration shall be conclusive in the absence of
fraud and judgment thereon may be entered in any court having jurisdiction
thereof. The costs of such arbitration shall be paid by the Corporation.
Executive shall not be entitled to receive compensation for any period
subsequent to his dismissal pursuant to this Paragraph 13.
14. TERMINATION FOR EMPLOYER BREACH. Executive may upon
written notice to the Corporation terminate this Agreement (including paragraphs
7, 8 and 9) in the event of the breach by the Corporation of any material
provision of this Agreement, and if such breach is susceptible of cure, the
failure to effect such cure within 20 days after written notice of such breach
is given to the Corporation. Executive's right to terminate this Agreement under
this Paragraph 14 shall be in addition to any other remedies Executive may have
under law or equity. Paragraphs 2(d), 6 and 11(b) of this Agreement shall
survive the termination of this Agreement by Executive pursuant to this
Paragraph 14.
15. INSURANCE POLICIES. The Corporation shall have the
right from time to time to purchase, increase, modify or terminate insurance
policies on the life of Executive for the benefit of the Corporation, in such
amounts as the Corporation shall determine in its sole discretion. In connection
therewith, Executive shall, at such time or times and at such place or places as
the Corporation may reasonably direct, submit himself to such physical
examinations and execute and deliver such documents as the Corporation may
reasonably deem necessary or desirable.
16. ENTIRE AGREEMENT; AMENDMENT. This Agreement
constitutes the entire agreement of the parties hereto, and any prior agreement
between the Corporation and Executive is hereby superseded and terminated
effective immediately and shall be without further force or effect. No amendment
or modification himself shall be valid or binding unless made in writing and
signed by the party against whom enforcement thereof is sought.
17. NOTICES. Any notice required, permitted or desired to
be given pursuant to any of the provisions of this Agreement shall be delivered
in person or sent by responsible overnight delivery service or sent by certified
mail, return receipt requested, postage and fees prepaid, if to the Corporation,
at its
-9-
<PAGE>
address set forth above to the attention of the Corporation's Chief Financial
Officer and, if to Executive, at his address set forth above. Either of the
parties hereto may at any time and from time to time change the address to which
notice shall be sent hereunder by notice to the other party given under this
Paragraph 17. Notices shall be deemed effective upon receipt.
18. NO ASSIGNMENT; BINDING EFFECT. Neither this
Agreement, nor the right to receive any payments hereunder, may be assigned by
either party without the other party's prior written consent. This Agreement
shall be binding upon Executive, his heirs, executors and administrators and
upon the Corporation, its successors and assigns.
19. WAIVERS. No course of dealing nor any delay on the
part of either party in exercising any rights hereunder shall operate as a
waiver of any such rights. No waiver of any default or breach of this Agreement
shall be deemed a continuing waiver or a waiver of any other breach or default.
20. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, except that
body of law relating to choice of laws.
21. INVALIDITY. If any clause, paragraph, section or part
of this Agreement shall be held or declared to be void, invalid or illegal, for
any reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
22. FURTHER ASSURANCES. Each of the parties shall execute
such documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
23. HEADINGS. The headings contained in this Agreement
have been inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
24. PUBLICITY. The Corporation and Executive agree that
they will not make any press releases or other announcements prior to or at the
time of execution of this Agreement with respect to the terms contemplated
hereby, except as required by applicable law, without the prior approval of the
other party, which approval will not be unreasonably withheld.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
SHEFFIELD MEDICAL TECHNOLOGIES INC.
/s/ Douglas R. Eger
-------------------
Douglas R. Eger
Chairman & CEO
/s/ Thomas M. Fitzgerald
------------------------
Thomas M. Fitzgerald
-11-
19
<PAGE>
EXHIBIT A TO
EMPLOYMENT AGREEMENT
SHEFFIELD MEDICAL TECHNOLOGIES INC.
30 ROCKEFELLER PLAZA, SUITE 4515
NEW YORK, NEW YORK 10112
, 1996
To: Thomas M. Fitzgerald
4 St. Andrews Hill
Pittsford, New York 14534
By unanimous written consent of the Stock Option Committee of
the Board of Directors of Sheffield Medical Technologies Inc. (the "Company")
dated , 1996, the Company authorized the grant to you of an option (the
"Option") to purchase One Hundred Fifty Thousand (150,000) shares (the "Shares")
of Common Stock, par value $.01 per share, of the Company. The Option is being
granted in connection with the Employment Agreement dated as of June 6, 1996
between the Company and you.
No part of the option is currently exercisable. The option may
first be exercised on the respective dates, in the respective amounts and for
the respective exercise prices listed below:
First Date of No. of Shares Exercise Price Per
Exercise Exercisable Share
- ----------------- -------------------- ---------------------
June 1, 1997 50,000 $ 5.25
June 1, 1998 50,000 $ 6.75
June 1, 1999 50,000 $ 8.25
This Option must be exercised as to any and all Shares on or
prior to June 1, 2001 (on which date the Option will, to the extent not
previously exercised, expire).
Unless at the time of the exercise of the Option a
registration statement under the Securities Act of 1933, as amended (the "Act"),
is in effect as to such Shares, any Shares purchased by you upon the exercise of
the Option shall be
<PAGE>
acquired for investment and not for sale or distribution, and if the Company so
requests, upon any exercise of the Option, in whole or in part, you will execute
and deliver to the Company a certificate to such effect. The Company shall not
be obligated to issue any Shares pursuant to the Option if, in the opinion of
counsel to the Company, the Shares to be so issued are required to be registered
or otherwise qualified under the Act or under any other applicable statute,
regulation or ordinance affecting the sale of securities, unless and until such
Shares have been so registered or otherwise qualified. The Company confirms that
the Shares have been registered under a currently effective registration
statement.
You understand and acknowledge that, under existing law,
unless at the time of the exercise of the Option a registration statement under
the Act is in effect as to such Shares (i) any Shares purchased by you upon
exercise of this option may be required to be held indefinitely unless such
Shares are subsequently registered under the Act or an exemption from such
registration is available; (ii) any sales of such Shares made in reliance upon
Rule 144 promulgated under the Act may be made only in accordance with the terms
and conditions of that Rule (which, under certain circumstances, restrict the
number of shares which may be sold and the manner in which shares may be sold);
(iii) in the case of securities to which Rule 144 is not applicable, compliance
with Regulation A promulgated under the Act or some other disclosure exemption
will be required; (iv) certificates for Shares to be issued to you hereunder
shall bear a legend to the effect that the Shares have not been registered under
the Act and that the Shares may not be sold, hypothecated or otherwise
transferred in the absence of an effective registration statement under the Act
relating thereto or an opinion of counsel satisfactory to the Company that such
registration is not required; and (v) the Company will place an appropriate
"stop transfer" order with its transfer agent with respect to such Shares. In
addition, you understand and acknowledge that the Company has no obligation to
you to furnish information necessary to enable you to make sales under Rule 144.
The Company confirms that the Shares have been registered under a currently
effective registration statement.
In the event that the Company shall at any time prior to the
expiration of the Option and prior to the exercise thereof: (i) declare or pay
to the holders of the Common Stock a dividend payable in any kind of shares of
stock of the Company; or (ii) change or divide or otherwise reclassify its
Common Stock into the same or a different number of shares with or without par
value, or into shares of any class or classes; or (iii) consolidate or merge
with, or transfer its property as an entirety or substantially all of its assets
to any other corporation; or (iv) make any distribution of its assets to holders
of its Common Stock as a liquidation, or partial
-2-
<PAGE>
liquidation dividend or by way of return of capital; then, upon the subsequent
exercise of the Option, the purchase price of the Shares issuable upon the
exercise hereof shall be appropriately adjusted by the Board of Directors of the
Company so that you shall receive for the exercise price, in addition to or in
substitution for the Shares to which you would be entitled upon such exercise,
such additional shares of stock of the Company, or such reclassified shares of
stock of the Company, or such securities or property of the Company resulting
from such consolidation or merger or transfer, of such assets of the Company,
which you would have been entitled to receive had you exercised the Option prior
to the happening of any of the foregoing events.
The Option (or installment thereof) is to be exercised by
delivering to the Company a written notice of exercise in the form attached
hereto as Annex A, specifying the number of Shares to be purchased, together
with payment of the purchase price of the Shares to be purchased. The purchase
price is to be paid in cash.
The Option does not confer upon you any right whatsoever as a
stockholder of the Company.
The Option is granted to you under the Company's 1993 Stock
Option Plan, as amended, (the "Plan") and is intended to be an incentive stock
option. The terms of the Plan are incorporated by reference into the Option,
except as modified by the terms set forth herein. A copy of the Plan has been
delivered to you with this letter.
The Option shall be binding upon any successors or assigns of
the Company.
-3-
<PAGE>
If the foregoing correctly sets forth our understanding,
please indicate your acceptance by signing this letter in the space provided
below.
Very truly yours,
SHEFFIELD MEDICAL TECHNOLOGIES INC.
-------------------
Douglas R. Eger
Chairman & CEO
AGREED TO AND ACCEPTED:
- --------------------------
Thomas M. Fitzgerald
-4-
<PAGE>
Annex A
-------
STOCK SUBSCRIPTION FORM
To: Sheffield Medical Technologies Inc.
Gentlemen:
I hereby exercise my option to purchase from Sheffield Medical
Technologies Inc. (the "Company"), pursuant to the Stock Option Letter Agreement
between us dated as of , 1996, -------- shares of the Company's Common
Stock, $.01 par value, and herewith tender payment therefor at the rate of $---
per share. The option was originally granted pursuant to the terms of the
Company's 1993 Stock Option Plan.
I represent and warrant that I am acquiring the said shares
for my own account for investment purposes only; that I have no present
intention of selling or otherwise disposing of such shares or any part thereof;
that I will not transfer said shares in violation of the securities laws of the
United States; that I am familiar with the business operations, management and
financial condition and affairs of the Company; that I have not relied upon any
representation of the Company with respect thereto; and that I have the personal
financial means to comply with all of said representations. I further confirm
that I have been advised that said shares will not be registered under the
Securities Act of 1933, as amended, and that I have consulted with and been
advised by counsel as to the restrictions on resale to which said shares will
thereby be subject.
The form in which I wish my name and address to appear on the
Company's stock records is as follows:
Name:
----------------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
Very truly yours,
----------------------------------
Thomas M. Fitzgerald
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED FINANCIAL STATEMENTS FOR THE SECOND QUARTER ENDED JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,158,751
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,243,118
<PP&E> 332,942
<DEPRECIATION> 126,727
<TOTAL-ASSETS> 5,684,119
<CURRENT-LIABILITIES> 787,091
<BONDS> 0
0
0
<COMMON> 111,754
<OTHER-SE> 4,750,283
<TOTAL-LIABILITY-AND-EQUITY> 5,684,119
<SALES> 0
<TOTAL-REVENUES> 52,724
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,708,114
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,567
<INCOME-PRETAX> (1,657,957)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,657,957)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,657,957)
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
