<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
________________.
Commission file number 0-22170
EPOCH PHARMACEUTICALS, INC.
(exact name of small business issuer as specified in its charter)
Delaware 91-1311592
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
1725 220th Street, S.E., No. 104, Bothell, Washington 98021
(Address of principal executive offices)
(206) 485-8566
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports 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
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 4, 1996
<S> <C>
Common Stock, $.01 par value 14,723,856
</TABLE>
Page 1 of 44 Pages
Exhibit Index on Page 16
1
<PAGE> 2
EPOCH PHARMACEUTICALS, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets as of December 31, 1995
and September 30, 1996 (unaudited)...................................................... 3
Statements of Operations (unaudited) for the three
months and six months ended September 30, 1995 and 1996................................. 4
Statements of Cash Flows (unaudited) for the nine months ended
September 30, 1995 and 1996............................................................. 5
Notes to Financial Statements.......................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 11
Item 4. Submission of Matters To a Vote of Security Holders......................................... 13
Item 6. Exhibits and Reports on Form 8-K............................................................ 14
SIGNATURES ............................................................................................... 15
EXHIBIT INDEX............................................................................................. 16
</TABLE>
2
<PAGE> 3
EPOCH PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
1995 (UNAUDITED)
---- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 3,739,144 $ 4,907,165
Receivables........................................................ 147,975 37,900
Prepaid expenses................................................... 52,968 58,767
------------- ------------
Total current assets........................................ 3,940,087 5,003,832
Equipment and leasehold improvements, net............................ 350,045 253,403
Other assets......................................................... 39,363 21,150
------------ ------------
Total assets................................................ $ 4,329,495 $ 5,278,385
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable...................................................... $ 1,217,994 $ 13,783
Accounts payable................................................... 341,899 209,512
Accrued liabilities................................................ 361,664 237,916
Accrued litigation costs........................................... 250,000 --
------------ ------------
Total current liabilities................................... 2,171,557 461,211
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01; authorized 10,000,000 shares;
no shares issued and outstanding............................... -- --
Common stock, par value $.01; authorized 30,000,000 shares,
issued and outstanding 7,023,400 and 14,266,713 shares......... 70,234 142,667
Additional paid-in capital......................................... 46,860,059 52,097,120
Deferred compensation.............................................. (99,512) (54,870)
Accumulated deficit................................................ (44,672,843) (47,367,743)
------------- ------------
Total stockholders' equity.................................. 2,157,938 4,817,174
------------ ------------
Total liabilities and stockholders' equity.................. $ 4,329,495 $ 5,278,385
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
EPOCH PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -------------------------------
1995 1996 1995 1996
----------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development..................... $ 383,653 $ 498,798 $ 840,036 $ 1,511,262
General and administrative................... 378,626 381,284 1,260,323 910,363
----------- -------------- ------------- --------------
Operating loss .......................... (762,279) (880,082) (2,100,359) (2,421,625)
Other income (expense):
Interest income.............................. 762 64,358 10,398 126,546
Interest and financing expense............... (277,964) (2,536) (385,183) (181,787)
Other income................................. 7,400 6,200 9,800 15,601
----------- -------------- ------------- --------------
Loss from continuing operations.......... (1,032,081) (812,060) (2,465,344) (2,461,265)
Income (loss) from
discontinued operations................ 192,484 (160,735) 733,783 (233,635)
----------- -------------- ------------- --------------
Net loss................................. $ (839,597) $ (972,795) $ (1,731,561) $ (2,694,900)
=========== ============== ============= ==============
Loss per share from
continuing operations........................... $ (0.15) $ (0.06) $ (0.35) $ (0.26)
Income (loss) per share from
discontinued operations.......................... $ 0.03 $ (0.01) $ 0.10 $ (0.02)
----------- -------------- ------------- --------------
Net loss per share............................... $ (0.12) $ (0.07) $ (0.25) $ (0.28)
=========== ============== ============= ==============
Weighted average common shares
outstanding during the period.................. 7,019,993 14,266,713 7,014,394 9,700,692
</TABLE>
See accompanying notes to financial statements.
4
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EPOCH PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................ $(1,731,561) $(2,694,900)
Adjustments to reconcile net loss to net cash
used in operating activities:
Continuing operations:
Depreciation and amortization................................... 192,985 148,871
Amortization of discount on notes payable....................... 219,685 122,326
Other........................................................... 29,315 --
Changes in operating assets and liabilities:
Accounts receivable............................................. (5,000) 1,627
Other assets.................................................... 20,355 12,414
Accounts payable and accrued liabilities........................ (613,341) (447,990)
Other current liabilities....................................... -- (625)
Discontinued operations:
Changes in current assets and current liabilities............... 553,922 95,577
Decrease in net noncurrent assets
in excess of noncurrent liabilities........................ 63,762 --
----------- ------------
Net cash used in operating activities............................. (1,269,878) (2,762,700)
------------ ------------
Cash used in investing activities - acquisition of equipment
and leasehold improvements........................................ (4,472) (52,229)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable....................................... 2,250,000 --
Principal payments on notes payable............................... (158,251) (1,326,537)
Principal payments on capital leases.............................. (13,454) --
Proceeds from sale of common stock................................ -- 4,632,500
Exercise of warrants and stock options............................ 4,403 676,994
----------- ------------
Net cash provided by financing activities......................... 2,082,698 3,982,957
----------- ------------
Net increase in cash and cash equivalents......................... 808,348 1,168,021
Cash and cash equivalents at beginning of period....................... 9,984 3,739,144
----------- ------------
Cash and cash equivalents at end of period............................. $ 818,332 $ 4,907,165
=========== ============
Supplemental disclosure of cash flow information-
cash payments made during the period for interest.............. $ 16,502 $ 80,665
=========== ============
Non-cash financing activities:
Debt discount incurred on repricing of warrants................... $ 480,000 $ --
=========== ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
EPOCH PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
Epoch Pharmaceuticals, Inc. ("Epoch" or "the Company"), formerly MicroProbe
Corporation, was organized to develop, manufacture and market therapeutic and
diagnostic products utilizing oligonucleotide technology. In November 1995, the
Company sold its diagnostics assets to Becton, Dickinson and Company (see note
2). The Company's continuing activities are focused on the development of
therapeutic technologies and products.
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required to be presented for complete financial
statements. The accompanying financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. Certain 1995 balances have been reclassified to conform with
the 1996 presentation.
The financial statements and related disclosures have been prepared with the
presumption that users of the interim financial information have read or have
access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto included in the
Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission.
The Company has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations in expenses and net losses will
continue.
(2) SALE OF DIAGNOSTICS ASSETS
In November 1995, the Company sold the Company's assets and technology
associated with its Diagnostics Division (the "Assets") to Becton, Dickinson and
Company, a New Jersey corporation, through its Becton Dickinson Diagnostic
Instrument Systems Division (collectively, "Becton"). The Assets related to the
Company's development, marketing and sale of diagnostic products which involve
the use of nucleic acid probes to detect and identify microorganisms in
biological samples under the names "Affirm(R) VP," "Affirm(R) VPIII," "Affirm(R)
DP," "Hybriquick(R)" and "Isoquick(R)". The Assets included: tangible personal
property, interests in certain contracts and other instruments, rights in
permits and licenses, raw materials and inventory, technology, trade secrets,
patents, other intellectual property (including the name "MicroProbe"), rights
in customer lists, records and data, computer software programs, goodwill and
causes of action held by the Company against third parties. The aggregate
purchase price paid by Becton for the Assets and for the Company's covenant not
to compete with Becton for a period of five years was $8,510,000. The Purchase
Price is subject to an upward adjustment of $1,500,000 contingent upon Procter &
Gamble entering into a supply agreement with Becton by November 2002, for the
dental diagnostic products, which were
6
<PAGE> 7
transferred by the Company to Becton, and Procter & Gamble obtaining all
clearances from the United States Food and Drug Administration necessary for the
commercial sale of such products in the U.S. The Company does not anticipate
receiving these funds.
(3) PRIVATE PLACEMENT
In June 1996, the Company successfully completed a private offering of Units,
each Unit consisting of one share of the Company's Common Stock and one warrant
to purchase 0.5 shares of the Company's Common Stock. The Company sold a total
of 5 million Units, for an aggregate purchase price of $5 million to
institutional and accredited individual investors.
The term of the warrants is five (5) years, and they are exercisable at $2.50
per share (or $1.25 per 0.5 shares). Each warrant is redeemable by the Company
at any time after eighteen months from the date of issuance at $0.05 per
warrant, provided that the closing trading price per share of Common Stock is at
least $3.75 for twenty consecutive trading days.
In connection with the private placement, pursuant to an agreement with its
financial advisor, David Blech, a significant shareholder of the Company, the
Company paid fees of $350,000 to Mr. Blech. In addition, the Company cancelled
fifty percent (50%) of the obligations of Mr. Blech to the Company arising in
connection with the transactions involving Ribonetics GmbH, including the "put"
rights contained in an agreement dated December 1, 1993 between the Company and
Mr. Blech. The aggregate amount cancelled was $1,635,588. The balance is
accruing interest at the minimum applicable federal rate. As the obligation had
been fully reserved, and the remaining balance is fully reserved, neither the
cancellation nor the remaining obligation is reflected on the Company's balance
sheet. The Company also issued to Mr. Blech five year warrants to purchase
500,000 shares of Common Stock at $1.00 per share. The warrants are not
exercisable for one year and are held in escrow by the Company until the balance
of Mr. Blech's obligation to the Company is satisfied.
In addition to completion of the private placement, major shareholders of the
Company elected to exercise previously existing warrants to purchase 2,200,000
shares of the Company's Common Stock at $0.30 per share generating an additional
$660,000 of cash to the Company.
(4) VIRGINIA MASON AND EPOCH PHARMACEUTICALS RESEARCH GRANT
In October 1996, The National Institute of Arthritis and Musculoskeletal and
Skin Disease, of the National Institutes of Health, awarded a four-year contract
to Virginia Mason Research Center, and the Company as subcontractor, to develop
and test a compound designed to inactivate a gene which causes rheumatoid
arthritis. The federal research award is for $1.2 million of which Epoch will
receive $584,000 over the four year period.
Virginia Mason, with its expertise in arthritis, will partner with Epoch, with
its expertise in gene- modification, to develop novel therapeutic compounds for
the treatment of arthritis. Such compounds are expected to search the DNA
structure to locate and attach to the affected gene. Researchers then hope to
turn off the genetic element which causes the patient's immune system to attack
cells in patients' joints, resulting in rheumatoid arthritis.
7
<PAGE> 8
(5) SALE OF TECHNOLOGY
In September 1996, the Company signed a letter of intent with Saigene
Corporation, (Saigene), whereby Epoch would transfer its remaining diagnostic
technologies to Saigene for $1,100,000.
(6) SALE OF COMMON STOCK AND STRATEGIC ALLIANCE WITH VIMRX
In October 1996, the Company and VIMRx Pharmaceuticals, Inc., Wilmington,
Delaware ("VIMRx") announced the establishment of an alliance between the two
companies to attempt to exploit the synergies between their respective
technologies and markets, and a settlement of the outstanding dispute between
Epoch and VIMRx's German subsidiary, formerly known as Ribonetics. VIMRx
invested $800,000 in exchange for Epoch common stock at $1.75 per share. In
addition, VIMRx received 450,000 warrants to purchase common stock exercisable
at $2.00 and 450,000 warrants to purchase common stock exercisable at $3.00
which expire in October 1997 and 1998 respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
At September 30, 1996, the Company had cash and cash equivalents of $4,907,000.
In addition, the Company received $800,000 from VIMRx in October 1996 as
described in Note (6) of the Notes to the Financial Statements. The Company
anticipates the combined funds of $5,707,000 will provide sufficient working
capital to operate for approximately fifteen months. The Company's continuing
operations are research and development, which will not generate cash in the
near term to fund future operations.
In June 1996, the Company successfully completed a private placement (the
"Private Placement") of Units; each Unit consisting of one share of the
Company's Common Stock and one warrant to purchase 0.5 shares of the Company's
Common Stock as described in Note (3) of the Notes to the Financial Statements.
Also in June 1996, the Company announced that it intends to exchange for every
two warrants which were issued in conjunction with the Company's public offering
in September 1993 at $6.50 per share, one new warrant to purchase one share of
the Company's Common Stock with a term of five years that is exercisable at
$2.50 per share. Each warrant will be redeemable by the Company at any time
after eighteen months from the date that they are issued at $0.05 per warrant,
provided that the closing trading price per share of Common Stock is at least
$3.75 for twenty (20) consecutive trading days.
In September 1996, the Company signed a letter of intent with Saigene
Corporation ("Saigene"), whereby Epoch would sell its diagnostic technologies to
Saigene for $1,100,000.
In October 1996, The National Institute of Arthritis and Musculoskeletal and
Skin Disease, of the National Institutes of Health, awarded a four-year contract
to Virginia Mason Research Center, and Epoch as subcontractor, to develop and
test a compound designed to inactivate a gene which causes
8
<PAGE> 9
rheumatoid arthritis. The federal research award is for $1.2 million of which
Epoch will receive $584,000 over the four year period.
Virginia Mason, with its expertise in arthritis, will partner with Epoch, with
its expertise in gene- modification, to develop novel therapeutic compounds for
the treatment of arthritis. Such compounds are expected to search the DNA
structure to locate and attach to the affected gene. Researchers then hope to
turn off the genetic element which causes the patient's immune system to attack
cells in patients' joints, resulting in rheumatoid arthritis.
Also in October 1996, the Company and VIMRx announced the establishment of an
alliance between the two companies to attempt to exploit the synergies between
their respective technologies and markets, and a settlement of the outstanding
dispute between Epoch and VIMRx's German subsidiary, formerly known as
Ribonetics. VIMRx invested $800,000 in exchange for Epoch common stock at $1.75
per share. In addition, VIMRx received 450,000 warrants to purchase common stock
exercisable at $2.00 and 450,000 warrants to purchase common stock exercisable
at $3.00 which expire in October 1997 and 1998, respectively.
Since inception, the Company has financed its operations primarily through the
sales of its equity securities. In addition, the Company received $8,510,000
from the sale of its Diagnostics Division as described in Note (2) of the Notes
to Financial Statements. To continue operations, the Company will be required to
sell additional equity securities, borrow funds, or obtain additional financing
through licensing, joint venture, or other collaborative arrangements. The
Company is pursuing such financing arrangements but has no commitments for such
financing and there can be no assurance that such financing will be available on
satisfactory terms, if at all.
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
that are based on current expectations. In light of the important factors that
can materially affect results, including those set forth below and elsewhere in
this Quarterly Report on Form 10-QSB, the inclusion of forward-looking
information herein should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
The Company may encounter competitive, technological, financial and business
challenges making it more difficult than expected to continue to develop and
market therapeutic technologies and products; the market may not accept the
Company's therapeutic products; the Company may be unable to retain existing key
management personnel; and there may be other material adverse changes in the
Company's operations or business. Certain important factors affecting the
forward-looking statements made herein include, but are not limited to (i) the
successful development of viable therapeutic technologies and products, (ii)
accurately forecasting capital expenditures, and (iii) obtaining new sources of
external financing. Assumptions relating to budgeting, marketing, product
development and other management decisions are subjective in many respects and
thus susceptible to interpretations and periodic revisions based on actual
experience and business developments, the impact of which may cause the Company
to alter its marketing, capital expenditure or other budgets, which may in turn
affect the Company's financial position and results of operations.
Future operating results may be impacted by a number of factors that could cause
actual results to differ materially from those stated herein, which reflect
management's current expectations.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following discussion of results of operations reflects the Company's
Diagnostics Division as discontinued operations for the three and nine month
periods ended September 30, 1995 and 1996.
Research and development expenses for the three months ended September 30, 1996
increased $115,000 over the same period in the prior year. This increase is
reflective of the increased research activity which is being funded with
proceeds from the sale of the Assets of the Company's Diagnostics Division and
from the Private Placement.
Research and development expenses for the nine month period ended September 30,
1996 increased $671,000 over the same period in the prior year. This increase in
the year to date expense is also reflective of the increased research activity
currently being funded. Additionally, for the nine months ended September 30,
1995, research and development expense was reduced by $404,000 for a research
contract which had been accrued but was subsequently cancelled. Additional
increases in expenditures for research and development throughout 1996 are
anticipated as the Company devotes additional resources to these efforts.
General and administrative expenses in the three month periods ended September
30, 1995 and September 30, 1996 are generally comparable. In July 1996 the In Re
Blech Securities Litigation suit (see Part II, Item 1, Legal Proceedings) was
dismissed. Accordingly, $250,000 of estimated costs which had been accrued for
this matter was reversed as a reduction of expenses in the nine month period
ended September 30, 1996.
Interest income in the three and nine month periods ended September 30, 1996
increased compared with the respective periods in the prior year due to higher
investable funds. Interest expense in the three and nine month periods ended
September 30, 1996 is significantly reduced from the comparable periods of 1995
as the majority of debt was repaid in the second quarter of 1996 with funds
received in the Private Placement as described in Note (3) of the Notes to the
Financial Statements.
In addition to the interest on the principle amounts of the loans, interest
expense in the nine months ended September 30, 1996 includes $122,000 of
amortization of debt discount associated with bridge refinancing. The price
adjustment was credited to additional paid-in capital and the debt discount was
amortized over the term of the notes. At March 31, 1996, the discount had been
fully amortized.
LIQUIDITY AND CAPITAL RESOURCES
The net cash increase of $1,168,000 from December 31, 1995 to September 30, 1996
was primarily the result of the receipt of net proceeds of $4,633,000 from the
Private Placement, and the receipt of $660,000 from the exercise of warrants to
purchase the Company's common stock by major shareholders in June 1996. These
receipts were offset by the repayment of notes payable plus interest in the
amount of $1,396,000, and cash used for operations.
In October 1996, the Company received $800,000 of additional cash in conjunction
with the establishment of an alliance with VIMRx. See Note (6) of the Notes to
the Financial Statements.
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<PAGE> 11
The Company's primary future needs for capital are for continued research and
development. The Company's working capital requirements may vary depending upon
numerous factors, including the progress of the Company's research and
development, competitive and technological advances and the FDA regulatory
process.
The Company will require additional funds to continue its operations and, over
the longer term, will require substantial additional funds to maintain and
expand its research and development activities and to ultimately commercialize,
with or without the assistance of corporate partners, any of its proposed
products. The Company will seek collaborative or other arrangements with large
pharmaceutical companies, under which such companies would provide additional
capital to the Company in exchange for exclusive or non-exclusive licenses or
other rights to certain of the technologies and products the Company is
developing. However, the competition for such arrangements with major
pharmaceutical companies is intense, with a large number of biopharmaceutical
companies attempting to satisfy their funding requirements through such
arrangements. There can be no assurance that an agreement or agreements will
arise from these discussions in a timely manner, or at all, or that revenues
that may be generated thereby will offset operating expenses sufficiently to
reduce the Company's short- or long-term funding requirements. Additional equity
or debt financings may be required, and there can be no assurance that funds
will be available from such financings on favorable terms, or at all.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was named as an additional defendant in In Re Blech Securities
Litigation, 94 Civ. 7696 (RWS), pursuant to an Amended Consolidated Class Action
Complaint (the "Amended Complaint") filed on March 28, 1995 in the United States
District Court for the Southern District of New York (the "Court"). The
plaintiffs brought this action as a purported class action on behalf of persons
who purchased, during the period from July 1, 1991 through September 21, 1994,
securities of 24 companies, including securities issued by the Company. The
Amended Complaint names as defendants 11 of the 24 issuers, including the
Company, as well as David Blech, D. Blech & Co., Mark S. Germain, Nicholas
Madonia as trustee for various trusts, Mordechai Jofen, as trustee for The
Edward Blech Trust, Chancellor Capital Management, Inc., Parag Saxena, Bear,
Stearns & Company, Inc. and Baird Patrick & Co.
The Amended Complaint sought to allege against the Company violations of
antifraud provisions of the federal securities law and common law fraud and
deceit in connection with a purported scheme to, inter alia, artificially
inflate and maintain prices of the securities issued by the 24 companies
referenced above. In that regard, the Amended Complaint purports to allege
fraudulent activities involving the foregoing securities, including without
limitation unlawful "sham" transactions and the providing of undisclosed
"incentives" to investment fund managers and others to purchase such securities.
The Amended Complaint seeks the following relief: (a) certification of this
action as a class action; (b) damages in an unspecified amount and interest; (c)
costs and expenses of this action, including reasonable fees of attorneys,
accountants and experts and other disbursements; and (d) such other and further
relief as may be proper.
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<PAGE> 12
The Company moved to dismiss the Amended Complaint as to it on the grounds that
the Amended Complaint failed to plead the purported fraud with the requisite
particularity and failed to state a claim. Plaintiffs opposed the motion. By
decision dated June 6, 1996, the District Court granted the Company's motion to
dismiss for failure to plead fraud with particularity and declined to exercise
jurisdiction over the pendent common law claims asserted against the Company
under state law. The District Court granted plaintiffs leave to replead their
purported claims by July 26, 1996. The Company was not named in the repleading
and by the terms of the June 6, 1996 decision, the action was dismissed by the
District Court with respect to the Company. Although there remained other party
defendants in the action, the Company moved for entry of final judgment
dismissing the action as against the Company. Plaintiffs' opposed the motion and
oral argument of the motion occurred on October 10, 1996; the motion is pending
before the District Court.
12
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An Annual Meeting of Stockholders was held on Wednesday,
September 25, 1996.
(b) Intentionally omitted.
(c) Purpose of Annual Stockholders Meeting:
1. Election of Directors. The following is a
tabulation of the votes for each of the four
proposed nominees for election as directors of the
Company:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Fred Craves, Ph.D. 12,368,418 43,372 -- --
-- --
Sanford S. Zweifach 12,368,418 43,372 -- --
Kenneth L. Melmon, M.D. 12,368,418 43,372 -- --
Gregory Sessler 12,368,418 43,372 -- --
</TABLE>
2. Approval of Amendment of the Company's Restated
Certificate of Incorporation to Authorize
10,000,000 Shares Preferred Stock, with such
Designations, Preferences, Limitations and Relative
Rights as the Board of Directors shall determine.
The following is a tabulation of the votes:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C> <C>
7,750,286 134,560 57,822 4,469,122
</TABLE>
3. Amendment of the Company's Restated Certificate of
Incorporation to Increase Number of Authorized
Shares of Common Stock to 30,000,000 Shares. The
following is a tabulation of the votes:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C> <C>
12,248,333 128,535 32,922 2,000
</TABLE>
(d) Not applicable.
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3. Restated Certificate of Incorporation, as amended
through September 30, 1996.
10.65 Stock and Warrant Purchase Agreement dated as of
October 1, 1996, between the Company and VIMRx
Pharmaceuticals, Inc.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
14
<PAGE> 15
SIGNATURES
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.
EPOCH PHARMACEUTICALS, INC.
Date: November 14, 1996 By: /s/ SANFORD ZWIFACH
---------------------------------
Sanford Zweifach
President/Chief Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
<S> <C> <C> <C>
3. Restated Certificate of Incorporation, as amended through
September 30, 1996. 17
10.65 Stock and Warrant Purchase Agreement dated as of
October 1, 1996, between the Company and
VIMRx Pharmaceuticals, Inc. 30
27 Financial Data Schedule
</TABLE>
16
<PAGE> 1
State of Delaware
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
RESTATED CERTIFICATE OF INCORPORATION OF "MICROPROBE CORPORATION" FILED IN THIS
OFFICE ON THE TWENTY-EIGHTH DAY OF APRIL, A.D. 1992, AT 4:30 O'CLOCK P.M.
* * * * * * * * * *
/s/ WILLIAM T. QUILLEN
[SEAL] -----------------------------
William T. Quillen, Secretary of State
AUTHENTICATION: *4084748
DATE: 10/04/1993
EXHIBIT 3
EPOCH PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-QSB
<PAGE> 2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
MICROPROBE CORPORATION
MicroProbe Corporation (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Delaware General Corporation Law"), does hereby certify:
1. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on August 14, 1985.
2. The Amended and Restated Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on December 31, 1991.
3. The following Amended and Restated Certificate of Incorporation was
duly proposed by the Board of Directors of the Corporation. In lieu of a meeting
of the stockholders, written consent has been given for the adoption of said
Amended and Restated Certificate of Incorporation pursuant to the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, and written notice of the taking of such corporate action has
been given as provided in said Section 228.
ARTICLE 1. NAME
The name of the Corporation is MicroProbe Corporation.
ARTICLE 2. REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation is Corporation
Trust Center, 1209 Orange Street, Wilmington, County of New Castle, State of
Delaware 19801, and the name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE 3. PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE 4. SHARES
The total number of shares which the Corporation is authorized to issue
is Two Hundred Million (200,000,000) shares, with a par value of $.01 per share,
all of which shall be Common Stock.
<PAGE> 3
Upon the effectiveness of this Amended and Restated Certificate of
Incorporation, (i) each outstanding share of Series 1 Preferred Stock shall be
converted and reclassified as one share of Common Stock, and (ii) each
outstanding share of Series 2 Preferred Stock shall be converted and
reclassified as one share of Common Stock.
ARTICLE 5. BY-LAWS
The Board of Directors shall have the power to adopt, amend or repeal
the By-laws of the Corporation, subject to the power of the stockholders to
amend or repeal such By-laws. The stockholders shall also have the power to
adopt, amend or repeal the By-laws of the Corporation.
ARTICLE 6. ELECTION OF DIRECTORS
Written ballots are not required in the election of Directors.
ARTICLE 7. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of the Corporation.
ARTICLE 8. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not exist
with respect to shares of stock of the Corporation.
ARTICLE 9. AMENDMENTS TO CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal, by the
affirmative vote of the holders of a majority of the shares entitled to vote
thereon, any of the provisions contained in this Certificate of Incorporation,
and the rights of the stockholders of the Corporation are granted subject to
this reservation.
ARTICLE 10. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Delaware General Corporation Law, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of directors, a Director of the Corporation shall
not be liable to the Corporation or its stockholders for monetary damages. Any
amendment to or repeal of this Article 10 shall not adversely affect any right
or protection of a Director of the Corporation for or with respect to any acts
or omissions of such Director occurring prior to such amendment or repeal.
-2-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have signed their names and affirm,
under penalties of perjury, that the statements herein are true and that this
instrument is the act and deed of MicroProbe Corporation as of this 28th day
of April, 1992.
MICROPROBE CORPORATION
By /s/ John L. Bishop
-------------------------------------------
John L. Bishop, Chairman
and Chief Executive Officer
Attest:
/s/ Gregory Sessler
- ------------------------------
Gregory Sessler, Secretary
-3-
<PAGE> 5
State of Delaware
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "MICROPROBE CORPORATION" FILED IN THIS OFFICE ON THE TWELFTH DAY
OF JANUARY, A.D. 1993, AT 3 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
* * * * * * * * * *
/s/ William T. Quillen
[SEAL] ------------------
William T. Quillen, Secretary of State
AUTHENTICATION: #4084751
DATE: 10/04/1993
<PAGE> 6
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MICROPROBE CORPORATION
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
MICROPROBE CORPORATION (the "Corporation"), organized and existing under
the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent in accordance with Section 141(f) of the General Corporation Law
of the State of Delaware, duly adopted resolutions setting forth a proposed
amendment of the Restated Certificate of Incorporation of the Corporation,
declaring said amendment to be advisable and directing that said amendment be
submitted to the stockholders of the Corporation for consideration thereof. The
resolution setting forth the proposed amendment is as follows:
"RESOLVED, that Article 4 of the Restated Certificate of
Incorporation of Microprobe Corporation, a Delaware corporation (the
"Corporation") is hereby amended to read in full as follows:
'The total number of shares which the Corporation is
authorized to issue is Twenty Million (20,000,000) shares, with
a par value of $.01 per share, all of which shall be Common
Stock.
Upon the filing of this Certificate of Amendment with
the Secretary of State of the State of Delaware, each share of
Common Stock of the Corporation, $.01 par value, that is issued
and outstanding immediately prior to the filing of this
Certificate of Amendment, shall be converted, without any other
action on the part of the respective stockholders thereof, into
.02
<PAGE> 7
shares of Common Stock, $.01 par value. The Corporation shall
not issue fractional shares with respect to such conversion, but
shall pay in cash in lieu thereof an amount equal to Four
Dollars ($4.00) times the fraction of a share a stockholder
would otherwise be entitled to receive.'"
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, in accordance with Section 228 of the General Corporation Law of the
State of Delaware, holders of the necessary number of shares of the Common Stock
of the Corporation as required by statute and the Restated Certificate of
Incorporation, consented in writing to the amendment and written notice thereof
was provided to stockholders who did not so consent.
THIRD: That the said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President and attested by its Secretary this 31st
day of December, 1992.
/s/ John L. Bishop
---------------------------------------------
John L. Bishop, Chairman and
Chief Executive Officer
ATTEST:
/s/ Gregory Sessler
- --------------------------------
Gregory Sessler, Secretary
-2-
<PAGE> 8
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
-----------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "MICROPROBE CORPORATION", CHANGING ITS NAME FROM "MICROPROBE
CORPORATION" TO "EPOCH PHARMACEUTICALS, INC.", FILED IN THIS OFFICE ON THE
FOURTH DAY OF DECEMBER, A.D. 1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
[SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7734076
DATE: 12-04-95
<PAGE> 9
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MICROPROBE CORPORATION,
A DELAWARE CORPORATION
MicroProbe Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The Board of Directors of the Corporation, pursuant to a meeting
held on September 12, 1995, adopted resolutions proposing and declaring
advisable the following amendment to the Certificate of Incorporation of the
Corporation:
RESOLVED, that the Certificate of Incorporation of this
Corporation is hereby amended by changing ARTICLE 1 thereof to read in
full as follows:
"ARTICLE 1
The name of this Corporation is Epoch Pharmaceuticals, Inc."
2. The foregoing amendment has been approved pursuant to a meeting of
the Board of Directors of the Corporation in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
3. The foregoing amendment has been duly adopted by the stockholders of
the Corporation at a special meeting held on November 28, 1995 in accordance
with the applicable provisions of Sections 211 and 242 of the General
Corporation Law of the State of Delaware.
<PAGE> 10
IN WITNESS WHEREOF, MicroProbe Corporation has caused this Certificate
of Amendment to be signed by Sanford S. Zweifach, its Secretary, this 28th day
of November, 1995.
MICROPROBE CORPORATION
By: /s/ Sanford s. Zweifach,
-------------------------------------------
Sanford S. Zweifach,
Secretary
2
<PAGE> 11
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
-----------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "EPOCH PHARMACEUTICALS, INC.", FILED IN THIS OFFICE ON THE
THIRTIETH DAY OF SEPTEMBER, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[GREAT SEAL OF THE DELAWARE]
/s/ Edward J. Freel
[SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8131930
DATE: 10-03-95
<PAGE> 12
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
EPOCH PHARMACEUTICALS, INC.
EPOCH PHARMACEUTICALS, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: That at a meeting of the Board of Directors of the Corporation
resolutions were duly adopted setting forth a proposed amendment of the Restated
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and directing said amendment to be submitted to the stockholders of
the Corporation at its Annual Meeting. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that Article 4 of the Restated Certificate of
Incorporation of the Corporation be amended to read in its entirety:
"ARTICLE 4: The total number of shares of stock which
the Corporation shall have the authority to issue is forty
million (40,000,000) shares, consisting of a class of ten
million (10,000,000) shares of Preferred Stock par value $.01
per share, and a class of thirty million (30,000,000) shares
of Common Stock par value $.01 per share, (the Preferred
Stock, par value $.01 per share, being herein referred to as
'Preferred Stock'; and the Common Stock, par value $.01 per
share, being herein referred to as 'Common Stock'). The Board
of Directors is expressly authorized to provide for the
issuance of the shares of Preferred Stock in one or more
series and, by filing a Certificate pursuant to the applicable
law of the State of Delaware, to establish from time to time
the number of shares to be included in each series, and to fix
the designations, powers, preferences and relative,
participation, optional or other special rights, if any, of
the shares to each such series and the qualifications,
limitations and restrictions thereof, if any, with respect to
each such series of Preferred Stock."
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, the Annual Meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 and 242 of the
Delaware General Corporation Law, at which meeting the necessary number of
shares as required by statute were voted in favor of the amendment.
<PAGE> 13
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by Sanford S. Zweifach, its President, this 27th day of
September, 1996.
EPOCH PHARMACEUTICALS, INC.
By: /s/ Sanford S. Zweifach
------------------------------------------
Sanford S. Zweifach, President
2
<PAGE> 1
STOCK AND WARRANT PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 1st day of October, 1996, between
Epoch Pharmaceuticals, Inc. (the "Company"), a corporation organized under the
laws of Delaware, with its principal offices at 1725 220th Street, S.E., No.
104, Bothell, Washington 98021 and VIMRx Pharmaceuticals Inc., a Delaware
corporation, with its principal offices at 2751 Centerville Road, Suite 210,
Little Falls II, Wilmington, Delaware 19808 (the "Purchaser").
RECITALS
A. In November 1993, the Company agreed to purchase all of the capital
stock of Ribonetics GmbH ("Ribonetics") from Animal Biotechnology Cambridge
Limited ("ABC") and Herbert Stadler, who, together, owned all of the capital
stock of Ribonetics (the "Ribonetics Transaction"). In connection therewith, as
a portion of the purchase price therefor, the Company paid $1,502,000 in cash
upon execution of an agreement relating to the Ribonetics Transaction.
B. In or about September 1994, the Company and ABC became engaged in a
dispute over the purported termination of the Ribonetics Transaction by ABC.
C. Purchaser, a biotechnology company, subsequently obtained an
interest in Ribonetics.
D. The Company and Purchaser have agreed to enter into this Agreement
in full settlement and release of any and all claims of the Company against
Purchaser relating to Purchaser's interest in Ribonetics, and other matters
specified herein.
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and the Purchaser agree as follows:
AGREEMENT
SECTION 1. Agreement to Sell and Purchase the Securities. Concurrently
with the execution hereof, the Company will sell to Purchaser, and the Purchaser
will buy from the Company, upon the terms and conditions hereinafter set forth,
the following:
(a) 457,143 shares (the "Shares") of the common stock,
par value $.01 per share (the "Common Stock"), at a
purchase price of $1.75 per Share;
(b) warrants (the "Warrants") to purchase up to 900,000
shares of Common Stock (the "Warrant Shares") of
the Company, 450,000 of which shall be at an
exercise price of $2.00 per Warrant Share, and
450,000 of which shall be at an exercise price of
$3.00 per Warrant Share.
EXHIBIT 10.65
EPOCH PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-QSB
<PAGE> 2
The Warrants shall be subject to such other terms and conditions as set forth in
the forms attached hereto as Exhibits A and B. The Shares and the Warrants are
sometimes hereinafter referred to collectively as the "Securities."
SECTION 2. Delivery of the Securities. The completion of the purchase
and sale of the Securities shall occur concurrently with the execution hereof,
at which time the Company shall deliver to Purchaser one or more stock
certificates and one or more warrant certificates registered in the name of
Purchaser, or in such nominee name(s) as designated by Purchaser, representing
the number of Shares and Warrants set forth above. The Company's obligation to
complete the sale of the Securities and deliver such certificate(s) to the
Purchaser shall be subject to the following conditions, any one or more of which
may be waived by the Company: (a) receipt by the Company of New York Clearing
House funds in the full amount of the purchase price for the Securities being
purchased hereunder; and (b) the accuracy of the representations and warranties
made by the Purchaser. The Purchaser's obligation to accept delivery of such
certificate(s) and to pay for the Securities evidenced thereby shall be subject
to the accuracy in all material respects of the representations and warranties
made by the Company herein.
SECTION 3. Representations, Warranties and Covenants. The Company
hereby represents and warrants to, and covenants with, Purchaser as follows:
3.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has all requisite corporate power and authority to conduct its business as
currently conducted.
3.2 Due Execution, Delivery and Performance of the Agreements. The
Company's execution, delivery and performance of this Agreement (a) has been
duly authorized under Delaware law by all requisite corporate action by the
Company, and (b) will not violate any law, any provision of the Certificate of
Incorporation or By-laws of the Company or any provision of any material
indenture, mortgage, agreement, contract or other material instrument to which
the Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries or any of their properties or assets is bound as of the date
hereof, or result in a breach of or constitute (upon notice or lapse of time or
both) a default under any such indenture, mortgage, agreement, contract or other
material instrument or result in the creation or imposition of any lien,
security interest, mortgage, pledge, charge or other encumbrance, of any
material nature whatsoever, upon any properties or assets of the Company or any
of its subsidiaries. Upon its execution and delivery, and assuming the valid
execution thereof by the Purchaser, this Agreement and the Warrants will
constitute valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Company in Section 6.6
hereof may be legally unenforceable.
3.3 Issuance, Sale and Delivery of the Securities. When issued, the
warrants and, when issued and paid for, the Shares, to be sold hereunder by the
Company, and when issued upon due exercise of the Warrants, the Warrant Shares,
will be duly authorized, validly issued
2
<PAGE> 3
and outstanding, fully paid and non-assessable, and free and clear of all liens,
charges, security interests and other encumbrances and preemptive rights and
rights of first refusal.
3.4 Additional Information. The Company represents and warrants that
the information contained in the following documents, which the Company has
furnished to the Purchaser, is true and correct in all material respects as of
their respective final dates:
(a) the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995 (without
exhibits);
(b) the Company's Quarterly Report on Form 10-QSB for
the three month period ended March 31, 1996;
(c) the Company's Quarterly Report on Form 10-QSB for
the three month period ended June 30, 1996;
(d) the Company's Proxy Statement relating to the
Annual Meeting of Stockholders to be held September
25, 1996; and
(e) all other documents, if any, filed by the Company
with the Securities and Exchange Commission since
June 30, 1996 pursuant to the reporting
requirements of the Securities Exchange Act of
1934, as amended.
(the foregoing collectively, the "1996 Company Filings").
3.5 No Material Change. Except as set forth in Schedule 3.5 as of the
date hereof, there has been no material adverse change in the financial
condition or results of operations of the Company since June 30, 1996.
3.6 Reservation of Shares. The Company will at all times during the
term of the Warrants have authorized and unissued and reserved a sufficient
number of shares of Common Stock to provide for exercise of the Warrants.
3.7 Other Company Securities and Agreements.
(a) Except as set forth in the 1996 Company Filings or in
Schedule 3.7(a) hereto, (i) there are no outstanding options, warrants,
agreements, securities convertible into, or preemptive rights or other rights to
subscribe for or to purchase, any shares of capital stock of the Company, (ii)
there are no contracts or agreements of the Company to purchase, redeem or
otherwise acquire any of the securities of the Company, (iii) there are no
outstanding bonds, notes or other indebtedness having general voting rights or
convertible into or exchangeable for securities having such voting rights, and
(iv) there are no restrictions upon the voting or transfer of any shares of the
Company's capital stock pursuant to its Certificates of Incorporation or
By-Laws.
(b) Except as set forth on Schedule 3.7(b), neither the
issuance of the Shares and the Warrants or the issuance of the Warrant Shares
will require or cause any adjustment to the exercise price or purchase price or
to the number of shares or other securities
3
<PAGE> 4
purchasable pursuant to any option, warrant, convertible security or any other
contract, agreement or instrument of the Company.
3.8 Litigation. Except as set forth in the 1996 Company Filings, there
is no action, suit or proceeding pending, or to the best knowledge of the
Company threatened, against the Company which could materially adversely affect
the Company.
3.9 Intellectual Property. Except as set forth in the 1996 Company
Filings, (i) the Company is the sole owner of all its rights under the
agreements granting any right to use or practice any right relating to the
Intellectual Property (as defined below) currently used in the conduct of the
Company's business (the "Licenses"), free and clear of any liens, charges,
pledges, security interests or other encumbrances; (ii) the Company is the sole
owner, or, with respect to Intellectual Property which is licensed, has a valid
right to use pursuant to a License, all patents and patent applications;
registered and unregistered trademarks, service marks, trade names, logos, and
other source or business identifiers, including all goodwill associated
therewith; registered and unregistered copyrights, computer programs and
databases; trade secrets, proprietary technology, know-how, industrial designs
and other confidential information ("Trade Secrets"); and pending applications
for any of the foregoing (collectively, the "Intellectual Property") currently
used in the conduct of its business, free and clear of any liens, charges,
pledges, security interests or other encumbrances; (iii) to the Company's best
knowledge, the present or past operations of the Company do not infringe upon,
violate, interfere or conflict with the rights of others with respect to any
Intellectual Property and no proceeding is pending or threatened, to this
effect; (iv) to the Company's best knowledge, none of the Intellectual Property
is invalid or unenforceable, or has not been used or enforced or has failed to
be used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of any of the intellectual Property and no
proceeding is pending or threatened, to this effect; (v) no License provision or
any other contract, agreement or understanding with any party exists which would
prevent the continued use by the Company (as currently used by the Company) of
any Intellectual Property as a result of the consummation of the transactions
contemplated hereby; (vi) to the Company's best knowledge, no person is
infringing upon or otherwise violating any Intellectual Property or License;
(vii) there are no proceedings pending or, to the best knowledge of the Company,
threatened, in connection with any License; and (viii) to the best knowledge of
the Company, no Trade Secret has been disclosed by the Company to any third
party except subject to an appropriate confidentiality agreement or as required
by a governmental authority.
3.10 Indemnification.
(a) The Company shall hold Purchaser and Purchaser's
directors, officers, and controlling persons and their respective heirs,
representatives, successor and assigns, harmless and indemnify them against all
liabilities, costs and expenses incurred by them as a result of any breach of
the representations or covenants of the Company contained in this Section 3.
(b) The right to indemnification under paragraph (a) of
Section 3.10 is subject to the following limitations:
4
<PAGE> 5
(i) indemnification for claims under paragraph (a)
shall be payable by the Company hereunder if and only if to the extent that the
aggregate amount of all losses by Purchaser shall exceed $100,000 calculated on
a cumulative basis and not per item basis (the "Basket"), whereupon the Company
shall then be responsible for paying all of the losses incurred by Purchaser in
excess of the Basket; and
(ii) the aggregate liabilities and obligations of
the Company under this Section 3.10 shall be limited to $800,000.
SECTION 4. Representations, Warranties and Covenants of the
Purchasers.
4.1 Investment Representations. Purchaser represents and warrants to,
and covenants with, the Company that: (i) Purchaser is knowledgeable,
sophisticated and experienced in making, and is qualified to make, decisions
with respect to investments in securities presenting an investment decision like
that involved in the purchase of the Securities, and has requested, received,
reviewed and considered all information it deems relevant in making an informed
decision to purchase the Securities; (ii) Purchaser is acquiring the number of
Securities set forth above for its own account for investment only and with no
present intention of distributing any of such Securities or any arrangement or
understanding with any other persons regarding the distribution of such
Securities (this representation and warranty not limiting the Purchaser's right
to sell pursuant to the Registration Statement (as defined in Section 6
hereof)); (iii) Purchaser will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Securities except in
compliance with the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations promulgated thereunder; (iv) Purchaser has, in
connection with its decision to purchase the number of Securities set forth
above, relied solely upon the 1996 Company Filings and the documents
incorporated therein by reference and the representations and warranties of the
Company contained herein; and (v) Purchaser is an "accredited investor" within
the meaning of Rule 501 of Regulation D promulgated under the Securities Act.
Purchaser acknowledges that each certificate representing the Shares, the
Warrants and the Warrant Shares shall be imprinted with a legend substantially
in the following form:
"The securities represented hereby have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or under the securities laws of any state. These
securities are subject to restrictions on transferability
and resale and may not be transferred or resold except as
permitted under the Act and the applicable state securities
laws, pursuant to registration or exemption therefrom. The
issuer of the securities may require an opinion of counsel
in form and substance satisfactory to the issuer to the
effect that any proposed transfer or resale is in compliance
with the Act and any applicable state securities laws."
4.2 Due Execution, Delivery, Enforceability. Purchaser further
represents and warrants to, and covenants with, the Company that (i) Purchaser
has full right, power, authority and capacity to enter into this Agreement and
to consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of
5
<PAGE> 6
this Agreement, and (ii) upon the execution and delivery thereof, this Agreement
shall constitute valid and binding obligations of the Purchaser enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties rights generally and except as enforceability
may be subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
the indemnification agreements of the Purchaser in Section 6.6 hereof may be
legally unenforceable.
4.3 Indemnification.
(a) The Purchaser shall hold the Company and its directors,
officers and controlling persons and their respective heirs, representatives,
successors and assigns harmless and indemnify them against all liabilities,
costs and expenses incurred by them as a result of any breach of the
representations or covenants of the Purchaser contained in this Section 4.
(b) The right to indemnification under paragraph (a) of
Section 4.3 is subject to the following limitations:
(i) indemnification for claims under paragraph (a)
shall be payable by the Purchaser hereunder if and only if to the extent that
the aggregate amount of all losses by the Company shall exceed $100,000
calculated on a cumulative basis and not per item basis (the "Basket"),
whereupon the Purchaser shall then be responsible for paying all of the losses
incurred by the Company in excess of the Basket; and
(ii) the aggregate liabilities and obligations of
the Purchaser under this Section 4.3 shall be limited to $800,000.
SECTION 5. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Purchaser herein shall survive the execution of this Agreement, the delivery
to the Purchaser of the Securities being purchased and the payment therefor and
remain effective until two (2) years from the date hereof.
SECTION 6. Registration Rights.
6.1 Definitions. As used in this Section 6:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by filing with the Securities and Exchange
Commission (the "SEC") a registration statement (the "Registration Statement")
in compliance with the Securities Act of 1933, as amended (the "1933 Act") and
the declaration or ordering by the SEC of the effectiveness of such Registration
Statement.
(b) The term "Registrable Securities" means the Shares,
Warrant Shares and any Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right, or other security that is
issued as) a dividend or other distribution with respect to, or in exchange or
in replacement of, such Registrable Securities. In the event of any
recapitalization by the Company, whether by stock split, reverse stock split,
stock dividend or the
6
<PAGE> 7
like, the number of shares of Registrable Securities used throughout this
Agreement for various purposes shall be proportionately increased or decreased,
provided, however, that any such security shall cease to be a Registrable
Security at such time as it is publicly saleable without restriction, pursuant
to Rule 144(k) of the SEC, or otherwise.
6.2 Demand Registration.
(a) Demand for Registration. If the Company shall receive
from Purchaser a written demand (a "Demand Registration") that the Company
effect any registration under the 1933 Act of at least 400,000 shares of the
Registrable Securities the Company will use its best efforts to effect such
registration as soon as practicable as may be so demanded and as will permit or
facilitate the sale and distribution of all or such portion of Purchaser's
Registrable Securities as are specified in such demand, provided that the
Company shall not be obligated to take any action to effect any such
registration, pursuant to this paragraph 6.2:
(A) Within 120 days immediately following
the effective date of any registration statement pertaining to an
underwritten public offering of securities of the Company for its own
account (other than a registration on Form S-4 relating solely to an
SEC Rule 145 transaction, or a registration relating solely to
employee benefit plans);
(B) After the Company has effected an
aggregate of two such registrations pursuant to this paragraph 6.2 and
the sales of the shares of Common Stock under such registrations have
closed;
(C) If the Company shall furnish to
Purchaser a certificate signed by the President of the Company,
stating that in the good faith judgment of the board of directors of
the Company it would be seriously detrimental to the Company and its
stockholders (for reasons other than concern over the effect on the
market for the Company's securities) for such Registration Statement
to be filed at the date filing would be required, in which case the
Company shall have an additional period of not more than 60 days
within which to file such Registration Statement; provided, however,
that the Company shall not use this right more than once in any twelve
month period; or
(D) Earlier than October 1, 1997.
(b) Underwriting. If Purchaser intends to distribute the
Registrable Securities covered by its demand by means of an underwriting, it
shall so advise the Company as part of its demand made pursuant to this
paragraph 6.2.
The Company shall, together with Purchaser, enter into an underwriting
agreement in customary form with the underwriter or underwriters selected by
Purchaser and reasonably satisfactory to the Company. Notwithstanding any other
provision of this paragraph 6.2, if the underwriter shall advise the Company in
writing that marketing factors (including, without limitation, an adverse effect
on the per share offering price) require a limitation of the number of shares to
be underwritten, then the Company shall so advise Purchaser that the number of
shares of Registrable Securities that may be included shall be limited to the
extent required by the underwriter's marketing limitation.
7
<PAGE> 8
If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account (or for the account of other shareholders) in such registration if the
underwriter so agrees and if the number of Registrable Securities that would
otherwise have been included in such registration and underwriting will not
thereby be limited.
6.3 Company Registration.
(a) If at any time or from time to time the Company shall
determine to register any of its securities, either for its own account or the
account of security holders, other than a registration relating solely to
employee benefit plans, a registration on Form S-4 relating solely to an SEC
Rule 145 transaction, or a registration pursuant to paragraph 6.2 hereof, the
Company will:
(i) promptly give to Purchaser written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 20 days after receipt of such written
notice from the Company, except as set forth in subparagraph 6.3(b) below.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise Purchaser as a part of the written notice given pursuant
to subparagraph 6.3(a)(i). In such event, the right of Purchaser to registration
pursuant to this paragraph 6.3 shall be conditioned upon Purchaser's
participation in such underwriting and the inclusion of Purchaser's Registrable
Securities in the underwriting to the extent provided herein. Purchaser shall,
together with the Company and the other parties distributing their securities
through such underwriting, enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this paragraph 6.3, if the
underwriter determines that marketing factors require, or if prior registration
rights granted by the Company require a limitation of the number of shares to be
underwritten, the underwriter and the Company may limit the number of
Registrable Securities to be included in the registration and underwriting, or
may exclude Registrable Securities entirely from such registration and
underwriting subject to the terms of this paragraph. The Company shall so advise
all holders of the Company's securities that would otherwise be registered and
underwritten pursuant hereto, and the number of shares of such securities,
including Registrable Securities, that may be included in the registration and
underwriting shall be allocated in the following manner: shares, other than
Registrable Securities, requested to be included in such registration by
stockholders shall be excluded (unless such stockholders have been previously
granted registration rights with priority), and if a limitation on the number of
shares is still required, the number of Registrable Securities that may be
included shall be limited to the extent required by the underwriter's marketing
limitation. No securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
8
<PAGE> 9
6.4 Expenses of Registration. All expenses incurred in connection with
the first two registrations effected pursuant to paragraph 6.2 and all
registrations effected pursuant to paragraph 6.3, including without limitation
all registration, filing, and qualification fees (including blue sky fees and
expenses), printing expenses, escrow fees, fees and disbursements of counsel for
the Company, and expenses of any special audits incidental to or required by
such registration, shall be borne by the Company; provided, however, that the
Company shall not be required to pay stock transfer taxes or underwriters'
discounts, or commissions relating to Registrable Securities. Notwithstanding
anything to the contrary above, the Company shall not be required to pay for any
expenses of any registration proceeding under paragraph 6.2 if the registration
request is subsequently withdrawn at the request of Purchaser, unless Purchaser
agrees to forfeit its right to a demand registration pursuant to paragraph 6.2.
In the absence of such an agreement to forfeit, Purchaser shall bear all such
expenses of the Registrable Securities to have been registered. Notwithstanding
the preceding sentence, however, if at the time of the withdrawal, Purchaser has
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to Purchaser at the time of its request, then
Purchaser shall not be required to pay any of said expenses and shall retain its
rights pursuant to paragraph 6.2.
6.5 Obligations of the Company. Whenever required under this Section 6
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its diligent best efforts to
cause such registration statement to become effective, and keep such
registration statement effective for up to ninety (90) days or, if sooner, until
Purchaser has completed the distribution relating thereto.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to Purchaser and each underwriter of Registrable
Securities such numbers of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the 1933 Act, and such other
documents as Purchaser may reasonably request in order to facilitate the
disposition of Registrable Securities owned by it.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by
Purchaser, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Purchaser shall
also enter into and perform its obligations under such an agreement.
9
<PAGE> 10
(f) Notify Purchaser at any time when a prospectus relating
to Registerable Securities covered by such registration statement is required to
be delivered under the 1933 Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing and the Company
will, as promptly as practicable thereafter, prepare and file with the SEC and
furnish a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of Registrable Securities, such prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary or make the statements therein,
in light of the circumstances under which they were made, not misleading.
(g) Furnish unlegended certificates representing the
Registrable Securities to be sold pursuant to any registration statement and in
such denominations and registered in such names as Purchaser may request, and
instruct the transfer agent to release and stop transfer orders with respect to
such Registrable Securities being sold.
(h) Advise the Purchaser of the issuance by the SEC of any
stop order suspending the effectiveness of the registration statement or the
initiation of any proceedings for such purpose, and make every reasonable effort
to prevent the issuance, or obtain the withdrawal of, any such stop order or
other order suspending the effectiveness of any registration statement at the
earliest possible time.
(i) Cooperate with the Purchaser and the managing
underwriter(s), if any, or any other interested party (including any interested
broker-dealer) in making any filings or submission required to be made, and the
furnishing of all appropriate information in connection therewith, with the
National Association of Securities Dealers, Inc.
(j) Effect the listing of the Registrable Securities on The
Nasdaq Small Cap Market or such other national securities exchange or
over-the-counter market on which shares of the Common Stock shall then be
listed.
(k) Obtain for delivery to the Purchaser and the
underwriter(s) or their agent an opinion or opinions from counsel for the
Company in customary form and reasonably satisfactory to the Purchaser,
underwriters or agents and their counsel.
(l) Advise the Purchaser of any request by the SEC for
amendments or supplements to the registration statement or the prospectus
included therein or for additional information.
(m) Take all other steps necessary to effect the
registration of the Registrable Securities contemplated hereby.
6.6 Indemnification.
(a) The Company will, and does hereby undertake to,
indemnify and hold harmless Purchaser and its officers, directors and agents,
and each person controlling Purchaser, with respect to any registration,
qualification, or compliance effected pursuant to this Section 6,
10
<PAGE> 11
and each underwriter, if any, and each person who controls any underwriter, of
the Registrable Securities held by or issuable to Purchaser, against all claims,
losses, damages, and liabilities (or actions in respect thereto) to which they
may become subject under the 1933 Act, the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), or other federal or state law arising out of or based
on (i) any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other similar document
(including any related Registration Statement, notification, or the like)
incident to any such registration, qualification, or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) any violation or alleged violation by the Company of any federal, state or
common law rule or regulation applicable to the Company in connection with any
such registration, qualification, or compliance, and will reimburse, as incurred
Purchaser, each such underwriter, and each such director, officer, partner,
agent and controlling person, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action; provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense, arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by Purchaser or underwriter and stated to be specifically for use therein.
(b) Purchaser will, if Registrable Securities held by or
issuable to Purchaser are included in such registration, qualification, or
compliance, indemnify the Company, each of its directors, and each officer who
signs a Registration Statement in connection therewith, and each person
controlling the Company, each underwriter, if any, and, each person who controls
any underwriter, of the Company's securities covered by such a Registration
Statement, and each other holder of the Company's securities that are included
in such Registration Statement, each of such other holder's officers, partners,
directors and agents and each person controlling such other holder, against all
claims, losses, damages, and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such Registration Statement, prospectus, offering
circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse, as incurred, the Company,
each such underwriter, each such other holder, and each such director, officer,
partner, and controlling person, for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) was made in such Registration Statement, prospectus, offering
circular, or other document, in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by Purchaser
and stated to be specifically for use therein; provided, however, that the
liability of Purchaser hereunder shall be limited to the net proceeds received
by Purchaser from the sale of securities under such Registration Statement. In
no event will Purchaser be required to enter into any agreement or undertaking
in connection with any registration under this Section 6 providing for any
indemnification or contribution obligations on the part of Purchaser greater
than Purchaser's obligations under this paragraph 6.6.
(c) Each party entitled to indemnification under this
paragraph 6.6 (the "Indemnified Party") shall give notice to the party required
to provide such indemnification (the "Indemnifying Party") of any claim as to
which indemnification may be sought promptly after
11
<PAGE> 12
such Indemnified Party has actual knowledge thereof, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom; provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be subject to approval by
the Indemnified Party (whose approval shall not be unreasonably withheld) and
the Indemnified Party may participate in such defense with its separate counsel
at the Indemnifying Party's expense if representation of such Indemnified Party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in such
proceeding; and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6, except to the extent that such failure to give
notice shall materially adversely affect the Indemnifying Party in the defense
of any such claim or any such litigation. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff therein, to such Indemnified Party, of a release from all
liability in respect to such claim or litigation.
6.7 Information by Purchaser. If Purchaser includes Registrable
Securities in any registration, Purchaser shall furnish to the Company such
information regarding Purchaser and the distribution proposed by Purchaser as
the Company may reasonably request in writing and as shall be required in
connection with any registration, qualification, or compliance referred to in
this Section 6.
6.8 Transfer of Registration Rights. The rights of the Purchaser
contained in paragraphs 6.2 and 6.3 hereof, to cause the Company to register the
Registrable Securities, may be assigned or otherwise conveyed to a transferee or
assignee of Registrable Securities, who shall be considered a "Purchaser" for
purposes of this Section 6; provided that the Company is given written notice by
Purchaser at the time of or within a reasonable time after said transfer stating
the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being assigned.
6.9 Delay of Registration. Purchaser shall have no right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 6.
6.10 Rule 144 Reporting. With a view to making available to Purchaser
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the 1933 Act;
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the 1933 Act and 1934 Act;
(c) So long as Purchaser owns any Registrable Securities,
furnish to such Purchaser forthwith upon request: a written statement by the
Company as to its compliance with
12
<PAGE> 13
the reporting requirements of said Rule 144 of the 1933 Act, and of the 1934 Act
(at any time after it has become subject to such reporting requirements); a copy
of the most recent annual or quarterly report of the Company; and such other
reports and documents as a Holder may reasonably request in availing itself of
any rule or regulation of the SEC allowing it to sell any such securities
without registration.
6.11 Exercise of Warrants. Notwithstanding any provision of the
Warrants, Purchaser shall not be required to exercise its Warrants as a
condition to initiating or participating in any registration pursuant to this
Agreement, so long as such exercise is effected by the effective date of any
such registration.
SECTION 7. Additional Agreements.
(a) Release. The Company, for and on behalf of itself and
its stockholders, officers, directors, employees, agents, legal representatives,
parent companies, subsidiaries, related and affiliated companies, successors and
assigns, and, to the extent applicable, the heirs and legal representatives of
the foregoing individuals (collectively, the "Releasing Parties") hereby
absolutely and unconditionally RELEASES AND FOREVER DISCHARGES AND ACQUITS the
Purchaser, VPI Holdings, Ltd., a Bermuda company, Ribonetics Gesellschaft fur
Molekulars Therapie GmbH, a German corporation ("Ribonetics"), VPI Gesellschaft
fuer die entwicklung und synthese von oligomeren mbH, a German corporation, VPI
(UK) Ltd., an English limited company, Cambes, Ltd., a Delaware corporation, and
their respective present and former stockholders (including but not limited to
Dr. Herbert Stadler), officers, directors, employees, agents, legal
representatives, parent companies, subsidiaries, related and affiliated
companies, predecessors, successors and assigns, and, to the extent applicable,
the heirs and legal representatives of the foregoing individuals (collectively,
the "Released Parties"), from each and every claim, demand, action, cause of
action, debt, liability, obligation, covenant, agreement or damages, whatsoever,
known or unknown, whether now asserted or otherwise suspected or unsuspected,
liquidated or unliquidated, which the Releasing Parties ever had, now have or
hereafter can, shall or may have against the Released Parties in connection with
or arising out of or related to any and all transactions, negotiations,
discussions, payments, investments, contracts, instruments, or other dealings,
between the Company, on the one hand, and Animal Biotechnology Cambridge, Ltd.,
an English limited company ("ABC"), Dr. Herbert Stadler, an individual ("Dr.
Stadler"), and/or Ribonetics, on the other hand, including but not limited to
that certain Agreement executed in or about November, 1993 by and among the
Company, ABC and Dr. Stadler relating to the purchase of capital stock of
Ribonetics; provided, however, that (i) the foregoing shall in no event extend
to the continuing liabilities and obligations of Purchaser relating to, arising
out of, or in connection with the breach of any representation, warrants,
indemnity, covenant or agreement set forth in this Agreement, and (ii) the
foregoing shall be void from its inception in the event Purchaser shall initiate
any legal proceeding to rescind the purchase of the Securities hereunder.
(b) Appointment of Nominee to the Board of Directors.
Concurrently with the closing of the transactions contemplated hereby, the Board
of Directors of the Company shall appoint Richard L. Dunning ("Dunning") to the
Company's Board of Directors and thereafter shall nominate Dunning for election
to the Board by the Company's stockholders until such time as Purchaser no
longer holds a minimum of 200,000 shares of Common Stock of the Company,
including shares issuable upon exercise of the Warrants.
13
<PAGE> 14
(c) License of Technology. Purchaser will cooperate with the
Company's efforts to obtain, and will use reasonable efforts to assist the
Company in obtaining, from the licensor thereof, a license of the right to make
oligonucleotides containing 2'-Q-allyl nucleotides. The foregoing shall not be
construed so as to require Purchaser or make any payment, to incur more than
nominal expense, to assign or transfer any right or property, to enter into,
amend or modify any license or agreement, or to otherwise suffer any more than a
nominal detriment.
SECTION 8. Broker's Fee. Each of the parties hereto hereby represents
that, on the basis of any actions and agreements by it, there are no brokers or
finders entitled to compensation in connection with the sale of the Securities
to the Purchaser.
SECTION 9. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, or nationally recognized overnight express
courier postage prepaid, and shall be deemed given when so mailed and shall be
delivered as addressed as follows:
(a) if to the Company, to:
Epoch Pharmaceuticals, Inc.
1725 220th Street, S.E., No. 104
Bothell, Washington 98021
Attention: President
or to such other person at such other place as the
Company shall designate to the Purchasers in
writing; and
(b) if to the Purchaser, to:
VIMRx Pharmaceuticals Inc.
2751 Centerville Road, Suite 210
Little Falls II, Wilmington, Delaware 19808
Attention: President
or at such other address or addresses as may have
been furnished to the Company in writing.
SECTION 10. Changes. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and
Purchasers.
SECTION 11. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 12. Severability. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
14
<PAGE> 15
SECTION 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware and the federal
law of the United States of America.
SECTION 14. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
EPOCH PHARMACEUTICALS, INC.
By: /s/ Sanford S. Zweifach
------------------------------------------
Name: Sanford s. Zweifach
Title: President, CFO
VIMRx PHARMACEUTICALS INC.
By: /s/ R. L. Dunning
------------------------------------------
Name: R. L. Dunning
Title: Pres. & CEO
15
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