U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-21994
GLYKO BIOMEDICAL, LTD.
(Exact name of small business issuer as specified in its charter)
Canada 68-0230537
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Pimentel Court, Novato, California 94949 (address of
principal executive offices)
(415) 382-6653
(Registrant's telephone number, including area code)
Not Applicable
(Former name,former address and former fiscal year,if changed since last report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 25,393,801 common shares
outstanding as of October 31, 1998.
Transitional Small Business Disclosure Format (check one): Yes___ No X
<PAGE>
GLYKO BIOMEDICAL, LTD.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997......................................2
Consolidated Statements of Operations for the three
and nine months ended September 30, 1998 and 1997......... 3
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997..........................4
Notes to Consolidated Financial Statements....................5
Item 2. Management's Discussion and Analysis......................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................12
Item 2. Changes in Securities...............................12
Item 3. Defaults upon Senior Securities.....................12
Item 4. Submission of Matters to a Vote of
Security Holders..................................12
Item 5. Other Information...................................12
Item 6. Exhibits and Reports on Form 8-K....................12
SIGNATURE.............................................................13
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
<TABLE>
GLYKO BIOMEDICAL, LTD.
CONSOLIDATED BALANCE SHEETS
(In U.S. dollars)
<CAPTION>
September 30, December 31,
1998 1997
(unaudited) (audited)
------------------------ ------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,236,288 $ 528,280
Trade receivables 186,340 141,743
Inventories 76,595 95,210
Note receivable 100,000 -
Other current assets 37,867 15,179
------------------------ ------------------------
Total current assets 1,637,090 780,412
Investment in BioMarin Pharmaceutical Inc. 7,476,889 3,025,990
Property, plant and equipment, net 93,368 118,910
Other assets 2,206 2,206
------------------------ ------------------------
Total assets $ 9,209,553 $ 3,927,518
======================== ========================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 88,490 $ 38,916
Accrued liabilities 319,532 393,408
Deferred rent and related costs - 365,880
------------------------ ------------------------
Total current liabilities 408,022 798,204
------------------------ ------------------------
Total liabilities 408,022 798,204
Stockholders' equity:
Common stock, no par value, unlimited
shares authorized, 25,313,176 and
21,573,044 shares issued and
outstanding at September 30, 1998
and December 31, 1997, respectively 15,591,042 13,154,224
Additional paid in capital 9,924,622 4,068,564
Common stock warrants and options 769,945 929,585
Deferred compensation - (33,364)
Accumulated deficit (17,484,078) (14,989,695)
------------------------ ------------------------
Total stockholders' equity 8,801,531 3,129,314
------------------------ ------------------------
Total liabilities and stockholders'
equity $ 9,209,553 $ 3,927,518
======================== ========================
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
2
<PAGE>
GLYKO BIOMEDICAL, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in U.S. dollars)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- -------------------------------
1998 1997 1998 1997
--------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Sales of products and services $ 302,435 $ 393,689 $ 843,587 $ 910,969
Other revenues 83,898 78,712 288,243 706,847
--------------- ---------------- ------------- ----------------
Total revenues: 386,333 472,401 1,131,830 1,617,816
Expenses:
Cost of products and services 95,665 123,897 275,555 383,072
Research and development 281,296 130,016 627,673 468,860
Selling, general and administrative 150,925 179,279 510,363 532,371
Other - - (165,880) -
--------------- ---------------- ------------- ----------------
Total expenses: 527,886 433,192 1,247,711 1,384,303
--------------- ---------------- ------------- ----------------
Income (loss) from operations (141,553) 39,209 (115,881) 233,513
Equity in loss of BioMarin Pharmaceutical Inc. (1,063,723) (715,225) (2,405,161) (1,920,863)
Interest income 10,950 3,288 27,959 8,398
Other income (loss) (1,300) 1,084 (1,300) 16,020
--------------- ---------------- ------------- ----------------
Net loss $ (1,195,626) $ (671,644) $(2,494,383) $ (1,662,932)
=============== ================ ============= ================
Net loss per common share $ (0.05) $ (0.03) $ (0.11) $ (0.08)
=============== ================ ============= ================
Weighted average number of shares
used in computing per share amounts 24,726,345 21,533,488 23,151,544 20,182,303
=============== ================ ============= ================
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
3
<PAGE>
GLYKO BIOMEDICAL, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in U.S. dollars)
Nine months ended September 30,
--------------------------------
1998 1997
---------------- --------------
Cash flows from operating activities:
Net loss $ (2,494,383) $ (1,662,932)
Adjustments to reconcile net loss to net
cash provided by (used in)
operating activities:
Depreciation and amortization 67,740 43,244
Equity in the loss of BioMarin
Pharmaceutical Inc. 2,405,161 1,920,863
Gain on settlement of claim (165,880) -
Changes in assets and liabilities:
Trade receivables (44,597) (77,660)
Inventories 18,615 (25,082)
Note receivable (100,000) -
Other current assets (22,688) 2,655
Accounts payable 49,574 (132,222)
Accrued liabilities (73,876) 198,771
Deferred rent and related costs (200,000) 31,087
---------------- ---------------
Total adjustments 1,934,049 1,961,656
---------------- ---------------
Net cash provided by (used in)
operating activities (560,334) 298,724
Cash flows from investing activities:
Investment in BioMarin
Pharmaceutical Inc. (1,000,002) (1,500,000)
Purchases of property, plant
and equipment (8,834) (66,908)
---------------- ----------------
Net cash used in investing
activities (1,008,836) (1,566,908)
Cash flows from financing activities:
Net proceeds from the issuance of
common stock and warrants
in a private placement - 1,423,873
Net proceeds from the issuance of
common stock pursuant to a
technology and license agreement 70,740 -
Proceeds from the exercise of stock
options and common stock warrants 2,206,438 -
--------------- ----------------
Net cash provided by financing
activities 2,277,178 1,423,873
--------------- ----------------
Net increase in cash 708,008 155,689
Cash and cash equivalents, beginning
of period 528,280 210,992
--------------- ----------------
Cash and cash equivalents,end of period $ 1,236,288 $ 366,681
=============== ================
Supplemental disclosure of non-cash financing activities:
Common stock and common stock warrants issued
in exchange for financing services $ - $ 160,881
The accompanying notes are an integral part of these statements.
4
<PAGE>
GLYKO BIOMEDICAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements are unaudited but
have been prepared in conformity with U.S. generally accepted accounting
principles using U.S. dollars and on substantially the same basis as the
audited annual financial statements. In the opinion of management, the
unaudited consolidated financial statements reflect all adjustments
necessary for a fair presentation of the consolidated financial
position, results of operations and cash flows for those periods
presented. The unaudited results for the period ended September 30, 1998
are not necessarily indicative of results to be expected for the entire
year. The accompanying consolidated financial statements should be read
in conjunction with the consolidated financial statements and related
footnotes for the year ended December 31, 1997 included in the Company's
Form 10-KSB.
2. Company and Description of Business
The consolidated financial statements include the accounts of Glyko
Biomedical, Ltd. ("GBL") and its wholly-owned subsidiary, Glyko, Inc.,
(collectively, the "Company"). Since its inception in October 1990, the
Company has engaged in research and development of new techniques to
analyze and manipulate carbohydrates for research, diagnostic and
pharmaceutical purposes. The Company has developed a line of analytic
instrumentation laboratory products that include an imaging system,
analysis software and chemical analysis kits. Glyko, Inc. is continuing
to develop additional chemical kits for use with the imaging system, and
is also developing a line of diagnostic products based on carbohydrate
biology. In October 1996, GBL formed BioMarin Pharmaceutical Inc.
("BioMarin"), a development stage company, a Delaware corporation,
to develop the Company's pharmaceutical products. BioMarin began
business on March 21, 1997 (inception) and subsequently issued
1,500,000 shares of common stock to GBL for $1.5 million. As
consideration for a certain license agreement dated June 1997, BioMarin
issued GBL 7,000,000 shares of BioMarin common stock. Beginning in
October 1997, BioMarin raised capital from third parties with the
result that at December 31, 1997, GBL's ownership interest in
BioMarin had been reduced to 41.3% of BioMarin's outstanding
capital stock. As of December 31, 1997, the Company began
recording its share of BioMarin's net loss utilizing the equity method
of accounting. On June 30, 1998, BioMarin raised net proceeds of $3.3
million (598,535 shares) including a $1.0 million investment from GBL.
On August 3, 1998 BioMarin raised an additional $8.1 million from third
parties. On September 4, 1998, BioMarin received $8 million from Genzyme
Corp. ("Genzyme") upon execution of a joint venture agreement in which
BioMarin issued 1,333,333 shares of common stock to Genzyme. As a
result of this joint venture agreement, BioMarin has a 50% interest in
the income or loss of the joint venture, BioMarin/Genzyme, LLC. As of
September 30, 1998, GBL owned 36.2% of BioMarin's outstanding capital
stock. Subsequent to September 30, 1998, GBL sold to BioMarin 100% of
the outstanding capital stock of Glyko, Inc. in exchange for 2,259,039
shares of BioMarin's common stock plus BioMarin agreed to assume options
to purchase up to 585,969 shares of GBL's common stock (which options
were previously issued to employees of Glyko, Inc.) and BioMarin paid
$500 in cash. As of October 7, 1998, GBL owned 41.7% of BioMarin's
outstanding capital stock.
The consolidated financial statements as of and for the three and nine
months ended September 30, 1997 have been retroactively restated to
reflect deconsolidation of BioMarin. All significant intercompany
accounts and transactions have been eliminated. Certain balances in the
prior years have been reclassified to conform with the current year
presentation.
The Company, to the extent of taxable income, has not provided taxes as
the Company believes that any taxable income will be offset by net
operating loss carryforwards.
Since its inception, the Company has incurred a cumulative deficit of
$17,484,000 and GBL expects to continue to incur losses during 1998 due
to its share of BioMarin's net loss resulting from the ongoing research
and development of BioMarin's pharmaceutical product candidates. As a
result of GBL's sale of Glyko, Inc. on October 7, 1998, GBL has limited
operating activities and its principal asset is its investment in
BioMarin. Accordingly, without further investment in other companies or
technologies, management believes that GBL has sufficient cash to
sustain planned operations for the foreseeable future as it no longer
owns the analytic and diagnostic operations of Glyko, Inc. BioMarin will
require additional capital, however, GBL is not obligated to provide
this capital. Management of GBL believes that due to the current
financial position and stage of development of BioMarin, no reserve
is required for any potential impairment of its investment in BioMarin.
5
<PAGE>
GLYKO BIOMEDICAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Product Sales
The Company recognizes product revenues and related cost of sales upon
shipment of products. Service revenues are recognized upon completion of
services as evidenced by the transmission of related reports to
customers. Other revenues, principally licensing and distribution fees,
are recognized upon completion of applicable contractual obligations.
4. Net Loss per Share
Basic net loss per share is calculated by dividing net loss by the
weighted average common shares outstanding during the period, and for
diluted net income per share, net income is divided by the weighted
average of common stock outstanding and potential common shares during
the period. Potential common shares included in the dilution
calculation consist of dilutive shares issuable upon the exercise of
outstanding common stock options, warrants and contingent issuances of
common stock. For periods in which the company has losses, such
potential common shares are excluded from the computation of
diluted net loss per share as their effects are antidilutive.
Potentially dilutive securities include outstanding options for the
purchase of 2,004,692 and 2,600,485 shares of common stock and
outstanding warrants for the purchase of 7.7 million and 10.9 million
shares of common stock at September 30, 1998 and 1997, respectively.
These securities were not considered in the computation of dilutive loss
per share because their effect would be anti-dilutive for the three and
nine months ended September 30, 1998 and 1997. At October 7, 1998, after
the sale of Glyko, Inc., outstanding GBL options totaled 1,418,723.
5. Termination of Millipore Marketing Agreement
In 1990, the Company entered into an agreement (the "Agreement") giving
Millipore the exclusive right to market and distribute the Company's
analytic products for an initial period of six years. In April 1994,
Millipore and the Company agreed to terminate the Agreement. In exchange
for relinquishing its rights under the Agreement, Millipore will receive
500,000 shares of common stock, subject to Toronto Stock Exchange
approval. In the third quarter of 1994 the Company recorded a charge to
operations of $219,811 for costs related to the termination of the
Agreement. This amount represents the estimated fair market value of
stock to be issued as a result of the termination of the Agreement. The
Toronto Stock Exchange has not permitted the issuance of the 500,000
shares because the transaction is not considered arms length. The Toronto
Stock Exchange requires that an independent valuation be performed in
order to reconsider the issuance of these shares. No such valuation has
been performed to date. Millipore was a stockholder in the Company from
1990 until April 1998. At September 30, 1998 the liability of $219,811 is
included in accrued liabilities in the accompanying consolidated balance
sheets.
6. Private Placement of Securities
On March 21, 1997, the Company closed a Cdn.$2.0 million (USD$1.4
million) financing (the Q197 Financing) to fund the start-up of BioMarin
which was formed to develop the Company's pharmaceutical products. As a
result of this financing, GBL issued 4.0 million units at Cdn.$0.50 per
unit, each unit consisting of one common share and one common share
purchase warrant. Each warrant can be exercised for one share of common
stock at Cdn.$1.00 per share, expiring on March 21, 1999. An additional
280,000 units and 280,000 warrants valued at approximately $161,000 were
distributed to the brokers in exchange for services rendered in
connection with the Q197 Financing. The Company utilized the
Black-Scholes model to value all the warrants issued in the Q197
Financing at approximately $496,000. GBL used the proceeds of the
offering and additional cash to purchase 1,500,000 common shares of
BioMarin for $1.5 million
6
<PAGE>
GLYKO BIOMEDICAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BioMarin and the Company have entered into a License Agreement dated June
26, 1997, pursuant to which the Company granted BioMarin an exclusive,
worldwide, perpetual, irrevocable, royalty-free right and license to
certain worldwide patents, trade secrets, copyrights and other
proprietary rights to all know-how, processes, formulae, concepts, data
and other such intellectual property, whether patented or not, owned or
licensed by the Company and its subsidiaries as of the date of the
License Agreement for application in therapeutic uses, including, without
limitation, drug discovery and genomics. Under the same License
Agreement, BioMarin granted the Company an exclusive, worldwide,
perpetual, irrevocable, royalty-free cross-license to all improvements
BioMarin may make upon the licensed intellectual property. As
consideration for this license, BioMarin issued GBL 7,000,000 shares of
BioMarin common stock.
Subsequent to September 30, 1998, GBL sold to BioMarin 100% of the
outstanding capital stock of Glyko, Inc. in exchange for 2,259,039 shares
of BioMarin's common stock plus BioMarin agreed to assume options to
purchase up to 585,969 shares of GBL's common stock (which options were
previously issued to employees of Glyko, Inc.) and BioMarin paid $500 in
cash. As a result of this transaction, as of October 7, 1998, GBL's share
of BioMarin's outstanding capital stock increased from 36.2% to 41.7%.
The exercise of BioMarin options or warrants will result in a further
reduction of GBL's ownership percentage and future fundraising efforts of
BioMarin may result in a similar reduction of GBL's ownership percentage.
To the extent that the issuance of common stock by BioMarin to third
parties at a per share price greater than or less than the per share
carrying value of GBL's investment in BioMarin, the resulting gain or
loss is reflected as an increase or decrease, respectively, in additional
paid in capital in the consolidated balance sheet. During the nine months
ended September 30, 1998, the Company increased additional paid in
capital by $5,856,000 as a result of the sale of stock by BioMarin at
$6.00 per share in 1998.
7. Investment in BioMarin Pharmaceutical Inc.
Results of the Company's unconsolidated affiliate, BioMarin (a
development stage company), are summarized as follows for the three and
nine months ended September 30, 1998, three months ended September 30,
1997 for the period from March 21, 1997(inception) to September 30, 1997:
<TABLE>
<CAPTION>
Period from
Three months Three months Nine months March 21, 1997
ended ended ended (inception), to
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
(unaudited) (unaudited) (unaudited) (unaudited)
------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
OPERATING COSTS AND EXPENSES:
Research and development $ 1,465,909 $ 551,463 $ 3,621,468 $ 1,469,336
General and administrative 1,439,441 166,364 2,771,186 457,018
------------------ ------------------ ----------------- ------------------
Loss from operations (2,905,350) (717,827) (6,392,654) (1,926,354)
EQUITY IN LOSS OF BIOMARIN/
GENZYME, LLC (141,554) - (141,554) -
INTEREST INCOME 229,831 2,602 469,098 5,491
------------------ ------------------ ----------------- ------------------
Net loss $ (2,817,073) $ (715,225) $ (6,065,110) $ (1,920,863)
================== ================== ================= ==================
THE COMPANY'S EQUITY IN
LOSS OF BIOMARIN $ (1,063,723) $ (715,225) $ (2,405,161) $ (1,920,863)
================== ================== ================= ==================
</TABLE>
7
<PAGE>
GLYKO BIOMEDICAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Note Receivable
As part of its compensation for certain services, GBL issued stock
options to a consulting group. These options are in the process of being
approved by the Toronto Stock Exchange. GBL loaned $100,000 to the
consulting group in anticipation that the Toronto Stock Exchange would
approve the stock options. The excess of the fair market value of the GBL
stock at September 30, 1998 over the exercise price of the options
significantly exceeds the amount of the loan. The options are held as
security for the loan.
9. Contingencies
Facilities Dispute
In July 1998, the claim by Millipore Corp. relating to a facilities
dispute and other matters was settled, resulting in a gain of $165,880 as
the amount of the ultimate settlement was less than the amount previously
provided for by the Company. This was recognized in the second quarter
and six month ended June 30, 1998 results of operations.
Product Liability and Lack of Insurance
The Company is subject to product liability claims in the event that the
use of Glyko, Inc.'s products result in adverse effects during testing or
commercial sale. The Company currently does not maintain product
liability insurance. Product liability claims for future sales of Glyko,
Inc. products will be the responsibility of BioMarin.
10. Subsequent Event
As discussed in Note 2, on October 7, 1998, the Company sold its 100%
ownership in Glyko Inc. to BioMarin in exchange for 2,259,039 shares of
BioMarin's outstanding common stock plus the assumption of 585,969
outstanding GBL stock options. This sale increased GBL's ownership in
BioMarin from 36.2% to 41.7%. For the three and nine month periods ended
September 30, 1998 substantially all of the Company's consolidated
operating revenues and expenses related to Glyko, Inc. Subsequent to
October 7, 1998, these operating revenues and expenses will no longer be
consolidated.
11. New Accounting Standards
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
131,"Disclosures about Segments of an Enterprise and Related Information"
and in June, 1998 issued SFAS No. 133, "Accounitng for Derivative
Instruments and Hedging Activities". SFAS No. 131 and 133 are not
expected to impact the Company's financial reporting.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of financial condition and results
of operations contains certain forward looking statements within the
meaning of Section 27A of the U.S. Securities Act of 1933, as amended,
and Section 21E of the U.S. Securities Exchange Act of 1934, as amended,
that involve risks and uncertainties, such as statements regarding the
development of a line of carbohydrate diagnostic products as discussed in
the "Overview," statements regarding, ongoing liquidity of GBL as
discussed in "Liquidity and Capital Resources," and future operating
results of BioMarin in "Risk Factors - Dependence on Investment in
BioMarin." The Company's actual results could differ materially from the
results anticipated in these forward-looking statements. Risks are
identified in "Overview, " "Results of Operations," "Liquidity and
Capital Resources," and "Risk Factors."
Overview
The consolidated financial statements include the accounts of Glyko Biomedical,
Ltd. ("GBL") and its wholly-owned subsidiary, Glyko, Inc., (collectively, the
"Company"). Since its inception in October 1990, the Company has engaged in
research and development of new techniques to analyze and manipulate
carbohydrates for research, diagnostic and pharmaceutical purposes. The Company
has developed a line of analytic instrumentation laboratory products that
include an imaging system, analysis software and chemical analysis kits. Glyko,
Inc. is continuing to develop additional chemical kits for use with the imaging
system, and is also developing a line of diagnostic products based on
carbohydrate biology.
In October 1996, GBL formed BioMarin Pharmaceutical Inc. ("BioMarin") to develop
the Company's pharmaceutical product candidates. In March 1997, the Company
raised Cdn.$2.0 million (USD$1.4 million) to fund the operational start-up of
BioMarin, a development stage company. With the proceeds of this financing plus
additional funds, GBL invested $1.5 million in BioMarin in exchange for
1,500,000 shares of BioMarin common stock. BioMarin issued 7,000,000 shares of
BioMarin common stock to GBL pursuant to a License Agreement between the Company
and BioMarin executed on June 26, 1997. As of June 26, 1997, GBL held at total
of 8,500,000 shares of BioMarin's common stock representing 100% of BioMarin's
outstanding capital stock. Subsequent private placement financings by BioMarin
reduced the Company's ownership of BioMarin to 36.2% at September 30, 1998. On
October 7, 1998, GBL sold to BioMarin 100% of the outstanding capital stock of
Glyko, Inc. in exchange for 2,259,039 shares of BioMarin's common stock plus
BioMarin agreed to assume options to purchase up to 585,969 shares of GBL's
common stock (which options were previously issued to employees of Glyko, Inc.)
and BioMarin paid $500 in cash, This transaction increased GBL's ownership of
BioMarin to 41.7% of BioMarin's outstanding capital stock.
The Company recorded a net loss for the nine months ended September 30, 1998 in
the amount of $2,494,000 mainly due to its share of BioMarin's net loss. For the
period from its inception to September 30, 1998, the Company has incurred a
cumulative deficit of $17,484,000. GBL anticipates net losses will continue at
least through 1998 due to GBL's share of BioMarin's net loss.
As a result of GBL's sale of Glyko, Inc., as of October 7, 1998, GBL has limited
operating activities and its principal asset is its investment in BioMarin.
Results of Operations
The Quarters Ended September 30, 1998 and 1997
Revenues in the third quarter of 1998 were $386,000 and consisted of sales of
products and services of $302,000 and grant revenues of $84,000. Sales of
products and services consisted of sales of chemical analysis kits and imaging
systems and fees for custom analytic services. Revenues for the same period in
1997 were $472,000 and consisted of sales of products and services of $393,000
and other revenues consisting of development fees of $25,000 and grant revenues
of $54,000. The decrease in product revenues in the third quarter of 1998
compared to the same period of 1997 was due to a decrease in the sales volume of
imaging systems.
9
<PAGE>
Gross margin on sales of products and services was 68 percent in the third
quarter of 1998 and 68 percent in the same period in 1997.
Research and development expenses in the third quarter of 1998 were $281,000
compared to $130,000 in the third quarter of 1997, an increase of $151,000. The
increase was mainly due to an increase in personnel and in lab supplies
purchased.
Selling, general and administrative expense was $151,000 in the third quarter of
1998, a decrease of $28,000 from the third quarter of 1997 expense of $179,000.
This decrease was due to the decrease of costs allocated to Glyko, Inc. and an
increase of costs allocated to BioMarin for personnel expenses.
Equity in loss of BioMarin in the third quarter of 1998 was $1,064,000 compared
to $715,000 for the third quarter of 1997, in increase of $349,000. The increase
was due to the increased net loss of BioMarin partially offset by a decrease in
ownership by GBL of BioMarin.
Interest income earned in the third quarters of 1998 and 1997 reflected earnings
on cash invested in short term interest bearing accounts. The increase in
interest income in the third quarter of 1998 resulted from higher cash balances
available for investment compared to the third quarter of 1997. Interest expense
in the third quarters of 1998 and 1997 was immaterial.
The Nine Months Ended September 30, 1998 and 1997
Revenues in the nine months ended September 30, 1998 were $1,132,000 and
consisted of sales of products and services of $844,000 and other revenues which
consisted of development, technology and licensing fees of $25,000 and grant
revenues of $263,000. Sales of products and services consisted of sales of
chemical analysis kits and imaging systems and fees for custom analytic
services. Revenues for the same period in 1997 were $1,618,000 and consisted of
sales of products and services of $911,000 and other revenues which consisted of
a technology and licensing fee of $625,000 and grant revenues of $82,000. The
decrease in product revenues in the first nine months of 1998 compared to the
same period of 1997 was due to a decrease in custom analysis services. The
decrease in other revenues was due to the fact that in 1997 the Company received
a one-time fee relating to revised technology and licensing agreements that
did not reoccur in 1998, partially offset by an increase in grant revenues due
to a grant beginning on June 1, 1997.
Gross margin on sales of products and services was 67 percent in the first nine
months of 1998 and 58 percent in the same period in 1997. The increase in gross
margin in 1998 was due to a combination of decreased manufacturing overhead
expenses and an increase in product prices that took effect in July, 1997.
Research and development expenses in the first nine months of 1998 were $628,000
compared to $469,000 in the same period in 1997, an increase of $159,000. The
increase in research and development expenses for the nine months ended
September 30, 1998 compared to the same period in 1997 was mainly due to the
increase in lab personnel and lab supplies purchased.
Selling, general and administrative expense was $510,000 in the first nine
months of 1998, a decrease of $22,000 from the same period in 1997 of $532,000.
The decrease was due to the decrease of costs allocated to Glyko, Inc. and an
increase of costs allocated to BioMarin for personnel expenses.
Equity in loss of BioMarin for first nine months of 1998 was $2,405,000 compared
to $1,921,000 for same period in 1997, an increase of $484,000. The increase was
due to the increased net loss of BioMarin partially offset by a decrease in
ownership by GBL of BioMarin.
Interest income earned in the first nine months of 1998 and 1997 reflected
earnings on cash invested in short term interest bearing accounts. The increase
in interest income in the first nine months of 1998 resulted from higher cash
balances available for investment compared to the same period in 1997. Interest
expense in the first nine months of 1998 and 1997 was immaterial.
Other operating expenses in the first nine months of 1998 of $(165,880)
represents the gain on the settlement of a claim at an amount less than was
provided for by the Company.
10
<PAGE>
Liquidity and Capital Resources
The Company's cash position increased by $708,000 for the nine months ended
September 30, 1998 to $1,236,000. Net cash proceeds of $2,277,000 from the
issuance of common stock from the exercise of stock options and warrants and a
private placement financing relating to a technology and licensing fee agreement
was partially offset by the investment in BioMarin of $1,000,000, net cash used
in operating activities of $560,000, and the purchases of property, plant and
equipment of $9,000.
Since its inception, the Company has incurred a cumulative deficit of
$17,484,000 and GBL expects to continue to incur losses during 1998 due to its
share of BioMarin's net loss resulting from BioMarin's ongoing research and
development of pharmaceutical product candidates. As a result of GBL's sale of
Glyko, Inc., as of October 7, 1998, GBL has limited operating activities and its
principal asset is its investment in BioMarin. Accordingly, without further
investments in other companies or technologies, management believes that GBL has
sufficient cash to sustain planned operations for the forseeable future as it no
longer owns the analytic and diagnostic operations of Glyko, Inc. BioMarin will
require additional capital, however, GBL is not obligated to provide this
capital. Management of GBL believes that, due to the current financial position
and stage of development of BioMarin, no reserve is required for any potential
impairment of its investment in BioMarin. The Company is not obligated to make
future investments in BioMarin and BioMarin's net losses do not have an impact
on GBL's cash position. See "Risk Factors - Dependence on Investment in
BioMarin," "-History of Operating Losses - Uncertainty of Future Profitability."
RISK FACTORS
Dependence on Investment in BioMarin
As of October 7, 1998, GBL's principal asset was its 41.7% ownership of
BioMarin's outstanding capital stock. GBL's success is dependent on the
successful operations of BioMarin including, but not limited to, BioMarin's
ability to receive FDA approval of existing and future pharmaceutical product
candidates, BioMarin's ability to retain key personnel, BioMarin's ability to
market products effectively and successfully and BioMarin's ability to raise
additional cash to fund future operations.
History of Operating Losses - Uncertainty of Future Profitability
The Company's share of BioMarin's net loss plus Glyko, Inc.'s current net
operating loss resulted in the Company reporting a net loss for the nine months
ended September 30, 1998 of $2,494,000. GBL expects to continue to incur losses
during 1998 due to its share of BioMarin's net loss resulting from BioMarin's
ongoing research and development of pharmaceutical product candidates. The
BioMarin losses do not have an impact on cash balances of GBL. The Company is
not obligated to make future investments in BioMarin. As a result of GBL's sale
of Glyko, Inc., as of October 7, 1998, GBL has limited operating activities and
its principal asset is its investment in BioMarin. Accordingly, without further
investments in other companies or technologies, management believes that GBL has
sufficient cash to sustain planned operations for the foreseeable future as it
no longer owns the analytic and diagnostic operations of Glyko, Inc. BioMarin
will require additional capital, however, GBL is not obligated to provide this
capital. Management of GBL believes that, due to the current financial position
and stage of development of BioMarin, no reserve is required for any potential
impairment of its investment in BioMarin.
Year 2000-Related Problems
Following the sale of Glyko, Inc., GBL is again conducting a review of potential
year-2000 compliance issues. Since GBL no longer offers products and services
for sale, GBL is focusing its inquiry on the impact of these issues on its
internal administrative activities and on its professional service providers and
other third parties. GBL does not currently anticipate that it will incur
material expenditures in connection with any products or services it previously
offered. GBL may incur some expense in connection with this review, thought it
does not currently anticipate that these expenses will be material.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In July 1998, the claim by Millipore Corp. relating to a
facilities dispute and other matters was settled. For
additional disclosure regarding this dispute with Millipore,
see Part II, Item 1 of Form 10-QSB for the quarter ended March
31, 1998.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders None.
Item 5. Other Information.
On October 7, 1998, GBL sold 100% of the outstanding capital
stock of Glyko, Inc. to BioMarin. As consideration for such
sale, BioMarin issued 2,259,039 shares of common stock of
BioMarin to GBL, agreed to assume options to purchase up to
585,969 shares of the GBL's common stock (which options were
previously issued to employees of Glyko, Inc.) and paid GBL
$500 in cash. The shares of BioMarin common stock were valued
at $6.00 per share, yielding a total value of $13,554,234, and
the options assumed were valued at $945,765, which, when
combined with the $500 in cash, yields a total value for the
consideration received of $14,500,499.
BioMarin is a privately held biopharmaceutical company focused
on carbohydrate enzyme therapeutics and is incorporated in
Delaware. Prior to the closing of this sale, as of September
30, 1998, the Company owned approximately 36.2% of BioMarin's
outstanding capital stock. Following the closing of this sale,
as of October 7, 1998, the Company owned approximately 41.7%
of the outstanding capital stock of BioMarin. Dr. John Klock,
the President and a director of the Company, is also the
President and a director of BioMarin. In June 1997, Dr. Klock
was sold 800,000 shares of the BioMarin's common stock for a
purchase price of $800,000, paid for with a note, secured by
the underlying stock, due on July 31, 2000. Mr. Gwynn
Williams, who is a director of the Company and also a major
stockholder of GBL, is also a director of BioMarin, and in
such capacity was previously granted an option to purchase
20,000 shares of BioMarin's common stock at an exercise price
of $1.00 per share. Mr. Raymond W. Anderson, a director of the
Company, is also an officer of BioMarin and on June 22, 1998,
was granted an option to purchase 200,000 shares of BioMarin's
common stock at an exercise price of $4.00 per share.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report
See Exhibit Index attached hereto.
(b) Reports on Form 8K
No reports were filed on Form 8-K during the three
months ended September 30, 1998.
12
<PAGE>
SIGNATURE
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.
GLYKO BIOMEDICAL, LTD.
Dated: November 13, 1998 By: \s\ John C. Klock, M.D.
- --------------------------------------- -------------------------------------
John C. Klock, M.D.
President, Chief Executive Officer
and Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number
2.1 Share Exchange Agreement between Glyko Biomedical, Ltd. and
BioMarin Pharmaceutical Inc. dated September 15, 1998
3.1 Registrant's Articles of Incorporation and Bylaws (filed as
exhibit 3.1 to Form 10-SB Registration Statement No. 0-21994
dated August 6, 1993 and incorporated herein by reference).
3.2 Restated Certificate of Incorporation of BioMarin
Pharmaceutical, Inc. (filed as exhibit 3.1 to Form 10-QSB
dated September 30, 1997, and incorporated herein by
reference).
3.3 Bylaws of BioMarin Pharmaceutical, inc. (filed as exhibit
3.2 to Form 10-QSB dated September 30, 1997, and
incorporated herein by reference).
4.1 Registrant's Articles of Incorporation and Bylaws (filed as
exhibit 3.1 to Form 10-SB Registration Statement No. 0-21994
dated August 6, 1993 and incorporated herein by reference).
Restated Certificate of Incorporation of BioMarin
Pharmaceutical, Inc. (filed as exhibit 3.1 to Form 10-QSB
dated September 30, 1997, and incorporated herein by
reference).
10.1 Registrant's Stock Option Plan (filed as exhibit 10.1 to
Form 10-SB Registration Statement No. 0-21994 dated August
6, 1993 and incorporated herein by reference).
10.2 Joint Venture Agreement between: Registrant; Millipore
Corporation; Glycomed Incorporated; Gwynn R.Williams;
Astroscan, Ltd.; and Astromed, Ltd. dated December 18, 1990
(filed as exhibit 10.2 to Form 10-SB Registration Statement
No. 0-21994 dated August 6, 1993 and incorporated herein by
reference).
10.3 Distribution Agreement between Registrant and Millipore
Corporation dated December 18, 1990 (filed as exhibit 10.3
to Form 10-SB Registration Statement No. 0-21994 dated
August 6, 1993 and incorporated herein by reference).
10.4 License Agreement between Registrant, and Astroscan, Ltd.
and Astromed, Ltd. (filed as exhibit 10.4 to Form 10-SB
Registration Statement No. 0-21994 dated August 6, 1993
and incorporated herein by reference).
10.5 License Agreement between Registrant and Glycomed
Incorporated (filed as exhibit 10.5 to Form 10-SB
Registration Statement No. 0-21994 dated August 6, 1993 and
incorporated herein by reference).
10.6 Loan Agreement between Registrant, and Millipore Corporation
and Gwynn R. Williams, dated April 9, 1992(filed as exhibit
10.6 to Form 10-SB Registration Statement No. 0-21994 dated
August 6, 1993 and incorporated herein by reference).
10.7 Employment Agreement between Registrant and John C. Klock,
M.D., dated December 20, 1990(filed as exhibit 10.7 to Form
10-SB Registration Statement No. 0-21994 dated August 6,
1993 and incorporated herein by reference).
10.8 Exchange Agreements between Registrant, and the share and
option holders of Glyko, Inc., dated December 10, 1992
(filed as exhibit 10.8 to Form 10-SB Registration Statement
No. 0-21994 dated August 6, 1993 and incorporated herein by
reference).
10.9 Amendment Number Two to Exclusive Distribution and Supply
Agreement between Registrant and Millipore Corporation dated
September 22, 1993 (filed as exhibit 10.4 to Form 10-KSB
Statement dated December 31, 1993 and incorporated herein by
reference).
10.10 Amendment Number Two to Joint Venture Agreement between:
Registrant; Millipore Corporation; Glycomed Incorporated;
Gwynn R. Williams; Astroscan, Ltd.; and Astromed, Ltd. dated
April 28, 1994 (filed as exhibit 10.1 to Form 10-QSB dated
March 31, 1994 and incorporated herein by reference).
10.11 Employment Agreement between Registrant and John C. Klock,
M.D., dated January 1, 1994 (filed as exhibit 10.2 to Form
10-QSB dated March 31, 1994 and incorporated herein by
reference).
10.12 Glyko Biomedical Share Option Plan - 1994 (filed as exhibit
10.1 to Form 10-QSB dated June 30, 1994 and incorporated
herein by reference).
10.13 Development and Supply Agreement between Registrant and
Bio-Rad Laboratories, Inc., dated February 16, 1995 (filed
as exhibit 10.1 to Form 10-KSB dated March 31, 1996 and
incorporated herein by reference).
10.14 International Distribution Agreement between Registrant and
Toyobo Co., Ltd. and MC Medical. Inc.dated September 12,
1995 (filed as exhibit 10.2 to Form 10-KSB dated March 31,
1996 and incorporated herein by reference).
10.15 Commercial Lease between Registrant and Douglas R. Kaye
dated December 23, 1996 (filed as exhibit 10.1 to Form
10-KSB/A date December 31, 1996 and incorporated herein by
reference.)
<PAGE>
Exhibit
Number Description
10.16 Toyobo Distribution Agreement (confidential portions of
exhibit have been omitted pursuant to a request for
confidential treatment and filed separately with the
Commission). Filed as exhibit 10.1 to Form 10-QSB dated
March 31, 1997, and incorporated herein by reference.
10.17 First Amendment to Bio-Rad Laboratories, Inc. Agreement
(confidential portions of exhibit have been omitted pursuant
to a request for confidential treatment and filed separately
with the Commission). Filed as exhibit 10.1 to Form 10-QSB
dated June 30, 1997, and incorporated herein by reference.
10.18 Array Medical License and Development Agreement
(confidential portions of exhibit have been omitted pursuant
to a request for confidential treatment and filed separately
with the Commission). Filed as exhibit 10.2 to Form 10-QSB
dated June 30, 1997, and incorporated herein by reference.
10.19 License Agreement between Glyko Biomedical Ltd. and BioMarin
Pharmaceutical, Inc. (filed as exhibit 10 to Form 10-QSB
dated September 30, 1997, and incorporated herein by
reference.)
22.1 Notice of Annual Meeting of Shareholders, 1997 Annual
Information Circular, Form of Proxy and Policy 41 Form.
Filed as Definitive 14A documents on May 18, 1998, and
incorporated herein by reference.
27.1 Financial Data Schedule (see Financial Data Schedule hereto
attached at page 16)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000908401
<NAME> Glyko Biomedical, Ltd.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 1,236,288 1,236,288
<SECURITIES> 0 0
<RECEIVABLES> 186,340 186,340
<ALLOWANCES> 0 0
<INVENTORY> 76,595 76,595
<CURRENT-ASSETS> 1,637,090 1,637,090
<PP&E> 452,264 452,264
<DEPRECIATION> (358,896) (358,896)
<TOTAL-ASSETS> 9,209,553 9,209,553
<CURRENT-LIABILITIES> 408,022 408,022
<BONDS> 0 0
0 0
0 0
<COMMON> 15,591,042 15,591,042
<OTHER-SE> (6,789,511) (6,789,511)
<TOTAL-LIABILITY-AND-EQUITY> 9,209,553 9,209,553
<SALES> 302,435 843,587
<TOTAL-REVENUES> 386,333 1,131,830
<CGS> 95,665 275,555
<TOTAL-COSTS> 95,665 275,555
<OTHER-EXPENSES> 432,221 972,156
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,195,626) (2,494,383)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,195,626) (2,494,383)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,195,626) (2,494,383)
<EPS-PRIMARY> (0.05) (0.11)
<EPS-DILUTED> (0.05) (0.11)
</TABLE>
THIS SHARE EXCHANGE AGREEMENT made as of the 15th day of September, 1998.
B E T W E E N:
GLYKO BIOMEDICAL LTD.,
a corporation incorporated under the laws of Canada,
(hereinafter called the "Vendor")
OF THE FIRST PART;
- and -
BIOMARIN PHARMACEUTICAL INC.,
a corporation incorporated under the laws of the State of Delaware,
(hereinafter called the "Purchaser")
OF THE SECOND PART.
WHEREAS the Vendor is the sole stockholder of Glyko, Inc., a Delaware
corporation, and desires to sell and to cause to be sold, and the Purchaser
desires to purchase from the Vendor all of the issued and outstanding shares of
capital stock of Glyko, Inc., upon the terms and conditions set forth in this
Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH in consideration of the mutual covenants
and agreements herein contained, and other good and valuable consideration,
Vendor and Purchaser represent, warrant, covenant and agree as follows:
1. INTERPRETATION
1.1 Defined Terms. Where used herein or in any amendments hereto, the following
terms shall have the following meanings:
"Agreement" means this Share Exchange Agreement, all Schedules attached hereto
and all amendments made hereto or thereto by written agreement signed by each of
Vendor and Purchaser;
"BioMarin Shares" means 2,259,039 shares ofPurchaser's Common Stock to be issued
in the name of Vendor as partial payment of the Purchase Price pursuant to
Section 2.2 hereof;
"Business Day" means any day, which is not a Saturday, Sunday or a statutory
holiday in the Province of Ontario or the State of California;
<PAGE>
"Closing" means the consummation of the Transaction as herein contemplated;
"Closing Date" means October 7, 1998, or such other date as may be mutually
agreed upon by the parties hereto in writing for the closing of the transactions
contemplated by this Agreement;
"Effective Date" means September 15, 1998;
"Employee Options" means the options to purchase a total of 585,969 shares of
Common Stock of the Vendor which are held by certain employees of Glyko, Inc.,
which options shall be assumed by Purchaser and converted into options to
purchase 255,540 shares of Common Stock of Purchaser as enumerated in Schedule
"A" attached hereto;
"Encumbrances" means any and all claims, liens, security interests, mortgages,
pledges, pre-emptive rights, charges, options, equity interests, encumbrances,
proxies, voting agreements, voting trusts or other interests of any nature or
kind whatsoever, howsoever created;
"Glyko Shares" means 3,882 shares of Common Stock and 2,000 shares of Preferred
Stock of Glyko, Inc., representing all of the issued and outstanding capital
stock of Glyko, Inc. as of the Closing Date;
"Intellectual Property" means all patents, patent applications and other patent
rights, trade secrets, copyrights and other proprietary rights as listed on
Schedule "B" hereto;
"Person" includes an individual, partnership, association, unincorporated
organization, trust, corporation and a natural person acting in such person's
individual capacity or in such person's capacity as trustee, executor,
administrator, agent or other legal representative;
"Purchase Price" has the meaning attributed thereto in Section 2.2 hereof;
"Technology" means all know-how, processes, formulae, concepts, ideas, data,
technical and non-technical data and information, testing results, descriptions,
technologies, procedures, articles of manufacture, compositions of matter
(including pharmaceutical, chemical, biological, genetic and biochemical
compositions), designs, inventions, discoveries, documents and works of
authorship, whether or not patentable or patented, now owned or licensed by
Glyko, Inc.;
"Time of Closing" means 10:00 a.m. (San Francisco time) on the Closing Date; and
"Transaction" means the sale by the Vendor and the purchase by the Purchaser of
the Glyko Shares as contemplated herein.
1.2 Currency. Unless otherwise expressly provided, all dollar amounts referred
to in this Agreement are in U.S. funds.
1.3 Gender and Number. Except where the context otherwise indicates, words
importing the singular number only shall include the plural, and vice versa, and
words importing the masculine gender shall include the feminine and neutral
genders, and vice versa.
2
<PAGE>
1.4 Division and Headings. The division of this Agreement into Articles and
sections and the insertion of headings are for the convenience of reference only
and shall not affect the construction or interpretation of this Agreement . The
terms "this Agreement", "hereof", "hereunder", "hereto", "herein" and similar
expressions refer to this Agreement and not to any particular Article, section
or other portion of this Agreement and include any amendment hereto. Unless
something in the subject matter or context is inconsistent therewith, references
herein to Articles and sections are to Articles and sections of this Agreement.
1.5 To the knowledge of. The term "to the knowledge of" the appropriate party as
used herein means to the knowledge of the current officers of the appropriate
party without any special inquiry or investigation whatsoever.
2. AGREEMENT TO EXCHANGE
2.1 Transfer. Subject to the terms and conditions hereof, on the Closing Date at
the Time of Closing, the Vendor shall deliver to the Purchaser certificates
representing the Glyko Shares together with such executed documentation as is
necessary and appropriate to effect the transfer of ownership of the Glyko
Shares from Vendor to Purchaser in exchange for good and valuable consideration
enumerated in Section 2.2 below.
2.2 Payment of Purchase Price. The purchase price for the Glyko Shares shall be
equal to the sum of $14,500,500 (the "Purchase Price"). The Purchase Price shall
be paid and satisfied by Purchaser as follows: (i) the assumption by the
Purchaser of responsibility for the Employee Options as discussed in Section 2.3
below and as set forth on Schedule A attached hereto, having an aggregate value
as enumerated therein, (ii) the delivery to the Vendor of a certificate
representing the BioMarin Shares issued in the name of Vendor, such BioMarin
Shares valued at $6.00 per share and (iii) a cash payment of $500.
2.3 Assumption of Stock Options. At the Effective Date, certain Employee Options
outstanding under the Vendor's Share Option Plan - 1994 (the "Option Plan"), or
otherwise, shall be assumed by Purchaser as follows:
(i) At the Effective Date, certain Employee Options listed on Schedule A
attached hereto, whether vested or unvested, shall be, in connection with the
Transaction, assumed by Purchaser. Each Employee Option so assumed by Purchaser
under this Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the Option Plan, except that: (A) each Employee
Option shall be exercisable for that number of whole shares of Common Stock of
Purchaser equal to the product of the number of shares of Common Stock of Vendor
that were issuable upon exercise of such Employee Option immediately prior to
the Effective Date multiplied by the Conversion Ratio, as defined in
subparagraph (ii) below, rounded down to the nearest whole number of shares of
Common Stock of Purchaser and (B) the per share exercise price for the shares of
Common Stock of Purchaser issuable upon exercise of such assumed Employee Option
shall be equal to the quotient determined by dividing the exercise price per
share of Common Stock of Vendor at which such Employee Option was exercisable
immediately prior to the Effective Date by the Conversion Ratio, rounded up to
the nearest whole cent; and
3
<PAGE>
(ii) For the purposes of this Section 2.3, the Conversion Ratio shall be equal
to the quotient of the fair market value of a share of Common Stock of Vendor
(converted to U.S. dollars), $2.61659, divided by the current fair market value
of a share of Common Stock of Purchaser, $6.00, which quotient is equal to
.436098.
It is the intention of the parties that the Employee Options assumed by
Purchaser qualify following the Effective Date as incentive stock options as
defined in Section 422 of the Code to the extent that the Employee Options
qualified as incentive stock options immediately prior to the Effective Date.
Promptly following the Effective Date, Purchaser will issue to each holder of an
outstanding Employee Option a document evidencing the foregoing assumption of
such Employee Option by Purchaser.
Closing. The Closing shall occur at the Time of Closing on the Closing Date at
the offices of the Vendor, or at such other place or other time and date as the
Purchaser and the Vendor may agree.
Any document or instrument to be delivered by either party hereto at the Closing
shall be tabled at the Closing at the place of closing referred to above by the
party which is to deliver such document or instrument and any document or
instrument so tabled by a party hereto shall:
(a) be deemed to have been delivered by such party for the purposes of this
Agreement;
(b) be held in escrow by counsel for such party to be dealt with in accordance
with subparagraphs (c) and (d) below;
(c) be delivered to the party to which it is to be delivered pursuant to the
terms hereof, if all documents or instruments which are to be delivered at the
Closing are tabled in accordance with this section at the Closing; and
(d) be delivered to, or in accordance with the directions of, the party which
tabled it, if subparagraph (c) does not apply.
3. REPRESENTATIONS AND WARRANTIES OF THE VENDOR
Except as set forth in the disclosure schedule attached hereto as Schedule
"C", the Vendor hereby represents and warrants to the Purchaser as follows as of
the date hereof and acknowledges and confirms that the Purchaser is relying upon
such representations and warranties in connection with the transactions
contemplated hereby:
(a) Attached hereto as Schedule "D" are Glyko, Inc.'s unaudited balance
sheet as of June 30, 1998 and the related unaudited statements of income and
cash flow for the six (6) month period ended June 30, 1998 (collectively, the
"Financials"). The Financials are correct in all material respects and have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied on a basis consistent throughout the
periods indicated and consistent with each other (except that the Financials do
not contain footnotes and other presentation items that may be required by
4
<PAGE>
GAAP). The Financials present fairly the financial condition, operating results
and cash flows of Glyko, Inc. as of the dates and during the periods indicated
therein, subject to normal year-end adjustments, which normal year-end
adjustments have not been material in amount or significance in any individual
case or in the aggregate in prior years. Glyko, Inc.'s unaudited balance sheet
as of June 30, 1998, is referred to hereinafter as the "Current Balance Sheet."
(b) Glyko, Inc. has no liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), which individually or in the
aggregate (i)has not been reflected in the Current Balance Sheet, or (ii) has
not arisen in the ordinary course of business consistent with past practices
since June 30, 1998, in either case which amounts do not exceed $50,000 in the
aggregate.
(c) Since June 30, 1998, there has not been, occurred or arisen any:
(i) transaction by Glyko, Inc. except in the ordinary course of business as
conducted on that date and consistent with past practices;
(ii) amendments or changes to the Certificate of Incorporation or Bylaws of
Glyko, Inc.;
(iii) capital expenditure or commitment by Glyko, Inc. exceeding $25,000
individually or $50,000 in the aggregate;
(iv) destruction of, damage to or loss of any material assets, material
business or material customer of Glyko, Inc. (whether or not covered by
insurance);
(v) claim of wrongful discharge or other unlawful labor practice or action;
(vi) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Glyko, Inc. other than
required by GAAP;
(vii) revaluation by Glyko, Inc. of any of its assets which, in the
aggregate, changed such value by an amount exceeding $5,000, either individually
or in the aggregate;
(viii) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any capital
stock of Glyko, Inc., or any split, combination or reclassification in respect
of any shares of capital stock of Glyko, Inc., or any issuance or authorization
of any issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of Glyko, Inc., or any direct or
indirect repurchase, redemption, or other acquisition by Glyko, Inc. of any
shares of capital stock of Glyko, Inc. (or options, warrants or other rights
convertible into, exercisable or exchangeable therefor), except in accordance
with the agreements evidencing option grants by Glyko, Inc.;
5
<PAGE>
(ix) except in the ordinary course of its business as conducted on June 30,
1998, increase in the salary or other compensation payable or to become payable
by Glyko, Inc. to any of its officers, directors, employees or advisors, or the
declaration, payment or commitment or obligation of any kind for the payment, by
Glyko, Inc., of a bonus or other additional salary or compensation to any such
person;
(x) agreement, contract, covenant, instrument, lease, license or commitment
to which Glyko, Inc. is a party or by which it or any of its assets (including
but not limited to the Intellectual Property and intangible assets) are bound or
any termination, extension, amendment or modification the terms of any
agreement, contract, covenant, instrument, lease, license or commitment to which
Glyko, Inc. is a party or by which it or any of its assets are bound;
(xi) sale, lease, license or other disposition of any of the material
assets or properties of Glyko, Inc. or any creation of any security interest in
such assets or properties;
(xii) loan by Glyko, Inc. to any person or entity, incurring by Glyko, Inc.
of any indebtedness, guaranteeing by Glyko, Inc. of any indebtedness, issuance
or sale of any debt securities of Glyko, Inc. or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business consistent with past practices;
(xiii) waiver or release of any right or claim of Glyko, Inc., including
any write-off or other compromise of any account receivable of Glyko, Inc.
which, in the aggregate, had a value of at least $5,000;
(xiv) written notice received by Vendor or Glyko, Inc. of the commencement
or threat of any lawsuit, proceeding or other investigation against Glyko, Inc.
or its affairs, or, to the knowledge of Vendor, the commencement, notice or
threat of any lawsuit or proceeding or other investigation against Glyko, Inc.
or its affairs;
(xv) written notice received by Vendor or Glyko, Inc. of any claim or
potential claim of ownership by any person other than Glyko, Inc. of the
Intellectual Property or of infringement by Glyko, Inc. of any other person's
intellectual property or, to the knowledge of Vendor, notice of such in any
other form other than written documentation;
(xvi) issuance or sale, or contract to issue or sell, by Glyko, Inc. of any
shares of capital stock of Glyko, Inc. or securities convertible into, or
exercisable or exchangeable for, shares of capital stock of Glyko, Inc., or any
securities, warrants, options or rights to purchase any of the foregoing;
(xvii) (i) sale or license of any of the Intellectual Property or entering
into of any agreement with respect to the Intellectual Property with any person
or entity or with respect to the intellectual property of any person or entity,
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of any agreement with respect to the intellectual property of any person or
entity, or (iii) change in pricing or royalties set or charged by Glyko, Inc. to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed any of the Intellectual Property to Glyko, Inc.;
(xviii) any event or condition of any character that has had or is
reasonably likely to have a material adverse effect on Glyko, Inc.; or
(xix) agreement by Glyko, Inc. or any officer or employees thereof to do
any of the things described in the preceding clauses (i) through (xviii).
(d) Neither the execution and delivery of this Agreement by the Vendor nor
the consummation of the transactions herein contemplated will conflict with or
result in:
(i) a violation, contravention or breach by the Vendor or Glyko, Inc. of
any of the terms, conditions or provisions of any agreement or instrument to
which the Vendor or Glyko, Inc. is a party, or by which the Vendor or Glyko,
Inc. is bound or constitute a default by the Vendor or Glyko, Inc. thereunder,
or under any statute, regulation, judgment, decree or law by which the Vendor or
Glyko, Inc. is subject or bound, or result in the creation or imposition of any
mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the
Glyko Shares or any of the Intellectual Property; or
(ii) a violation by the Vendor or Glyko, Inc. of any law or regulation or
any applicable order of any court, arbitrator or governmental authority having
jurisdiction over the Vendor or Glyko, Inc. , or require the Vendor or Glyko,
Inc., prior to the Closing or as a condition precedent thereof, to make any
governmental or regulatory filings, obtain any consent, authorization, approval,
clearance or other action by any Person, or await the expiration of any
applicable waiting period.
(e) The Glyko Shares are duly and validly created, authorized and issued
and are fully paid and non-assessable.
(f) No Person has any agreement or option or any right or privilege
(whether pre-emptive or contractual) which is or is capable of becoming an
agreement or option for the purchase from the Vendor of any of the Glyko Shares
or any of the Intellectual Property.
(g) Glyko, Inc. is not a party to nor is it bound by:
(i) any written employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization, or employee
benefit plan, option plan or option agreement;
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<PAGE>
(ii) any agreement or plan, including, without limitation, any stock option
plan, stock appreciation rights plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement (for the
purposes of this Section 3(g)(ii), such agreement or plan shall include any
agreement or plan of Vendor being assumed by Purchaser pursuant to Section
2.2(i) hereof);
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of real or personal property having a value in excess of
$25,000 individually or $50,000 in the aggregate;
(v) any agreement, contract or commitment containing any covenant limiting
the freedom of Glyko, Inc. to engage in any line of business or to compete with
any person,
(vi) any agreement, contract or commitment relating to capital expenditures
and involving future payments in excess of $25,000 individually or $50,000 in
the aggregate;
(vii) any agreement, contract or commitment relating to the disposition or
acquisition of assets or any interest in any business enterprise outside the
ordinary course of Glyko, Inc.'s business;
(viii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit;
(ix) any purchase order or contract for the purchase of materials involving
in excess of $25,000 individually or $50,000 in the aggregate;
(x) any construction contracts in excess of $10,000 individually or $20,000
in the aggregate;
(xi) any dealer, distribution, joint marketing or development agreement;
(xii) any sales representative, original equipment manufacturer, value
added remarketer, reseller or independent vendor or other agreement for use or
distribution of Glyko, Inc.'s products, technology or services; or
(xiii) any other agreement, contract or commitment that involves $25,000
individually or $50,000 in the aggregate or more and is not cancelable without
penalty within thirty (30) days.
(h) Glyko, Inc. is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the terms or conditions of any material agreement, contract,
covenant, instrument, lease, license or commitment to which Glyko, Inc. is a
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party or by which it is bound (collectively a "Contract"), nor is Glyko, Inc.
aware of any event that would constitute such a breach, violation or default
with the lapse of time, giving of notice or both. Each Contract is in full force
and effect and Glyko, Inc. is not subject to any default thereunder, nor to the
knowledge of Glyko, Inc. is any party obligated to Glyko, Inc. pursuant to any
such Contract subject to any default thereunder. Following the Closing Date,
Glyko, Inc. will be permitted to exercise all of Glyko, Inc.'s rights under the
Contracts without the payment of any additional amounts or consideration other
than ongoing fees, royalties or payments which Glyko, Inc. would otherwise be
required to pay had the transactions contemplated by this Agreement not
occurred.
(i) The Vendor has all necessary power, authority and capacity to enter
into this Agreement and all other agreements and instruments to be executed by
it as contemplated by this Agreement and to carry out its obligations under this
Agreement and such other agreements and instruments. The execution and delivery
of this Agreement and such other agreements and instruments and the consummation
of the transactions contemplated hereby and such other agreements and
instruments have been duly authorized by all necessary corporate action on the
part of the Vendor.
(j) This Agreement constitutes a valid and binding obligation of the Vendor
enforceable against the Vendor in accordance with its terms subject, however, to
limitations with respect to enforcement imposed by law in connection with
bankruptcy, insolvency, reorganization or other laws affecting creditors' rights
generally and to the extent that equitable remedies such as specific performance
and injunctions are only available in the discretion of the court from which
they are sought.
(k) The Vendor is the record and beneficial owner of the Glyko Shares and
has good and marketable title thereto free and clear of any Encumbrances. The
Vendor has the exclusive right and full power to transfer the Glyko Shares to
the Purchaser as herein contemplated free and clear of any Encumbrances.
(l) Intellectual Property:
(i) Glyko, Inc. owns all right, title and interest in and to the
Intellectual Property with good and marketable title thereto, free and clear of
all Encumbrances;
(ii) Glyko, Inc. is entitled to make use of or otherwise exploit the
Intellectual Property (including without limitation the right to derivatives and
improvements thereto) without payment of any royalty or other amounts;
(iii) Glyko, Inc. is under no obligation to obtain any approval or consent
for use of or other exploitation (including without limitation enforcement,
assignment, license, sublicense or other transfer) of the Intellectual Property;
9
<PAGE>
(iv) no charge, complaint action, suit, proceeding, hearing, investigation,
claim or demand is pending or threatened which challenges the legality,
validity, enforceability, use or ownership by Glyko, Inc. of any of the
Intellectual Property;
(v) the Intellectual Property represents all intellectual property rights
(including without limitation patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, manufacturing process, trade secrets) which are reasonably necessary
or material to the conduct of Glyko, Inc.'s business as presently conducted;
(vi) neither the Intellectual Property , the Technology nor the use or
exploitation thereof would infringe any patent, copyright, trade secret or other
proprietary right owned or controlled by Vendor and no basis for such claim
exists and neither Vendor nor Glyko, Inc. has received notice, written or
otherwise, of such a claim of infringement by any third party;
(vii) the Intellectual Property is not subject to any outstanding judgment,
order decree, stipulation, injunction or charge nor the subject matter or any
charge, complaint, action, suit, proceeding of any Federal, state, local or
foreign jurisdiction or before any arbitrator;
(viii) Glyko, Inc. has not given or otherwise communicated to any entity
any notice, charge, claim or assertion of any present, impending or threatened
infringement by such other entity of any of the Intellectual Property;
(ix) Glyko, Inc. has taken all steps that are reasonably required to
protect Glyko, Inc.'s rights in confidential information and trade secrets of
Glyko, Inc. or provided by any other entity to Glyko, Inc. Without limiting the
foregoing, Glyko, Inc. has, and enforces, a policy requiring each employee,
consultant and contractor to execute proprietary information, confidentiality
and assignment agreements in Glyko, Inc.'s standard forms, and all current and
former employees, consultants and contractors of Glyko, Inc. have executed such
an agreement. A copy of such agreement has been provided to counsel for
Purchaser; and
(x) the Intellectual Property has not been licensed to or licensed from any
third party or the Vendor.
(m) To the knowledge of the Vendor, there is not pending, threatened or
contemplated, any suit, action, legal proceeding, litigation or governmental
investigation of any sort relating to Glyko, Inc., the Glyko Shares, the
Intellectual Property or the Transaction, nor is there any present state of
facts or circumstances which can be reasonably anticipated to be a basis for any
such suit, action, legal proceeding, litigation or governmental investigation
nor is there presently outstanding against Glyko, Inc., any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality, or arbitrator, to which the Vendor or Glyko, Inc. is a
party or to which the property of the Vendor or Glyko, Inc. is subject that
would result individually or in the aggregate in any material adverse change in
10
<PAGE>
the operation, business, condition, income or future prospects of the Vendor or
Glyko, Inc.
(n) No order ceasing or suspending trading in securities of Glyko, Inc. or
prohibiting the sale of securities by Glyko, Inc. has been issued and no
proceedings for this purpose have been instituted, or are pending, or, to the
knowledge of the Vendor, are contemplated or threatened.
(o) Glyko, Inc. has not, directly or indirectly, declared or paid any
dividend or declared or made any other distribution on any of its shares or
securities or, directly or indirectly, redeemed, purchased or otherwise acquired
any of its shares or securities or agreed to do any of the foregoing.
(p) The Vendor has not entered into any agreement that would entitle any
person to any valid claim against the Purchaser for a broker's commission,
finder's fee, or any like payment in respect of the sale of the Glyko Shares or
the purchase of the BioMarin Shares or any other matters contemplated by this
Agreement.
(q) Glyko, Inc. has not received any notices of violation with respect to,
any foreign, federal, state or local statute, law or regulation, including
without limitation environmental laws and regulations and, to the knowledge of
Vendor, Glyko, Inc. has complied with and is not in violation of any of the
foregoing.
(r) None of the foregoing representations and warranties knowingly contains
any untrue statement of material fact or knowingly omits to state any material
fact necessary to make any such representation or warranty not misleading to a
prospective purchaser of the Glyko Shares seeking full information as to the
Glyko Shares and the Intellectual Property.
(s) Vendor has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the BioMarin Shares pursuant to this Agreement and of protecting the Vendor's
interests in connection herewith. Vendor has the ability to bear the economic
risk of the investment, including complete loss of the investment.
(t) Vendor is acquiring the BioMarin Shares for investment for its own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof, and Vendor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
Vendor understands that the BioMarin Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") but have been issued
pursuant to a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of Vendor's representations as expressed
herein.
(u) Vendor understands that the BioMarin Shares are characterized as
"restricted securities" under U.S. federal securities laws inasmuch as they are
being acquired from Purchaser in a transaction not involving a public offering
and that under such laws and applicable regulations the BioMarin Shares may be
11
<PAGE>
resold without registration under the Securities Act only in certain limited
circumstances. Vendor acknowledges that the BioMarin Shares must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Vendor is aware of the provisions
of Rule 144 promulgated under the Securities Act which permits limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions.
(v) Vendor understands that the BioMarin Shares may be subject to a lock-up
period of up to 180 days following the effective date a Registration Statement
filed under the Securities Act, pursuant to Section 7 of the Amended and
Restated Registration Rights Agreement attached hereto as Schedule "E".
(w) Vendor understands that no public market now exists for the Common
Stock of Purchaser or for any other securities issued by Purchaser and that
there is no assurance that a public market will ever exist for the BioMarin
Shares.
(x) Without in any way limiting the representations set forth above, Vendor
further agrees not to make any offer or sale of all or any portion of the
BioMarin Shares within the United States or to a U.S. resident unless and until;
(i) There is then in effect a Registration Statement under the Securities
Act covering such proposed offer or sale and such offer or sale is made in
accordance with such Registration Statement; or
(ii) Vendor shall have notified Purchaser of the proposed offer or sale and
shall have furnished Purchaser with a detailed statement of the circumstances
surrounding the proposed disposition, and if reasonably requested by the
Purchaser, Vendor shall have furnished Purchaser with an opinion of counsel,
reasonably satisfactory to Purchaser, that such offer or sale is exempt from the
registration requirements under the Securities Act.
(y) The certificate representing the BioMarin Shares, and any securities
issued in respect thereof or exchange therefor shall bear legends substantially
in the following forms (in addition to any legend required under applicable
state securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION UNLESS THE CORPORATION RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE
AGREEMENTS COVERING THE PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
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<PAGE>
EXECUTIVE OFFICES OF THE CORPORATION. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A LOCKUP PERIOD OF 180 DAYS FOLLOWING THE EFFECTIVE
DATE OF A REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE CORPORATION. SUCH LOCKUP PERIOD IS BINDING ON
TRANSFEREES OF THESE SECURITIES."
(z) Vendor presently does and will as of the Closing Date qualify as an
"accredited investor" within the meaning of Rule 501(a) promulgated under the
Securities Act and meets the relevant criteria indicated on its completed and
signed copy of the Accredited Investor Questionnaire attached hereto as Schedule
"F".
(aa) Immediately following the Closing, Vendor will not own any material
asset other than 10,917,091 shares of Common Stock of Purchaser. For avoidance
of any doubt, immediately following the Closing Vendor will not own any right,
title or other interest in or to any intellectual property rights (including
without limitation domestic and foreign patents, patent applications, trademarks
(other than "Glyko BioMedical Limited"), trade mark applications, trade names
(other than "Glyko BioMedical Limited"), copyrights or trade secrets).
(bb) All inter-company debt and equity accounts between Vendor and Glyko,
Inc., have been settled on or before the Closing Date.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Except as set forth in the disclosure schedule attached hereto as Schedule
G, the Purchaser hereby represents and warrants to the Vendor as follows as of
the date hereof and acknowledges and confirms that the Vendor is relying upon
such representations and warranties in connection with the transactions
contemplated hereby:
(a) Attached hereto as Schedule "H" are Purchaser's unaudited balance
sheet as of June 30, 1998 and the related unaudited statements of income and
cash flow for the six (6) month period ended June 30, 1998 (collectively, the
"Financials"). The Financials are correct in all material respects and have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied on a basis consistent throughout the
periods indicated and consistent with each other (except that the Financials do
not contain footnotes and other presentation items that may be required by
GAAP). The Financials present fairly the financial condition, operating results
and cash flows of Purchaser as of the dates and during the periods indicated
therein, subject to normal year-end adjustments, which normal year-end
adjustments have not been material in amount or significance in any individual
case or in the aggregate in prior years. Purchaser's unaudited balance sheet as
of June 30, 1998, is referred to hereinafter as the "Current Balance Sheet."
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<PAGE>
(b) Glyko, Inc. has no liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), which individually or in the
aggregate (i) has not been reflected in the Current Balance Sheet, or (ii) has
not arisen in the ordinary course of business consistent with past practices
since June 30, 1998, in either case which amounts do not exceed $50,000 in the
aggregate.
(c) Since June 30, 1998, there has not been, occurred or arisen any:
(i) transaction by Purchaser except in the ordinary course of business as
conducted on that date and consistent with past practices;
(ii) amendments or changes to the Certificate of Incorporation or Bylaws of
Purchaser;
(iii) capital expenditure or commitment by Purchaser exceeding $25,000
individually or $50,000 in the aggregate;
(iv) destruction of, damage to or loss of any material assets, material
business or material customer of Purchaser (whether or not covered by
insurance);
(v) claim of wrongful discharge or other unlawful labor practice or action;
(vi) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Purchaser other than required
by GAAP;
(vii) revaluation by Purchaser of any of its assets which, in the
aggregate, changed such value by at least $5,000;
(viii) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any capital
stock of Purchaser, or any split, combination or reclassification in respect of
any shares of capital stock of Purchaser, or any issuance or authorization of
any issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of Purchaser, or any direct or indirect
repurchase, redemption, or other acquisition by Purchaser of any shares of
capital stock of Purchaser (or options, warrants or other rights convertible
into, exercisable or exchangeable therefor), except in accordance with the
agreements evidencing option grants by Purchaser;
(ix) except in the ordinary course of its business as conducted on June 30,
1998, increase in the salary or other compensation payable or to become payable
by Purchaser to any of its officers, directors, employees or advisors, or the
declaration, payment or commitment or obligation of any kind for the payment, by
Purchaser, of a bonus or other additional salary or compensation to any such
person;
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<PAGE>
(x) agreement, contract, covenant, instrument, lease, license or commitment
to which Purchaser is a party or by which it or any of its assets (including but
not limited to the intellectual property of Purchaser and intangible assets) are
bound or any termination, extension, amendment or modification the terms of any
agreement, contract, covenant, instrument, lease, license or commitment to which
Purchaser is a party or by which it or any of its assets are bound;
(xi) sale, lease, license or other disposition of any of the material
assets or properties of Purchaser or any creation of any security interest in
such assets or properties;
(xii) loan by Purchaser to any person or entity, incurring by Purchaser of
any indebtedness, guaranteeing by Purchaser of any indebtedness, issuance or
sale of any debt securities of Purchaser or guaranteeing of any debt securities
of others, except for advances to employees for travel and business expenses in
the ordinary course of business consistent with past practices;
(xiii) waiver or release of any right or claim of Purchaser, including any
write-off or other compromise of any account receivable of Purchaser which, in
the aggregate, had a value of a least $5,000;
(xiv) written notice of the commencement or threat of any lawsuit,
proceeding or other investigation against Purchaser or its affairs, or, to the
knowledge of Purchaser, the commencement, notice or threat of any lawsuit or
proceeding or other investigation against Purchaser or its affairs;
(xv) written notice of any claim or potential claim of ownership by any
person other than Purchaser of the intellectual property of Purchaser or of
infringement by Purchaser of any other person's intellectual property or, to the
knowledge of Purchaser, notice of such in any other form other than written
documentation;
(xvi) issuance or sale, or contract to issue or sell, by Purchaser of any
shares of capital stock of Purchaser or securities convertible into, or
exercisable or exchangeable for, shares of capital stock of Purchaser, or any
securities, warrants, options or rights to purchase any of the foregoing;
(xvii)(i) sale or license of any of the intellectual property of Purchaser
or entering into of any agreement with respect to the intellectual property of
Purchaser with any person or entity or with respect to the intellectual property
of any person or entity, or (ii) purchase or license of any of the intellectual
property of Purchaser or entering into of any agreement with respect to the
intellectual property of any person or entity, or (iii) change in pricing or
royalties set or charged by Purchaser to its customers or licensees or in
pricing or royalties set or charged by persons who have licensed any of the
intellectual property of Purchaser to Purchaser;
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<PAGE>
(xviii) any event or condition of any character that has had or is
reasonably likely to have a material adverse effect on Purchaser; or
(xix) agreement by Purchaser or any officer or employees thereof to do any
of the things described in the preceding clauses (i) through (xviii).
(d)Purchaser is not a party to nor is it bound by:
(i) any written employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization, or employee
benefit plan, option plan or option agreement;
(ii) any agreement or plan, including, without limitation, any stock option
plan, stock appreciation rights plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of real or personal property having a value in excess of
$25,000 individually or $50,000 in the aggregate;
(v) any agreement, contract or commitment containing any covenant limiting
the freedom of Purchaser to engage in any line of business or to compete with
any person,
(vi) any agreement, contract or commitment relating to capital expenditures
and involving future payments in excess of $25,000 individually or $50,000 in
the aggregate;
(vii) any agreement, contract or commitment relating to the disposition or
acquisition of assets or any interest in any business enterprise outside the
ordinary course of Purchaser's business;
(viii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;
(ix) any purchase order or contract for the purchase of materials
involving in excess of $25,000 individually or $50,000 in the aggregate;
(x) any construction contracts in excess of $10,000 individually or
$20,000 in the aggregate;
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<PAGE>
(xi) any dealer, distribution, joint marketing or development
agreement;
(xii) any sales representative, original equipment manufacturer, value
added remarketer, reseller or independent vendor or other agreement for use
or distribution of Purchaser's products, technology or services; or
(xiii) any other agreement, contract or commitment that involves
$25,000 individually or $50,000 in the aggregate or more and is not
cancelable without penalty within thirty (30) days.
(e) Purchaser is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any material agreement,
contract, covenant, instrument, lease, license or commitment to which
Purchaser is a party or by which it is bound (collectively a "Purchaser
Contract"), nor is Purchaser aware of any event that would constitute such
a breach, violation or default with the lapse of time, giving of notice or
both. Each Purchaser Contract is in full force and effect and Purchaser is
not subject to any default thereunder, nor to the knowledge of Purchaser is
any party obligated to Purchaser pursuant to any such Purchaser Contract
subject to any default thereunder. Following the Closing Date, Purchaser
will be permitted to exercise all of Purchaser's rights under the Purchaser
Contracts without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments which Purchaser would
otherwise be required to pay had the transactions contemplated by this
Agreement not occurred.
(f) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on behalf of the Purchaser and this Agreement
has been duly executed and delivered by the Purchaser and is a valid and
binding obligation of the Purchaser.
(g) At the Time of Closing the BioMarin Shares will be duly and
validly created, authorized and issued as fully paid and non-assessable
shares, and the shares of Common Stock of Purchaser issuable upon exercise
of the options set forth on Schedule A shall, upon exercise in accordance
with their terms, be duly and validly created, authorized and issued as
fully paid and non-assessable shares.
(h) Neither the execution and delivery of this Agreement by the
Purchaser nor the consummation of the transactions contemplated hereby will
conflict with or result in or create a state of facts which after notice or
lapse of time or delay or both, will conflict with or result in:
(i) a violation, contravention or breach by the Purchaser of any of
the terms, conditions or provisions of the Restated Certificate of
Incorporation, Bylaws or resolutions of the Purchaser or of any agreement
or instrument to which the Purchaser is a party or by which it is bound or
constitute a default of the Purchaser thereunder, or of any statute,
regulation, judgment, decree or law by which the Purchaser or the assets of
the Purchaser are subject or bound, or result in the creation or imposition
of any Encumbrance upon any of the BioMarin Shares; or
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<PAGE>
(ii) a violation by the Purchaser of any law or regulation or any
applicable order of any court, arbitrator or governmental authority having
jurisdiction over the Purchaser, or require the Purchaser, prior to the
Closing or as a condition precedent thereof, to make any governmental or
regulatory filings, obtain any consent, authorization, approval, clearance
or other action by any Person or await the expiration of any applicable
waiting period.
(i) The authorized capital stock of the Purchaser consists of 30,
000,000 shares of Common Stock. Immediately prior to the Closing,
23,916,483 shares of Common Stock are issued and outstanding, all of which
have been duly authorized and validly issued, are fully paid and
nonassessable. Warrants to purchase 801,500 shares of Common Stock are
currently outstanding. Immediately prior to the Closing, the Board of
Directors has approved the grant of options to purchase a total of
2,304,120 shares of Common Stock to outside consultants, directors and
employees. There are no other options, warrants, conversion privileges,
pre-emptive rights (other than the pre-emptive rights agreement between
Glyko Biomedical Ltd. and the Purchaser dated June 27, 1997, the
pre-emptive rights agreement between BB BioVentures L.P. and the Purchaser
dated December 30, 1997, and the pre-emptive rights agreement between
Genzyme Corporation and the Purchaser dated September 4, 1998) presently
outstanding to purchase or otherwise acquire any capital stock or other
securities of the Company;
(j) To the knowledge of the Purchaser, there is not pending,
threatened or contemplated, any suit, action, legal proceeding, litigation
or governmental investigation of any sort relating to the Purchaser or the
BioMarin Shares, nor is there any present state of facts or circumstances
which can be reasonably anticipated to be a basis for any such suit,
action, legal proceeding, litigation or governmental investigation nor is
there presently outstanding against the Purchaser, any judgment, decree,
injunction, rule or order of any court, governmental department,
commission, agency, instrumentality, or arbitrator, to which the Purchaser
is a party or to which the property of the Purchaser is subject that would
result individually or in the aggregate in any material adverse change in
the operation, business, condition, income or future prospects of the
Purchaser.
(k) No order ceasing or suspending trading in securities of the
Purchaser or prohibiting the sale of securities by the Purchaser has been
issued and no proceedings for this purpose have been instituted, or are
pending, or, to the knowledge of the Purchaser, are contemplated or
threatened.
(l) Neither the Restated Certificate of Incorporation or Bylaws of the
Purchaser nor any agreement, mortgage, note, debenture, indenture or other
instrument or document to which the Purchaser is a party, contain any
restriction upon or impediment to the declaration or payment of dividends
by the directors of the Purchaser or the payment of dividends by the
Purchaser to the holders of the BioMarin Shares.
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(m) Upon execution of the Amended and Restated Registration Rights
Agreement, attached hereto as Schedule "E," Vendor shall have registration
rights with regard to the BioMarin Shares, as enumerated therein.
(n) The Purchaser has not entered into any agreement that would
entitle any person to any valid claim against the Vendor for a broker's
commission, finder's fee, or any like payment in respect of the purchase of
the Glyko Shares or the sale of the BioMarin Shares or any other matters
contemplated by this Agreement.
(o) Purchaser has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
the purchase of the Glyko Shares pursuant to this Agreement and of
protecting the Purchaser's interests in connection herewith. Purchaser has
the ability to bear the economic risk of the investment, including complete
loss of the investment.
(p) Purchaser is acquiring the Glyko Shares for investment for its own
account, not as a nominee or agent, and not with a view to, or for resale
in connection with, any distribution thereof, and Purchaser has no present
intention of selling, granting any participation in, or otherwise
distributing the same. Purchaser understands that the Glyko Shares have not
been registered under the Securities Act of 1933, as amended (the
"Securities Act") but have been issued pursuant to a specific exemption
from the registration provisions of the Securities Act which depends upon,
among other things, the bona fide nature of the investment intent and the
accuracy of Purchaser 's representations as expressed herein.
(q) Purchaser understands that the Glyko Shares are characterized as
"restricted securities" under U.S. federal securities laws and that under
such laws and applicable regulations the Glyko Shares may be resold without
registration under the Securities Act only in certain limited
circumstances. Purchaser acknowledges that the Glyko Shares must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions.
(r) Purchaser understands that no public market now exists for the
Common Stock of Glyko, Inc. or for any other securities issued by Glyko,
Inc. and that there is no assurance that a public market will ever exist
for the Glyko Shares.
(s) Without in any way limiting the representations set forth above,
Purchaser further agrees not to make any offer or sale of all or any
portion of the Glyko Shares within the United States or to a U.S. resident
unless and until;
(i) There is then in effect a Registration Statement under the
Securities Act covering such proposed offer or sale and such offer or sale
is made in accordance with such Registration Statement; or
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(ii) Purchaser shall have notified Glyko, Inc. of the proposed offer
or sale and shall have furnished Glyko, Inc. with a detailed statement of
the circumstances surrounding the proposed disposition, and if reasonably
requested by the Glyko, Inc., Purchaser shall have furnished Glyko, Inc.
with an opinion of counsel, reasonably satisfactory to Glyko, Inc., that
such offer or sale is exempt from the registration requirements under the
Securities Act.
(t) Purchaser presently does and will as of the Closing Date qualify
as an "accredited investor" within the meaning of Rule 501(a) promulgated
under the Securities Act and meets the relevant criteria indicated on its
completed and signed copy of the Accredited Investor Questionnaire attached
hereto as Schedule "F".
(u) None of the foregoing representations and warranties knowingly
contains any untrue statement of material fact or knowingly omits to state
any material fact necessary to make any such representation or warranty not
misleading to a prospective purchaser of the BioMarin Shares seeking full
information as to the BioMarin Shares.
5. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
All obligations of the Purchaser under this Agreement, including but
not limited to those to purchase the Glyko Shares, to assume the Employee
Options and to sell to Vendor the BioMarin Shares, are subject to the
fulfillment prior to or at the Closing of each of the following conditions:
(a) Purchaser shall have received from Vendor a certificate, dated as
of the Closing Date, signed by the President of Vendor, stating that the
representations and warranties made by the Vendor in or under this
Agreement are true in all material respects on and as of the date of the
Closing and that, on or prior to the Closing, Vendor has complied with all
covenants and agreements herein agreed to be performed or caused to be
performed by it on or prior to the Closing Date.
(b) On or before the Closing Date there shall have been obtained from
all appropriate Federal, provincial, state, municipal, foreign or other
governmental or administrative bodies all such approvals and consents, if
any, in form and terms satisfactory to the Purchaser, as may be required in
order to permit the change of ownership of the Glyko Shares.
(c) On or before the Closing Date the Vendor and Glyko, Inc. shall
have settled all inter-company debt and equity accounts.
(d) Purchaser shall have received from Vendor a copy of this Agreement
duly executed on behalf of Vendor with all schedules attached thereto
completed to the mutual satisfaction of Purchaser and Vendor.
(e) Purchaser shall have received from Vendor an executed copy of the
Amended and Restated Registration Rights Agreement attached hereto as
Schedule "E."
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(f) Purchaser shall have received from counsel to Vendor an executed
legal opinion in a form reasonably satisfactory to Purchaser.
(g) Vendor shall have delivered, subject to the provisions of Section
2.4 hereof, the Glyko Shares together with such executed documentation as
is necessary and appropriate to the effect the transfer of ownership of the
Glyko Shares from Vendor to Purchaser.
In case any of the foregoing conditions cannot be fulfilled on or
before the Closing Date to the satisfaction of the Purchaser, the Purchaser
may rescind this Agreement by notice to the Vendor and in such event each
of the Purchaser and the Vendor shall be released from all obligations
hereunder; provided, however, that any such conditions may be waived in
whole or in part by the Purchaser without prejudice to its rights of
rescission in the event of the non-fulfillment of any other condition or
conditions, and that the closing of the Transaction as contemplated by this
Agreement shall be deemed to be a waiver of any unfulfilled conditions.
6. CONDITIONS PRECEDENT TO THE VENDOR'S OBLIGATIONS
All obligations of the Vendor under this Agreement, including but not
limited to those to sell the Glyko Shares to Purchaser and to purchase the
BioMarin Shares, are subject to the fulfillment prior to or at the Closing
of each of the following conditions:
(a) Vendor shall have received from Purchaser a certificate dated as
of the Closing Date, signed by the Chief Executive Officer of Purchaser,
stating that the representations and warranties of the Purchaser under this
Agreement are true in all material respects on and as of the date of such
Closing and that, on or prior to the Closing, the Purchaser has complied
with all covenants and agreements herein agreed to be performed or caused
to be performed by it on or prior to the Closing Date.
(b) No action shall have been taken by any court or governmental body
prohibiting or making illegal the execution and delivery of this Agreement,
or any transaction contemplated by this Agreement. No action, suit or
proceeding shall have been instituted and be continuing by any Person to
restrain, modify or prevent the consummation of the transactions
contemplated by this Agreement, or to seek damages against the Purchaser in
connection with such Transaction, or that has been or is reasonably likely
to have a material adverse affect on the ability of any party hereto to
fully consummate the transactions contemplated by this Agreement.
(c) The Purchaser shall have delivered to Vendor, subject to the
provisions of Section 2.4 hereof, releases of the Employee Options executed
by the subject optionees, in form reasonably satisfactory to the Vendor.
(d) Purchaser shall have delivered, subject to the provisions of
Section 2.4 hereof, a certificate representing the BioMarin Shares
registered in the name of the Vendor bearing restrictive legends as
provided for in Section 3(z).
(e) On or before the Closing Date the Vendor and Glyko, Inc. shall
have settled all inter-company debt and equity accounts.
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(f) Vendor shall have received from counsel to Purchaser an executed
legal opinion in a form reasonably satisfactory to Vendor.
(g) Vendor shall have received from Purchaser a copy of this Agreement
duly executed on behalf of Purchaser with all schedules attached thereto
completed to the mutual satisfaction of Purchaser and Vendor.
(h) Vendor shall have received from Purchaser $500 in cash pursuant to
Section 2.2 hereof.
(i) Vendor shall have received from Purchaser an executed copy of the
Amended and Restated Registration Rights Agreement attached hereto as
Schedule "E."
In case any of the foregoing conditions cannot be fulfilled on or
before the Closing Date to the satisfaction of the Vendor, the Vendor may
rescind this Agreement by notice to Purchaser and in such event each of the
Vendor and the Purchaser shall be released from all obligations hereunder;
provided, however, that any such conditions may be waived in whole or in
part by the Vendor without prejudice to its rights or rescission in the
event of the non-fulfillment of any other condition or conditions and that
the Closing shall be deemed to be a waiver of any unfulfilled conditions.
7. NATURE OF REPRESENTATIONS AND WARRANTIES
(a) Regardless of any investigation at any time made by or on behalf
of any party hereto or of any information any party may have in respect
thereof, all representations and warranties made hereunder shall survive
the Closing for a period of 24 months following the Closing Date.
(b) This Agreement, and the documents specifically referred to herein
or executed and delivered concurrently herewith or at the Closing
constitute the entire agreement, understanding, representations and
warranties of the parties hereto and supersede any prior agreement,
understanding, representation, warranty or documents relating to the
subject matter of this Agreement.
8. NOTICES
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if
delivered in person, telegraphed, or mailed by certified registered mail,
postage prepaid:
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(a) If to the Vendor, addressed as follows:
Glyko Biomedical Limited
11 Pimental Court
Novato, Ca.
94949
Attention: Dr. John Klock
Telecopy No.: 415-382-7889
With a copy to:
Cassels Brock & Blackwell
Suite 2100
Scotia Plaza
Toronto, Ontario
M5H 3C2
Attention: Mark I. Young
Telecopy No.: 416-350-6902
(b) If to the Purchaser, addressed as follows:
BioMarin Pharmaceutical Inc.
11 Pimental Court
Novato, Ca.
94949
Attention: Grant W. Denison, Jr.
Telecopy No.: 415-382-7889
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA
94303-1050
Attention: Frank Currie
Telecopy No.: 650-493-6811
or to such other address as the party to be notified shall have
furnished to the other party in writing. Any notice given in accordance
with the foregoing shall be deemed to have been given when delivered in
person or on the next business day following the date on which it shall
have been telegraphed or mailed.
9. AMENDMENTS
This Agreement may be amended or modified only by a written instrument
executed by the parties affected thereby, or by their respective successors
and permitted assigns.
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10. GENERAL
(a) This Agreement:
(i) shall be construed and enforced in accordance with the laws of the
Province of Ontario; and
(ii) shall enure to the benefit of and be binding upon the Purchaser
and the Vendor and their respective executors, administrators, legal
representatives, successors and permitted assigns, nothing in this
Agreement, express or implied, being intended to confer upon any other
person any rights or remedies hereunder.
(b) Time shall be of the essence hereof.
(c) Each of the parties hereto covenants and agrees that at any time
and from time to time after the Closing Date such party will, upon the
request of the other party, do, execute, acknowledge and deliver all such
further acts, documents and assurances as may be reasonably required for
the better carrying out of the terms of this Agreement and to consummate
the transactions contemplated hereby.
(d) This Agreement may be executed in one or more counterparts, each
of which so executed shall constitute an original and all of which together
shall constitute one and the same agreement.
(e) Each of the parties hereto shall pay their respective legal and
accounting costs and expenses incurred in connection with the preparation,
execution and delivery of this Agreement and all documents and instruments
executed pursuant hereto and any other costs and expenses whatsoever and
howsoever incurred in connection with the completion of the transactions
contemplated hereby.
(f) The parties hereto agree to file in a timely manner all forms
required to be filed after the Closing Date by applicable law and by the
regulations and policies of all applicable securities regulatory
authorities in connection with the transactions contemplated hereby.
(g) Neither this Agreement nor any right or obligation hereunder shall
be assignable by any party hereto without the prior written consent of the
other parties hereto, which consent may be arbitrarily withheld.
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IN WITNESS WHEREOF the parties hereto have duly executed this
Agreement as of the day and date first above written.
GLYKO BIOMEDICAL LTD.
By: /s/ John C. Klock
Dr. John C. Klock,
President
BIOMARIN PHARMACEUTICAL INC.
By: /s/ Grant W. Denison, Jr.
Grant W. Denison, Jr.,
Chief Executive Officer
[Signature Page To Agreement Regarding Sale of Capital Stock of Glyko, Inc.]
