<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998
REGISTRATION NO. 333-66259
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PHYTERA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8731 04-3159045
(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OR OTHER CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
377 PLANTATION STREET
WORCESTER, MASSACHUSETTS 01605
(508) 792-6800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MALCOLM MORVILLE, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PHYTERA, INC.
377 PLANTATION STREET
WORCESTER, MASSACHUSETTS 01605
(508) 792-6800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
LYNNETTE C. FALLON, ESQ. ALAN L. JAKIMO, ESQ.
PALMER & DODGE LLP BROWN & WOOD LLP
ONE BEACON STREET ONE WORLD TRADE CENTER
BOSTON, MASSACHUSETTS 02108 58TH FLOOR
(617) 573-0100 NEW YORK, NEW YORK 10048
(212) 839-5300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (i) one to be
used in connection with an offering in the United States and Canada (the "US
Prospectus") and (ii) the other to be used in connection with a concurrent
offering outside of the United States and Canada (the "European Prospectus").
The European Prospectus will be produced in English and Danish. The US
Prospectus and the European Prospectus are identical in all respects except for
the front cover page and back cover page of the European Prospectus, both of
which are included herein after the final page of the US Prospectus as pages X-
1 and X-2 and are labeled "Alternate Pages for European Prospectus." Final
forms of each of the Prospectuses will be filed with the Securities and
Exchange Commission under Rule 424 (b).
Additionally, an Application Form included as page X-3 will be delivered with
the Danish language version of the European Prospectus to investors in the
European offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS +
+NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO +
+BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT +
+PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1998
US PROSPECTUS
2,500,000 SHARES
PHYTERA, INC.
[PHYTERA LOGO]
COMMON STOCK
This is an initial public offering of the shares of common stock of Phytera,
Inc. The shares of common stock will be offered to the public in Denmark.
Additionally, shares of common stock will be offered in private placements in
other European countries. The offering in the United States, Canada and Belgium
will be limited to institutional investors. There is currently no public market
for these shares. Phytera expects that the public offering price will be
between $12.00 and $14.00 per share.
In the United States and Canada, we are offering , , shares of common
stock. In Europe, we are offering , , shares of common stock.
We have applied for admission to trading and quotation of the common stock on
the European Association of Securities Dealers Automated Quotation system,
called EASDAQ, and for listing on the Copenhagen Stock Exchange, called the
CSE. We expect that these listings will become effective and that trading in
the shares of common stock will begin promptly after the initial public
offering price is determined through negotiations between the Company and the
Underwriters. Our trading symbol on EASDAQ and our short name on the CSE will
be PHYT.
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.
NONE OF EASDAQ, THE CSE, THE US SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
<S> <C> <C>
Public offering price............................................... $ $
Underwriting discounts and commissions.............................. $ $
Proceeds, before expenses, to Phytera............................... $ $
</TABLE>
The US Underwriters may also purchase up to an additional shares of
common stock and the European Managers may also purchase up to an additional
shares of common stock, an aggregate of 375,000 shares, at the public
offering price, less the underwriting discounts and commissions, within 30 days
from the date of this Prospectus to cover over-allotments.
In the distribution of the offering, the US Underwriters will purchase the
offered shares of common stock from the Company and resell such shares to
investors.
------------
SG COWEN
CARNEGIE INC.
BANCBOSTON ROBERTSON STEPHENS
[ , 1999]
<PAGE>
[Graphic: The graphic illustrates the various elements of Phytera's
Combinatorial Drug Discovery Program. Along the length of the page will be a
series of photographs, artist's renderings and other graphics, each
illustrating one of the elements of Phytera's Combinatorial Drug Discovery
Program.
Caption:
The above diagram illustrates the various elements of our Combinatorial Drug
Discovery Program. We have identified several lead structures and are
developing one candidate drug. To date, however, we have not conducted any
clinical trials, obtained any requisite regulatory approvals, or commercialized
any drug product. Drug discovery and development involves a broad range of
technological, managerial and commercial risks. Our Combinatorial Drug
Discovery Program and related product development activities could fail because
of any one or more of these risks.]
ExPAND(R) and (u)MARINE(R) are registered trademarks of the Company.
ENRICH(TM) and PINACLE(TM) are trademarks of the Company for which there are
applications for registration pending in the US Patent and Trademark Office.
MANIFOLD(TM) is a trademark of the Company for which there is an application
for registration pending in the European Trademark Office. All other trademarks
and registered trademarks used in this Prospectus are the property of their
respective owners.
----------------
In connection with this offering, the Underwriters, through a stabilizing
manager to be designated by them, may over-allot or effect transactions on
EASDAQ which stabilize or maintain the market price of the Common Stock at a
level which might not otherwise prevail on EASDAQ. Such stabilizing, if
commenced, may be discontinued at any time. See "Underwriting."
<PAGE>
THE COMPANY
The Company was incorporated in Delaware in May 1992 and operates three
wholly-owned subsidiaries, Phytera Ltd. in the United Kingdom and Phytera A/S
and Phytera Symbion ApS in Denmark. The Company's headquarters and executive
offices are located at 377 Plantation Street, Worcester, Massachusetts 01605,
US and its telephone number is (508) 792-6800.
On September 17, 1998, the Board of Directors of Phytera authorized this
offering.
APPROVAL BY THE BELGIAN BANKING AND FINANCE COMMISSION
The English language Prospectus has been approved by the Belgian Banking and
Finance Commission ("Commission Bancaire et Financiere/Commissie voor het Bank-
en Financiewezen") ("CBF") on [ ], 1999 in accordance with Article 29ter,
(S)1, par. 1 of Royal Decree n(degrees) 185 of July 9, 1935 and Article 18 of
the Royal Decree of September 18, 1990 on the prospectus to be published for
the admission of securities to listing on the first market of a stock exchange,
which transposes into Belgian law the provisions of Directive 80/390/EEC. The
approval of this Prospectus by the CBF does not extend to the Danish Tax
Consideration or to the summary of certain differences between US GAAP and
Danish GAAP nor does it imply any judgment as to the appropriateness or the
quality of this offering, the Common Stock nor of the situation of the Company.
The notice prescribed by Article 29, (S) 1 of the Royal Decree n(degrees) 185
of July 9, 1935 will appear in the financial press prior to the first day of
trading on EASDAQ.
NO PUBLIC OFFER IN THE UNITED KINGDOM
The Company has not authorized any offer of shares of common stock to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "Regulations"). The shares of common stock may
not lawfully be offered or sold to persons in the United Kingdom except in
circumstances which do not result in an offer to the public in the United
Kingdom within the meaning of the Regulations or otherwise in compliance with
all applicable provisions of the Regulations.
RESPONSIBILITY FOR THE PROSPECTUS AND
DECLARATION OF CONFORMITY
The Company, here represented by the Board of Directors, confirms that, to
the best of its knowledge, the information given in this Prospectus is in
accordance with the facts in all material respects and contains no omissions
likely to affect the import of the Prospectus in any material respect. Under US
federal securities laws, the Company's Chief Executive Officer, Chief Financial
Officer and members of the Board of Directors are generally liable, subject to
certain defenses, for untrue statements of material fact in this Prospectus and
omissions of material fact which are required to be stated in this Prospectus
or necessary to make the statements in this Prospectus not misleading.
In the case of any doubt about the contents or the meaning of the information
of this document, an authorized or professional person who specializes in
advising on the acquisition of financial instruments should be consulted.
PREPARATION OF THE PROSPECTUS
This Prospectus has been prepared in accordance with the rules and
regulations of the US Securities and Exchange Commission and EASDAQ and in
compliance with the Royal Decree of September 18, 1990 on the prospectus to be
published for the admission of securities to listing on the first market of a
stock exchange, which transposes into Belgian law the provisions of Directive
80/390/EEC. Based on the approval by CBF, this Prospectus is recognized by the
CSE in compliance with EEC Council Directive 80/390/EEC, as amended. This
Prospectus has been produced in English and Danish for use in connection with
this offering. In the event of any inconsistency between the Danish language
version and the English language version, the English language version shall
prevail.
3
<PAGE>
Copies of both the English language and Danish language Prospectuses will be
made available, at no cost, upon prior written request to SG Cowen
International L.P., One Angel Court, London EC2R 7HJ, United Kingdom, telephone
+44 (171) 696-0034, Carnegie Bank A/S, Overgaden neden Vandet 9b, DK-1414,
Copenhagen K, Denmark, telephone +45 32 88 02 00 and BancBoston Robertson
Stephens International Ltd., 105 Piccadilly, London W1V 9FN, United Kingdom,
telephone +44 (171) 518-7000.
In addition, copies of the English language and Danish language Prospectuses
will be available for inspection at the EASDAQ offices, 56 Rue des Colonies,
Box 15, B-1000 Brussels, Belgium.
EXPERTS
The audited Consolidated Financial Statements of the Company as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997 have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto and are included
herein upon the authority of said firm as experts in auditing and accounting.
Arthur Andersen LLP's mailing address is 225 Franklin Street, Boston, MA 02110-
2812, United States of America.
ADDITIONAL INFORMATION
The Company has filed with the US Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 (together with all amendments and
exhibits, the "Registration Statement") under the Securities Act. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto certain parts of
which are omitted in accordance with the rules and regulations of the SEC. For
further information with respect to the Company and the common stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements in this Prospectus as to the contents of any
contract or other document are not necessarily complete and reference is made
in each instance to the copy of such contract or other document filed as an
exhibit to the Registration Statement. Each statement is qualified in all
respects by this reference to the exhibit. The Registration Statement,
including exhibits, may be inspected and copied without charge at the SEC's
principal office located at 450 Fifth Street, Judiciary Plaza, N.W.,
Washington, D.C. 20549. Copies of such material may be obtained by mail from
the Public Reference Section of the SEC at 450 Fifth Street, Judiciary Plaza,
N.W., Washington, D.C. 20549 upon payment of prescribed fees. The SEC also
maintains a web site at http://www.sec.gov that contains reports, proxy and
information statements, as well as other information regarding registrants that
file electronically with the SEC.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing interim unaudited financial
information.
The Company will ensure that a summary of the Company's quarterly and annual
financial statements will be provided to shareholders in Europe across the
EASDAQ Company Reporting System. A hard copy of the annual report will be
provided to shareholders promptly after it becomes available. Complete
quarterly statements will either be sent by the Company to its shareholders or
will be available upon request from the Company at its executive offices at 377
Plantation Street, Worcester, MA, 01605, US. Copies of all documents filed with
the Commission by the Company can be obtained by request to the Company at such
offices.
Copies of the Company's Restated Certificate and By-laws will be available
for inspection at the offices of EASDAQ, 56 Rue de Colonies, Box 15, B-1000
Brussels, Belgium.
Companies approved for trading on EASDAQ and CSE are required to publish
relevant financial and other information regularly and to keep the public
informed of all events likely to affect the market price of their securities.
Price sensitive information will be made available to investors in Europe
through the EASDAQ-Reuters Regulatory Company Reporting System, the CSE's
internal information system and other international information vendors.
Investors who do not have direct access to such information systems should ask
their financial intermediary for the terms on which such information will be
provided to them by that financial intermediary.
4
<PAGE>
PROSPECTUS SUMMARY
The following is just a summary. Potential investors should carefully read
the more detailed information contained in this Prospectus, including the
Consolidated Financial Statements and the notes thereto. The shares of common
stock offered hereby involve a high degree of risk. Investors should carefully
consider the information set forth under the heading "Risk Factors." We urge
potential investors to read this Prospectus in its entirety.
THE COMPANY
Phytera, Inc. is an international biopharmaceutical company with operations
in the United States, Denmark and the United Kingdom. We apply a range of
proprietary technologies to create novel chemical diversity libraries from
plant cells and marine microbes that we grow and manipulate in cell culture.
These chemical diversity libraries contain a large number of chemical compounds
that we and our partners are evaluating as potential new drugs.
We evaluate our chemical diversity libraries for therapeutic utility in
pharmaceutical screens for different diseases. These diseases include
bacterial, fungal and viral infections, cancer, inflammation, allergy, asthma,
depression, memory and attention deficit disorders, diabetes, stroke and heart
attack. We conduct some of these screening programs in collaboration with our
corporate partners, including Eli Lilly and Company, Chiron Corporation,
Tsumura & Co., NeuroSearch A/S, Galileo Laboratories, Inc. and Nycomed Amersham
plc. Our internal screening programs focus on the discovery and development of
drugs to treat resistant bacterial, fungal and viral infections. We apply
modern genetic engineering techniques to develop proprietary screens that we
believe offer significant advantages in the discovery of novel antibacterial
and antifungal drugs.
Our screening programs are aimed at identifying novel chemical lead
structures from our chemical diversity libraries. A chemical lead structure is
a chemical compound of defined structure that exhibits activity in a
pharmaceutical screen. Chemical lead structures are used as starting points for
a chemical synthesis optimization program, which seeks to identify a candidate
drug that possesses all the necessary attributes for commercial development. We
use proprietary chemical synthesis techniques to optimize natural lead
structures isolated from our chemical diversity libraries into candidate drugs
for commercial development. To date we have identified one candidate drug and
several lead structures. Marinovir, our novel candidate drug for the treatment
of herpes infections, was isolated from a marine microbe and is scheduled to
enter clinical trials in 1999.
Nature is a proven source of new medicines, but a number of factors has
limited its systematic exploration as a source of novel chemical diversity,
chemical lead structures and candidate drugs. Our proprietary technologies
provide solutions to many of these limitations and facilitate access to a
greatly expanded chemical diversity from plant cells and marine microorganisms
in cell culture. We employ several types of cell culture manipulations, alone
and in combination, including genetic, hormonal, infection-related,
environmental and/or chemical treatments. These manipulations substantially
expand the variety and novelty of chemical compounds produced by the cell
culture beyond that found in the natural sourced material or in the initial
cell culture. Using these technologies, we have produced proprietary chemical
diversity libraries comprising 60,000 plant and marine cell culture extracts.
Additionally, we are further refining the process to deliver a library of
individual chemical compounds isolated from such extracts, with resultant
advantages in pharmaceutical screening.
Our objective is to be the leader in the application of combinatorial drug
discovery technology to the search for new medicines derived from nature. To
achieve this objective, we intend to:
. capitalize on our corporate partnerships;
. advance our drug-resistant infectious diseases program; and
. enhance our technology platform through internal innovation, in-licensing
and acquisitions of additional technologies and products.
5
<PAGE>
Except in the Consolidated Financial Statements of the Company or as
otherwise noted, all information in this Prospectus assumes:
. the conversion of all outstanding shares of the Company's Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock, Series
C Convertible Preferred Stock, Series D Convertible Preferred Stock and
Series E Convertible Preferred Stock (the "Existing Preferred Stock")
into an aggregate of 4,949,056 shares of common stock immediately prior
to the closing of this offering (assuming the Series E Convertible
Preferred Stock converts into an aggregate of 722,746 shares of common
stock and the closing of this offering on February 8, 1999 at an offering
price of $13.00 per share (the mid-point of the expected range));
. the exercise of outstanding warrants to purchase an aggregate of 68,995
shares of common stock at $0.02 per share prior to the closing of this
offering;
. that the Underwriters' over-allotment option is not exercised;
. all financial data is stated in US dollars; and
. the effectiveness of a 0.654 for one reverse stock split effected
immediately prior to the declaration of effectiveness of the Registration
Statement for all periods presented.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered hereby.......... 2,500,000 shares (1)
Common stock to be outstanding after
the offering........................ 8,228,387 shares (2)
Underwriters' over-allotment
options............................. 375,000 shares
Use of proceeds...................... To fund research and product development
programs, to repay indebtedness and for
general corporate purposes. See "Use of
Proceeds."
Proposed EASDAQ and CSE symbol....... PHYT
</TABLE>
- -------
(1) Includes shares to be offered in the European offering and shares to
be offered in the US offering.
(2) Includes the exercise of outstanding warrants to purchase 68,995 shares of
common stock at $0.02 per share prior to the closing of this offering.
Excludes an aggregate of 958,092 shares of common stock issuable upon
exercise of stock options and warrants outstanding as of September 30, 1998
with a weighted average exercise price of $1.90 per share. See "Description
of Capital Stock--Stock Purchase Warrants."
We expect that delivery of the common stock will be made in New York, New
York on or about February 8, 1999.
In this Prospectus, references to "USD', "$', or "dollars' are to United
States dollars, "DKK' or "kroner' are to Danish kroner, "(Pounds)' or "pounds'
are to British pounds, "BEF' is to Belgian francs and "ECUs' is to European
Currency Units.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS MAY 27, 1992
ENDED (INCEPTION)
YEAR ENDED DECEMBER 31, SEPTEMBER 30, THROUGH
------------------------------------------- ---------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
------- ------- ------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Collaborative revenue.. $ 68 $ 34 $ 50 $ 247 $ 1,053 $ 730 $ 1,100 $ 2,552
Loss from operations... (1,764) (4,266) (5,339) (8,158) (9,972) (7,880) (6,447) (37,694)
Interest income
(expense), net........ (125) 115 (106) (30) 228 231 14 101
Net loss............... $(1,876) $(4,227) $(5,439) $(8,289) $(9,754) $(7,662) $(6,585) $(37,689)
======= ======= ======= ======= ======= ======= ======= ========
Historical basic and
diluted net loss per
share (1)............. $(10.78) $(16.32) $(15.43) $(19.99) $(19.53) $(15.59) $(12.47)
Pro forma basic and di-
luted net loss per
share (1)............. $ (2.17) $ (1.45)
Shares used in comput-
ing historical basic
and diluted net loss
per share (1)......... 175 260 353 435 521 512 594
Shares used in comput-
ing pro forma basic
and diluted net loss
per share (1)......... 4,693 5,122
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA (2) AS ADJUSTED (3)
-------- ------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities........................... $ 6,988 $ 6,988 $36,348
Working capital....................... 5,051 5,051 34,411
Total assets.......................... 9,315 9,315 38,675
Current portion of long-term debt..... 289 289 289
Long-term debt less current portion... 2,189 2,189 2,189
Redeemable convertible preferred
stock................................ 41,139 -- --
Deficit accumulated during development
stage................................ (39,648) (39,648) (39,648)
Total stockholders' equity (deficit).. (36,245) 4,894 34,254
</TABLE>
- -------
(1) Computed as described in note 3(n) of notes to Consolidated Financial
Statements.
(2) Presented on a pro forma basis to give effect to the automatic conversion,
upon the closing of this offering, of all outstanding shares of Existing
Preferred Stock into an aggregate of 4,949,056 shares of common stock.
(3) As adjusted to reflect the sale of 2,500,000 shares of common stock offered
by the Company at an assumed initial public offering price of $13.00 per
share (the mid-point of the expected range) and the application of the
estimated net proceeds therefrom, after deducting the Underwriting
discounts and commissions and estimated offering expenses payable by the
Company. Includes the exercise of outstanding warrants to purchase 69,382
shares of common stock at $0.02 per share prior to the closing of this
offering. See "Use of Proceeds," "Capitalization" and "Description of
Capital Stock."
Please Note: The currency exchange rate between ECUs and dollars at September
30, 1998 was 1.1790 ECUs to $1.00.
7
<PAGE>
RISK FACTORS
An investment in the shares of common stock will be subject to a high degree
of financial risk. In deciding whether to invest, prospective investors should
consider carefully the following risk factors as well as the other information
in this document. The list of risks set out below may not be exhaustive.
It is especially important to keep these risk factors in mind when reading
forward-looking statements. These are statements that relate to future periods
and include statements about our lead structure and candidate drug discovery
efforts, product development and receipt of regulatory approvals. Generally,
the words "anticipates," "expects," "intends," "seeks," "plans" and similar
expressions identify such forward-looking statements. Forward-looking
statements involve risks and uncertainties, and our actual results could differ
significantly from the results discussed in the forward-looking statements.
WE ARE UNCERTAIN OF OUR FUTURE PROFITABILITY
We are not able to predict when, or if, we will become profitable, nor are we
able to predict whether such profitability will be sustained if it is achieved.
We have never made a profit in any fiscal period and, as of September 30, 1998,
have an accumulated deficit of approximately $39.6 million. We had a net loss
in 1996 of $8.3 million, a net loss in 1997 of $9.8 million, and a net loss for
the nine months ended September 30, 1998 of $6.6 million. In addition, we
expect to incur operating losses over the next several years. To date, our only
sources of revenue have been up-front payments and research and development
funding from our corporate partners. For the foreseeable future, we expect that
our level of revenues and operating results will depend upon our ability to
enter into new partnerships while maintaining existing partnerships. We have
not received any revenues from the discovery, development or sale of a
commercial product and we may not realize any such revenues in the future. See
"Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
WE MAY BE UNABLE TO DISCOVER DRUGS OR DEVELOP PRODUCTS
We may fail to discover lead structures or develop products. To date, we have
identified several lead structures and are developing one candidate drug, but
we have not entered into or completed clinical trials, or obtained regulatory
approval for or marketed any product. See "Business--Phytera's Combinatorial
Drug Discovery Program."
We may fail to discover lead structures from natural product sources for many
reasons, including our inability to :
. source the natural species;
. gain access to their chemistry;
. effectively screen and isolate and identify active chemical compounds.
After discovery, our product development efforts may fail for many reasons,
including:
. we fail to develop lead structures into candidate drugs;
. the candidate drug or potential product fails in preclinical studies;
. a potential product is not shown to be safe and effective in clinical
studies;
. required regulatory approvals are not obtained;
. a potential product cannot be produced in commercial quantities at an
acceptable cost; or
. a product does not gain market acceptance.
OUR SUCCESS IS HIGHLY DEPENDENT ON OUR CORPORATE PARTNERSHIPS
Our revenue stream and our strategy for identifying and developing lead
structures and candidate drugs are dependent on our entering into partnerships
with third parties. We may not be able to establish such corporate
partnerships, and we cannot guarantee that such partnerships will be
established on commercially acceptable terms. Our current or future corporate
partnerships may not ultimately be successful. Each of our existing partnership
agreements has an initial term of three years or less. Our partners could
terminate these agreements or these agreements could expire before any related
lead structures are identified or any related candidate drugs are developed.
The termination or expiration of any or all of these agreements could have a
material adverse effect on our business.
8
<PAGE>
Much of the revenue that we may receive under these partnerships depends upon
our partners' successful development and commercial introduction of new
products derived from our chemical diversity libraries or pharmaceutical
screens. Our partners may develop alternative technologies or products outside
of their partnerships with us, and such technologies or products may be used to
develop treatments for the diseases targeted by our partnerships. This could
have a material adverse effect on our business. See "--We May Be Unable to
Discover Drugs or Develop Products" and "Business--Corporate Partnerships."
WE WILL NEED TO RAISE ADDITIONAL FUNDS
We may be required to repeatedly raise additional capital to fund our
operations. Such capital may be raised through public or private equity
financings, partnerships, debt financings, bank borrowings, or other sources.
Additional funding may not be available on favorable terms or at all. Our
capital requirements will depend upon numerous factors, including the
following:
. the establishment of additional partnerships;
. the development of competing technologies or products;
. changing market conditions;
. the cost of protecting our intellectual property rights;
. the purchase of capital equipment;
. the progress of our drug discovery and development programs;
. the progress of our partnerships and receipt of any option/license,
milestone and royalty payments resulting from those partnerships; and
. in-licensing and acquisition opportunities.
If adequate funds are not otherwise available, we may be required to curtail
operations significantly. To obtain additional funding, we may need to enter
into arrangements that require us to relinquish rights to certain technologies,
candidate drugs, products and/or potential markets. To the extent that
additional capital is raised through the sale of equity, or securities
convertible into equity, you may experience dilution of your proportionate
ownership in Phytera. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
WE FACE INTENSE COMPETITION
Our business may fail because we face intense competition from major
pharmaceutical companies and specialized biotechnology companies providing
chemical diversity libraries, pharmaceutical screening systems, combinatorial
chemistry technologies and other expertise. In addition, in pursuing our
internal drug discovery program, we compete against pharmaceutical and
biotechnology companies developing drugs against infectious diseases, and our
partners face similar competition in the respective markets for which they are
developing drugs. Many of these competitors have greater financial and human
resources and more experience in research and development than we have.
Competitors that identify lead structures, develop candidate drugs, complete
clinical trials, obtain regulatory approvals, and begin commercial sales of
their products before us will enjoy a significant competitive advantage. We
anticipate that we will face increased competition in the future as new
companies enter the market and alternative technologies become available. See
"Business--Competition."
WE MAY FAIL TO OBTAIN A LICENSE FOR MARINOVIR
We must negotiate an exclusive license to certain patent rights in order to
commercialize marinovir. Pursuant to an exclusive option, we are currently
negotiating with an academic institution to determine the terms of this
license. The proposed license would cover an issued US composition of matter
patent on marinovir and a use patent covering its anti-inflammatory properties
and any counterparts issued outside the US. While we believe that we will
obtain such a license on terms consistent with pharmaceutical industry
standards, we cannot guarantee that we will obtain the license on commercially
acceptable terms or at all. See "Business--Products Under Development" and
"Business--Patents and Proprietary Rights."
9
<PAGE>
WE DEPEND ON PATENTS AND PROPRIETARY RIGHTS THAT MAY FAIL TO PROTECT OUR
BUSINESS
Our success will depend, in large part, on our ability to obtain and maintain
patent or other proprietary protection for our technologies, products, and
processes, and our ability to operate without infringing the proprietary rights
of other parties. We may not be able to obtain patent protection for the
composition of matter of discovered compounds, processes developed by our
employees, or uses of compounds discovered through our technology. Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under such patents are
still developing. There is no consistent policy regarding the breadth of claims
allowed in biotechnology patents. The patent position of a biotechnology firm
is highly uncertain and involves complex legal and factual questions.
We have been issued three patents and currently have eight patent
applications pending in the US and/or Denmark, with counterparts in several
other countries. We may not receive any issued patents based on currently
pending or any future applications. Any issued patents may not contain claims
sufficiently broad to protect against competitors with similar technology. In
addition, our patents, our partners' patents, and those patents for which we
have license rights may be challenged, narrowed, invalidated or circumvented.
Furthermore, rights granted under patents may not provide us with any
competitive advantage.
We may have to initiate litigation to enforce our patent and license rights.
If our competitors file patent applications that claim technology also claimed
by us, we may have to participate in interference or opposition proceedings to
determine the priority of invention. An adverse outcome could subject us to
significant liabilities to third parties and require us to cease using the
technology or to license the disputed rights from third parties. We may not be
able to obtain any required licenses on commercially acceptable terms or at
all.
The cost to us of any litigation or proceeding relating to patent rights,
even if resolved in our favor, could be substantial. Some of our competitors
may be able to sustain the costs of complex patent litigation more effectively
than we can because of their substantially greater resources. Uncertainties
resulting from the initiation and continuation of any pending patent or related
litigation could have a material adverse effect on our ability to compete in
the marketplace.
We also rely on certain proprietary trade secrets and know-how that are not
patentable. We have taken measures to protect our unpatented trade secrets and
know-how, including the use of confidentiality agreements with our employees,
consultants, and certain contractors. It is possible that the agreements may be
breached, that we would have inadequate remedies for any such breach, or that
our trade secrets will otherwise become known or be independently developed or
discovered by competitors. See "Business--Patents and Proprietary Rights."
LOSS OF OUR LIBRARY WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
Our chemical diversity libraries, cell cultures, cell culture extracts and
chemical compound libraries are critical assets. If the libraries are damaged
or destroyed by any event or series of events, such as a major fire,
earthquake, contamination or other casualty, it could have a material adverse
effect on our business, financial condition and results of operations. Due to
the nature of this risk, we have not been able to obtain adequate casualty
insurance against a loss of this type on commercially reasonable terms. We
believe appropriate loss control measures can provide protection against such a
casualty, but to date we have not been able to fully implement these measures.
We intend to implement these loss control measures as quickly as feasible, but
our chemical diversity libraries, cell cultures, cell culture extracts and
chemical compound libraries will always be subject to some degree of
vulnerability. See "Business--Phytera's Combinatorial Drug Discovery Program."
WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN NEEDED SOURCING ARRANGEMENTS
We may not be able to maintain existing sourcing arrangements or establish
any new arrangements that may be required to support the production of chemical
diversity libraries. We rely on such arrangements with botanical gardens,
countries rich in biodiversity, plant and marine research institutions, and
commercial seed companies to provide us with access to the natural species
required for our programs. Sourcing arrangements can be difficult and time-
consuming to establish and, once established, can be affected by changing
commercial, political and environmental circumstances.
The 1992 Convention on Biological Diversity (the "Convention") provides that
each nation has a sovereign right over its genetic resources. The Convention
has been ratified by a number of countries with
10
<PAGE>
significant biodiversity. Our policy is to comply with the terms of the
Convention in sourcing plant materials or marine microorganisms, even where the
source country is not a Convention signatory. While we believe that the
Convention successfully addresses many of the issues that arise in the area of
biodiversity sourcing, many of the Convention's signatories have not yet
adopted mechanisms to implement its provisions. This has added to the
complexity of negotiating sourcing agreements. We may not be able to negotiate
such agreements on commercially reasonable terms or at all. If we fail to
successfully negotiate such sourcing agreements, it could have a material
adverse effect on our sourcing strategy and on our ability to achieve our
business objectives. See "Business--Biodiversity Sourcing Agreements."
UNCERTAIN PHARMACEUTICAL PRICING ENVIRONMENT MAY IMPACT OUR BUSINESS
Our ultimate ability to commercialize any products that we or our partners
develop depends on the extent to which reimbursements to patients for the cost
of such products and related treatments will be available from government
health administration authorities, private health insurance providers, and
other organizations. It is uncertain whether third party payers will reimburse
patients for newly approved health care products or will do so at a level that
will enable us to obtain a satisfactory price for our products. Healthcare
reform is an area of increasing attention and is a priority of many government
officials. Any such reform measures, if adopted, could adversely affect the
pricing of therapeutic or diagnostic products in the US, the EU or elsewhere
and the amount of reimbursement available from governmental agencies or third
party insurers. We cannot predict the effect of such measures upon our
business.
QUALIFIED MANAGERIAL AND SCIENTIFIC PERSONNEL ARE SCARCE IN OUR INDUSTRY
We are highly dependent on the principal members of our scientific and
management staff. Our success will depend in part on our ability to identify,
attract and retain qualified managerial and scientific personnel. There is
intense competition for such personnel. We may not be able to continue to
attract and retain personnel with the advanced technical qualifications or
managerial expertise necessary for the development of our business. If we fail
to attract and retain key personnel, it could have a material adverse effect on
our business, financial condition and results of operations. See "Business--
Organization."
Our research and development processes involve the controlled use of
hazardous materials. We are subject to national, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and certain waste products. We currently incur costs to
comply with environmental laws and regulations. We cannot eliminate completely
the risk of accidental contamination or injury from hazardous materials. If an
accident of this type occurs, we could be liable for damages that result and
such liability could exceed our resources. If we fail to control these risks it
could result in loss of permits that allow us to use hazardous materials, which
could result in a material adverse effect on our business, financial condition
and results of operations.
MANAGEMENT AND SIGNIFICANT STOCKHOLDERS WILL CONTROL THE COMPANY AFTER THE
OFFERING
Upon completion of this offering, assuming the conversion of the Series E
Convertible Preferred Stock into an aggregate of 722,746 shares of common stock
(assuming the closing of this offering on February 8, 1999 at an offering price
of $13.00 per share (the mid-point of the expected range)) and the exercise of
warrants to purchase 68,995 shares of common stock, our significant
stockholders, executive officers, Directors, and affiliated entities together
will beneficially own approximately 53.9% of the outstanding shares of common
stock (51.5% if the Underwriters' over-allotment option is exercised in full).
As a result, these stockholders, acting together, will be able to influence
significantly and possibly control most matters requiring stockholder approval.
This concentration of ownership may have the effect of delaying or preventing a
change in control of Phytera, including transactions in which stockholders
might otherwise receive a premium for their shares over then current market
prices. See "Principal Stockholders" and "Description of Capital Stock."
SERIES E CONVERTIBLE PREFERRED STOCK CONVERSION RATE PROVISION COULD HAVE A
DILUTIVE EFFECT
For the purposes of this Prospectus, we have assumed that all outstanding
Existing Preferred Stock other than Series E Convertible Preferred Stock will
convert to common stock at the rate of 0.654 for one. The outstanding shares of
Series E Convertible Preferred Stock have a special conversion rate adjustment
that is triggered by the timing and pricing of our initial public offering. The
Series E Convertible Preferred Stock would convert to common stock immediately
prior to the closing of this offering at the rate of 0.654 for one
11
<PAGE>
only if (i) this offering is closed on or before June 25, 1999, and (ii) the
price per share in this offering is not less than the "Minimum Price" which, as
of November 30, 1998, was $16.94. The Minimum Price increases, up to a maximum
of $19.11, over the period ending June 25, 1999. If this offering is closed
after June 25, 1999, or if the price per share in this offering is less than
the Minimum Price, more than one share of common stock will be issued upon
conversion of each share of Series E Convertible Preferred Stock. The
information presented in this Prospectus assumes that this offering will close
on or prior to February 8, 1999 at a per share price of $13.00 (the mid-point
of the expected range). Such price is below the Minimum Price for that date and
would result in an additional 191,315 shares of common becoming issuable upon
conversion of the Series E Convertible Preferred Stock. The closing of this
offering on a date later than February 8, 1999 or at a per share price below
$13.00 would result in a greater number of shares outstanding at the time of
the closing of this offering. See "--Shares Eligible for Future Sale could have
an Adverse Effect on Market Price," "Description of Capital Stock" and
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE COULD HAVE AN ADVERSE EFFECT ON MARKET PRICE
Future sales of common stock in the public market could adversely affect the
stock's market price. Upon completion of this offering there will be 8,228,387
shares of common stock outstanding, assuming no currently outstanding options
or warrants are exercised (other than warrants to purchase 68,995 shares of
common stock with an exercise price of $0.02 per share that otherwise expire
upon the closing of this offering) and that the Series E Convertible Preferred
Stock converts at the rate stated in the above paragraph. The shares of common
stock outstanding prior to this offering and the 2,500,000 shares sold in this
offering (plus any additional shares sold upon exercise of the Underwriters'
over-allotment option) will be freely transferable.
Certain of our stockholders, holding (on an as-converted basis) in the
aggregate approximately 6,521,225 shares of common stock (plus approximately
238,446 shares issuable upon exercise of vested options), have agreed, subject
to certain limited exceptions, not to sell or otherwise dispose of any of their
shares for a period of 180 days after the date of this Prospectus. At the end
of the 180 day period, those shares of common stock will be eligible for
immediate resale in Denmark and other member states of the European Union
("EU"). See "Shares Eligible for Future Sale" and "Underwriting."
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR COMMON STOCK; STOCK PRICE MAY BE
VOLATILE
Prior to this offering, there has been no public market for the common stock.
An active public market for the common stock may not develop or be sustained
after the offering. We and the Underwriters will, through negotiations,
determine the initial public offering price. The initial public offering price
is not necessarily indicative of the market price at which the common stock
will trade after this offering. The market prices for securities of companies
comparable to us have been highly volatile and the market has experienced
significant price and volume fluctuations that are unrelated to the operating
performance of the individual companies. Many factors may have a significant
adverse effect on the market price of the common stock, including:
. announcements of technological innovations or new commercial products by
us or our competitors;
. developments concerning proprietary rights, including patent and
litigation matters;
. publicity regarding actual or potential results with respect to products
or compounds under development by us or our partners;
. unexpected terminations of partnerships;
. regulatory developments in the US, the EU and its member states, and
other countries;
. general market conditions; and
. quarterly fluctuations in our revenues and other financial results.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BY-LAWS AND DELAWARE LAW MAY LIMIT
STOCK PRICE
Our Certificate of Incorporation, certain provisions of our By-Laws and
certain provisions of Delaware law could delay or make more difficult a merger,
tender offer or proxy contest involving us. These provisions may have the
effect of delaying or preventing a change of control without action by the
stockholders and, therefore, could adversely affect the price of the common
stock. See "Management," "Description of Capital Stock--Preferred Stock" and
"Description of Capital Stock--Anti-Takeover Measures."
12
<PAGE>
INVESTORS WILL FACE IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in this offering will experience immediate and substantial dilution
in the value of their investment. This dilution will equal the difference
between the initial public offering price and the per share net book value of
the Company immediately after this offering. Investors will experience
additional dilution upon the exercise of outstanding options and warrants.
Furthermore, owners of common stock do not have preferred subscription rights
and we do not anticipate that they will be accorded such rights in the future.
See "Dilution" and "Shares Eligible for Future Sale."
YEAR 2000 ISSUES COULD CAUSE INTERRUPTION OR FAILURE OF OUR COMPUTER SYSTEMS
We use a significant number of computer systems and software programs in our
operations, including applications used in support of research and development
activities, accounting, and various administrative functions. Although we
believe that our internal systems and software applications contain source code
that is able to interpret appropriately the dates following December 31, 1999,
our failure to make or obtain necessary modifications to our systems and
software could result in systems interruptions or failures that could have a
material adverse effect on our business. We do not anticipate that we will
incur material expenses to make our systems Year 2000 compliant. Unanticipated
costs necessary to avoid potential systems interruptions could exceed our
present expectations and consequently have a material adverse effect on our
business. In addition, if our key supply and service providers fail to make
their respective computer software programs and operating systems Year 2000
compliant, it could have a material adverse effect on our business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the common
stock offered hereby are estimated to be $29,360,000, ($33,893,750 if the
Underwriters' over-allotment option is exercised in full), based on an assumed
initial public offering price of $13.00 per share (the mid-point of the
expected range) and after deducting Underwriting discounts and commissions and
estimated offering expenses payable by the Company.
The Company intends to use the net proceeds of this offering as follows:
$20,000,000 for the continued development and expansion of the Company's
Combinatorial Drug Discovery Program, $6,000,000 for clinical development,
$816,000 for repayment of debt due upon the closing of this offering and the
remainder for general corporate purposes. Such general corporate purposes may
include acquisitions of other businesses, technologies, product rights or
distribution rights. The amount and timing of the Company's actual expenditures
will depend upon a number of factors, including the Company's ability to enter
into additional partnership or licensing arrangements, as well as the timing of
and terms governing such arrangements. In addition, the Company's research and
development expenditures will vary with the progress of programs and as a
result of variability in funding from its partners. The Company's management
will have broad discretion to allocate proceeds of this offering to uses that
it believes are appropriate.
The Company currently believes the net proceeds of the offering, together
with the Company's existing cash, cash equivalents, short-term investments and
cash generated from operations and research funding from corporate partners,
will enable the Company to maintain its current and planned operations until
December 31, 2000. See "Risk Factors--We Will Need to Raise Additional Funds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Pending such uses, the Company intends to invest the net proceeds of this
offering primarily in interest-bearing investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its common stock
and does not anticipate doing so in the foreseeable future. The Company
currently intends to retain future earnings, if any, for the development of its
technologies and future products.
14
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1998, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to (a) the increase in the number of authorized shares of
common stock to 25,000,000 and the authorization of 1,000,000 shares of
undesignated Preferred Stock and (b) the conversion of all issued and
outstanding Existing Preferred Stock into 4,949,056 shares of common stock and
(iii) the pro forma capitalization as adjusted to reflect the sale of the
2,500,000 shares of common stock offered hereby at an assumed initial public
offering price of $13.00 per share (the mid-point of the expected range) after
deducting Underwriting discounts and commissions and estimated offering
expenses and the application of the estimated net proceeds therefrom of the
Company as set forth in "Use of Proceeds" and the exercise of outstanding
warrants to purchase 69,382 shares of common stock at $0.02 per share prior to
the closing of this offering. This table should be read in conjunction with the
Consolidated Financial Statements of the Company, notes thereto and other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA (1) ADJUSTED (1)(2)
-------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt..... $ 289 $ 289 $ 289
======== ======== =======
Long-term debt, less current portion.. $ 2,189 $ 2,189 $ 1,373
-------- -------- -------
Redeemable convertible preferred
stock, par value $0.01 per share,
14,446,382 shares authorized and
7,274,833 issued and outstanding,
actual; no shares authorized, issued
or outstanding, pro forma and pro
forma as adjusted.................... 41,139 -- --
-------- -------- -------
Stockholders' equity (deficit):
Preferred Stock, par value $0.01 per
share, no shares authorized, issued
or outstanding, actual; 1,000,000
shares authorized and none issued
and outstanding, pro forma and pro
forma as adjusted.................. -- -- --
Common stock, par value $0.01 per
share, 13,000,000 shares authorized
and 709,949 issued and outstanding
actual; 25,000,000 shares
authorized and 5,659,005 shares
issued and outstanding pro forma;
8,228,387 shares issued and
outstanding pro forma as adjusted
(1)(2)............................. 11 57 82
Additional paid-in capital.......... 5,203 46,296 75,631
Deficit accumulated during
development stage.................. (39,648) (39,648) (39,648)
Deferred compensation (3)........... (1,811) (1,811) (1,811)
-------- -------- -------
Total stockholders' equity
(deficit)........................ (36,245) 4,894 34,254
-------- -------- -------
Total capitalization.............. $ 7,083 $ 7,083 $35,627
======== ======== =======
</TABLE>
- --------
(1) Presented on a pro forma basis to give effect to the automatic conversion,
upon the closing of this offering, of all outstanding shares of Existing
Preferred Stock into an aggregate of 4,949,056 shares of common stock. See
"Description of Capital Stock."
(2) As adjusted to reflect the sale of 2,500,000 shares of common stock offered
by the Company hereby at an assumed initial public offering price of $13.00
per share (the mid-point of the expected range) and the application of
estimated net proceeds therefrom after deducting Underwriting discounts and
commissions and estimated offering expenses payable by the Company.
Includes the exercise of outstanding warrants to purchase 69,382 shares of
common stock at $0.02 per share prior to the closing of this offering.
Excludes an aggregate of 958,092 shares of common stock issuable upon
exercise of stock options and warrants outstanding as of September 30, 1998
with a weighted average exercise price of $1.90 per share. See "Description
of Capital Stock--Stock Purchase Warrants."
(3) Deferred compensation is the aggregate difference between the deemed value
of certain stock options and the exercise price of such stock options.
These stock options were not exercisable by the holders on September 30,
1998. A compensation expense will be recorded as the right to exercise
these stock options vest with the holder in future periods.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30, 1998
was $4,894,000 or approximately $0.86 per share of common stock. Pro forma net
tangible book value per share represents the total tangible assets of the
Company, less total liabilities, divided by 8,228,387 shares of common stock to
be outstanding after giving effect to the conversion of all outstanding shares
of Existing Preferred Stock into 4,949,056 shares of common stock upon the
closing of this offering. Assuming the receipt by the Company of the net
proceeds from the sale of the 2,500,000 shares of common stock offered hereby
at an assumed public offering price of $13.00 per share (the mid-point of the
expected range) and the exercise of outstanding warrants to purchase 69,382
shares of common stock at $0.02 per share prior to the closing of this
offering, the pro forma net tangible book value of the Company as of September
30, 1998 would have been $34,254, or $4.16 per share. This represents an
immediate increase in the pro forma net tangible book value of $3.30 per share
to existing stockholders of the Company and an immediate dilution of $8.84 per
share to new investors purchasing common stock in this offering. The following
table illustrates the per share dilution to be incurred by new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $13.00
Pro forma net tangible book value per share before this
offering.................................................... $0.86
Increase per share attributable to new investors............. 3.30
-----
Pro forma net tangible book value per share after this
offering...................................................... 4.16
------
Dilution per share to new investors............................ $ 8.84
======
</TABLE>
The following table sets forth, as of September 30, 1998 (after giving effect
to the conversion of all outstanding shares of Existing Preferred Stock into
4,949,056 shares of common stock and the exercise of outstanding warrants to
purchase 69,382 shares of common stock at $0.02 per share prior to the closing
of this offering and assuming the Series E Stock is convertible into an
aggregate of 722,746 shares of common stock (assuming the closing of this
offering on February 8, 1999 at an offering price of $13.00 per share (the mid-
point of the expected range)), the differences between the existing
stockholders and the new investors with respect to the number of shares of
common stock acquired from the Company, the total consideration paid and the
average price per share (assuming a public offering price of $13.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 5,728,387 70% $43,944,000 57% $ 7.67
New investors............... 2,500,000 30% 32,500,000 43% $13.00
--------- --- ----------- ---
Total..................... 8,228,387 100% $76,444,000 100%
========= === =========== ===
</TABLE>
Total Consideration is the aggregate purchase price paid by existing
stockholders for previously issued shares and is calculated by totaling the
gross proceeds from previous sales of the Company's stock. The above
information excludes, as of September 30, 1998, an aggregate of 958,092 shares
of common stock issuable upon exercise of stock options and warrants
outstanding as of September 30, 1998 with a weighted average exercise price of
$1.90 per share. To the extent that such options and warrants are exercised,
there will be further dilution to new investors. See "Description of Capital
Stock."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data set forth below, as of December
31, 1995, 1996 and 1997, and the consolidated statements of operations data for
each of the three years in the period ended December 31, 1997, are derived from
the Company's Consolidated Financial Statements which have been audited by
Arthur Andersen LLP, independent public accountants, and which are included
elsewhere in this Prospectus. The selected consolidated financial data as of
December 31, 1993 and 1994 and for the years then ended are derived from the
Company's Consolidated Financial Statements not included in this Prospectus,
all of which have been audited by Arthur Andersen LLP, independent public
accountants. The selected financial data as of September 30, 1998 and for the
nine months ended September 30, 1997 and 1998 and for the period from inception
(May 27, 1992) to September 30, 1998 are derived from the Company's unaudited
Consolidated Financial Statements which are included elsewhere in this
Prospectus and which include, in the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) that are necessary for a fair
presentation of its financial position and the results of its operations for
those periods. Operating results for the nine months ended September 30, 1998
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1998. The selected consolidated financial data
should be read in conjunction with, and are qualified by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's Consolidated Financial Statements and notes thereto
and the Report of Independent Public Accountants included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS MAY 27, 1992
ENDED (INCEPTION)
YEAR ENDED DECEMBER 31, SEPTEMBER 30, THROUGH
------------------------------------------- ---------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
------- ------- ------- ------- ------- ------- ------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Collaborative revenue.. $ 68 $ 34 $ 50 $ 247 $ 1,053 $ 730 $ 1,100 $ 2,552
Operating expenses:
Research and
development........... 1,230 3,270 3,964 5,232 7,673 5,711 5,638 27,191
General and
administrative........ 602 1,030 1,425 1,675 1,740 1,287 1,909 8,633
Charge for acquired
research and
development........... -- -- -- 1,498 1,612 1,612 -- 4,422
------- ------- ------- ------- ------- ------- ------- --------
Total operating
expenses............. 1,832 4,300 5,389 8,405 11,025 8,610 7,547 40,246
------- ------- ------- ------- ------- ------- ------- --------
Loss from operations... (1,764) (4,266) (5,339) (8,158) (9,972) (7,880) (6,447) (37,694)
Interest income
(expense), net........ (125) 115 (106) (30) 228 231 14 101
Foreign currency
translation gain
(loss)................ 13 (76) 6 (101) (10) (13) (152) (96)
------- ------- ------- ------- ------- ------- ------- --------
Net loss............... $(1,876) $(4,227) $(5,439) $(8,289) $(9,754) $(7,662) $(6,585) $(37,689)
======= ======= ======= ======= ======= ======= ======= ========
Historical basic and
diluted net loss per
share (1)............. $(10.78) $(16.32) $(15.43) $(19.99) $(19.53) $(15.59) $(12.47)
Pro forma basic and
diluted net loss per
share (1)............. $(2.17) $ (1.45)
Shares used in
computing historical
basic and diluted net
loss per share (1).... 175 260 353 435 521 512 594
Shares used in
computing pro forma
basic and diluted net
loss per share (1).... 4,693 5,122
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
---------------------------------------------- -----------------------
1993 1994 1995 1996 1997 ACTUAL PRO FORMA (2)
------- ------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and marketable
securities............ $ 8,107 $ 4,383 $ 470 $ 10,117 $ 3,792 $ 6,988 $ 6,988
Working capital........ 8,933 2,789 (797) 8,976 2,586 5,051 5,051
Total assets........... 9,439 6,924 2,704 12,396 6,289 9,315 9,315
Current portion of
long-term debt........ 19 1,092 825 301 300 289 289
Long-term debt, less
current portion....... 710 752 745 1,274 1,550 2,189 2,189
Redeemable convertible
preferred stock....... 11,863 11,879 11,894 30,945 34,186 41,139 --
Deficit accumulated
during development
stage................. (3,417) (7,659) (13,113) (22,055) (32,233) (39,648) (39,648)
Deferred compensation.. -- -- -- -- -- (1,811) (1,811)
Stockholders' equity
(deficit)............. (3,410) (7,648) (13,101) (21,210) (30,886) (36,245) 4,894
</TABLE>
- --------
(1) Computed as described in note 3(n) of notes to Consolidated Financial
Statements.
(2) Presented on a pro forma basis to give effect to the automatic conversion,
upon the closing of this offering, of all outstanding shares of the
Existing Preferred Stock into an aggregate of 4,949,056 shares of common
stock.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Phytera, Inc. was incorporated as a Delaware corporation on May 27, 1992. The
Company is a development stage biopharmaceutical company focused on applying
its proprietary Combinatorial Drug Discovery Program to the identification and
optimization of new lead structures and candidate drugs for pharmaceutical
application. The Company's operations have been funded primarily through the
sale of equity securities and revenues generated from research partnerships
with pharmaceutical and biotechnology companies. As of September 30, 1998, the
Company has signed partnership agreements with Eli Lilly and Company, Chiron
Corporation, Tsumura & Co., NeuroSearch A/S, Galileo Laboratories, Inc. and
Nycomed Amersham plc. See "Business--Corporate Partnerships."
The Company has not been profitable since its inception and has an
accumulated deficit of approximately $39,648,000 as of September 30, 1998.
Losses have resulted primarily from expenses related to research and
development programs focused on expanding the Company's Combinatorial Drug
Discovery Program, which includes combinatorial biology, pharmaceutical
screening, combinatorial chemistry and preclinical development of a novel
candidate drug. The Company has also incurred costs related to the
administrative activities required to support these research and development
efforts. The Company's ability to fund its operations and achieve profitability
is dependent on its near-term ability to market the Company's broad technology
base to and enter into research partnerships with pharmaceutical and
biotechnology companies, and on the longer-term development and
commercialization of products derived from these partnerships and the Company's
internal drug discovery programs.
Phytera has built and expanded its technology base via the acquisition of
three companies. Plant Science Limited, a UK-based plant cell culture company,
was acquired in September 1992 and is now a wholly-owned subsidiary, Phytera
Ltd. Neptune Pharmaceuticals, Inc., a US-based marine microbiology company, was
acquired in July 1996 and has been integrated into the operations of Phytera,
Inc. Auda Pharmaceutical ApS, a Danish combinatorial chemistry company, was
acquired in March 1997 and is now a wholly-owned subsidiary, Phytera Symbion
ApS. Each of these transactions was accounted for as a purchase with
approximately $1,312,000, $1,498,000 and $1,612,000, respectively of the
purchase price charged to operations as the cost of acquired research and
development. The results of operations of each of the acquired companies are
included in the Consolidated Statements of Operations since the date of
acquisition.
In addition to the above acquisitions, the Company established Phytera A/S, a
wholly-owned Danish subsidiary, in February 1996 with an equity investment of
approximately $89,500 in order to expand the Company's plant cell culture
capabilities. The results of operations of Phytera A/S are included in the
Consolidated Statements of Operations since its date of incorporation.
The Consolidated Financial Statements include the accounts of Phytera, Inc.
and its wholly-owned subsidiaries, Phytera Ltd., Phytera Symbion ApS and
Phytera A/S. For the remainder of this discussion Phytera, Inc. and its
subsidiaries together will be referred to as "Phytera" or "the Company."
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 and 1997
Revenues from research and development partnership agreements were $1,100,000
and $730,000 for the nine months ended September 30, 1998 and 1997,
respectively. For the nine months ended September 30, 1998, all of the revenue
recognized by the Company was derived from its partnerships with Tsumura & Co.,
Chiron Corporation and Eli Lilly and Company. For the nine months ended
September 30, 1997, revenues were derived entirely from the Company's
partnership with Tsumura & Co., as payment for access to Phytera's extract
libraries and in support of the Company's research activities under
the partnership. This historical data does not reflect the impact of the
Company's most recent corporate partnerships, which is likely to increase in
the future. See "Business--Corporate Partnerships."
Research and development expenses decreased by 1% to $5,638,000 for the nine
months ended September 30, 1998 from $5,711,000 for the nine months ended
September 30, 1997, due to reduced outside research support for preclinical
development and decreased laboratory supplies expense in the US. These
decreases were partially offset by an increase in research and development
expenses by the Company's Danish subsidiaries,
18
<PAGE>
reflecting a full nine months of operations in 1998 for Phytera Symbion ApS,
which was acquired in March 1997, and increased plant sourcing costs in support
of Phytera A/S' plant cell culture activity.
General and administrative expenses increased by 48.3% to $1,909,000 for the
nine months ended September 30, 1998 from $1,287,000 for the nine months ended
September 30, 1997. This increase resulted from compensation expense
attributable to stock options granted, and executive incentive compensation
programs, and a full nine months of expenses related to Phytera Symbion ApS.
General and administrative expenses at Phytera Symbion ApS during this period
included salary related costs, travel and other costs associated with the
Managing Director of Phytera A/S and Phytera Symbion ApS who joined the Company
at the time of the Auda acquisition.
Net interest income was $14,000 for the nine months ended September 30, 1998,
compared to $231,000 for the same period in 1997. Interest income in 1998
decreased as a result of a decreasing cash balance resulting from the use of
cash for operations, while interest expense for the nine months ended September
30, 1998 increased due to interest accrued for additional debt funding received
from VdkstFonden of Copenhagen, Denmark.
Years Ended December 31, 1997, 1996 and 1995
The Company's collaborative revenues for the years ended December 31, 1997,
1996 and 1995 were $1,053,000, $247,000 and $50,000, respectively and were
derived from research and development partnership and marketing agreements. In
1997 and 1996, such revenues were derived entirely from the partnership with
Tsumura & Co., while revenue in 1995 was derived from the Nycomed Amersham plc
research partnership in the area of plant culture-derived enzymes. See
"Business--Corporate Partnerships."
Research and development expenses increased to $7,673,000 in 1997 from
$5,232,000 in 1996 and $3,964,000 in 1995, primarily as a result of the
expansion of the Company's plant cell culture, marine microbiology,
combinatorial chemistry and general drug discovery capabilities. Subsequent to
the acquisition of Neptune Pharmaceuticals, Inc. in 1996, the Company
established a research program focused on sourcing, culturing and extraction of
marine microbes. Also in 1996, the Company established Phytera A/S as a
wholly-owned subsidiary to conduct plant cell culture activities. The Company
acquired Auda Pharmaceutical ApS in March 1997 and research and development
expenses in 1997 include costs associated with this operation through the end
of the year. In addition, research and development staff at the Company's
Worcester facility increased by four people in 1996 compared to 1995 and by
seven people in 1997 compared to 1996.
General and administrative expenses were $1,740,000, $1,675,000, and
$1,425,000 for 1997, 1996 and 1995, respectively. The increase in 1997 compared
to 1996 was approximately 3.8% and was primarily due to normal cost increases.
The increase in 1996 compared to 1995 was approximately 17.6% and related
principally to general and administrative expenses incurred as a result of the
establishment of Phytera A/S, and to increased costs at Phytera, Inc. related
to increased staff.
Net interest income was $228,000 in 1997, compared to net interest expense of
$30,000 and $106,000 in 1996 and 1995, respectively. This increase in 1997
resulted from a larger cash balance available for investment during the year as
a result of the sale of Series D Convertible Preferred Stock that occurred in
late 1996.
LIQUIDITY AND CAPITAL RESOURCES
Phytera has experienced net losses and negative cash flow from operations
each year since its inception and, as of September 30, 1998, had an accumulated
deficit of $39,648,000. The Company has financed its operations primarily
through private equity financings. As of September 30, 1998, net proceeds from
equity financings were $39,044,000. The Company received total research
payments from its corporate partnerships of $3,161,000 through September 30,
1998. Total collaborative revenue of $2,552,000 has been recognized to date
resulting in $609,000 in research payments that have been received by the
Company but not yet recognized as revenue as of September 30, 1998. Phytera has
entered into several loan agreements to fund leasehold improvements, the
acquisition of equipment, for working capital purposes and the acquisition of
Phytera Ltd.
In 1992, the Company issued a promissory note in the principal amount of
(Pounds)480,000 (approximately $816,000 at the September 30, 1998 exchange
rate) note payable to the University of Sheffield, bearing interest at 10% per
annum, in connection with the acquisition of Phytera Ltd. The note will be
payable on the closing of this offering. Interest on the unpaid principal
balance is due each October 1.
19
<PAGE>
In July 1994, the Company entered into a $1,100,000 equipment line of credit
with a United States bank. The Company borrowed the maximum amount through
December 31, 1994, at which time the amount outstanding under the equipment
line of credit was converted into a promissory note. The note is payable in 48
equal monthly installments, beginning in January 1995 and is scheduled to end
in December 1998, bearing interest at the bank's prime rate (8.5% at September
30, 1998) plus 2%. Borrowings under the note are secured by substantially all
of the Company's assets. The note contains certain covenants, including minimum
levels of liquidity and net worth. The Company was in compliance with all
covenants at September 30, 1998. As of September 30, 1998, $68,750 was
outstanding under this note.
In 1996, Phytera entered into an agreement with VdkstFonden to obtain funding
for the Company's Danish subsidiaries. This agreement was originally focused on
providing partial funding for the development of Phytera A/S, but was recently
expanded to include Phytera Symbion ApS. Under the agreement, VdkstFonden
provides a research and development loan of approximately DKK 13.2 million
(approximately $2,087,000 at the September 30, 1998 exchange rate) over a three
year period to finance approximately 45% of the operations of both Phytera A/S
and Phytera Symbion ApS. The loan accrues interest at an annual interest rate
of 7.98% and will be repaid over a five year period beginning in April 1999.
The loan was granted subject to certain conditions, each of which has been met
by Phytera. The loan is secured by a guarantee from Phytera, Inc. and by way of
a pledge of certain rights in the projects funded by the loan. As of September
30, 1998, approximately DKK 8,546,000 (approximately $1,347,000 at the
September 30, 1998 exchange rate) has been received from VdkstFonden.
During the nine months ended September 30, 1998 and the years ended December
31, 1997, 1996 and 1995, the Company made purchases of equipment and leasehold
improvements in the amounts of approximately $297,000, $913,000, $627,000 and
$150,000, respectively. In addition to the VdkstFonden loan, the Company
entered into several loans and operating leases that provided aggregate
financing of DKK 2,800,000 (approximately $442,000 at the September 30, 1998
exchange rate) to the Company's Danish subsidiaries during 1996 and 1997 and
the nine months ended September 30, 1998.
In September 1998, Phytera entered into a $1,000,000 equipment line of credit
with a United States finance company. This agreement provides for the funding
of equipment purchases made by the Company through July 15, 1999. Separate
loans are created each time funding is provided, and each loan is to be repaid
over 48 months from the date of the funding with a final payment of 12.5% of
the initial principal amount. The repayment amount is based on a percentage of
the outstanding principal of the loan. The percentage rate can vary prior to
each funding, but is then fixed for the term of the specific loan created by
the specific funding event. There was no outstanding balance under this line of
credit at September 30, 1998.
Management estimates that the proceeds from this offering, along with
existing cash balances, amounts to be received under existing partnership
agreements and funds available under existing borrowing arrangements, will be
sufficient to fund operations until December 31, 2000. The Company's cash
requirements may vary materially from those now planned, depending upon the
results of its research and development strategies, the ability of the Company
to enter into any corporate partnerships, the results of research and
development, competitive and technological advances, in-licenses and
acquisitions and other factors. If the Company experiences increased losses, it
may have to seek additional financing from public or private sale of its
securities, including equity securities.
There have been no material events or significant changes in the financial or
other conditions of the Company since September 30, 1998.
TAX MATTERS
At December 31, 1997, the Company had available net operating loss
carryforwards of approximately $25,200,000 for US federal income tax purposes,
which expire at various dates beginning in 2009. The Company also has available
US federal tax credits of approximately $330,000 expiring through the year
2010. The Company's non-US subsidiaries have approximately $690,000 of
available net operating loss carryforwards for non-US income tax reporting
purposes as of December 31, 1997. The Company has recorded a full valuation
allowance against its deferred tax asset due to uncertainties surrounding the
realization of these assets.
The US Internal Revenue Code of 1986, as amended (the "Code"), contains
provisions that may limit the US net operating loss and tax credit
carryforwards available to be used in any given year upon the occurrence
20
<PAGE>
of certain events, including changes in the ownership interests of significant
stockholders. In the event of a cumulative change in ownership in excess of 50%
over a three year period, the amount of the US net operating loss carryforwards
that the Company can utilize in any one year may be limited. In the event of a
change in ownership, as defined, the annual limitation on the use of the
existing net operating loss carryforwards is equal to an amount determined by
multiplying the value of the Company at the time of the ownership change by the
US federal applicable rate of interest as determined by the US Internal Revenue
Service.
YEAR 2000
Many currently installed computer systems and software applications are coded
to accept only two digit entries in the year entry of the date code field.
Beginning in the year 2000, these codes will need to accept four digit year
entries to distinguish 21st century dates from 20th century dates. The Company
has completed a review of all of its microprocessor-based computer systems to
assess what steps, if any, are required to achieve full Year 2000 compliance.
The Company relies upon microprocessor-based personal computers and
commercially available applications software. These technologies have been put
into service recently, and our review has confirmed that virtually all the
Company's systems are currently Year 2000 compliant. The small number of
systems that are not yet Year 2000 compliant are systems that are integral
components of certain laboratory instrumentation used by the Company. The
Company is in the process of replacing these systems. The Company does not
anticipate that it will incur material expenses or meaningful delays in making
these systems Year 2000 compliant.
The Company is not able to assess the Year 2000 readiness of its research
partners, or the potential impact, if any, on its research programs if a
research partner is not Year 2000 compliant. The Company is currently
discussing Year 2000 readiness with its material supply and service vendors. To
date, those vendors that have been contacted have indicated that their hardware
or software are or will be Year 2000 compliant on a timely basis. However, the
Company intends to continue to assess its exposure to Year 2000 noncompliance
on the part of any of its material vendors and there can be no assurance that
their systems will be Year 2000 compliant.
The Company believes that Year 2000 issues will not pose significant
operational problems for its business. Therefore, the Company does not have,
and does not intend to create, a contingency plan in the event Year 2000
compliance cannot be achieved in a timely manner. See "Risk Factors--Year 2000
Issues Could Cause Interruption or Failure of Our Computer Systems."
NEW ACCOUNTING PRONOUNCEMENTS
Recently issued accounting standards may affect the Company's Consolidated
Financial Statements in the future. See note 3(o) of notes to Consolidated
Financial Statements.
21
<PAGE>
BUSINESS
OVERVIEW
Phytera is an international biopharmaceutical company engaged in identifying
and optimizing novel chemical lead structures through its Combinatorial Drug
Discovery Program. The Company conducts operations in the United States,
Denmark, and the United Kingdom. The Company's Combinatorial Drug Discovery
Program enhances the pharmaceutical industry's ability to use nature as a
source of chemical diversity by applying proprietary combinatorial biology,
pharmaceutical screening and combinatorial chemistry techniques. The Company
uses combinatorial biology to create novel chemical diversity libraries from
two relatively untapped natural resources, plant cells and marine microbes,
that it grows and manipulates in cell culture. The combinatorial manipulations
substantially increase the variety and novelty of chemical compounds produced
in cell culture beyond that found in the native specimen. Phytera has entered
into partnerships with Eli Lilly and Company, Chiron Corporation, Tsumura &
Co., NeuroSearch A/S, Gallileo Laboratories, Inc. and Nycomed Amersham plc.
Together with these partners, Phytera tests its chemical diversity libraries
for therapeutic utility in pharmaceutical screens for diseases such as fungal
infections, cancer, inflammation, allergy, asthma, depression, memory and
attention deficit disorders, diabetes, stroke and myocardial infarction. The
Company's internal drug discovery efforts are focused on drug-resistant
bacterial, fungal and viral infections. In particular, the Company has
developed bacterial and fungal screens in which Multiple Drug Resistance pumps
("MDR pumps") have been inactivated. The Company believes that these "MDR
knockout-based" screens offer significant advantages in discovering novel
antibacterial and antifungal drugs. Phytera uses proprietary combinatorial
chemistry techniques to optimize lead structures identified through screening
into candidate drugs for further development.
Nature is a source of a substantial portion of new medicines, but a number of
factors has limited the systematic exploration of nature as a source of
chemical diversity. These factors include access to sufficient quantity of
novel source material, difficulty in reaccessing source material, limited and
fixed chemical diversity, chemistry which is not easily reproducible or
scalable, difficulties associated with screening complex extract mixtures and
limited ability to optimize natural product lead structures. Phytera's
Combinatorial Drug Discovery Program encompasses a number of technologies to
provide an integrated solution to these limitations.
The Company's combinatorial biology program produces chemical diversity
libraries from plant cell cultures using its ExPAND(R) technology and from
marine microbe cultures using its (u)MARINE(R) technology. The Company has
established an extensive network of species sourcing collaborations in order to
access plants and marine microorganisms for its combinatorial biology program.
The Company's combinatorial biology technologies facilitate access and reaccess
to novel plant and marine microbial source material. The chemical diversity of
cell cultures is increased by applying proprietary manipulations, such as
genetic, hormonal, infection-related, environmental or chemical treatments. The
resulting chemical expression states are highly reproducible, ensuring that
increased quantities of interesting chemical compounds can be produced to
facilitate drug discovery and development. To date, the Company has produced
over 60,000 high quality cell culture extracts through its ENRICH(TM)
extraction technology and a pilot library of individual natural chemical
compounds by applying its PINACLE(TM) chemical isolation methodology.
The Company is applying its proprietary MANIFOLD(TM) combinatorial chemistry
technologies to optimize lead structures and select additional candidate drugs
for preclinical and clinical development. MANIFOLD is particularly suited for
optimizing natural product lead structures, many of which are not amenable to
conventional combinatorial chemistry techniques. Phytera has produced one
candidate drug and several lead structures. Marinovir, the Company's candidate
drug from a marine microbe, is aimed at treating herpes infections and is
currently scheduled to enter clinical studies in 1999.
CORPORATE STRATEGY
Phytera's objective is to be the leader in the application of combinatorial
drug discovery technology to the search for new medicines derived from nature.
To achieve this objective, the Company will leverage its broad range of
proprietary technologies in the following ways:
. Capitalize on Revenue-Generating Partnerships. The Company has
established several revenue-generating partnerships, such as its
antifungal alliance with Eli Lilly and Company, and is continuing to
pursue additional such relationships. These revenue-generating
partnerships provide Phytera with both
22
<PAGE>
near-term and potential longer-term revenues through up-front payments,
option/license fees, research funding, milestone payments and royalties
and provide its partners with access to Phytera's novel chemical diversity
libraries, proprietary screens and other proprietary technologies and
resources. See "--Corporate Partnerships."
. Capitalize on Joint Research and Development Partnerships with Retained
Product Rights. The Company retains substantial product rights under a
number of joint research and development partnerships, such as its
alliance with NeuroSearch A/S, and is continuing to pursue additional
relationships of this type with other partners. These retained product
rights partnerships combine the Company's novel chemical diversity
libraries and other proprietary resources with pharmaceutical screens
developed by the Company's partners. Lead structures and candidate drugs
identified by the screening of the Company's libraries are expected to be
the focus of joint development and commercialization efforts. See "--
Corporate Partnerships."
. Advance the Company's Drug-Resistant Infectious Diseases Program. Phytera
intends to continue its internal drug discovery efforts, with particular
focus on the use of its proprietary screen portfolio for drug-resistant
infectious diseases. Included in this portfolio are antibacterial screens
based on the Company's MDR knockout technology, developed in conjunction
with and licensed from an academic institution, which offer advantages in
screening for new drugs to treat resistant infections. The Company is
currently seeking to advance one preclinical candidate drug, marinovir,
to the clinic and is currently optimizing several lead structures
identified within the program. See "--Phytera's Resistant Infectious
Diseases Screening Program" and "--Patents and Proprietary Rights."
. Broaden and Leverage the Company's Technology Platform. The Company
believes its intellectual property position represents a substantial
barrier to entry by competitors. Phytera intends to broaden and leverage
this position through further internal innovation and in-licensing and
acquisitions of new technologies and novel products. The Company is also
pursuing application of its current technologies to other business areas,
such as agriculture.
23
<PAGE>
NATURE AS A SOURCE OF CHEMICAL DIVERSITY
Historically, natural products have represented a major source of medicines
used to treat human disease and, together with medicinal synthetic chemistry,
continue to generate a substantial number of pharmaceuticals. Drugs can be
derived from natural sources either directly or, more commonly, indirectly.
Direct derivation occurs when the natural chemical compound is used as a
pharmaceutical, as in the case of Taxol(R), a cancer drug from the Pacific yew
tree. Indirect derivation occurs when a lead structure from a natural source is
used as a chemical basis or conceptual starting point for a drug analog and
optimization program that results in a commercial product. An example of this
is Zocor(R), a cholesterol-lowering drug derived from a fungal lead structure.
A recent study from the US National Institutes of Health reported that
natural product-derived drugs accounted for 39% of all approvals by the US FDA
from 1983 to 1994 across all therapeutic categories. In the case of infectious
diseases, 56% of all FDA-approved drugs were derived from natural products.
Many of today's most commercially important drugs were derived from a natural
product starting point, as illustrated below.
DERIVATION OF CERTAIN COMMERCIALLY SIGNIFICANT DRUGS
<TABLE>
<CAPTION>
1997 WORLDWIDE THERAPEUTIC
BRAND NAME SALES RANK(1) INDICATION NATURAL PRODUCT DERIVATION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Zocor(R) 1 High cholesterol Fungal lead structure
Vasotec(R) 4 Hypertension Snake venom lead structure
Zantac(R) 5 Ulcers Based on histamine-derived
structure
Augmentin(R) 9 Bacterial infection Fungal lead structure and
bacterial product
combination
Pravachol(R) 13 High cholesterol Fungal lead structure
Mevalotin(R) 14 High cholesterol Fungal lead structure
Biaxin(R) 15 Bacterial infection Bacterial lead structure
Sandimmune(R) 16 Transplant rejection Fungal product
Taxol(R) 30 Cancer Plant product
</TABLE>
(1) Medical Advertising News, 17(5) 1998 and Biodiversity and Human Health,
Island Press, 1997.
As the table above illustrates, two natural product sources, terrestrial
fungi and bacteria, have played prominent roles in the development of new drugs
in the recent past. These successes have been driven by decades of extensive
evaluation of these sources by the pharmaceutical industry. However, continued
study of terrestrial microbes is increasingly resulting in the rediscovery of
the same natural chemistry. Thus, the Company believes that terrestrial
microbes have diminished value as potential sources of new chemical diversity.
Plants and marine microorganisms represent two relatively untapped natural
sources of novel chemicals that may be useful in the discovery of new drugs.
According to scientific and other literature, only a small percentage of the
estimated 250,000 species of plants has been evaluated as a source of new
pharmaceuticals. The Company believes that the pharmaceutical industry's
evaluation of plants for drug discovery has been limited by the use of
traditional sourcing approaches. These approaches require large amounts of
plant material so that species that are available only in small quantities or
are subject to conservation efforts cannot be readily sampled. An additional
problem is the difficulty of reaccessing the source material to obtain greater
quantities for further discovery and development once the plant extract is
found to contain a pharmaceutically active chemical compound. Reaccessing the
source material can be logistically difficult and time consuming, and it is
often not possible to successfully reaccess the species, or its
pharmaceutically important chemistry.
24
<PAGE>
Marine microorganisms are a genetically and chemically distinct class of
organisms that are only just beginning to be examined as a source of lead
structures or candidate drugs. Marine microorganisms have never been
systematically sourced by the pharmaceutical industry. In the cases where
marine microorganisms have been sourced, both their isolation and subsequent
culture have been constrained by the failure to recognize their dependence on
specific marine nutrients for growth.
The most significant limitation in traditional natural product drug discovery
is the inability to access much of the potential chemical diversity of a
sourced species. Traditional natural product drug discovery technologies sample
a species from a single environment and therefore access only a minor portion
of the chemical potential of that species. Changing environmental conditions
cause a plant or marine microbe to express different chemical compounds. In
order to fully access the chemical potential of a sourced species, living
tissue or cells from the sample must be exposed to a wide array of
environmental and other conditions. The Company believes this is best
accomplished under the controlled laboratory conditions of cell culture by
applying certain technologies collectively termed "combinatorial biology".
In addition, pharmaceutical screening of complex extract mixtures
traditionally derived from natural products requires difficult chemical
isolation and identification steps after screening. The presence of nuisance
and dilutive chemical compounds in such mixtures creates problems for the
screening process and can also hinder the isolation and identification process.
Finally, active compounds discovered by screening of natural product extracts
are often not suitable drug candidates themselves. Rather, they are of value as
lead structures which can then be chemically modified to improve potency,
selectivity or physical chemical characteristics. Such optimization of natural
product-derived lead structures has relied on traditional and relatively slow
medicinal chemistry approaches as many of the methods used in conventional
combinatorial chemistry are not easily applicable to such situations.
COMBINATORIAL BIOLOGY
Historically, the term combinatorial biology has referred to the manipulation
of cells using recombinant DNA techniques, which involve the insertion of
genetic material from one type of organism into the genome of a second
organism. Such gene manipulation can enable the latter organism to produce
different chemistry than was possible in its original state. A more expansive
definition of combinatorial biology also encompasses the manipulation of the
genetic and enzymatic machinery of an organism. Such manipulation may include
chemical and environmental stresses, infection-related or hormonal
perturbations, the introduction of substances that chemically change the
organism's DNA, and various combinations of the foregoing. Applied in this way,
combinatorial biology allows cells to produce an extremely wide variety of
chemical compounds, many of which may not be produced by the organism in its
natural state. As such, combinatorial biology is an attractive method for
gaining access to a far greater portion of a species' chemical diversity than
is currently possible using traditional approaches.
25
<PAGE>
PHYTERA'S COMBINATORIAL DRUG DISCOVERY PROGRAM
The worldwide pharmaceutical industry depends upon the continuing discovery
of new lead structures and candidate drugs to maintain its drug development
pipeline. This requires, among other things:
. multiple sources of novel chemicals;
. innovative means of screening those chemicals for pharmaceutical
activity; and
. efficient methods of optimizing the chemical structures of
pharmaceutically active compounds (lead structures) for preclinical and
clinical development.
Phytera's Combinatorial Drug Discovery Program integrates these three
elements by combining combinatorial biology, pharmaceutical screening and
combinatorial chemistry to exploit the diversity of chemistry from plants and
marine microorganisms more effectively than traditional approaches. The Company
believes that this program addresses many of the significant problems and
limitations of traditional natural product drug discovery programs.
PHYTERA'S SOLUTIONS TO NATURAL PRODUCT DRUG DISCOVERY PROBLEMS
<TABLE>
<CAPTION>
PHYTERA SOLUTION
PROBLEM APPROACH TECHNOLOGY(1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Access to "novel" source Cell culture technology requires ExPAND
material only a seed or leaf/stem clipping,
permitting access to those plant
species that are available in
limited quantity
Isolation and cell culture (u)MARINE
technology permits access to marine
microorganisms not previously
isolated
Difficulty in Cell culture storage technology ExPAND and (u)MARINE
reaccessing source eliminates need to reaccess source
material material
Limited and fixed Combinatorial biology expands ExPAND and (u)MARINE
chemical diversity chemical diversity in cell culture
Chemistry not easily Cell culture results in reproducible ExPAND and (u)MARINE
reproducible or scalable and scalable chemistry
Difficulties associated Extraction technology creates ENRICH
with screening of refined cell culture extracts for
complex extract mixtures screening
Individual chemical compounds are PINACLE
isolated prior to screening
Limited optimization of Proprietary combinatorial chemistry MANIFOLD
natural product lead techniques are used to optimize
structures natural product lead structures
</TABLE>
(1)Phytera's technological acronyms are:
EXPAND EXpanded Phytochemistry Aimed at Novel Discovery
(u)MARINE Broad access to the chemical diversity of MARINE micro(u)organisms
ENRICH ENRICHed chemical extraction of natural species
PINACLE Pre-isolated Individual NAtural Chemical Library Elements
MANIFOLD Multiple Analoging of Natural Isolates For Optimal Lead
Development
26
<PAGE>
The following diagram illustrates the various elements of Phytera's
Combinatorial Drug Discovery Program:
PHYTERA'S COMBINATORIAL DRUG DISCOVERY PROGRAM
----------------------------------------------
WORLDWIDE SOURCING OF DIVERSE
PLANT AND MARINE SPECIMENS
. Botanical gardens . Commercial seed suppliers
. Biodiversity-rich countries . Marine sourcing expeditions
----------------------------------------------
|
\|/
----------------------------------------------
GENERATE CHEMICAL DIVERSITY LIBRARIES
. Establish and manipulate cell cultures using combinatorial biology
. EXPAND (plant) and (u)MARINE (marine microorganisms)
. Produce extracts using ENRICH
. Isolate individual chemical compounds using PINACLE
----------------------------------------------
|
\|/
----------------------------------------------
PHARMACEUTICAL SCREENING
. Phytera's resistent infecctious diseases screening program
- bacterial, fungal, viral and MDR-based screens
. Partnership programs
- screens for cancer, inflammation, allergy, asthma, stroke,
myocardial infarction, diabetes, memory and attention deficit
disorders and depression
----------------------------------------------
|
\|/
----------------------------------------------
CANDIDATE DRUG IDENTIFICATION
. Isolate and identify lead structures
. Optimize lead structures using combinatorial chemistry (MANIFOLD)
----------------------------------------------
|
\|/
----------------------------------------------
PHARMACEUTICAL DEVELOPMENT
. Preclinical and future clinical development of candidate drugs
----------------------------------------------
27
<PAGE>
SOURCING OF PLANTS AND MARINE MICROORGANISMS
Phytera has established worldwide sourcing programs for plant and marine
specimens. The Company believes that its sourcing arrangements, combined with
its proprietary technology for establishing plant and marine microbial cell
cultures, represent an important strategic asset and a substantial barrier to
entry for potential competitors. Further, the Company believes that its
reputation and proprietary technologies provide it with important advantages in
forming additional sourcing collaborations. See "--Biodiversity Sourcing
Agreements."
COMBINATORIAL BIOLOGY PROGRAM
Phytera uses combinatorial biology to generate unique access to the chemistry
inherent in plant and marine samples obtained under its extensive sourcing
arrangements. The Company's combinatorial biology program involves the
manipulation of the genetic and enzymatic machinery of an organism by exposing
it to chemical and environmental stresses, infection-related or hormonal
perturbations or the introduction of substances that chemically change the
organism's DNA and, various combinations of the foregoing. This program is
comprised of two novel and proprietary cell culture-based technologies, ExPAND
(for plants) and (u)MARINE (for marine microorganisms).
The Company's culture libraries currently contain over 3,000 plant species
and over 8,000 marine microbial isolates and, to the Company's knowledge, are
unequaled in the number and diversity of species.
EXPAND and (u)MARINE technologies enable:
. Initial establishment of cell cultures from sourced species. This
overcomes difficulties in culturing plant cells and creating novel marine
microbial cell cultures.
. Combinatorial manipulation of genes, enzymes and metabolic pathways. This
broadens access to the chemical diversity and novelty in each species
beyond what is expressed in the native sample.
. Maintenance and long-term storage of cell cultures. This facilitates
reaccess to the plant cell or marine microorganism.
. Reproducible and scalable reaccess to interesting chemical
compounds. This enables access to pharmaceutically active chemical
compounds at all stages of the discovery and early development process.
ExPAND Technology
Phytera's ExPAND technology program establishes plant cell cultures from
sourced plant species. This is a multi-stage process that establishes a cell
culture made up of finely dispersed plant cells in liquid medium. Successful
production of cell cultures from plants requires optimal culture conditions for
each species.
Once established in cell culture, plant cells are subjected to multiple,
proprietary manipulations in the form of genetic, hormonal, infection-related,
environmental or chemical treatments, applied singly and in combination. The
combinatorial matrix of manipulations substantially increases the variety and
novelty of chemical compounds in the cell culture by modulating the expression
of genes, enzymes and metabolic pathways. Interactions of the products of
manipulated genes and pathways also generate chemical compounds not otherwise
produced by the plant species. The Company routinely applies various
combinations from a panel of as many as 15 manipulations to each plant cell
culture and has created libraries of very large numbers of reproducible cell
culture extracts.
Sunillin, the structurally novel prototype for a series of antifungal
compounds, is a product identified by the Company's ExPAND technology. Sunillin
is only produced by certain combinatorial manipulations of a plant cell
culture. Sunillin was not detected in numerous samples of the native plant
species used to generate the cell cultures. See figure below. See "--Products
Under Development--Sunillin Antifungal Series."
28
<PAGE>
SUNILLIN IS PRODUCED BY COMBINATORIAL MANIPULATIONS
[CHART DEPICTING SUNILLIN PRODUCTION APPEARS HERE]
*As a % of maximum level produced by combinatorial manipulations
In addition to enabling broader access to novel chemical diversity, Phytera's
ExPAND technology addresses other significant problems associated with
traditional natural product drug discovery, including access and reaccess to
species source material and reproducibility and scalability of species
chemistry.
Small quantities of plant material, such as a seed or leaf or stem clipping,
are required to establish a cell culture. This enables access to plant species
available from botanical gardens and commercial seed vendors. It also provides
access to species in limited supply due to conservation concerns, sourcing
logistics or other issues. The Company believes that these advantages will
facilitate access to the majority of the world's plant species.
Reaccess to source material can be a major problem with traditional
approaches and often requires new sourcing expeditions to harvest larger
quantities of the original plant material. This can present significant
logistical hurdles, require a great deal of time and often results in a failure
to reaccess the source or its pharmaceutically important chemistry. By
contrast, Phytera's ability to preserve and store its plant cell cultures,
primarily by cryopreservation or freezing, obviates the need for reaccess to
the source. Further, the ExPAND process is reproducible and scalable, providing
the increased quantities of chemical compounds required for further
pharmaceutical evaluation and preclinical development.
Phytera has developed its expertise and know-how in the area of plant cell
culture over more than 15 years and has successfully cultured thousands of
diverse plant species. The Company believes that this expertise and the
resultant cell culture libraries represent significant barriers to entry for
competitors. The Company is seeking to broaden its chemical diversity libraries
through the sourcing of additional species and development of additional
manipulation techniques.
(u)MARINE Technology
Marine microorganisms represent a promising and largely unexplored source of
lead structures and candidate drugs. The isolation and culture of marine
microorganisms has historically been limited by an incomplete understanding of
the environmental niches they occupy in the oceans. Traditional marine
microorganism isolation media are only minor modifications of those used for
terrestrial microorganisms and fail to reproduce the natural marine
environment. As a result, such media typically enable the isolation of only a
small percentage of the microorganisms present in a given marine sample.
Phytera's (u)MARINE technology significantly increases isolation success rates
by utilizing microbial isolation conditions which more closely replicate the
growth conditions of marine microbes in their natural environment. Phytera
believes that its (u)MARINE technology may provide access to many species of
marine microorganisms that have never before been isolated.
The (u)MARINE program is driven by broad sourcing of microbe-containing marine
specimens such as sediment, plant and animal macroorganisms and seawater.
Phytera's (u)MARINE culture library emphasizes the
29
<PAGE>
most chemically prolific classes of marine microbes, fungi and actinomycetes,
rather than more commonly sampled and less chemically diverse organisms such as
eubacteria. Each microbial cell culture is fermented under a variety of
proprietary, marine nutrient-based conditions to induce multiple genetic and
enzymatic changes which modify its chemistry. As in the case of plant cell
cultures, combinatorial manipulations of marine microbial cell culture
conditions result in diverse chemical expression states, providing access to
novel chemical compounds. Marine microorganism cell cultures can be
successfully stored by cryopreservation (freezing) and reaccessed for future
use. The Company's antiviral candidate, marinovir, is a marine microbial
product that is not produced by the originating cell culture under non-(u)MARINE
conditions. See "--Products Under Development--Marinovir--Preclinical Candidate
for Herpes Infections."
GENERATION OF CHEMICAL DIVERSITY LIBRARIES
ENRICH Extraction Technology
One limiting factor in natural product-based drug discovery has been the use
of overly crude extracts which have not been processed to remove nuisance and
dilutive compounds prior to screening. To overcome this limitation, Phytera has
developed its ENRICH technology which refines extracts to generate high-quality
pharmaceutical screening samples. Studies have confirmed that ENRICH extraction
selectively increases the abundance of potentially important chemicals in
pharmaceutical screening samples and removes a substantial number of nuisance
and dilutive compounds.
To date, Phytera has generated over 60,000 ENRICH cell culture extracts,
22,000 from its ExPAND program and 38,000 from its (u)MARINE program, and
expects to increase its extract libraries further in the future. Numerous
samples of these extracts are stored in a format that is compatible with the
high-throughput screening methods used by Phytera and other pharmaceutical and
biotechnology companies. Each stored sample is capable of supporting hundreds
of pharmaceutical screenings, enabling long term access to the Company's novel
chemical diversity libraries. In the event that these extract libraries become
depleted, Phytera can replenish each sample by regrowth, re-manipulation and re-
extraction of the respective plant or marine microbial culture from its storage
bank.
PINACLE Technology
While Phytera believes that its novel extract-based technologies overcome
many of the key limitations to successful natural product-based drug discovery,
the approach involves screening mixtures of natural chemical compounds.
Phytera's PINACLE technology is designed to solve many of the problems
associated with the screening of complex mixtures. The objective of Phytera's
PINACLE technology is to combine the high degree of chemical diversity
available from its combinatorial biology technology with the benefits of a one-
chemical-compound-per-screening-sample format. The Company has established a
pilot library of PINACLE compounds, and is further developing this program in
order to produce a larger-scale library to be made available to commercial
partners in 1999.
The PINACLE process begins by subjecting plant cell and marine microbial
cultures to as many as thirty manipulations using ExPAND and (u)MARINE
technologies. The resulting extracts then undergo multiparameter analysis using
techniques such as liquid chromatography, ultraviolet absorption, mass
spectrometry and nuclear magnetic resonance spectroscopy. These are applied in
a proprietary fashion to generate a unique chemical profile for each extract.
The profiles are compared to identify those cell culture extracts containing
the largest amounts of the most novel and diverse chemistry. Selected cell
cultures are regrown on a larger scale, re-manipulated and re-extracted. The
resulting large-scale extracts are subjected to a series of proprietary
separation methods, currently being refined, to isolate individual chemical
compounds. Individual chemical compounds that are not already represented in
Phytera's libraries are analytically characterized, catalogued in an extensive
database and placed in microtiter plates for later screening in a one-chemical-
compound-per-screening-sample format. See "Risk Factors--We May Be Unable to
Discover Drugs or Develop Products."
PHARMACEUTICAL SCREENING
For a novel chemical compound to be identified as a lead structure or
candidate drug, it must first exhibit activity in a pharmaceutical screen that
acts as a surrogate for the human disease state. In order to leverage its novel
chemical diversity libraries, the Company has built an extensive pharmaceutical
screen portfolio that combines an internal program of screens for resistant
infectious diseases with partnership screens that span a
30
<PAGE>
wide variety of disease areas. Phytera's screen portfolio is evolving over time
as new pharmaceutical screens are incorporated to replace certain existing
screens and to expand the portfolio to address new therapeutic targets.
Phytera's Resistant Infectious Diseases Screening Program
Escalating drug resistance is now considered by many the single most
important issue in the management of human infectious diseases. The Company
believes that the area of resistant infectious diseases is particularly suited
to screening Phytera's plant and marine microbial combinatorial biology-derived
libraries. Both plants and microbes are attacked by bacterial, fungal and viral
pathogens that have much in common with human pathogens. Plants and microbes
have, therefore, evolved chemical defense mechanisms that combat pathogen
invasion and reproduction. Further, they have developed approaches that deal
with the problem of resistance development in the invading pathogen. Phytera's
plant- and marine microbe-derived chemical diversity libraries thus offer a
potentially rich source of novel antimicrobial agents that may not be
susceptible to the current resistance problems encountered in the human
therapeutic area.
Phytera believes that this area represents a particularly attractive focus
for its internal drug discovery program due to:
. Critical and growing medical need not addressed by existing therapies:
particularly important in this regard is the continued emergence of new
drug resistant pathogens;
. Large commercial markets for effective new agents;
. Reduced development risk since activity of a candidate drug in a
laboratory model of infectious disease is often highly predicative of
clinical efficacy in man; and
. Relatively rapid and cost-effective clinical studies since many human
infectious diseases involve acute, short treatment periods with easily
measured symptoms and outcomes.
Phytera's resistant infectious diseases screening program consists of over 20
molecular targets and whole cell screens which act as surrogates for human
diseases. Molecular target-based screens enable the testing of samples against
the increasing number and variety of important enzymes, receptors or ion
channels being identified via genomic studies as relevant to key diseases. By
contrast, whole cell screens offer the opportunity to discover drugs which act
by entirely new mechanisms, independent of existing knowledge of molecular
targets. This is particularly important in view of the novel chemistry that is
contained in Phytera's chemical diversity libraries because it increases the
odds of discovering agents which act by novel mechanisms. Finally, information
generated from screening efforts is tracked, analyzed and integrated with
upstream sourcing and culturing activities and downstream natural product
chemistry through a computerized database and bioinformatics system.
MDR Knockout-Based Screens
Among the most innovative of Phytera's screens are those based on its
proprietary MDR pump technology. One way pathogens effectively defend
themselves against antimicrobial drugs is through the operation of MDR pumps,
which remove the drug from the cell. These pumps, discovered in the 1980s, are
responsible for a significant percentage of drug resistance in both bacteria
and fungi. For example specific MDR pumps have been identified that expel the
leading antifungal drug, fluconazole (active ingredient in Diflucan(R)), from
the fungal cell.
The Company believes that the presence of MDR pumps in strains of pathogens
used as screening tools over the last several decades may have resulted in a
failure to detect whole classes of potential antimicrobial chemical compounds.
Phytera has established an MDR pump-based genomics program which combines its
internal resources with those of a number of leading academic centers in the US
and Europe. In this program, the Company uses genetic engineering techniques to
generate a proprietary library of fungal and bacterial mutants that have one or
more of their MDR pumps selectively inactivated (or "knocked out"). Knowledge
of the MDR pump gene sequence(s) for certain microbial pathogens enables
identification of related sequences in a broader range of pathogens and
facilitates the construction of further MDR knockout strains. This approach has
generated numerous MDR knockout strains of microbial pathogens or related
organisms, each of which displays hypersensitivity to a wide range of
antimicrobial agents.
31
<PAGE>
Based on these MDR knockouts, Phytera has developed high-sensitivity, high-
throughput pharmaceutical screens. Within its internal drug discovery program,
the Company is using bacterial MDR knockouts; in one revenue generating
partnership, the Company is using fungal MDR knockouts. The Company's library
of MDR knockouts includes, among others, several major bacterial pathogens such
as Staphylococcus aureus and Escherichia coli (E. coli) and important fungal
pathogens such as Candida albicans.
Phytera's efforts to date clearly demonstrate that MDR knockout strains are
capable of detecting the antimicrobial activity of chemical compounds that is
undetected in screens using the corresponding wild-type strain of the pathogen
with normal MDR pump(s). Traditional antimicrobial screens used by the
pharmaceutical industry employ these wild-type strains. Thus, MDR knockout
pathogen strains offer the opportunity to discover chemically and
mechanistically novel classes of antibacterials and antifungals.
A candidate drug identified by this approach can be used to treat pathogens
with active MDR pumps in three ways:
. the concentration of the drug could be increased to overcome the effect of
the active MDR pump in the pathogen. Marketed drugs that achieve this
effect include antibacterials, such as erythromycin, and antifungals, such
as fluconazole;
. the original lead structure identified by the screen could be synthetically
modified to reduce the impact of the action of the MDR pump in the
pathogen; and
. the drug could be combined with a compound that inhibits the action of the
MDR pump in the pathogen.
MDR KNOCKOUT-BASED SCREENS CAN DETECT NOVEL ANTIMICROBIAL DRUGS
[Graphic representation of a "Wild-type Microbe" that has functioning MDR pumps
with the following adjacent text:
. Drug largely removed from microbe by MDR pump
. Microbial screen does not detect the activity of novel antimicrobial drugs
Graphic representation of an "MDR Knockout Microbe" in which there are no
functioning MDR pumps with the following adjacent text:
. Drug not removed from microbe
. Microbial screen detects the activity of novel antimicrobial drugs]
Partnership Screens
Phytera is leveraging its chemical diversity libraries through a number of
corporate partnerships that expose this chemistry to a wide array of innovative
screening targets across numerous important therapeutic areas. Phytera's
partnership screens currently span 12 therapeutic areas. See "--Corporate
Partnerships."
COMBINATORIAL CHEMISTRY PROGRAM
Lead structures identified by pharmaceutical screening rarely possess all the
properties required to be selected as a candidate drug. Usually, a lead
structure needs to be optimized to improve efficacy, safety, drug delivery
characteristics, pharmacokinetics or manufacturing procedures, prior to its
advancement as a candidate drug.
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<PAGE>
Recently, combinatorial chemistry has emerged as an important and powerful
ancillary technology in the optimization of lead structures into candidate
drugs. Combinatorial chemistry is a chemical synthesis technology that, in many
ways, is analogous to the methods that living cells use to produce chemical
diversity. The basic concept involves the chemical reaction of a family of
closely related chemical structures (for example, family A/1/, A/2/ and A/3/)
with a different family of closely related structures (for example, family
B/1/, B/2/, and B/3/) to produce a number of combinatorial chemical analogs
(A/1/B/1/, A/1/B/2/, A/1/B/3/, A/2/B/1/, . . ., A/3/B/3/). If each chemical
family is large, then the resultant chemical library will be exponentially
larger. Two families of 100 chemicals will yield 10,000 new chemical compounds
when optimally combinatorialized. Thus, once a lead structure is identified,
combinatorial chemistry can be applied to produce large numbers of structural
analogs, which can be examined for the improved properties required in a
candidate drug. Together with medicinal synthetic chemistry and computer
assisted design, combinatorial chemistry now plays an important role in the
process of optimization of a lead structure.
The Company's combinatorial chemistry program, MANIFOLD, integrates solid
phase combinatorial chemistry techniques with other proprietary methods for
analoging natural product structures. These technologies greatly facilitate the
optimization of lead structures derived from the Company's combinatorial
biology-based screening program. Certain of these natural product lead
structures may not be easily approachable by conventional combinatorial
chemistry. The Company further applies its proprietary MANIFOLD technologies in
the generation of combinatorial libraries based on novel natural product
structures isolated within the PINACLE program and other interesting lead
structures identified from the literature or by Phytera's academic
collaborators.
Among the structures to which Phytera has applied MANIFOLD are Actinomycin D,
balanol and a number of others that have been identified through the Company's
combinatorial biology program. Actinomycin D is a potent but non-selective
natural inhibitor of DNA repair that is currently used for cancer therapy,
analogs of which could have wider indications in cancer and infectious
diseases. Balanol is a potent but non-selective inhibitor of the enzyme protein
kinase C, isoforms of which have been implicated in a wide variety of diseases.
Among structures identified within the Company's combinatorial biology program
are PHY400 and PHY1100, both discovered from screening of Phytera's ExPAND
plant cell culture-derived chemical library. PHY400 is the prototype of a novel
series of antibacterial compounds which inhibit a specific molecular target
found in important pathogenic bacteria such as Staphylococcus spp. Inhibition
of the molecular target is correlated with in vitro activity against bacterial
pathogens. The objective of the associated MANIFOLD combinatorial chemistry
effort is to identify an analog of PHY400 which displays potent antibacterial
activity in vivo. Enhancement of in vivo activity is also the goal of a
MANIFOLD analog program around PHY1100, a potent, structurally novel inhibitor
of human angiogenesis in in vitro models, which was identified in partnership
with Tsumura & Co. Other lead structures identified in internal screening
programs or from external publications will enter the MANIFOLD analog program
in 1999.
33
<PAGE>
CORPORATE PARTNERSHIPS
Phytera is actively seeking to develop revenue-generating and retained
product rights partnerships with pharmaceutical and biotechnology companies.
The table below summarizes the focus of each of Phytera's current corporate
partnerships:
PHYTERA'S CORPORATE PARTNERSHIPS(/1/)
<TABLE>
<CAPTION>
TYPE OF PARTNERSHIP(/2/)
CORPORATE PARTNER PARTNERSHIP FOCUS REVENUE-GENERATING RETAINED PRODUCT RIGHTS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Eli Lilly and Company Fungal diseases X
Chiron Corporation Cancer and other areas X
Tsumura & Co. Inflammation and allergy X X
NeuroSearch A/S Asthma, depression, diabetes, X
memory and attention deficit
disorders
Galileo Laboratories, Stroke and myocardial X
Inc. infarction
Nycomed Amersham plc. Plant derived enzymes for X X
research laboratory use or
clinical diagnostics
</TABLE>
(1) For payments received by the Company pursuant to corporate partnerships
through September 30, 1998, see note 9 of notes to Consolidated Financial
Statements.
(2) Revenue-generating partnerships are intended to provide the Company with a
source of near-term and potential longer-term revenues through up-front
payments, license fees, research funding, milestone payments and royalties.
Retained product rights partnerships provide the Company marketing rights
to products developed through joint research with partners.
ELI LILLY AND COMPANY
In July 1998, Phytera entered into a revenue-generating partnership with Eli
Lilly and Company ("Lilly"), a US pharmaceutical company, to discover novel
agents for the diagnosis, treatment and prevention of infectious fungal
diseases in humans and animals. The partnership involves several of the
Company's proprietary technologies, including chemical diversity libraries, MDR
knockout-based antifungal screens and the isolation and identification of
active chemical compounds. Lilly will also provide chemical compounds for
screening and will be responsible for lead structure optimization and candidate
drug development and commercialization. The initial term of the agreement is
two years, and Lilly has the right to extend the program for three additional
years, in one year increments. Lilly is obligated to make certain payments to
the Company to support ongoing research and to make milestone payments at
certain points in the development process. In addition, royalty payments are
due on the sales of any products derived from this partnership. Lilly has made
an initial equity investment in connection with this agreement and will make a
further equity payment if a specific research milestone is triggered. See note
9(c) of notes to Consolidated Financial Statements.
CHIRON CORPORATION
In May 1998, the Company entered into a revenue-generating partnership with
Chiron Corporation ("Chiron"), a US biotechnology company, to discover novel
agents for the treatment of various forms of cancer and other diseases. Phytera
has provided chemical diversity libraries to Chiron for screening in certain of
Chiron's proprietary high throughput screening systems and will carry out the
isolation and identification of active chemical compounds. Under the terms of
this agreement, Phytera has received an up-front payment, will receive funding
for research activities, and may receive option and license fees based on
Chiron's selection of certain chemical compounds for further development.
Phytera is also entitled to future milestone payments at certain specified
points in the development process and royalties on sales of marketed products
derived from
34
<PAGE>
the partnership. The Chiron partnership terminates upon the completion of
screening and the isolation and identification of any active chemical
compounds. The agreement with Chiron contemplates an initial collaboration term
of up to 15 months, during which time Chiron will screen Phytera's chemical
diversity libraries. After the 15 month collaboration, Chiron may, at its
option, enter into an exclusive license to commercialize one or more lead
structures upon payment of an additional fee to Phytera, or terminate this
agreement upon 30 days' notice.
TSUMURA & CO.
In June 1996, the Company entered into a revenue-bearing and retained product
rights partnership with Tsumura & Co. ("Tsumura"), a Japanese pharmaceutical
company, to discover novel agents for the treatment of inflammation and
allergies. Under the terms of the agreement, Phytera provides access to its
chemical diversity libraries for screening against selected allergy and
inflammation targets. Phytera and Tsumura share responsibilities for the
discovery and development of chemical compounds from this partnership. Tsumura
is responsible for primary screening and lead structure optimization, while
Phytera is responsible for the isolation and identification of active chemical
compounds. Phytera and Tsumura will jointly own any patents resulting from the
partnership. Phytera has retained North American development and marketing
rights to any discoveries emanating from the partnership and Tsumura has been
granted development and marketing rights outside North America. The parties
have agreed to work together to facilitate the optimal development of candidate
drugs in their respective territories. The agreement was originally entered
into for a three-year period and has been extended for an additional year, now
remaining in effect until June 2000. Under the agreement, Tsumura makes annual
extract library access payments and provides other research funding to Phytera
and will make milestone payments at certain specified points in the drug
development process. Royalty payments are due on marketed products derived from
the partnership.
NEUROSEARCH A/S
In May 1998, the Company entered into a retained product rights partnership
with NeuroSearch A/S ("NeuroSearch"), a Danish neuropharmaceutical company, to
discover novel agents that interact with potassium ion channels. These agents
may prove useful in the treatment or prevention of a wide array of diseases,
such as memory and attention deficit disorders, depression, asthma, and
diabetes. The Company is providing extracts from its chemical diversity
libraries for screening in NeuroSearch's proprietary potassium ion channel
assay systems. Phytera will also conduct the isolation and identification of
active chemical compounds. The parties share equally both the rights to and the
costs of the discovery and development of chemical compounds identified from
this partnership and will collaborate on lead structure optimization
activities. The parties will negotiate in good faith with respect to a
development strategy once lead structures have been identified. In the event
the parties are not able to reach agreement with respect to a development
strategy, Phytera will retain exclusive commercial rights in North America,
NeuroSearch will retain exclusive commercial rights in Europe, and the parties
will share commercial rights in the rest of the world equally. The agreement
remains in effect for a three year term, subject to extension by mutual
agreement.
GALILEO LABORATORIES, INC.
In April 1998, Phytera entered into a retained product rights partnership
with Galileo Laboratories, Inc. ("Galileo"), a US biotechnology company. Under
the terms of this agreement, Phytera will provide chemical diversity libraries
to Galileo for screening in Galileo's proprietary assay systems for the purpose
of discovering chemical compounds that are useful for the prevention or
treatment of diseases such as stroke and myocardial infarction. The parties
share equally both the rights to and the costs of the discovery and development
of chemical compounds identified from this partnership. Phytera is responsible
for providing cell culture extracts for screening and for the isolation and
identification of active chemical compounds. Galileo is responsible for
conducting the primary and secondary pharmaceutical screening of the extracts.
The parties have agreed to collaborate on lead structure optimization
activities and will negotiate in good faith with respect to a development
strategy once lead structures have been identified. In the event the parties
are not able to reach agreement with respect to a development strategy, either
or both Phytera or Galileo may independently develop such lead compounds at
their own expense. In the event both partners choose to undertake development,
Phytera will retain exclusive commercial rights in Europe, Galileo will retain
exclusive commercial rights in North America, and the parties will share
commercial rights in the rest of the world equally. In the event only one party
chooses to develop the compound, such party shall be obligated to pay royalties
to the other party. The agreement terminates upon the execution of a final
agreement regarding one or more candidate drugs identified pursuant to this
partnership.
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<PAGE>
NYCOMED AMERSHAM PLC
In July 1993, the Company established a revenue-bearing and retained product
rights partnership with Nycomed Amersham plc ("Amersham"), a UK company. Under
this partnership, Phytera and Amersham pursued a research and development
program in the area of plant cell culture-derived enzymes for application
within Amersham's Life Science Group. Amersham provided research support to
Phytera and agreed to make royalty payments based on Amersham's net sales of
products derived from the partnership. The parties will equally share any
royalties derived from licensing any inventions made by the partnership for
clinical diagnostic applications. In addition, Phytera retained rights to any
inventions made by the partnership for applications other than laboratory
testing, forensics testing and clinical diagnostics.
Phytera successfully completed this research program in 1995 with the
identification and bulk supply to Amersham of several novel enzymes meeting the
project specification. The agreement was amended in
October, 1998 to provide that Phytera would assume responsibility for granting
licenses to the intellectual property that was developed under the research
program in the clinical diagnostics area.
PRODUCTS UNDER DEVELOPMENT
MARINOVIR--PRECLINICAL CANDIDATE FOR HERPES INFECTIONS
Marinovir (formerly known as cyclomarin-A) is a novel chemical compound
isolated from a marine microbial cell culture utilizing Phytera's (u)MARINE
technology. Marinovir's dual antiviral/anti-inflammatory activity addresses two
important components of herpes pathology. As such, it has the potential of
providing a superior overall therapeutic effect in herpes virus infections. The
Company is currently carrying out preclinical studies with the objective of
commencing clinical studies in 1999. See "Risk Factors--We May Be Unable to
Discover Drugs or Develop Products."
Preclinical tests have indicated that marinovir inhibits proliferation of
HSV-1 and HSV-2 in vitro with potencies similar to that of acyclovir, the
leading marketed product for the treatment of herpes infections. Marinovir
displays in vivo topical activity in two animal models of human herpes
infection and has also demonstrated anti-inflammatory action in the same animal
species. In a mouse model of vaginal herpes infection, topical application of
marinovir had a significant impact across all endpoints under study, including
herpes-related mortality, vaginal herpes levels, inflammatory indices and
neural deficits resulting in excessive urination. Phytera believes marinovir
may work through a novel mechanism of action because it is structurally
distinct from all other antiviral and anti-inflammatory agents known to the
Company and is effective against acyclovir-resistant strains of HSV-2.
Marinovir was initially identified by academic collaborators as a novel anti-
inflammatory chemical compound using technology ultimately incorporated into
Phytera's (u)MARINE program. Subsequently, Phytera demonstrated that marinovir
had activity against the herpes virus. Phytera holds a use patent on the
application of marinovir as a treatment of viral infections and has exclusive
rights to license composition of matter and anti-inflammatory use patents on
marinovir from the originating academic institution. See "--Patents and
Proprietary Rights."
SUNILLIN ANTIFUNGAL SERIES
Sunillin, the lead structure for a series of over 8,000 analogs generated by
Phytera's MANIFOLD technology, was isolated from manipulated plant cell
cultures using the Company's ExPAND technology. Sunillin and its analogs are
structurally distinct from all other antifungal agents known to the Company.
Phytera's extensive preclinical development work with sunillin demonstrated
that it is not suitable for commercial development, as is the case with most
lead structures. The Company believes that within the large number of analogs
synthesized on the basis of the sunillin chemical structure, compounds may be
identified that retain antifungal activity and possess more acceptable
properties commensurate with commercial development. Phytera is currently in
the process of selecting a candidate drug for preclinical development from this
series.
The sunillin series has demonstrated a broader in vitro spectrum of
antifungal activity than fluconazole, the active ingredient in the leading
systemic antifungal drug, Diflucan(R). Sunillin and certain of its analogs
suppress growth of strains of fungal pathogens resistant to fluconazole and
have demonstrated the ability to protect mice in vivo from a lethal challenge
with Candida albicans or Aspergillus fumigatus, two human fungal pathogens.
Such compounds have also demonstrated the ability to inhibit an identified
molecular target within the fungal cell which appears to play a role in fungal
pathology. Other known antifungal drugs do not inhibit this target, indicating
that members of the sunillin series produce at least some of their antifungal
effects through a distinct mechanism of action. The fact that members of the
series have produced synergistic antifungal effects in
36
<PAGE>
conjunction with known antifungal drugs has reinforced the concept of a
distinct mechanism of action for sunillin and its analogs.
BIODIVERSITY SOURCING AGREEMENTS
The Company's proprietary plant and marine microorganism cell culture
technologies enable broad sourcing of biological material. Phytera believes
these technologies represent an important strategic asset and competitive
advantage. In the case of plants, the small amount of material required to
initiate the cell cultures (for example, a seed, leaf or stem clipping) enables
access to species that would not be available by traditional sourcing methods.
The Company's marine microorganism culture technology allows access to species
that, to the best of the Company's knowledge, have never previously been grown
successfully under laboratory conditions. Further, application of the Company's
proprietary combinatorial biology technology generates expression of a greater
range of chemical compounds than is found using traditional natural product
approaches. In addition, the ability to store plant and marine microorganism
cultures provides reproducible and scalable access to such compounds.
The combination of these advantages provides a strategic asset that
facilitates the negotiation of sourcing agreements and has led to a number of
these agreements with botanical gardens and certain countries or their
appointed designees. This combination also serves as a barrier to entry by
competitors because it relies substantially on proprietary technologies which
Phytera believes cannot easily be replicated by others.
Phytera's policy is to conduct all of its sourcing activities in compliance
with the requirements of the 1992 Convention on Biological Diversity. The most
important precept of this Convention is that each country has a sovereign right
over the genetic resources that are within its borders and therefore has the
right to control access to these resources. Parties wishing to access these
resources must do so only by agreement with the respective country, its
government or its appointed representative. A further concept embodied in the
Convention is that access should be linked with a sharing of benefits derived
from such access with the country of origin. While various forms of payment for
access to genetic resources are desirable, benefits sharing may also include
elements such as associated conservation efforts, education, technology
transfer, product rights and/or milestone and royalty payments on products
discovered and developed from these resources.
INBIO AGREEMENT
In July 1998, Phytera entered into a two-year collaborative research
agreement with Instituto Nacional de Biodiversidad ("INBio") in Costa Rica.
INBio is a private, non-profit organization empowered by the government of
Costa Rica to develop and implement viable approaches to manage the country's
biodiversity resources. Under this joint research effort, access to a portion
of indigenous plant species that could not otherwise be investigated is made
possible through the unique combination of Phytera's ExPAND technology and
INBio's inventory and bioprospecting approach. Phytera will provide research
funding to INBio during the term of the agreement and INBio will be entitled to
royalties on the sales of products derived from the cultures provided to
Phytera. Ten percent of research funding and fifty percent of royalties
received by INBio shall be donated to the Ministry of Environment and Energy in
Costa Rica for biodiversity conservation.
OTHER PLANT SOURCING
In addition to commercial seed sources, the Company has established plant
sourcing agreements with a number of botanical gardens that provide Phytera
with access to a quantity and diversity of plant species sufficient to support
continued production of ExPAND extracts and PINACLE libraries. Although
specimens in the collections of such gardens that pre-date the Convention are
not governed by its terms, Phytera nonetheless structures its agreements with
the gardens to honor the tenets of the Convention whenever possible. As part of
those agreements, Phytera will make milestone and royalty payments to the
country of origin related to products developed from specimens originally
sourced by the botanical garden from such country, if it can be identified. If
a country of origin cannot be determined, Phytera will make such payments to a
non-profit trust established by the Company for the purpose of promoting
research and conservation of biodiversity resources.
MARINE SOURCING
The Company also maintains an active program to acquire samples of marine
microorganisms from US territorial waters. Phytera acquires samples through a
variety of approaches, including charters, contract diving companies and
collaborations with academic groups conducting marine biology research
expeditions. The Company expects that marine sourcing expeditions outside of US
territorial waters may be conducted in the future.
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<PAGE>
PATENTS AND PROPRIETARY RIGHTS
Phytera seeks to protect its core enabling technologies and drug discoveries
through patents or trade secrets, depending on the nature of the technology or
discovery, and in consultation with its external intellectual property
advisors. The Company holds three patents, an issued US patent on the use of
marinovir to treat viral infections and two issued US use patents on the
production of novel enzymes in plant cell culture. The Company is pursuing
counterpart patents in other jurisdictions. Novel chemical compounds isolated
from natural sources are potentially patentable as composition of matter
patents, even if a crude natural product (for example, an extract or blend of
extracts) containing the chemical compound claimed has previously been used or
marketed by others. In addition, the Company has eight patent applications
pending in the US or Denmark with counterpart filings in other countries. One
of these applications covers the identification and use of MDR knockouts. This
invention was a joint discovery by Phytera and an academic institution. Phytera
has licensed the academic institution's rights so that it now holds exclusive
rights to this invention. In connection with this license, Phytera is obligated
to pay a portion of research and development revenue deriving from the patented
technology to the academic institution. The Company is also obligated to pay
certain milestone and royalty payments to the institution as products are
identified, developed and commercialized.
Phytera has an option from an academic institution to an exclusive license
with respect to an issued US composition of matter patent on marinovir and an
issued US use patent on its anti-inflammatory use and all associated foreign
patent applications. The Company is currently negotiating the terms of its
exclusive license with the academic institution. Phytera believes that a
license will be obtained under terms that are consistent with pharmaceutical
industry standards, in part because the Company holds an issued patent on the
use of marinovir in the treatment of viral infections. However, there can be no
guarantee that the Company will obtain the license on commercially acceptable
terms or at all.
Patent law, as it relates to inventions in the pharmaceutical and
biotechnology fields, is still evolving and involves complex legal and factual
questions for which legal principles are not firmly established. Moreover,
because (i) patent applications in the United States are maintained in secrecy
until patents issue, (ii) patent applications in certain other countries
generally are not published until more than 18 months after they are filed,
(iii) publication of technological developments in the scientific or patent
literature often lags behind the date of such developments and (iv) searches of
prior art may not reveal all relevant prior inventions, the Company cannot be
certain that it was the first to invent the subject matter covered by its
patent applications or that it was the first to file patent applications for
such inventions. Accordingly, there can be no assurance that patents will be
granted with respect to any of the Company's pending patent applications or
with respect to any patent applications filed by the Company in the future.
There can be no assurance that patent applications filed by Phytera will
result in patents being issued, that the claims of such patents will offer
significant protection for the Company's technology, or that any patents issued
to or licensed by Phytera will not be challenged, narrowed, invalidated or
circumvented. The Company may also be subject to proceedings that result in the
revocation of patent rights previously owned by or licensed to Phytera, as a
result of which the Company may be required to obtain licenses from others to
continue to develop, test or commercialize its products. There can be no
assurance that Phytera will be able to obtain such licenses on acceptable terms
or at all. In addition, there may be pending or issued patents held by parties
not affiliated with Phytera that relate to the technology utilized by Phytera.
As a result, Phytera may need to acquire licenses, to assert infringement of,
or contest the validity of, such patents or other similar patents which may be
issued. Phytera could incur substantial costs in defending itself against
patent infringement claims, interference proceedings, opposition proceedings or
other challenges to its patent rights made by third parties, or in bringing
such proceedings or enforcing any patent rights of its own.
The Company also relies upon trade secrets, know-how and continuing
technological advances to develop and maintain its competitive position. Such
information may become available to the Company's competitors. In an effort to
maintain the confidentiality and ownership of trade secrets and proprietary
information, the Company requires employees, consultants and certain
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with the Company. These agreements are
intended to enable the Company to protect its proprietary information by
controlling the disclosure and use of technology to which it has rights and
provide for ownership by the Company of proprietary technology developed at the
Company or with the Company's resources. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's
trade secrets or other confidential information in the event of unauthorized
use or disclosure of such information or that adequate remedies would exist in
the event of such unauthorized use or disclosure. The loss or exposure of trade
secrets possessed by Phytera could adversely affect its business.
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<PAGE>
The Company relies upon common law trademark protection for its trademarks as
well as registration of trademarks with the US Patent and Trademark Office ("US
PTO") and the European Trademark Office. Trademark registrations have been
issued by the US PTO for the ExPAND and (u)MARINE marks. Applications have been
filed with the US PTO for the PINACLE and ENRICH marks and with the European
Trademark Office for the MANIFOLD mark, but registrations have not yet issued.
There can be no assurance that any registered or unregistered trademarks or
trade name of the Company may not infringe upon a third party's rights. The
requirement to change the trademark or trade name of the Company could entail
significant expenses and could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors--We
Depend on Patents and Proprietary Rights That May Fail to Protect Our Business
."
REGULATION
Phytera's preclinical studies and future clinical trials, as well as the
manufacturing and marketing of its potential products, are subject to extensive
regulation by numerous governmental authorities, including the US Food and Drug
Administration ("FDA") and the European Medicines Evaluation Agency ("EMEA").
The Company will be subject to similar regulation by agencies in other
countries where the Company and its collaborators may test and market products.
These regulatory authorities require certain steps including preclinical
studies in animal models to assess a candidate drug's efficacy and to identify
potential health problems resulting from use of a drug. Preclinical safety
tests must be conducted by laboratories that comply with applicable regulations
regarding Good Laboratory Practices ("GLP"). The results of these studies are
submitted to the appropriate regulatory authorities as part of an
Investigational New Drug Application ("IND") which is filed to comply with FDA
and EMEA regulations, prior to beginning clinical testing.
Clinical trials are typically conducted in three sequential phases, which
sometimes overlap. In Phase I, clinical trials are conducted with a small
number of subjects to determine the early safety profile and the pattern of
drug distribution and metabolism. In Phase II, clinical trials are conducted
with groups of patients afflicted with a specified disease in order to
determine efficacy, optimal dosages and provide additional safety data. In
Phase III, large scale, multicenter comparative clinical trials are conducted
with patients afflicted with a target disease, in order to provide enough data
for the statistical proof of efficacy and safety required by the regulatory
authorities. The human trials must be adequate and well controlled to establish
the safety and efficacy of the drug for its intended use.
The results of the preclinical testing and clinical trials are then submitted
to the FDA for a pharmaceutical product in the form of an New Drug Application
("NDA"), for approval to commence commercial sales. In responding to an NDA,
the FDA may grant marketing approval, request additional information, or deny
the application if it determines that the application does not satisfy its
regulatory approval criteria. Preparing an NDA involves considerable data
collection, verification, analysis and expense.
At the European level, the EMEA assists in the operation of two new
procedures for obtaining marketing authorization in Europe--a centralized
community procedure and a decentralized country-based procedure--the latter
being based on the principle of mutual recognition pursuant to which approval
by the relevant regulatory authority of one member state is recognized by those
of others. As such, the Company can choose to file for full authorization of
pharmaceutical products in the European community as a whole, or authorization
in single European countries can be sought by filing authorization applications
with the respective countries' regulatory authorities.
If the centralized EU procedure is chosen, pharmaceutical legislation
requires that a Marketing Authorization Application ("MAA") for a drug produced
through the use of biotechnology be submitted for review by the EMEA. Similar
to the requirements of the FDA, the pharmaceutical legislation of the European
Union requires that the safety and efficacy of a drug be demonstrated in
clinical trials prior to approval of an MAA for that drug. If approved by the
EMEA, an MAA is recommended for acceptance by the European Union.
In addition to obtaining FDA and EMEA approval for each type of product, each
manufacturing establishment for new drugs must receive approval by the FDA and
EMEA, regardless of whether the centralized community procedure or the
decentralized procedure is utilized for EMEA approval. Manufacturing
39
<PAGE>
facilities, both within and outside the US, are subject to inspections by, or
under the authority of, the FDA and EMEA and by other federal, state or local
agencies. Manufacturing facilities also must comply with the FDA's current
Good Manufacturing Practice regulations and parallel manufacturing regulations
of the EMEA.
Approval of a product by regulatory authorities outside the US and Europe
must be obtained prior to the commencement of commercial sales of the product
in such countries. The requirements governing the conduct of clinical trials
and product approvals vary widely from country to country, and the time
required for approval may be longer or shorter than that required for FDA or
EMEA approval. Although there are some procedures for unified regulatory
filings for certain countries, in general, each country at this time has its
own procedures and requirements.
Our research and development processes involve the controlled use of
hazardous materials. We are subject to national, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and certain waste products. We currently incur costs to
comply with environmental laws and regulations. We cannot eliminate completely
the risk of accidental contamination or injury from hazardous materials. If an
accident of this type occurs, we could be liable for damages that result and
such liability could exceed our resources. If we fail to control these risks
it could result in loss of permits that allow us to use hazardous materials,
which could result in a material adverse effect on our business, financial
condition and results of operations.
COMPETITION
The biotechnology and pharmaceutical industries are characterized by rapidly
evolving technology and intense competition. The Company competes against
major pharmaceutical companies and specialized biotechnology companies
providing chemical diversity libraries, pharmaceutical screening systems,
combinatorial chemistry technologies and other expertise. In addition, in
pursuing its internal drug discovery program, Phytera competes against
pharmaceutical and biotechnology companies developing drugs against infectious
diseases. Many of these competitors have greater financial and human resources
and more experience in research and development than Phytera. Competitors that
identify lead structures, develop candidate drugs, complete clinical trials,
obtain regulatory approvals, and begin commercial sales of their products
before Phytera will have a significant competitive advantage. Companies that
are able to achieve superior patent positions, develop lower cost
alternatives, or develop drug with superior efficiency, lower side effects or
improved delivery characteristics will also have a significant competitive
advantage. Companies also compete with Phytera in recruiting and retaining
highly qualified scientific and management personnel. Products currently exist
for the treatment of many of the disease conditions that the Company is
targeting with its internal discovery programs and partnerships, and
additional products are under development for these conditions. The existence
of these products may adversely affect the commercialization or marketability
of products which Phytera and its partners may develop.
The Company anticipates that it will face increased competition in the
future as new companies enter the market and advanced technologies become
available. The Company's processes may be rendered obsolete or uneconomical by
technological advances or entirely different approaches developed by one or
more of the Company's competitors. The existing approaches of Phytera's
competitors or new approaches or technology developed by Phytera's competitors
may be more effective than those developed by the Company. See "Risk Factors--
We Face Intense Competition."
FACILITIES
The Company has approximately 26,000 square feet of laboratory and office
space in Worcester, Massachusetts, US pursuant to a lease that expires in
March 2004. Phytera's subsidiaries also lease approximately 10,000 square feet
in Sheffield, UK, approximately 4,600 square feet in Taastrup, Denmark and
approximately 4,100 square feet in Copenhagen, Denmark. Phytera believes its
current facilities are adequate for its current operations. The Company
believes that suitable additional space will be available, when needed, on
commercially reasonable terms.
LITIGATION; LEGAL PROCEEDINGS
Phytera is not a party to any litigation or material legal proceedings.
40
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ORGANIZATION
As of November 30, 1998, Phytera employed 75 people. Of these, 64 were
engaged in research and development and 11 were engaged in general
administration. As of each of December 31, 1997 and December 31, 1996, Phytera
employed 74 and 53 people, respectively. None of Phytera's employees are
covered by collective bargaining agreements. Phytera believes its employee
relations are good.
The Company conducts operations in Denmark, the United Kingdom and the United
States. The activities comprising the Company's Combinatorial Drug Discovery
Program and preclinical development program conducted at each of these
locations are illustrated in the following chart.
Phytera, Inc.
(Worcester, MA, US)
. Combinatorial biology
. Marine microorganism culture
. Pharmaceutical screening
. Preclinical development
Phytera Ltd. Phytera Symmbion ApS Phytera A/S
(Sheffield, UK) (Copenhagen, Denmark) (Taastrup, Denmark)
. Combinatorial biology . Combinatorial chemistry . Combinatorial biology
. Plant cell culture . Plant cell culture
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding the executive
officers, key employees and Directors of the Company as of November 30, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert G. Foster (1)............. 60 Chairman of the Board of Directors
Malcolm Morville, Ph.D. ......... 53 Director, President and Chief Executive
Officer
Christopher J. Pazoles, Ph.D. ... 48 Vice President of Research
Stephen J. DiPalma .............. 39 Chief Financial Officer and Vice
President
Neil Goldsmith................... 35 Managing Director of Phytera Symbion ApS
and Phytera A/S
Uffe Bundgaard-Jorgensen, Ph.D. 53 Director
(2)..............................
Gustav A. Christensen............ 51 Director
Graham K. Crooke, MB. BS. (1).... 39 Director
Steven J. Roth (1)(2)............ 50 Director
Poul Schluter.................... 69 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Robert G. Foster is a founder of the Company and has served as Chairman of
the Board since August 1995. Mr. Foster is a founder of Commonwealth
BioVentures, Inc. ("CBI") and has served as Chairman, President and Chief
Executive Officer of CBI since November 1987. Through CBI, he was a founding
investor in Alpha-Beta Technology, Inc., EcoScience Corp., and TSI Corp., among
others. Prior to founding CBI, Mr. Foster served as Chairman, President and
Chief Executive Officer of Ventrex Laboratories, Inc. from 1976 to 1987. Mr.
Foster is also a director of Meridian Medical Technologies, Inc. and the Wyman-
Gordon Company.
Malcolm Morville, Ph.D. has served as President, CEO and Director since he
joined the Company in 1993. From 1988 to 1993, Dr. Morville held senior
management positions at ImmuLogic Pharmaceutical Corp., most recently as
Division Vice President, Allergic Diseases Strategic Business Unit. From 1970
to 1988, Dr. Morville held scientific and management positions at Pfizer, Inc.,
both in the US and UK. Dr. Morville is also a member of the Boards of Directors
of Interneuron Pharmaceuticals, Inc. and the Massachusetts Biotechnology
Council. He received his Ph.D. in Biochemistry from the University of
Manchester, UK.
Christopher J. Pazoles, Ph.D. has served as Vice President of Research since
he joined the Company in 1994. From 1981 to 1994, Dr. Pazoles served at Pfizer,
Inc., most recently as Director of Early Development Planning and Assistant
Director, Department of Immunology and Infectious Diseases. Dr. Pazoles
received his Ph.D. in microbiology from the University of Notre Dame and
conducted post-doctoral studies at the National Institutes of Health.
Stephen J. DiPalma has served as Chief Financial Officer and Vice President
since he joined the Company in 1997. Mr. DiPalma previously served as Chief
Financial Officer of Aquila Biopharmaceuticals, Inc. (formerly Cambridge
Biotech Corporation) from 1996 to 1997. Prior to joining Aquila
Biopharmaceuticals, Mr. DiPalma served as Chief Operating Officer at The Picker
Institute from 1995 to 1996 and Chief Financial Officer of Genica
Pharmaceuticals Corporation (currently Athena Diagnostics, Inc.) from 1988 to
1995. He holds an MBA from Babson College.
Neil Goldsmith has served since 1997 as Managing Director of Phytera Symbion
ApS and Phytera A/S. He also provides senior management support to Phytera Ltd.
under a consulting agreement with Prospero Biotech Ltd. From 1996 to 1997, Mr.
Goldsmith served as Managing Director of Auda Pharmaceuticals ApS ("Auda") and
joined the Company when Phytera acquired Auda. Prior to his service at Auda,
Mr. Goldsmith served as Managing Director at GX BioSystems A/S from 1995 to
1996 and PNA Diagnostics A/S in 1994. Mr. Goldsmith was Vice President,
Business Development at Pharmacia Biosensor AB from 1992 to 1993.
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<PAGE>
Uffe Bundgaard-Jorgensen, Ph.D. has served as a Director of the Company since
1996 and as Managing Director of Danish Venture Finance A/S since 1988. Dr.
Bundgaard-Jorgensen worked for Hoff & Overgaard Consultants as a Planning
Consultant from 1970 to 1979 and Komgas (Energy) as Managing Director (Denmark)
from 1979 to 1988. Dr. Bundgaard-Jorgensen is Chairman of SAXoTech A/S and HTC
A/S and a director of Data Flight Europe A/S and PPU Management A/S. Dr.
Bundgaard-Jorgensen received his Ph.D. from the University of Copenhagen.
Gustav A. Christensen is a founder of the Company and has served as a
Director of Phytera, Inc. since 1992. He is also a part-time consultant to
Phytera, Inc. Mr. Christensen has served as Chairman of Alpha-Beta Technology,
Inc. since 1991. From 1988 to 1990, Mr. Christensen served as President and
Chief Executive Officer of ImmuLogic Pharmaceutical Corp. From 1983 to 1988, he
served as Senior Vice President, Commercial Affairs at Genetics Institute.
Prior to joining Genetics Institute, Mr. Christensen held a variety of
management positions at Baxter International Inc. Mr. Christensen is also a
director of several privately held biotechnology companies and Diatide, Inc., a
publicly held biotechnology company. Mr. Christensen holds an MBA from Harvard
Business School and a M.Sc. in economics from the University of Aarhus.
Graham K. Crooke, MB. BS. has served as a Director of the Company since 1995
and is a partner at Ticonderoga Capital, Inc. (formerly Dillon, Read Venture
Capital). Prior to joining Dillon, Read Venture Capital in 1992, Dr. Crooke
worked as a consultant for Booz, Allen & Hamilton, Inc. from 1990 to 1991. He
served as Product Manager at Molecular Devices Corporation from 1988 to 1990.
Dr. Crooke is a Director of Centaur Pharmaceuticals, InsMed Pharmaceuticals,
Epic Therapeutics and ProScript. Dr. Crooke earned his medical degree from the
University of Western Australia in 1983 and his MBA from Stanford Business
School in 1988.
Steven J. Roth has served as a Director of the Company since 1995. Mr. Roth
has been a private equity investor since 1984 and a Partner and Principal of CR
Management Associates, Inc. since 1990. Prior to 1990, Mr. Roth held senior
positions with Bartex Publishing Group, Heublein, Inc., Corning, Inc. and
Touche Ross & Co., Inc. He holds an MBA with distinction from Harvard Business
School.
Poul Schluter has served as a Director of the Company since 1997. Mr.
Schluter was a member of the Danish parliament from 1964 through 1994, and
served as Prime Minister of Denmark from 1982 to 1993. Since 1994, Mr. Schluter
has served as a member of the European Parliament, holding the office of Vice
President from 1994 to 1996. Mr. Schluter also serves as a director for several
organizations, including Bayer A/S, and Henke-Ecolab. In addition, he is an
advisor to the Republic National Bank of New York and Waste Management
International.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Restated Certificate, to be filed concurrently with the closing
of this offering, provides for a staggered Board of Directors consisting of
three classes, with each class being as nearly equal in number as possible. At
each annual meeting of the Company's stockholders, the term of one class
expires and their successors are elected for a term of three years. The Company
has designated two Class I Directors (Dr. Crooke and Mr. Schluter), two Class
II Directors (Messrs. Foster and Roth) and three Class III Directors (Dr.
Morville, Mr. Christensen and Dr. Bundgaard-Jorgensen). These Class I, Class II
and Class III Directors will serve until the annual meetings of stockholders to
be held in 1999, 2000 and 2001, respectively, and until their respective
successors are duly elected and qualified, or until their earlier resignation
or removal. The Restated Certificate provides that Directors may be removed
only for cause by a majority of stockholders. There are no family relationships
among any of the Directors or executive officers. See "Description of Capital
Stock--Anti-Takeover Measures."
BOARD COMMITTEES
The Company has standing Audit and Compensation Committees of the Board of
Directors. The Audit Committee, consisting of Dr. Bundgaard-Jorgensen and Mr.
Roth, held two meetings in 1997. The primary function of the Audit Committee is
to assist the Board of Directors in the discharge of its duties and
responsibilities by providing the Board with an independent review of the
financial health of the Company and of the reliability of the Company's
financial controls and financial reporting systems. The Audit Committee reviews
the general scope of the Company's annual audit, the fee charged by the
Company's independent accountants and other matters relating to internal
control systems.
The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee also
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<PAGE>
administers the Company's 1998 Equity Incentive Plan (which amended and
restated the Company's 1992 Stock Option Plan), including the grant of stock
options and other awards under such plans. The Compensation Committee held four
meetings during 1997. The Compensation Committee is currently composed of
Messrs. Foster and Roth and Dr. Crooke.
SCIENTIFIC ADVISORS
The Company's scientific advisors are individuals with demonstrated expertise
in various fields who advise the Company on long-term scientific planning,
research and development. Members also evaluate the Company's research program,
recommend personnel to the Company and advise the Company on technology
matters. While the scientific advisors have not met as an entire group,
individual advisors and small groups have been available to advise the Company
on specific scientific and technical issues. The scientific advisors are
compensated on a time and expenses basis and, in some cases, have received
shares of common stock, stock options or warrants of the Company. The Company
has entered into consulting agreements with a number of scientific advisors.
Aggregate amounts paid to scientific advisors during 1996, 1997 and 1998 do not
constitute a material component of amounts spent by the Company on research and
development, when taken as a whole.
No scientific advisor is employed by the Company and individual members may
have other commitments to or consulting or advisory contracts with their
employers or other entities that may conflict or compete with their obligations
to the Company. Accordingly, such persons are expected to devote only a small
portion of their time to the Company. The Company's scientific advisors are:
<TABLE>
<CAPTION>
SCIENTIFIC ADVISORS ACADEMIC INSTITUTION/AFFILIATION
------------------- --------------------------------
<C> <S>
MARINE SCIENCE
Arnold L. Demain, Ph.D. .......... Massachusetts Institute of Technology,
Massachusetts, US
William Fenical, Ph.D. ........... Scripps Institution of Oceanography,
California, US
MOLECULAR BIOLOGY
Kim Lewis, Ph.D. ................ Tufts University, Massachusetts, US
Dominique Sanglard, Ph.D. ....... Centre Hospitalier Universitaire Vaudois,
Lausanne, Switzerland
PHARMACEUTICAL DEVELOPMENT
Ze'ev Shaked, Ph.D. ............. ZS & Associates, Massachusetts, US
Cornelius Wortel, M.D., Ph.D. .... Clinquest Inc., Massachusetts, US
PLANT SCIENCE
Charles Arntzen, Ph.D. ........... Boyce Thompson Institute for Plant Research,
Cornell University, New York, US
Michael W. Fowler, Ph.D. ......... High Value Horticulture Ltd., Oxford, UK
Robert Verpoorte, Ph.D. .......... Leiden/Amsterdam Center for Drug Research,
Leiden,
Netherlands
CHEMISTRY
Robert Langer, Ph.D. ............. Massachusetts Institute of Technology,
Massachusetts, US
Lester Mitscher, Ph.D. ........... University of Kansas, Kansas, US
John Nielsen, Ph.D. .............. The Technical University of Denmark,
Copenhagen, Denmark
INFECTIOUS DISEASES
Gary Doern, Ph.D. ................ University of Massachusetts Medical Center,
Massachusetts, US
Robert C. Moellering, Jr., M.D. .. Deaconess Hospital & Harvard Medical School,
Massachusetts, US
Alan H. Sugar, M.D. .............. Boston University School of Medicine,
Massachusetts, US
</TABLE>
The Company's Directors and consultants are eligible to participate in the
1998 Equity Incentive Plan. See "--1998 Equity Incentive Plan."
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EXECUTIVE COMPENSATION
The following tables summarizes the compensation paid to or earned during the
fiscal year ended December 31, 1997 by the Company's Chief Executive Officer
and all of the other executive officers of the Company whose salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- ---------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING RESTRICTED STOCK ALL OTHER
NAME AND 1997 PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) AWARD(S) ($) COMPENSATION ($)
- -------------------------------- ---------- --------- ---------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Morville,
Ph.D................... 250,000 30,000 -- -- -- --
President and Chief
Executive Officer,
Director
Stephen J. DiPalma (1).. 9,231 -- -- 49,050 12,263 --
Vice President, Finance
Christopher J. Pazoles,
Ph.D................... 181,715 -- -- -- -- --
Vice President of
Research
John S. McBride (2)..... 63,144 -- -- -- -- --
</TABLE>
- --------
(1) Mr. DiPalma commenced employment with the Company on December 8, 1997.
Restricted stock was awarded in December 1997, but was not purchased until
March 1998. The restricted stock is subject to a repurchase right for those
shares unvested should Mr. DiPalma cease to be employed with the Company.
(2) Mr. McBride served as Vice President, Business Development to the Company
until May 1997.
1997 Option Grants
The following table contains certain information regarding stock option
grants during the twelve months ended December 31, 1997 by the Company to the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (1)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ----------- ---------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Morville,
Ph.D. ................. -- -- -- -- -- --
Stephen J. DiPalma (2).. 49,050 27% 1.15 12/09/07 35,375 89,648
Christopher J. Pazoles,
Ph.D. ................. -- -- -- -- -- --
John S. McBride......... -- -- -- -- -- --
</TABLE>
- --------
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, in the price of the underlying common stock. No gain to the optionees
is possible without an increase in price of the common stock, which will
benefit all stockholders proportionately. In order to realize the potential
values set forth in the 5% and 10% columns of this table, the per share
price of the common stock would have to be $1.87 and $2.98, or
approximately 63% and 160% above the respective exercise or base price
shown.
(2) Represents an option grant on December 9, 1997 covering 49,050 shares,
exercisable with respect to 16,350 of the underlying shares on December 8
in each of the years 1999, 2000 and 2001.
45
<PAGE>
Option Exercises and Year-End Option Values
The following table provides information about the number of shares issued
upon option exercises by the Named Executive Officers during the year ended
December 31, 1997, and the value realized by the Named Executive Officers. The
table also provides information about the number and value of options held by
the Named Executive Officers at December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR END ($)
YEAR-END (#) (1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Morville, Ph.D.
(2).................... -- -- 88,454 89,762
Stephen J. DiPalma...... -- -- 0 49,050
Christopher J. Pazoles,
Ph.D. (2).............. 13,489 16,105 37,442
John S. McBride (3)..... 8,502 -- --
</TABLE>
- --------
(1) Based on the difference between the option exercise price and an assumed
initial public offering price of $13.00 per share of the underlying common
stock.
(2) Certain unvested options are subject to acceleration of vesting upon the
occurrence of milestone events.
(3) All unvested options held by Mr. McBride were terminated upon his departure
from the Company on May 19, 1997. Vested options not exercised have lapsed.
LOANS TO INSIDERS
The Company has not made any loans to its Directors or executive officers.
1998 EQUITY INCENTIVE PLAN
The Company's 1998 Equity Incentive Plan, which amends and restates the
Company's 1992 Stock Option Plan, authorizes the grant of certain tax-
advantaged stock options, non tax-advantaged stock options, stock grants and
other stock-based awards ("Awards") for the purchase of an aggregate of up to
1,569,600 shares (subject to adjustment for stock splits and similar capital
changes) of common stock to employees, consultants and Directors of the Company
or any Affiliate (as defined in the 1998 Equity Incentive Plan) capable of
contributing to the Company's performance. As of November 30, 1998, options to
purchase 792,802 shares of common stock were outstanding. Grants of Awards
under the 1998 Equity Incentive Plan and all questions of interpretations with
respect to the 1998 Equity Incentive Plan are determined by the Board of
Directors of the Company. The Board of Directors has appointed the Compensation
Committee to administer the 1998 Equity Incentive Plan. In the event of a
consolidation or merger of the Company or the sale of substantially all of its
assets, the Board of Directors may terminate outstanding options after a 20 day
notice to the option holders. If the Board does not take such action, the
holders of outstanding options will be entitled to an option for securities of
the successor corporation.
EMPLOYEE STOCK PURCHASE PLAN
The Company has also adopted an employee stock purchase plan (the "Purchase
Plan") under which employees may purchase shares of common stock at a discount
from fair market value. There are 163,500 shares of common stock reserved for
issuance under the Purchase Plan. The shares of common stock to be issued under
the Purchase Plan will not be purchased in the open market and are authorized,
unissued shares of the Company's common stock. The Purchase Plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the US Internal Revenue Code of 1986, as amended (the "Code"). Rights to
purchase common stock under the Purchase Plan are granted at the discretion of
the Compensation Committee, which determines the frequency and duration of
individual offerings under the Plan and the dates when stock may be purchased.
Eligible employees participate voluntarily and may withdraw from any offering
at any time before stock is purchased. Participation terminates automatically
upon termination of employment. The purchase price per share of common stock in
an offering is 85% of the lesser of its fair market value at the beginning of
the offering period or on the applicable exercise date and may be paid through
payroll deductions, periodic lump sum payments or a combination of both. The
Purchase Plan terminates on September 17, 2008.
46
<PAGE>
COMPENSATION OF DIRECTORS
The Company currently reimburses its Directors for out-of-pocket expenses
incurred in connection with their rendering of services as Directors. The
Company's Directors generally receive no cash remuneration for their services,
with the exception of Mr. Schluter who receives $1,000 per board meeting. Mr.
Christensen receives a stipend for consulting services provided to the
Company. For the 12 months ended December 31, 1997, Mr. Christensen was paid
$160,000 for his consulting services. For the 11 months ended November 30,
1998, Mr. Christensen was paid $133,333 for his consulting services.
Directors who are not currently receiving compensation as officers or
employees of the Company are eligible to receive options under the 1998 Equity
Incentive Plan in consideration for their service as Directors. The
Compensation Committee of the Board of Directors determines the number of
options awarded to non-employee directors based on comparative analysis of
similarly situated companies. During the twelve months ended December 31,
1997, the Company granted options to purchase 9,810 shares of common stock to
each of Mr. Foster and Dr. Crooke and warrants to purchase 9,810 shares of
common stock to each of Mr. Schluter and Danish Venture Finance A/S (for Dr.
Bundgaard-Jorgensen's service as a member of the Board of Directors). See
"Principal Stockholders." During the eleven months ended November 30, 1998,
the Company granted options to purchase 3,270 shares of common stock to
members of the Board.
EXECUTIVE EMPLOYMENT AGREEMENTS
Under an Employment Agreement dated June 5, 1996, the Company agreed to
employ Dr. Morville as President and Chief Executive Officer of the Company
for a period of three years at a minimum annual salary of $250,000, plus
incentive bonuses as determined by the Compensation Committee. If Dr. Morville
is terminated without cause (including a failure to renew the agreement) or if
Dr. Morville terminates his employment for good reason (as defined in the
agreement), he will be entitled to receive a lump sum payment equal to six
months base salary, plus any benefits to which he is entitled for a period of
up to six months and a portion of the options granted to, and restricted stock
held by, Dr. Morville which would have otherwise vested on the next vesting
date following termination. Such portion is calculated by multiplying the
number of shares which would otherwise be exercisable on the next applicable
vesting date by a fraction, the numerator of which is the number of calendar
days elapsed from the last vesting date until termination and the denominator
of which is the total number of days from the last vesting date until the next
vesting date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for Directors, executive officers
and other employees of the Company. The Compensation Committee also
administers various incentive compensation and benefit plans. The Compensation
Committee currently consists of Messrs. Foster and Roth and Dr. Crooke.
Commonwealth BioVentures, Inc., of which Mr. Foster is President, is a general
partner of both Commonwealth BioVentures IV Limited Partnership and
Commonwealth BioVentures V Limited Partnership, each of which is a venture
capital fund and a principal stockholder of the Company. Dr. Crooke is a
partner of Ticonderoga Capital, Inc., a venture capital firm and the general
partner of Venture Associates II, L.P., which is the general partner of
Concord Partners II, L.P., a principal stockholder of the Company. CR
Management Associates, of which Mr. Roth is a partner and principal, is a
general partner of CR Management Capital Partners I, L.P., a stockholder of
the Company. See "Principal Stockholders" and "Certain Transactions."
47
<PAGE>
CERTAIN TRANSACTIONS
In September and December 1995 each of BancBoston Ventures, Inc.,
Commonwealth BioVentures V Limited Partnership ("CBIV"), Concord Partners II,
L.P. and CR Management Capital Partners I, L.P. (the "Bridge Investors")
purchased a Convertible Term Note in the principal amount of $250,000, except
in the case of CBIV, which purchased a Convertible Term Note of $900,000 (the
"1995 Bridge Financing"). In connection with the 1995 Bridge Financing, the
Company issued to each of the Bridge Investors other than CBIV warrants to
purchase 14,683 shares of common stock at an exercise price of $8.41 per share;
CBIV received warrants to purchase 35,673 shares of common stock at an exercise
price of $8.41 per share. In January 1996, the Bridge Investors and Danish
Development Finance Corporation (now known as Danish Venture Finance A/S)
purchased shares of Series C Convertible Preferred Stock at a price of $8.41
per underlying common stock share and warrants to purchase common stock at a
price of $0.02 per share as set forth below:
<TABLE>
<CAPTION>
COMMON STOCK UNDERLYING
------------------------------------
INVESTOR SERIES C SHARES(#) WARRANT SHARES(#)
-------- ------------------ -----------------
<S> <C> <C>
Danish Venture Finance A/S............... 188,352 25,993
BancBoston Ventures, Inc................. 26,837 3,704
Commonwealth BioVentures V Limited
Partnership............................. 95,758 13,215
Concord Partners II, L.P. ............... 84,389 11,656
CR Management Capital Partners I, L.P.... 84,389 11,656
</TABLE>
On March 11, 1997, the Company completed the acquisition of Auda
Pharmaceuticals ApS ("Auda") (later renamed Phytera Symbion ApS), a Danish
biotechnology company headquartered in Copenhagen. Danish Venture Finance A/S,
a principal stockholder of the Company, of which Dr. Bundgaard-Jorgensen is a
Director, owned approximately 92.4% of the outstanding share capital of Auda
prior to its acquisition. As consideration for its interest in Auda, Danish
Venture Finance A/S received 402,000 shares of the Company's Series D
Convertible Preferred Stock, convertible into 262,908 shares of common stock,
valued at $11.47 per underlying common stock share, for total compensation
valued at $3,015,000.
In separate closings as of each of May 26 and June 25, 1998, the Company
issued shares of its Series E Convertible Preferred Stock, $0.01 par value per
share (the "Series E Stock") convertible into 678,274 shares of common stock to
certain qualified institutions and high net worth individuals. Shares of Series
E Stock were purchased for $11.24 per underlying common stock share. Danish
Venture Finance A/S and Concord Partners II, L.P., principal stockholders of
the Company, purchased shares of Series E Stock convertible into 17,269 and
21,364 shares of common stock, respectively. In addition, Mr. Steven J. Roth, a
member of the Board of Directors, purchased shares of Series E Stock
convertible into 8,894 shares of common stock for his own account.
Each of the Series C Convertible Preferred Stock, Series D Convertible
Preferred Stock, and Series E Stock currently converts into common stock at the
rate of 0.654 for one. The rate of conversion of the Series E Stock may adjust
depending on the timing and price of the offering. See "Description of Capital
Stock."
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's common stock as of November 30, 1998,
by (i) each person known by the Company to own beneficially more than 5% of the
common stock, (ii) each Director of the Company, (iii) each Named Executive
Officer and (iv) all Directors and Named Executive Officers of the Company as a
group. The table reflects the conversion of the Existing Preferred Stock of the
Company into an aggregate of 4,949,443 shares of common stock upon the closing
of this offering. The number of shares of common stock deemed outstanding after
this offering includes an additional 2,500,000 shares of common stock of the
Company which are being offered for sale by the Company in this offering. The
ownership numbers and percentages have been calculated in accordance with the
rules of the SEC. These rules require the inclusion of shares, that may be
obtained upon the exercise of any presently exercisable option or warrant or
any option or warrant that becomes exercisable within 60 days of November 30,
1998, with respect to the holder of any such option of warrant. Since the
number of options or warrants, if any, may vary among the stockholders listed,
the denominator used to calculate the percentages may vary among the
stockholders listed.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
SHARES ----------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER (1) OWNED OFFERING OFFERING
-------------------- ------------ --------- ---------
<S> <C> <C> <C>
5% STOCKHOLDERS
Commonwealth BioVentures IV Limited
Partnership............................ 885,485 15.48% 10.77%
Commonwealth BioVentures V Limited
Partnership (2)
4 Milk Street
Portland, ME 04101, US
Concord Partners II, L.P. (3)........... 491,343 8.63% 6.00%
535 Madison Avenue
New York, NY 10022, US
Danish Development Finance Corporation
Denmark (4)............................ 435,007 7.67% 5.32%
(now known as Danish Venture Finance
A/S)
Gladsaxevej 376
DK-2860 Soborg, Denmark
DIRECTORS
Robert G. Foster (5).................... 918,908 16.03% 11.16%
c/o Commonwealth BioVentures, Inc.
4 Milk Street
Portland, ME 04301, US
Graham K. Crooke, M.D. (6).............. 499,191 8.76% 6.09%
c/o Ticonderoga Capital, Inc.
555 California Street, Suite 4360
San Francisco, CA 94104, US
Uffe Bundgaard-Jorgensen, Ph.D. (7)..... 435,007 7.67% 5.32%
c/o Danish Venture Finance A/S
Gladsaxevej 376
DK-2860 Soborg, Denmark
Steven J. Roth (8)...................... 213,688 3.75% 2.61%
192 E. Emerson Road
Lexington, MA 02173, US
Gustav A. Christensen (9)............... 132,386 2.32% 1.61%
c/o Alpha-Beta Technology, Inc.
One Innovation Drive
Worcester, MA 01605, US
Poul Schluter (10)...................... 5,886 * *
Frederiksberg Alle 66
DK-1820 Frederiksberg C, Denmark
NAMED EXECUTIVE OFFICERS
Malcolm Morville, Ph.D. (11)............ 312,891 5.41% 3.78%
Christopher J. Pazoles, Ph.D. (12)...... 39,158 * *
John S. McBride......................... 21,582 * *
5 Olde Connecticut Path
Westborough, MA 01581
Stephen J. DiPalma (13)................. 32,700 * *
ALL DIRECTORS AND NAMED EXECUTIVE
OFFICERS AS A GROUP
(10 persons) (14)...................... 2,611,397 43.31% 30.61%
</TABLE>
49
<PAGE>
- --------
*Indicates less than 1%
(1) Unless otherwise indicated, the address of each shareholder is Phytera,
Inc., 377 Plantation Street, Worcester, MA 01605, US. Except as indicated
by footnote, each of the parties listed above has sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
(2) Includes (i) 480,229 shares held by Commonwealth BioVentures IV Limited
Partnership ("CBI IV") and (ii) 404,602 shares held by Commonwealth
BioVentures V Limited Partnership ("CBI V"), 53,661 shares of which are
issuable on exercise of warrants, all of which will terminate upon the
closing of this offering if not exercised.
(3) Includes 28,896 shares issuable on exercise of warrants, all of which will
terminate upon the closing of this offering if not exercised.
(4) Includes 5,886 shares issuable on exercise of warrants exercisable as of
November 30, 1998 or within 60 days thereafter.
(5) Includes (i) 480,229 shares held by CBI IV and (ii) 404,602 shares, 53,661
of which are issuable on exercise of warrants which will terminate upon
the closing of this offering if not exercised, held by CBI V. Mr. Foster,
President and Chief Executive Officer of CBI IV and CBI V, disclaims
beneficial ownership of the shares and warrants held by CBI IV and CBI V,
except to the extent of his proportional pecuniary interests therein. Also
includes stock options to purchase 13,080 shares exercisable as of
November 30, 1998 or within 60 days thereafter.
(6) Includes 491,343 shares, 28,896 of which are issuable on exercise of
warrants which will terminate upon the closing of this offering if not
exercised, held by Concord Partners II, LP. Dr. Crooke is a partner of
Ticonderoga Capital, Inc., an affiliate of Concord Partners II, LP. He
disclaims beneficial ownership of the shares held by Concord Partners II,
LP, except to the extent of his proportional pecuniary interests therein.
Also includes stock options to purchase 1,962 shares exercisable as of
November 30, 1998 or within 60 days thereafter.
(7) Consists of 430,437 shares, 5,886 of which are issuable on exercise of
warrants exercisable as of November 30, 1998 or within 60 days thereafter,
held by Danish Venture Finance A/S of which Dr. Bundgaard-Jorgensen is the
Managing Director. Dr. Bundgaard-Jorgensen disclaims beneficial ownership
of the shares held by Danish Venture Finance A/S, except to the extent of
his proportional pecuniary interest therein.
(8) Includes 198,908 shares, 31,283 of which are issuable on exercise of
warrants which will terminate upon the closing of this offering if not
exercised, held by CR Management Capital Partners I, L.P., of which Mr.
Roth is a general partner. Mr. Roth disclaims beneficial ownership of the
shares and warrants held by CR Management Capital Partners I, L.P., except
to the extent of his proportional pecuniary interest therein. Also
includes stock options to purchase 5,886 shares exercisable as of November
30, 1998 or within 60 days thereafter.
(9) Includes (i) 3,807 shares, 145 of which are issuable on exercise of
warrants which will terminate upon the closing of this offering if not
exercised, held in trust for the benefit of Mr. Christensen and (ii) 29,430
shares held in trust for the benefit of his children. Also includes 50,276
shares subject to stock options exercisable as of November 30, 1998 or
within 60 days thereafter. Also includes 13,080 shares of common stock
subject to a repurchase right held by the Company.
(10) Represents shares issuable upon exercise of stock options exercisable as
of November 30, 1998 or within 60 days thereafter.
(11) Includes 39,240 shares held by Dr. Morville's wife and 19,620 shares held
by Dr. Morville's children, as to which Dr. Morville disclaims beneficial
ownership, and 18,312 shares held in trust for his benefit by Delaware
Charter Guarantee & Trust Co. Also includes stock options to purchase
122,952 shares exercisable as of November 30, 1998 or within 60 days
thereafter.
(12) Includes stock options to purchase 25,670 shares exercisable as of
November 30, 1998 or within 60 days thereafter.
(13) Includes 16,350 shares of common stock subject to a repurchase right held
by the Company and 16,350 shares issuable upon exercise of stock options
exercisable as of November 30, 1998 or within 60 days thereafter.
(14) See notes 5 through 13 above.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of common stock, $0.01 par value per
share, and 1,000,000 shares of Preferred Stock, $0.01 par value per share,
after giving effect to the amendment and restatement of the Company's Restated
Certificate. At each of September 30, 1998 and November 30, 1998, there was
outstanding an aggregate of (i) 709,949 and 715,312 shares, respectively of
common stock and (ii) 7,274,833 shares of Existing Preferred Stock which will
automatically convert into 4,949,056 shares of common stock upon the closing of
this offering, assuming that in connection with conversion of the Series E
Stock the closing of this offering occurs on February 8, 1999 at a price per
share of $13.00 (the mid-point of the expected range). As of the date of this
Prospectus, the Company had 245 shareholders. Assuming the closing of this
offering occurs on February 8, 1999 at a per share price of $13.00 (the mid-
point of the expected range) and the exercise of warrants to purchase 68,995
shares of common stock, upon the closing of this offering, the Company will
have 8,228,387 shares of common stock outstanding.
The following summary of certain provisions of the common stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Company's Restated Certificate, the form of
which is included as an exhibit to the Registration Statement, and by the
provisions of applicable law.
Since 1992 there has been a stock option plan ("the Plan") for the Company's
employees and officers, consultants and Board of Directors. The following table
sets forth the total number of options which are outstanding at November 30,
1998, their exercise prices and their expiration.
<TABLE>
<CAPTION>
YEAR GRANTED TOTAL NUMBERS RANGE OF EXERCISE PRICES EXPIRATION
------------ ------------- ------------------------ ----------
<S> <C> <C> <C>
1993 16,791 $0.02 2003
1994 39,270 $0.84 2004
1995 19,146 $0.84 2005
1996 312,972 $0.84-$0.99 2006
1997 105,187 $0.99-$1.15 2007
1998 304,437 $1.15-$7.65 2008
-------
792,802
=======
</TABLE>
The Company has issued warrants which give rights to purchase its capital
stock. The following table set forth the total number of warrants which are
outstanding at November 30, 1998, their exercise prices and their expiration.
<TABLE>
<CAPTION>
TYPE OF STOCK YEAR GRANTED TOTAL NUMBERS RANGE OF EXERCISE PRICES EXPIRATION
------------- ------------ ------------- ------------------------ ----------
<S> <C> <C> <C> <C>
Common 1995 85,637 $8.41 1999 or IPO*
Common 1997 62,683 $0.99-$1.15 2003
-------
229,249
=======
Series C
Preferred 1996 68,995 $0.02 2001 or IPO*
Series C
Preferred 1996 11,934 $8.41 2001 or IPO*
-------
80,929
=======
</TABLE>
- --------
* the earlier to occur
COMMON STOCK
Holders of common stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights or
preemptive rights. Upon the liquidation, dissolution or winding up of the
Company, holders of common stock share ratably in the assets of the Company
available for distribution to its stockholders, subject to the preferential
rights of any then outstanding shares of Preferred Stock. There will be no
shares of Preferred Stock outstanding immediately following the effective date
of the Registration Statement. The common stock outstanding upon the effective
date of the Registration Statement, and the shares offered by the Company
hereby, upon issuance and sale, will be fully paid and nonassessable. The
Company does not have an established procedure pursuant to which it purchases
back shares of common stock from its stockholders.
51
<PAGE>
Holders of common stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. The
Company has not paid any dividends since its incorporation. The Company does
not anticipate paying any dividends in the foreseeable future. If the Company
were to pay any dividends, they would be distributed first to satisfy any
preferential payments to holders of any Preferred Stock then outstanding, if
any, and then distributed ratably to the holders of common stock. Any dividends
declared and paid by the Company will be delivered by the Company or its agent
to each stockholder at the stockholder's last known address. Generally, any
dividend which is delivered by the Company or its agent and not claimed by the
holder of the shares in respect of which the dividend has been paid within a
certain period of time will become the property of the governing body of the
jurisdiction of the stockholders's last known address. The time period referred
to in the previous sentence varies depending on the jurisdiction. In the United
States, this time period is determined by each state, and in Europe, this time
period is determined by each country.
As described more fully in the section headed "Settlement and Clearance", the
shares of common stock issued pursuant to this offering will be in the form of
either one global share certificate or one book entry (such form to be
determined in the discretion of the Underwriters just prior to closing), which
will be deposited with The Depository Trust Company ("DTC"), a US clearing
agency. Common Stock held by existing stockholders will continue to be
represented by physical share certificates issued in the name of each holder
until appropriate arrangement has been made by the Company and the holder to
convert to book entry. Additional shares of common stock, up to the authorized
but as yet unissued total stated in the Company's Restated Certificate, may be
issued in such number and at such price as may be determined in the discretion
of the Company's Board of Directors. Any increase in the authorized number of
shares of common stock requires the consent and approval of the Company's
stockholders.
CONTINGENT SERIES E CONVERSION ADJUSTMENT
The Series E Stock would convert to common stock on a 0.654 for one basis if
this offering (i) is closed on or before June 25, 1999 (the "Series E
Anniversary") and (ii) the price per share in the offering is not less than
$15.29 plus $3.82 multiplied by a fraction, the numerator of which is the
number of days elapsed from June 25, 1998 up to and including the closing date
of this offering and the denominator of which is 365 (the "Minimum Price"). In
the event that either the offering is closed after the Series E Anniversary or
the price per share in the offering is less than the Minimum Price, the number
of shares of common stock outstanding after the offering will increase as a
result of a greater number of shares being issued upon conversion of the
currently outstanding shares of Series E Stock. If the offering is closed at a
per share price less than the Minimum Price, the number of shares of common
stock issuable upon conversion of the Series E Stock will increase to a number
that is equal in value (determined with reference to the actual offering price)
to the Minimum Price. If the offering is closed after the Series E Anniversary,
the number of shares of common stock issuable upon conversion shall increase by
a specified percentage on each of the Series E Anniversary and the dates five
months and ten months after the Series E Anniversary. Assuming this offering is
closed on February 8, 1999 at a per share price of $13.00 (the mid-point of the
expected price range), an additional 191,315 shares of common stock will be
issued upon the conversion of the Series E Stock.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock in one or more series and to fix the relative rights,
preferences, privileges, qualifications, limitations and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Board of Directors could,
without the approval of the stockholders, issue Preferred Stock having voting
or conversion rights that could adversely affect the voting power of the
holders of common stock and the issuance of Preferred Stock could be used,
under certain circumstances, to render more difficult or discourage a hostile
takeover of the Company. The Company has no present plans to issue any shares
of Preferred Stock.
STOCK PURCHASE WARRANTS
From September through December 1995, the Company, in connection with the
issuance of certain Convertible Term Notes, issued warrants to purchase an
aggregate of 85,637 shares of common stock (the "Bridge Warrants"). The Bridge
Warrants are exercisable at $8.41 per share and expire on the earlier of
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(i) January 31, 1999 or (ii) the closing of this offering. As of November 30,
1998, all of the Bridge Warrants remained outstanding. For the purpose of this
Prospectus, we have not assumed these warrants will be exercised prior to this
offering.
In January and July of 1996, the Company, in connection with the issuance of
certain Series C Convertible Preferred Stock (the "Series C Stock"), issued
warrants to purchase an aggregate of 148,041 shares of Series C Stock,
convertible into 96,819 shares of common stock, at an exercise price of $0.01
($0.02 on an as converted basis) per share of Series C Stock and warrants to
purchase an aggregate of 18,247 shares of Series C Stock, convertible into
11,934 shares of common stock, at an exercise price of $5.50 ($8.41 on an as
converted basis) per share of Series C Stock (collectively, the "Series C
Warrants"). The Series C Warrants expire on the earlier of (i) five years from
the respective date of the issuance of the Series C Warrant or (ii) the closing
of this offering. As of November 30, 1998, 123,744 Series C Warrants were
outstanding and 42,544 had been exercised, convertible into 80,929 and 27,824
shares of common stock, respectively. Of the outstanding Series C Warrants,
105,497 are exercisable at the price of $0.01 ($0.02 on an as converted basis)
per share which are convertible into 68,995 shares of common stock. For the
purposes of this Prospectus, we have assumed the Series C Warrants with a $0.01
exercise price ($0.02 on an as converted basis) will be exercised prior to the
closing of this offering and that the remaining Series C Warrants will not be
exercised prior to this offering.
In December 1997, the Company issued warrants to purchase an aggregate of
39,793 shares of common stock to selected employees and Directors in Denmark.
These warrants have an exercise price of $1.15 per share, vest over a three to
five year period beginning on January 1, 1999 and expire on December 9, 2003.
The Company also issued warrants to DACC ApS to purchase an aggregate of 22,890
shares of common stock at an exercise price of $0.99. These warrants vest over
a two year period beginning on January 1, 1999, and expire on December 9, 2003.
STOCKHOLDERS' MEETINGS
The Company is required to hold an annual meeting of stockholders, which
meeting is held on a date selected by the Company's Board of Directors. Matters
generally put to a stockholders' vote include the election of directors, the
approval of certain changes in the capital stock of the Company, the adoption
and/or amendment of certain employee benefit plans, the approval of certain
amendments to the Certificate of Incorporation and Bylaws of the Company, and
other extraordinary matters. The presence in person or by proxy of stockholders
owning a majority of all votes entitled to be cast at a meeting constitutes a
quorum. A plurality of the votes cast is required for the election of
directors, which means that those directors receiving the most votes are
elected to office although they may not necessarily have received a majority of
votes. Most other matters require the affirmative vote of a majority of the
votes cast by those stockholders present at the meeting, although certain
extraordinary matters require a greater vote.
All stockholders (including those residing in Denmark and Belgium) will be
sent notice of an annual or special meeting not less than ten days nor more
than 60 before it is scheduled to be held. In addition, state law and the rules
of the SEC require greater advance notice for certain transactions. Shares
cannot be voted at a meeting unless the holder of record is present in person
or by proxy, a means by which a stockholder may authorize the voting of his or
her shares at a meeting. At a meeting, the shares represented by each properly
executed proxy card will be voted in accordance with the stockholder's
directions, thereby providing an alternative to a stockholder appearing in
person at a meeting in order to cast his or her vote. Any stockholder executing
a proxy card has the right to revoke it by providing written or oral notice of
revocation to the secretary of the company, or by delivering a subsequently
executed proxy card, at any time before the proxy is voted.
ANTI-TAKEOVER MEASURES
In addition to the Board of Directors' ability to issue shares of Preferred
Stock, the Restated Certificate and the By-laws of the Company contain several
other provisions that are commonly considered to discourage unsolicited
takeover bids. Under the Restated Certificate and By-laws, the Board of
Directors may enlarge the size of the Board and fill any vacancies on the
Board. The By-laws also provide that special meetings of the Company's
stockholders may be called only by the President, the Chairman of the Board,
the Board of Directors, any officer, stockholders holding a majority of the
outstanding voting capital stock, or any stockholder or stockholders holding at
least 10% of any series of Preferred Stock, and require advance notice of
business to be brought by a stockholder before such special meeting.
The Company may be subject to a Delaware law regulating corporate takeovers
(the "Anti-Takeover Law"). In certain circumstances, the Anti-Takeover Law
prevents certain public Delaware corporations, from engaging in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's
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assets) with an "interested stockholder" (a stockholder who owns 15% or more of
the corporation's outstanding voting stock) for three years following the date
on which such stockholder became an "interested stockholder" subject to certain
exceptions, unless the transaction is approved by the Board of Directors and
the holders of at least 66 2/3% of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder). The
statutory ban does not apply if, upon consummation of the transaction in which
any person becomes an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock of the corporation (excluding
shares held by persons who are both directors and officers or by certain
employee stock plans). A Delaware corporation subject to the Anti-Takeover Law
may "opt out" of the Anti-Takeover Law with an express provision either in its
certificate of incorporation or by-laws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares;
such an amendment is effective following expiration of twelve months from
adoption. The Anti-Takeover Law applies to Delaware corporations with a class
of stock listed on a national securities exchange or Nasdaq. It is not clear
whether the Anti-Takeover Law would apply to the Company if the stock is not
listed on Nasdaq or another US exchange but is listed on foreign exchanges. The
Company has not "opted out" of the Anti-Takeover Law.
The foregoing provisions of Delaware law and the Restated Certificate and By-
laws could have the effect of discouraging others from attempting a hostile
takeover of the Company and, as a consequence, they may also inhibit temporary
fluctuations in the market price of the common stock that might result from
actual or rumored hostile takeover attempts. Such provisions may also have the
effect of preventing changes in the management of the Company. It is possible
that such provisions could make it more difficult to accomplish transactions
which stockholders may otherwise deem to be in their best interests.
EQUITY
The table below shows the changes to equity capital in the Company since its
formation. The data are for the three years ended December 31, 1995, 1996 and
1997 and the nine months ended September 30, 1998. The net proceeds from
capital issues were derived from the sale of the Existing Preferred Stock, the
sale of common stock and the exercise of options and warrants to purchase
common stock.
EQUITY CAPITAL
<TABLE>
<CAPTION>
ACCUMULATED
AS OF PAID IN CAPITAL TOTAL VALUE OF SHARES NET LOSS STOCKHOLDERS EQUITY
----- --------------- --------------------- ------------- -------------------
<S> <C> <C> <C> <C>
December 31, 1995....... $ 834 $ 11,854,317 $ (13,061,259) $ (1,206,942)
December 31, 1996....... 19,231,008 31,085,325 (21,350,139) 9,735,186
December 31, 1997....... 3,319,440 34,404,765 (31,104,151) 3,300,614
September 30, 1998...... 8,177,865 42,582,630 (37,688,864) 4,893,766
</TABLE>
TRANSFER AGENT
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
RECENT SALES OF UNREGISTERED SECURITIES
Since September 1995, the Company has issued and sold the following
securities, in each case in reliance on an exemption from required registration
pursuant to the Securities Act of 1933, as amended (the "Securities Act").
1995 Bridge Financing
From September through December 1995, the Company issued certain Convertible
Term Notes (the "Bridge Notes"), for an aggregate principal amount of
$1,762,236 bearing interest on unpaid principal at a rate of 7% per annum and
convertible into Series C Stock at the conversion price of $6.25 ($9.56 on an
as converted basis) per share of Series C Stock, and the Bridge Warrants,
exercisable at the price of $5.50 ($8.41 on an as converted basis) per share,
to certain current stockholders of the Company (collectively, the "Bridge
Financing").
Series C Private Placement
In January and July 1996, the Company sold an aggregate of 1,113,055 shares
of Series C Stock convertible into 727,938 shares of common stock, at a price
of $6.25 ($9.56 on an as converted basis) per share of Series C Stock, and
issued the Series C Warrants (together with the Series C Stock, the "Series C
Private Placement").
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Both the 1995 Bridge Financing and the Series C Private Placement were exempt
from the registration requirements of the Securities Act pursuant to the
private offering exemption under Section 4(2) thereof. In determining the
availability of this exemption, the Company relied on representations made by
the purchasers in the stock purchase agreement pursuant to which the Series C
Stock was purchased.
Neptune Acquisition
On July 31, 1996, as consideration for the acquisition by the Company of
Neptune Pharmaceuticals, Inc. ("Neptune"), a US pharmaceutical company, the
Company issued 246,050 shares of Series B Convertible Preferred Stock, $0.01
par value per share ("Series B Stock"), to the stockholders of Neptune
convertible into 160,917 shares of common stock. Shares of Series B Stock were
valued at $5.50 ($8.41 on an as converted basis) per share.
The shares issued in connection with the Neptune acquisition were exempt from
the registration requirements of the Securities Act pursuant to the private
offering exemption under Section 4(2) thereof. In determining the availability
of this exemption, the Company relied on representations made by the
stockholders of Neptune in the acquisition agreement.
Series D Private Placement
In separate closings as of each of October 30 and November 29, 1996, the
Company issued an aggregate of 1,900,000 shares of its Series D Convertible
Preferred Stock, $0.01 par value per share ("Series D Stock"), convertible into
1,242,600 shares of common stock, to a large number of institutional and
individual investors. All purchasers of Series D Stock were "Non-US Persons" as
defined by Rule 902 under Regulation S under the Securities Act, primarily
resident in Scandinavia. In determining the availability of this exemption, the
Company relied on representations made by investors in subscription agreements
pursuant to which the Series D Stock was purchased, as well as certain
representations from the placement agent in the placement agreement. Shares of
Series D Stock were purchased for $6.50 ($9.94 on an as converted basis) per
share, which represents the initial conversion price at which shares of Series
D Stock convert into common stock. Carnegie Bank A/S, ("Carnegie") acted as
placement agent for the sale of the Series D Stock and, pursuant to the terms
of a placement agreement between Carnegie and the Company dated as of October
5, 1996, received a placement fee equal to 7% of the aggregate proceeds raised,
plus accountable expenses.
Auda Acquisition
On March 11, 1997, as consideration for the acquisition by the Company of
Auda the Company issued additional shares of Series D Stock to the selling
stockholders of Auda. The Company issued 402,000 shares (convertible into
262,908 shares of common stock) to Danish Venture Finance A/S (previously known
as Danish Development Finance Corporation) and 33,000 shares (convertible into
21,582 shares of common stock) to GJK Holding ApS, a Danish corporation. Shares
of Series D Stock were valued at $7.50 ($11.47 on an as converted basis) per
share.
The private placement of the Series D Stock and the shares issued in
connection with the Auda acquisition were exempt from the registration
requirements of the Securities Act pursuant to Regulation S. In determining the
availability of this exemption, the Company relied on representations made by
Danish Development Finance Corporation and GJK Holding ApS in the Auda
acquisition agreement.
Series E Private Placement
In separate closings as of each of May 26 and June 25, 1998, the Company
issued an aggregate of 712,586 shares of the Series E Stock which are
convertible into an aggregate of 722,746 shares of common stock (assuming the
closing of this offering on February 8, 1999 at an offering price of $13.00 per
share (the mid-point of the expected range)) to certain qualified institutions
and high net worth individuals. Shares of Series E Stock were purchased for
$10.00 per share. Carnegie acted as placement agent for the sale of the Series
E Stock and, pursuant to the terms of a placement agreement between Carnegie
and the Company dated March 23, 1998, received a placement fee equal to 7% of
the gross proceeds from the subscription of Series E Stock by new investors and
2% of the gross proceeds from the subscription of Series E Stock by existing
investors of the Company.
Additional shares of Series E Stock convertible into an aggregate of 44,472
shares of common stock (based on the same assumptions as the immediately
preceding paragraph) were purchased by Lilly on September 18, 1998 at a price
of $10.00 per share. The issuance to Lilly did not involve any compensation to
Carnegie.
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The sale of the Series E Stock and the sale to Lilly were exempt from the
Securities Act pursuant to Regulation D. In determining the availability of
this exemption, the Company relied on representations made by Series E
investors in subscription agreements for the Series E Stock, as well as on
selling restrictions contained in the agreement with the placement agent.
Employee, Director and Consultant Issuances
The following securities have been sold in reliance on an exemption from
registration pursuant to Section 4(2) of the Securities Act:
Since inception, the Company has granted employees and consultants options
under its 1998 Equity Incentive Plan, which amends and restates the Company's
1992 Stock Option Plan, which have a ten-year term and are exercisable at a
price equal to the fair market value of the common stock at the date of grant,
as determined in good faith by the Compensation Committee of the Board of
Directors. As of November 30, 1998, options for 792,802 shares of the
Company's common stock were outstanding. As of such date, options for 187,775
shares of common stock had been exercised at an average price of $0.55 per
share.
In December 1997, the Company issued warrants to purchase an aggregate of
39,793 shares of its common stock to its Danish employees and certain members
of the Board of Directors based in Denmark which vest over a three to five
year period beginning on January 1, 1999 and are exercisable at $1.15 per
share, being a price equal to the fair market value of the common stock at the
date of grant, as determined in good faith by the Compensation Committee of
the Board of Directors. The Company also issued warrants to DACC ApS to
purchase an aggregate of 22,890 shares of common stock at an exercise price of
$0.99 per share. Such warrants vest over a two-year period beginning on
January 1, 1999.
In addition, from inception through November 30, 1998, the Company made
grants of an aggregate of 434,372 shares of common stock to certain employees,
Directors and consultants to the Company. Such shares were sold at fair market
value and are subject to repurchase rights held by the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of common stock in the public market could adversely affect the
stock's market price. Upon completion of this offering there will be 8,228,387
shares of common stock outstanding, assuming no currently outstanding options
or warrants (other than the warrants for 68,995 shares with a price of $0.02
per share which expire on the closing of this offering) are exercised and that
the Series E Convertible Preferred Stock converts at the rate of one-to-one.
The shares of common stock outstanding after this offering and the 2,500,000
shares sold in this offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely transferable.
Certain Phytera stockholders, Directors and employees holding in the
aggregate approximately 4,535,814 shares of common stock (plus approximately
238,446 shares issuable upon exercise of vested options), have agreed, subject
to certain limited exceptions, not to sell or otherwise dispose of any of
their shares for a period of 180 days after the date of this Prospectus
without the prior written consent of SG Cowen Securities Corporation. At the
end of the 180 day period, such shares of common stock will be eligible for
immediate resale in Denmark and other member states of the EU.
For US securities law purposes, the 5,728,387 outstanding shares of common
stock owned by existing stockholders are deemed "Restricted Shares" pursuant
to Rule 144 ("Rule 144") under the Securities Act. These shares may not be
resold in the US, except pursuant to an effective registration statement or an
applicable exemption from registration. If the Company establishes a public
market for its common stock in the US, the holders of the Restricted Shares
may sell such shares into the US public market relying on the exemptions from
registration under Rule 144 and Rule 701 under the Securities Act ("Rule
701"). Upon expiration of the 180 day lock-up agreements described above,
2,764,945 shares will be eligible for immediate sale in the US under Rules 144
and 701. The remaining Restricted Shares will become eligible from time to
time thereafter upon the expiration of the minimum one-year holding period
prescribed by Rule 144. In general, under Rule 144, as currently in effect, a
person (or persons whose shares are aggregated), including an affiliate, who
has beneficially owned Restricted Shares for at least one year from the later
of the date such Restricted Shares were acquired from the Company and (if
applicable) the date they were acquired from an affiliate, is entitled to sell
in the US, within any three-month period, a number of shares that does not
exceed the greater of 1% of the then outstanding shares of common stock
(57,284 shares based on the number of shares to be outstanding after this
offering) or
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the average weekly trading volume in the public market (combined volume on all
markets) during the four calendar weeks preceding such sale. Sales in the US
under Rule 144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information concerning the
Company. Affiliates may sell shares not constituting Restricted Shares in
accordance with the foregoing volume limitations and other restrictions, but
without regard to the one-year holding period. All sales of Restricted Shares
held by affiliates of the Company must be sold under Rule 144, subject to the
foregoing volume limitations and other restrictions. Further, under Rule
144(k), if a period of at least two years has elapsed between the later of the
date Restricted Shares were acquired from the Company or an affiliate of the
Company, a holder of such Restricted Shares who is not an affiliate of the
Company at the time of the sale and has not been an affiliate of the Company
for at least three months prior to the sale would be entitled to sell the
shares immediately without regard to the volume limitations or other
conditions described above.
Rule 701 under the Securities Act provides an exemption from the
registration requirements of the Securities Act for offers and sales of
securities issued pursuant to certain compensatory benefit plans or written
contracts of a company not subject to the reporting requirements of Sections
13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Any employee, officer or director of or consultant to the Company who
acquired shares of common stock from the Company prior to this offering or on
exercise of a stock option granted prior to this offering is entitled to rely
on the resale provisions of Rule 701, which permit non-affiliates to sell such
shares without having to comply with the public information, holding period,
volume limitation, or notice requirements of Rule 144 and permit affiliates to
sell their Rule 701 shares without having to comply with the holding period
requirements of Rule 144 commencing, in each case, 90 days after the date of
this Prospectus.
No prediction can be made as to the effect, if any, that market sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the common stock. Nevertheless, sales of
substantial amounts of common stock in the public market may have an adverse
impact on the market price for the common stock. See "Risk Factors--Investors
Will Face Immediate and Substantial Dilution."
REGISTRATION RIGHTS
Pursuant to the terms of an Amended and Restated Investors' Rights Agreement
dated as of May 26, 1998, the holders of the 4,949,056 shares of common stock
to be issued on conversion of the Existing Preferred Stock (the "Registrable
Shares") and the holders of 68,995 shares expected to be issued on exercise of
warrants expiring in connection with the offering are entitled to certain
rights with respect to registration under the Securities Act of the
Registrable Shares. If the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of
other security holders, the Company is obligated to use its best efforts to
include the Registrable Shares in such registration. These shares will not
form a part of the shares of common stock registered in this offering. In
addition, such stockholders have certain demand registration rights with
respect to the Registrable Shares.
REPORTING REQUIREMENTS
Phytera is required to register the shares of common stock offered hereby
under Section 12(g) of the Exchange Act, subjecting the Company and its
shareholders to Exchange Act reporting requirements. Under Section 13 of the
Exchange Act, any person who is the beneficial owner of more than 5% of the
Company's common stock (a "5% Holder") must file with the Commission to report
acquisitions or holdings of the common stock. Under Section 16 of the Exchange
Act, any person who is beneficial holder of more than 10% any of the Company's
common stock, and all Directors and executive officers of the Company, are
required to file with the Commission to report all changes in such person's
beneficial ownership of the common stock.
Under EASDAQ rules, any person who is a 5% Holder must report to the Company
all acquisitions and dispositions of the Company's common stock. Phytera is
required to notify EASDAQ, and to disclose to the public through the EASDAQ
Publication Mean, the identity and number of shares of common stock held by
all 5% Holders.
Under the rules of the Copenhagen Stock Exchange, each company whose
securities are listed on the exchange is required to have a written policy
regarding trades by Directors and executive officers. Each shareholder must
file a written report to the exchange and the Company upon each transaction in
which its ownership of the Company's issued and outstanding capital stock
crosses above or below the threshold of 5%. Similar reports must be filed upon
crossing the thresholds of 10%, 15%, and so on.
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SETTLEMENT AND CLEARANCE
The following summarizes the Company's understanding of the operation of the
clearing system which will be in place after this offering. Persons proposing
to trade the common stock should inform themselves about the costs of such
trading.
The common stock sold in this offering will be represented by one global
share certificate that will be deposited with DTC in the United States.
Transactions in the common stock executed in the United States will be settled
by book-entry through financial institutions that are participants in DTC.
Because book-entry settlement is mandatory for all financial instruments traded
on EASDAQ and the CSE, transactions executed on EASDAQ or the CSE will be
settled through financial institutions that are participants in Euroclear.
Investors in the common stock in Europe must hold a securities account with a
financial institution which directly or indirectly has access to Euroclear.
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations (collectively, "DTC Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of DTC
Participants. DTC Participants include securities brokers and dealers, banks
and trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively "DTC Indirect Participants")
that clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly. Persons who are DTC Participants may
beneficially own securities held by or on behalf of DTC only through DTC
Participants or DTC Indirect Participants.
Euroclear holds securities and book-entry interests in securities for its
direct participants, which include banks, securities brokers and dealers, other
professional intermediaries and foreign depositories and facilitates the
clearance and settlement of securities transactions between Euroclear
participants, and between Euroclear participants and participants of certain
other securities intermediaries, including DTC, through electronic book-entry
changes in accounts of such participants or other securities intermediaries.
Euroclear provides Euroclear participants, among other things, with
safekeeping, administration, clearance and settlement, securities lending and
borrowing, and related services. Euroclear participants are investment banks,
securities brokers and dealers, banks, Central banks, supranationals,
custodians, investment managers, corporations, trust companies and certain
other organizations and include certain of the Underwriters.
Although Euroclear has agreed to the procedures provided below in order to
facilitate transfers of securities among participants of Euroclear, and between
Euroclear participants and participants of other intermediaries, it is under no
obligation to perform or continue to perform such procedures and such
procedures may be modified or discontinued at any time.
Investors electing to acquire securities through an account with Euroclear or
some other securities intermediary must follow the settlement procedures of
such an intermediary with respect to the settlement of new issues of
securities. Securities to be acquired against payment through an account with
Euroclear will be credited to the securities clearance accounts of the
respective Euroclear participants in the securities processing cycle for the
business day following the settlement date for value as of the settlement date,
if against payment. Investors electing to acquire, hold or transfer securities
through an account with Euroclear or some other securities intermediary must
follow the settlement procedures of such an intermediary with respect to the
settlement of secondary market transactions in securities.
Investors who are participants of Euroclear may acquire, hold or transfer
interests in the securities by book-entry to accounts with Euroclear. Investors
who are not participants of Euroclear may acquire, hold or transfer interests
in the securities by book-entry to accounts with a securities intermediary who
holds a book-entry interest in the securities through accounts with Euroclear.
Investors that acquire, hold and transfer interests in the securities by
book-entry through accounts with Euroclear or any other securities intermediary
are subject to the laws and contractual provisions governing their relationship
with their intermediary, as well as the laws and contractual provisions
governing the relationship between such an intermediary and each other
intermediary, if any, standing between themselves and the individual
securities.
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Euroclear has advised as follows:
Under Belgian law, investors that are credited with securities on the records
of Euroclear have a co-property right in the fungible pool of interests in
securities on deposit with Euroclear in an amount equal to the amount of
interests in securities credited to their accounts. In the event of the
insolvency of Euroclear, Euroclear participants would have a right under
Belgian law to the return of the amount and type of interests in securities
credited to their accounts with Euroclear. If Euroclear did not have a
sufficient amount of interests in securities on deposit of a particular type to
cover the claims of all Euroclear participants credited with such interests in
securities on Euroclear's records, all Euroclear participants having an amount
of interests in securities of such type credited to their accounts with
Euroclear would have the right under Belgian law to the return of their pro-
rata share of the amount of interests in securities actually on deposit.
Under Belgian law, Euroclear is required to pass on the benefits of ownership
in any interests in securities on deposit with it (such as dividends, voting
rights and other entitlements) to any person credited with such interests in
securities on its records.
TAX CONSIDERATIONS
The following is a general discussion of the tax consequences of an
investment in the common stock under US Federal, Danish and Belgian
regulations. This discussion is based on provisions of the law and the
regulations, administrative rulings and judicial discussions thereunder now in
effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This discussion does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to a decision to acquire, hold, or dispose of the common stock. This discussion
is provided for general information purposes only, and does not constitute, and
should not be considered as, legal or tax advice to any prospective holder of
the common stock. Each prospective purchaser of the common stock is urged to
consult its own tax advisor with respect to the tax consequences of acquiring,
holding and disposing of common stock, the laws of any national, state or local
taxing jurisdiction.
UNITED STATES TAX CONSIDERATIONS
The following is a general discussion of the material US federal income
consequences of the ownership and disposition of common stock by a person that
for United States federal income tax purposes is: (i) a non-resident alien
individual, (ii) a foreign corporation, (iii) a foreign partnership, or (iv) an
estate or trust which is not subject to US federal income tax without regard to
the source of its income (a "non-US holder"). This discussion does not address
the US federal income tax consequences that may be relevant to particular non-
US holders subject to special treatment under the federal income tax law as a
result of their personal circumstances, and does not address the treatment of
non-US holders of common stock under the laws of any state, local or foreign
taxing jurisdiction.
DIVIDENDS
Distributions paid to a non-US holder of common stock which constitute
dividends for US federal income tax purposes generally will be subject to
withholding of US federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty (such as that between the US and
Belgium), unless the dividends are effectively connected with the conduct of a
trade or business carried by the non-US holder within the US (and are
attributable to a US permanent establishment or fixed base of such holder, if
an applicable income tax treaty so requires as a condition for the non-US
holder to be subject to US income tax on a net income basis with respect to
such dividends). Such "effectively connected" dividends are generally subject
to tax at rates applicable to US citizens, resident aliens and domestic US
corporations, and are not generally subject to withholding (provided that the
non-US holder provides certain appropriate certification). Any such effectively
connected dividends received by a non-US corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.
Under the "Convention Between the United States of America and the Kingdom of
Belgium For the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion With Respect to Taxes on Income" (the "Belgium Treaty"), a non-US
holder that qualifies as a "resident of Belgium" may, as long as the shares of
common stock held by such person are not attributable to the conduct of a trade
or business or the rendering of
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<PAGE>
independent personal services in the US through a permanent establishment or
fixed base situated therein, be entitled to a reduced withholding tax rate on
dividends paid by the Company equal to 15%, rather than 30% as discussed above.
For this purpose, the term "resident of Belgium" generally means (i) a Belgian
corporation and (ii) any person other than a corporation (including an
individual, a partnership, an estate, a trust, or any body of persons) who is a
resident of Belgium for purposes of its tax status. In addition, the Belgium
Treaty provides that if a non-US holder entitled to a reduced rate of
withholding under the above test is a Belgian company that owns at least ten
percent of the voting stock of the Company, the withholding tax rate is further
reduced to five percent. Furthermore, under the Notice 87-56, the additional
30% branch profits tax described above may be eliminated for "qualified
residents" of Belgium (the term qualified resident having the meaning set forth
in Section 884(e)(4) of the Code).
Under currently effective US Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussion above and, under the current interpretation of US
Treasury Regulations, for purposes of determining the applicability of a tax
treaty rate. Under recently finalized US Treasury Regulations that will
generally be effective for distributions after December 31, 1998 (extended,
under certain transition rules, until December 31, 1999) (the "Final
Withholding Regulations"), however, a non-US holder of common stock who wishes
to claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification requirements. In addition, under the Final Withholding
Regulations, in the case of common stock held by a foreign partnership among
other things, (i) the certification requirement would generally be applied to
the partners of the partnership and (ii) the partnership would be required to
provide certain information, including a US taxpayer identification number or
be subject to withholding at the full 30% rate. The final Withholding
Regulations also provide look-through rules for tiered partnerships.
A non-US holder of common stock that is eligible for a reduced rate of US
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by the timely filing of an appropriate claim for
refund with the US Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A non-US holder generally will not be subject to US federal income tax in
respect of gain recognized on a disposition of common stock except in the
following circumstances: (i) where the gain is effectively connected with the
conduct of a trade or business in the US by such non-US holder (and is
attributable to a permanent establishment or fixed base maintained in the US by
such non-US holder if an applicable income tax treaty so requires as a
condition for such non-US holder to be subject to United States taxation on a
net income basis with respect to such gain), (ii) in the case of a non-US
holder who is an individual and holds the common stock as a capital asset, such
holder is present in the United States for 183 or more days in the taxable year
of the sale and certain other conditions exist, (iii) in some cases where the
Company is or has been a "US real property holding corporation" for US federal
income tax purposes (which the Company believes it is not currently and will
not become) or (iv) the non-US holder is subject to tax pursuant to certain
provisions of the Code applicable to US expatriates. Effectively connected
gains realized by a corporate non-US holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current law, US information reporting requirements (other than
reporting of dividend payments for purposes of the withholding tax noted above)
and backup withholding tax generally will not apply to dividends paid to non-US
holders that are either subject to the 30% withholding tax discussed above or
that are not so subject because an applicable tax treaty (such as the Belgium
Treaty) reduces such withholding. Otherwise, backup withholding of US federal
income tax at a rate of 31% may apply to dividends paid with respect to common
stock to non-US holders that are not "exempt recipients" and that fail to
provide certain information (including the holder's US taxpayer identification
number). Generally, unless the payor of dividends has definite knowledge that
the payee is a United States person (as such term is defined in the Code and
attendant regulations), the payor may treat dividend payments to a payee with a
foreign address as exempt from information reporting and backup withholding.
However, under the Final Withholding Regulations, dividend payments generally
will be subject to information reporting and backup withholding unless
applicable certification requirements are satisfied. See the discussion above
with respect to the rules applicable to foreign partnerships under the Final
Withholding Regulations.
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In general, US information reporting and backup withholding requirements also
will not apply to a payment made outside the US of the proceeds of a sale of
common stock through an office outside the United States of a non-United States
broker. However, US information reporting (but not backup withholding)
requirements will apply to a payment made outside the US of the proceeds of a
sale of common stock through an office outside the US of a broker (i) that is a
United States person, (ii) that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the US, (iii) that
is a "controlled foreign corporation" as to the US or (iv) (effective beginning
January 1, 1999) that is a foreign partnership with certain connections to the
US, unless the broker has documentary evidence in its records that the holder
or beneficial owner is a non-US person or the holder or beneficial owner
otherwise establishes an exemption. Payment of the proceeds of the sale of
common stock to or through a US office of a broker is currently subject to both
US backup withholding and information reporting unless the holder certifies its
non-US status under penalties of perjury or otherwise establishes an exemption.
Non-US holders should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular situations,
the availability of an exemption therefrom, and the procedure for obtaining
such an exemption, if available. Any amounts withheld from a payment to a non-
US holder under the backup withholding rules will be allowed as a credit
against such holder's US federal income tax liability provided the required
information is furnished to the US Internal Revenue Service. A non-US holder
generally may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the US
Internal Revenue Service.
DANISH TAX CONSIDERATIONS
The following discussion summarizes certain Danish tax consequences relating
to an investment in common stock by a Danish resident investor. This summary
deals only with common stock held by portfolio investors with less than 25% of
the share capital of the Company.
DIVIDENDS
For Danish resident shareholders, the US withholding tax on dividend payments
by the Company is in principle reduced from 30% to 15% pursuant to the US-
Danish income tax treaty. Special rules apply to the calculation of the relief
available under this treaty in different circumstances.
Residents
The gross amount of distributions by the Company will be treated as taxable
income for resident shareholders. The dividend is deemed acquired as of the
date of the shareholders' meeting where the decision regarding distribution is
taken. For Danish resident individuals, dividends on common stock are taxed as
share income. For the 1999 tax year, the first DKK 36,000 (DKK 72,000 if
married) of share income is taxed at a rate of 25%, any dividend income over
that amount is taxed at a rate of 40%. These share income levels are subject to
change in subsequent tax years. The US-Danish income tax treaty provides that
any US withholding tax can be set-off against the Danish tax. Dividend income
is not subject to local income taxes. For information regarding individual
pension accounts, see below.
For Danish resident companies holding less than 25% of a company's share
capital, 66% of the total dividend is taxed as ordinary income; 34% of the
dividend is tax-exempt. Given that the Danish corporation tax rate is currently
34%, the effective tax rate on dividends is approximately 22%. In addition,
Danish resident companies are entitled to a reduction in share income for the
US tax withheld. Dividend income is not subject to local income taxes.
Dividends received by Danish banks and other entities in the business of
share investment are taxed as ordinary business income at a rate of 34%. No
part of the dividend is tax-exempt.
Pension funds are tax exempt, but must pay a real interest rate duty on
dividend income. Pension funds, life insurance companies, and other entities
subject to the Danish real interest duty are subject to a five percent duty on
dividends. The US withholding tax can be set-off against the five percent duty
on the dividend. The real interest rate rules apply to all pension capital
arising from tax deductible pension schemes, including pension accounts of
individuals held by banks.
Non-residents
If a non-resident holds common stock other than through a business that is a
permanent establishment in Denmark, no Danish tax is levied on dividends.
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CAPITAL GAINS TAX
Residents
Shares of Phytera common stock disposed of by Danish residents will be
subject to the same capital gains tax as shares of Danish listed companies.
Gains and losses on shares are calculated as the difference between the market
value in DKK at the time of purchase and the market value in DKK at the time
of disposal. Accordingly, the capital gains tax is affected by changes in the
exchange rate between US dollars and Danish kroner.
Capital gains received on the disposal of common stock by an individual are
taxed as investment income (approximately 40%-59%) or share income (25%-40%).
If the shares were held for less than three years, capital gains on the
disposal of shares are taxed as investment income (approximately 40%-59%).
Such gains and losses are computed according to the so-called "share-for-share
method." Under this method, gains and losses are calculated as the difference
between the purchase price and the corresponding disposal price for each
separate share. Any losses on shares held for less than three years may be
offset against similar gains or, if no such gains are available, may be
carried forward for five years.
Gains on shares held for three years or longer are tax-exempt if the market
value of the individual's total portfolio of listed shares, listed investment
fund certificates, and the like, within the last three years, has not exceeded
a certain level, which is DKK 113,300 for the 1999 tax year. For married
couples the aggregate value of both spouses' portfolios cannot exceed this
level. The market value of an individual's or married couples' portfolio is
generally measured immediately after each purchase and immediately prior to
each disposal of a listed share, and again at the end of each calendar year.
Gains on the disposal of listed shares are tax-exempt only if the market value
of the portfolio does not exceed the limit at any of the measurement dates.
If the shares are held for at least three years, and the portfolio exceeds
DKK 113,300, capital gains are taxed as share income (25%-40%). Gains and
losses on shares held for three years or longer are calculated in accordance
with the "average method." Under this method, the gain or loss is calculated
as the difference between the purchase price of the shares, which is
calculated as a fraction of the total purchase price for all of the shares in
the same company held for at least three years, and the disposal price of the
shares. Any losses on listed shares held for more than three years may be
offset against similar gains (assuming the portfolio exceeds the DKK 113,300
limit), or may be carried forward for five years.
For information regarding individual pension accounts, see below.
The taxation of capital gains upon the disposal of shares of common stock by
a resident individual is outlined as follows:
<TABLE>
<CAPTION>
OWNERSHIP FOR THREE YEARS OR LONGER
-------------------------------------------------
VALUE LESS THAN OR VALUE GREATER THAN
DISPOSAL OF SHARES OWNERSHIP FOR LESS THAN THREE YEARS EQUAL TO DKK 113,300 DKK 113,300
- ------------------ ----------------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Capital gains Investment income Tax exempt Share income
Capital losses . Offset against taxable Capital losses cannot be . Offset against taxable
gains on the sale of set off gains on listed shares
shares held for less held for three years
than three years or more (incl.
(incl. spouses' spouses' shares)
shares).
. Carried forward for . Carried forward for
five years. five years
Calculation method Share-for-share method Average method
</TABLE>
Capital gains on common stock held by a company for less than three years
are taxed as ordinary income at a rate of 34%. Gains and losses are calculated
in accordance with the average method, as discussed above. Losses realized on
the sale of shares held by a company for less than three years can be deducted
from taxable gains on the sale of other shares owned for less than three
years, or can be carried forward for five years. Losses are reduced by the
amount of tax exempt dividends received in connection with such shares.
Gains on common stock held for more than three years are tax exempt and
losses are not deductible.
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<PAGE>
The taxation of capital gains upon the disposal of shares of common stock by
a resident company is outlined as follows:
<TABLE>
<CAPTION>
DISPOSAL OF SHARES OWNERSHIP FOR LESS THAN THREE YEARS OWNERSHIP FOR THREE YEARS OR LONGER
- ------------------ ----------------------------------- -----------------------------------
<S> <C> <C>
Capital gains Ordinary income (34%) Tax exempt
Capital losses . Offset against taxable gains on disposal of .No set-off
other shares held for less than three years.
. Tax-exempt dividends are deducted from the .No tax deduction
loss.
. Carried forward for five years.
</TABLE>
For Danish banks and other entities in the business of share investment,
capital gains received on the disposal of common stock are taxed as ordinary
business income at a rate of 34% irrespective of the period of ownership. Any
corresponding losses are deductible.
Life insurance companies are subject to both a corporate tax and a real
interest rate duty on capital gains. In order to avoid double taxation, the
real interest rate duty is reduced by a percentage of the taxable income. The
deduction of provisions, insurance payments and the like may be reduced to the
extent the company has tax exempt dividends or capital gains on shares
(realized or unrealized). Thus, the benefits of the exempt 34% of the total
dividends received (100%-66%) and the tax exempt gains on the shares of common
stock may indirectly trigger corporate taxation.
Pension funds are tax exempt, but must pay a real interest rate duty of five
percent on any capital gains on listed shares. The capital gain is calculated
annually using the "mark-to market" method. Capital losses on listed shares are
calculated using the same method and are deductible against capital gains. The
real interest rate rules apply to all pension capital arising from tax
deductible pension schemes, including pension accounts of individuals held by
banks.
The proceeds from the sale of shares to the issuing company are taxed as a
deemed dividend distribution whether the sale is made by an individual or a
company. In certain circumstances and upon application to the tax authorities,
permission can be obtained to subject the sale to normal capital gains tax
rules.
Non-residents
If a non-resident holds common stock other than through a business that is a
permanent establishment in Denmark, no Danish tax is levied on capital gains.
TRANSFER DUTY
On the disposal of common stock by a Danish resident, a duty of 0.5% is
assessed based upon the market value of the transferred shares. Non-residents
are not subject to the share transfer tax.
BELGIAN TAX CONSIDERATIONS
The following is a summary of the material Belgian income and stamp tax
consequences of the acquisition, ownership and disposition of common stock. The
summary uses the term, "Belgian Holders," to refer to beneficial owners of
common stock of the Company whose ownership of such common stock is not
attributable to a permanent establishment or a fixed base in another country
and who are considered residents of Belgium for the purposes of Belgian law.
DIVIDENDS
Belgian Withholding Tax
Dividends distributed on common stock are subject to a withholding tax at the
rate of 25%, when paid or attributed through a professional intermediary in
Belgium. However, no dividend withholding tax is due if no Belgian professional
intermediary is used to pay or attribute the dividend. The Company has no
intention to use a Belgian professional intermediary to pay or attribute
dividends to non-Belgian Holders. No withholding tax is due on dividends paid
on the common stock to a company with its fiscal residence in Belgium.
In a case where dividends are paid outside Belgium without any intervention
of a paying agent in Belgium, no dividend withholding tax is, in principle,
due. However, where the Belgian Holder is a Belgian resident or entity subject
to the tax on legal entities (for example, a pension fund), the Belgian Holder
itself must pay the dividend withholding tax at the rate of 25%.
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Income Tax
In the hands of a Belgian Holder who is an individual holding common stock as
a private investment, the Belgian dividend withholding tax is a final tax and
the dividends need not be reported in the individual's annual income tax
return. If no withholding tax has been levied (i.e., in case of payment or
attribution outside of Belgium), the individual must report the dividends in
his or her tax return. Thus, in the case of the Company, such Belgian Holder
will be taxed at the separate rate of 15%, to be increased with a municipal
surcharge (varying, as a rule, from six percent to nine percent).
In the hands of an individual Belgian Holder whose holding of common stock is
effectively connected with a business, the dividends are taxable at the
ordinary rates for business income (i.e., varying from 25% to 55%, to be
increased by a crisis contribution of three percent of the tax due and the
appropriate municipal surcharge). Any Belgian withholding tax is creditable
against the final income tax due by the Belgian Holder, provided that the
Belgian Holder has the full legal ownership of the common stock at the time of
payment or attribution of any dividends, and provided further that the dividend
distribution does not entail a reduction in value of or a capital loss on the
common stock.
Dividends received by Belgian Holders which are resident companies are, in
principle, subject to corporate income tax at the rate of 40.17% (i.e., the
standard rate of 39% increased by the crisis contribution of three percent of
the corporate income tax due). Lower rates may be applicable to Belgian
resident companies which, among other conditions, are not 50% or more owned by
another company and which derive taxable income below certain thresholds fixed
by law.
However, provided that the dividends benefit from the so-called "dividend-
received deduction," only five percent of the dividends received will be
taxable. In order to benefit from this deduction, the Company must not fall
within one of the categories in which the distributed dividends are expressly
excluded from the "dividend-received deduction" (for example, dividends which
are distributed by tax-haven countries or are paid out of income has benefited
from a special tax regime) and the beneficiary should hold, at the time of
payment of the dividends, a participation of at least five percent in the
Company or a participation which has an acquisition value of at least BEF 50
million.
For Belgian resident entities subject to the Belgian Tax on Juridical
Entities (for example, pension funds), the Belgian dividend withholding tax is
a final tax.
CAPITAL GAINS
Individual Belgian Holders holding the common stock as a private investment
and entities subject to Belgian tax on legal entities are not subject to
Belgian capital gains tax on the disposal of the common stock. Individual
Belgian Holders may, however, be subject to a 33% tax (to be increased by the
three percent crisis, contribution and the appropriate municipal surcharge) if
the capital gain is deemed to be "speculative" in nature, as defined by Belgian
case law.
Individual Belgian Holders whose holding of common stock may be considered as
effectively connected with a business will be taxable at ordinary (progressive)
rates on any capital gains realized upon a disposal of common stock if they
have held it for five years or less, but will be taxed at 16.5% (to be
increased by the three percent crisis contribution and the appropriate
municipal surcharge) on such gains if they have held the common stock for more
than five years before disposing of same.
Belgian resident companies are not subject to capital gains taxation,
provided that the dividends received on the shares which such companies have
disposed of would qualify for the "dividend-received deduction" (except for the
minimum holding requirement). As noted above, it is the Company's view that any
dividends it may distribute might qualify.
INDIRECT TAXES
In principle, a stamp tax is levied upon the subscription of new common stock
and the purchase and sale in Belgium of common stock, if effected by means of a
professional intermediary. The rate applicable to subscriptions of new common
stock is 0.35%, but there is a limit of 10,000 BEF per transaction. The rate
applicable for secondary sales and purchases in Belgium of common stock through
a professional intermediary is 0.17%, but there is a limit of 10,000 BEF per
transaction.
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An exemption is available to professional intermediaries (e.g., credit
institutions), insurance companies, pension funds, and collective investment
vehicles which are acting for their own account. A non-resident holder of
common stock who is acting for his or her own account will also be entitled to
an exemption from this stamp tax, provided that he or she delivers to the
issuer or the professional intermediary in Belgium, as the case may be, an
affidavit confirming his or her non-resident status vis-a-vis Belgium.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting agreement
(the "European Underwriting Agreement"), the Company has agreed to sell to each
of the European managers named below (the "European Managers"), and each of the
European Managers, for whom SG Cowen Securities International L.P., Carnegie
Bank A/S and BancBoston Robertson Stephens International Ltd are acting as lead
managers (the "Lead Managers"), has severally agreed to purchase from the
Company, the respective number of shares of common stock set forth opposite the
name of such European Manager below:
<TABLE>
<CAPTION>
NUMBER
EUROPEAN MANAGER OF SHARES
---------------- ---------
<S> <C>
SG Cowen International L.P. .......................................
Carnegie Bank A/S..................................................
BancBoston Robertson Stephens International Ltd....................
----
Total............................................................
====
</TABLE>
Subject to the terms and conditions set forth in an Underwriting agreement
(the "US Underwriting Agreement"), the Company has agreed to sell to each of
the Underwriters named below (the "US Underwriters"), and each of the US
Underwriters, for whom SG Cowen Securities Corporation, Carnegie Inc. and
BancBoston Robertson Stephens Inc. are acting as representatives (the "US
Representatives"), has severally agreed to purchase from the Company, the
respective number of shares of common stock set forth opposite the name of such
US Underwriter below:
<TABLE>
<CAPTION>
NUMBER
US UNDERWRITER OF SHARES
-------------- ---------
<S> <C>
SG Cowen Securities Corporation....................................
Carnegie Inc.......................................................
BancBoston Robertson Stephens Inc. ................................
----
Total............................................................
====
</TABLE>
The US Underwriters and the European Managers are collectively referred to as
the "Underwriters" and the US Representatives and the Lead Managers are
collectively referred to as the "Representatives." The European Underwriting
Agreement and the US Underwriting Agreement are collectively referred to as the
"Underwriting Agreements." The offering price and aggregate Underwriting
discounts and commissions per share for the European offering and the US
offering are identical. The completion of each offering is contingent upon the
completion of the other.
The Underwriting Agreements provide that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors, and that the Underwriters are committed to purchase all
shares of common stock offered hereby and covered by the respective
Underwriting Agreements (other than those covered by the over-allotment options
described below) if any such shares are purchased.
The Underwriters propose to offer shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share to certain other brokers and
dealers. After the shares of common stock are released for sale to the public,
the offering price and other selling terms may from time to time be varied by
the Representatives and the Underwriters will bear the risk that investors from
whom they have obtained indications of interest will not purchase the shares of
common stock. We expect that delivery of the common stock will be made in New
York, New York on or about February 8, 1999.
Pursuant to the Agreement Among US Underwriters and European Managers (the
"Intersyndicate Agreement"), each US Underwriter has represented and agreed
that, with certain exceptions: (i) it is not purchasing any Shares (as defined
herein) for the account of anyone other than a United States or Canadian Person
(as defined herein) and (ii) it has not offered or sold, and will not offer or
sell, directly or indirectly, any Shares or distribute any prospectus relating
to the Shares outside the United States or Canada or to anyone other than a
United States or Canadian Person. Pursuant to the Intersyndicate Agreement,
each European Manager has represented and agreed that, with certain exceptions:
(i) it is not purchasing any Shares for the
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account of any United States Person or Canadian and (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any Shares or
distribute any prospectus relating to the Shares in the United States or Canada
or to any United States or Canadian Person. With respect to any underwriter or
manager that is both a US Underwriter and a European Manager, the foregoing
representations and agreements (i) made by it in its capacity as a US
Underwriter apply only to it in its capacity as a US Underwriter and (ii) made
by it in its capacity as a European Manager apply only to it in its capacity as
a European Manager. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Intersyndicate
Agreement. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States or Canada of any United States
or Canadian Person), and includes any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person.
Pursuant to the Intersyndicate Agreement, sales may be made between the US
Underwriters and the European Managers of such number of shares of common stock
as may be mutually agreed. The price of any shares so sold shall be the public
offering price, less an amount not greater than the selling concession.
The Company has granted to the US Underwriters and the European Managers
options, exercisable for up to 30 days after the date of this Prospectus, to
purchase up to an aggregate of 375,000 additional shares of common stock,
respectively, to cover over-allotments, if any. If the Underwriters exercise
the over-allotment options, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares of common stock to be purchased by each of them as shown
in the foregoing tables bears to the total number of shares of common stock
offered hereby. The Underwriters may exercise such options only to cover over-
allotments made in connection with the sale of shares of common stock offered
hereby.
The Company, the Company's officers, all Directors who own shares of common
stock and certain other stockholders, warrantholders and optionholders of the
Company have agreed that for a period of 180 days following the date of this
Prospectus, without the prior consent of SG Cowen Securities Corporation, they
will not, directly or indirectly, offer, sell, assign, transfer, encumber,
pledge, contract to sell, grant an option to purchase or otherwise dispose of,
other than by operation of law, any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock,
including, without limitation, options, warrants and the like which are owned
either of record or beneficially or which are acquired on or prior to the date
of this Prospectus or which are received upon the exercise of options and
warrants. SG Cowen Securities Corporation has advised the Company that it has
no present intention of releasing any of the Company's stockholders or
optionholders from such lock-up agreements until the expiration of the 180-day
period.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, and to contribute to payments the Underwriters may be required to make
in respect thereof.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales in excess of five percent of the shares of common stock
offered hereby to any account over which they exercise discretionary authority.
Until the distribution of common stock is completed, rules of the US
Securities and Exchange Commission and EASDAQ may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
common stock. As an exception to these rules, the Underwriters, through a
stabilizing manager to be designated by them, are permitted to engage in
certain transactions on EASDAQ that stabilize the price of the common stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the common stock. Under EASDAQ rules, the
maximum price at which any such stabilizing transactions may be made may not
exceed the initial public offering price.
If the Underwriters create a short position in the common stock in connection
with this offering, i.e., if they sell more shares of common stock than are set
forth on the cover page of this Prospectus, they may reduce that short position
by purchasing common stock in the open market. The Underwriters may also elect
to reduce any short position by exercising all or part of the over-allotment
option described above.
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The Underwriters may impose a penalty bid on certain Underwriters and selling
group members. This means that if the Underwriters purchase common stock in the
open market to reduce the Underwriters' short positions or to stabilize the
price of the common stock, they may reclaim the amount of the selling
concession from the Underwriters who sold those shares of common stock as part
of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of a security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Prior to this offering, there has been no public market for the common stock.
Consequently, the initial public offering price was determined by negotiations
between the Company and the Representatives. Among the factors considered in
such negotiations were prevailing market conditions, the results of operations
of the Company in recent periods, the market capitalizations and the stages of
development of other companies that the Company and the Representatives believe
to be comparable to the Company, estimates of the business potential of the
Company, the present state of the Company's development and other factors
deemed relevant.
Although the shares of common stock offered for sale by the Underwriters will
be registered under the Securities Act, the Company does not intend to apply
for listing of its common stock on any securities exchange in the United States
or for quotation through the National Association of Securities Dealers
Automated Quotation System. The US Underwriters have advised the Company that
they intend to offer or sell shares of common stock only to United States or
Canadian Persons that they reasonably believe to be "qualified institutional
buyers" ("QIBs") as defined in Rule 144A under the Securities Act. Therefore,
US purchasers of shares of common stock may be required to seek liquidity for
their shares outside of the United States on EASDAQ or on the CSE.
Carnegie Bank A/S, one of the Lead Managers and an affiliate of Carnegie
Inc., one of the U.S. Representatives, acted as placement agent for the sale of
the Company's Series E Stock and received a placement fee in connection
therewith.
SUBSCRIPTION AND SALE
The offerings of the common stock will commence on the date that the
Underwriters and the Company determine the initial public offering price for
the common stock. The closing of the issuance and sale of the common stock by
the Company is expected to occur on the third day following the determination
of the initial public offering price (fourth day, if the determination is made
after 4:30 P.M. Eastern Standard time). In the event that the offerings are
oversubscribed, the available shares will be apportioned by the Underwriters
among the subscriptions received.
Denmark
In Denmark, the offering of the shares of common stock will be subject to the
following subscription procedures:
The subscription period is expected to commence on , 1999 and
terminate at :00 [A.M./P.M.] Central European time on the date that the
initial public offering price is determined, unless terminated earlier. The
Copenhagen Stock Exchange will be notified of the termination of the
subscription period. The initial public offering price will be announced in
Denmark through the Copenhagen Stock Exchange. Pricing and closing for all
shares will occur simultaneously.
Certain selling agents in Denmark may request that investors use a
subscription application form which is included with the Danish version of
this Prospectus. This form, if requested, must be received by the selling
agent from whom it was obtained prior to the termination of the
subscription period and is subject to the written instructions included
therein.
68
<PAGE>
Names and addresses of investors must be disclosed to the International
Managers who are entitled to pass on such information to the Company.
Belgium
The shares of common stock will not be offered publicly, directly or
indirectly, in Belgium at the time of this offering. Nevertheless, the
admission to trading on EASDAQ of the shares of common stock constitutes a
public offer in Belgium necessitating the approval of this Prospectus by the
CBF as described on page 3 of this Prospectus.
Austria
The shares of common stock have not been offered and will not be offered to
the general public in Austria but will be offered to a defined group of certain
institutional investors on the basis of a private placing or otherwise only in
circumstances where an exemption from the duty to publish a securities sale
prospectus under the Austrian Capital Market Act is applicable. Therefore, this
Prospectus is not intended for subscription and sale to the general public and
it is addressed to institutional investors only.
France
The offering does not and is not intended to constitute an offer to the
public ("appel public a l'epargne") under French law. The Prospectus is issued
in France only to persons who are qualified investors as defined under French
law, in particular Article 6 of the Ordinance No. 67-833 dated 28 September
1967 (as amended) in conjunction with Article 1 of the Decree No. 98-880 dated
1 October 1998. The Prospectus has not been submitted for approval to the
French Commission des Operations de Bourse (COB), nor have any procedures
required under French law for the public offering of shares in France been
followed. This Prospectus may not be used in connection with any offer or sale
of securities issued by the Company to the public in France.
Germany
The shares of common stock have not been offered and will not be offered to
persons in Germany except to persons who acquire or dispose of securities or
dispose of securities as part of their profession or as a business either for
their own account or for the account of third parties (Section 2, No. 1
Securities Sales Prospectus Act "Wertpapierverkaufspropekt-Gesetz") or
otherwise only in circumstances where an exemption from the duty to publish a
securities sales prospectus under the German Securities Sales Prospectus Act is
applicable.
Italy
The European Managers have represented and agreed that no action has been or
will be taken which would allow the offering of the shares of common stock to
the public in the Republic of Italy and that individual sales of shares of
common stock to any person in the Republic of Italy have only been or will only
be made in accordance with Italian securities, tax and other applicable laws
and regulations. Accordingly, the shares of common stock may not be offered,
sold or delivered and neither this Prospectus nor any other offering material
relating to the shares of common stock may be distributed or made available in
the Republic of Italy unless (i) such activities are carried out by a
securities intermediary appropriately authorized to conduct such activities in
the Republic of Italy and in accordance with applicable Italian securities laws
and any other applicable law or regulatory requirements and (ii) the applicable
requirements, if any, for notices to the Consob under Article 4 of Consob
Regulation 6430 and to the Bank of Italy under Article 129 of Legislative
Decree No. 385 of 1st September, 1993, as amended, and the Bank of Italy's
instructions issued thereunder, are fully complied with.
Sweden
The shares of common stock will be offered to a limited number of potential
investors only. The offered shares of common stock will not be offered to the
public in Sweden and are therefore not within the scope of the prospectus
regulations in the Swedish Financial Instruments Trading Act. This Prospectus
has not been submitted for approval by or registration with the Swedish
Financial Supervisory Authority.
69
<PAGE>
Switzerland
The shares of common stock will not be offered publicly, directly or
indirectly, to investors in Switzerland. Only a strictly limited number (not in
excess of 20) of professional or institutional investors will be approached on
a bilateral basis in connection with the offering of the shares of common
stock.
United Kingdom
The European Managers have represented and agreed with the Company that:
They have not offered or sold and prior to the expiration of the period
of six months from the date of the issue of the shares of common stock,
will not offer or sell any shares of common stock to persons in the United
Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their business or otherwise in circumstances
which have not resulted and will not result in an offer to the public in
the United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995 or the Financial Services Act of 1986.
They have complied and will comply with all applicable provisions of the
Financial Services Act of 1986 with respect to anything done by it in
relation to the shares of common stock in, from or otherwise involving the
United Kingdom.
They have only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of
the shares of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act of 1986 (Investment
Advertisements) (Exceptions) Order 1996 (as amended) or is a person to whom
such document may otherwise lawfully be issued or passed on.
70
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Lynnette C.
Fallon, a partner of Palmer & Dodge LLP, is the Secretary of the Company.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Brown & Wood LLP, New York, New York. Certain legal matters
in connection with the Company's patents will be passed upon for the Company by
Clark & Elbing, LLP, Boston, Massachusetts. Certain matters of Danish law,
including, among other things, the statements of Danish law included in this
Prospectus under the caption "Income Tax Considerations--Danish Tax
Considerations" will be passed upon by Dragsted & Helmer Nielsen, Copenhagen,
Denmark, and Bech-Bruun & Trolle, Copenhagen, Denmark, for the Company and the
Underwriters, respectively. Certain matters of English law will be passed upon
by Denton Hall, London, England, for the Company. Palmer & Dodge LLP and Brown
& Wood LLP will rely upon Dragsted & Helmer Nielsen and Bech-Bruun & Trolle
with respect to certain matters governed by Danish law and upon Denton Hall
with respect to certain matters governed by English law.
71
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1995, 1996, 1997 and
September 30, 1998 (unaudited) and Pro Forma September 30, 1998
(unaudited)............................................................. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997, for the Nine Months Ended September 30, 1997 and
1998 (unaudited) and for the Period from Inception (May 27, 1992) to
September 30, 1998 (unaudited).......................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the Period from Inception (May 27, 1992) to December 31, 1997, and for
the Nine Months Ended September 30, 1998 (unaudited) and Pro Forma
September 30, 1998 (unaudited).......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997, for the Nine Months Ended September 30, 1997 and
1998 (unaudited) and for the Period from Inception (May 27, 1992) to
September 30, 1998 (unaudited).......................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
After the .654-for-one reverse stock split discussed in Note 6(a) to the
Company's financial statements is effected, we expect to be in a position to
render the following audit report.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Phytera, Inc.:
We have audited the accompanying consolidated balance sheets of Phytera, Inc.
(a Delaware corporation in the development stage) and subsidiaries as of
December 31, 1995, 1996 and 1997, the related consolidated statements of
operations and cash flows for each of the three years in the period ended
December 31, 1997, and the related statement of stockholders' equity (deficit)
for the period from inception (May 27, 1992) through December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phytera, Inc. and subsidiaries
as of December 31, 1995, 1996 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, in conformity with United States generally accepted accounting
principles.
Boston, Massachusetts
February 20, 1998 (except with respect
to the matters discussed in Note 6(a),
as to which the date is December 23, 1998)
F-2
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1998 1998
----------- ------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 470,010 $ 4,011,527 $ 3,342,130 $ 5,887,649 $ 5,887,649
Marketable
securities........... -- 6,105,391 450,000 1,100,000 1,100,000
Prepaid expenses and
other current
assets............... 136,273 246,327 232,788 295,288 295,288
----------- ------------ ------------ ------------ ------------
Total current
assets............. 606,283 10,363,245 4,024,918 7,282,937 7,282,937
----------- ------------ ------------ ------------ ------------
Equipment and
Improvements, at cost:
Laboratory equipment.. 1,989,571 2,331,802 2,985,962 2,974,963 2,974,963
Leasehold
improvements......... 455,506 603,518 751,899 905,019 905,019
Office equipment...... 307,592 465,792 584,930 739,703 739,703
----------- ------------ ------------ ------------ ------------
2,752,669 3,401,112 4,322,791 4,619,685 4,619,685
Less--Accumulated
depreciation and
amortization......... 894,662 1,448,540 2,153,328 2,717,617 2,717,617
----------- ------------ ------------ ------------ ------------
1,858,007 1,952,572 2,169,463 1,902,068 1,902,068
----------- ------------ ------------ ------------ ------------
Other Assets............ 239,561 79,695 94,633 129,649 129,649
----------- ------------ ------------ ------------ ------------
$ 2,703,851 $ 12,395,512 $ 6,289,014 $ 9,314,654 $ 9,314,654
=========== ============ ============ ============ ============
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED
STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Current portion of
long-term debt (note
4)................... $ 825,000 $ 300,993 $ 299,536 $ 289,278 $ 289,278
Accounts payable...... 297,098 199,868 243,790 431,368 431,368
Accrued expenses...... 281,019 339,860 363,340 862,633 862,633
Deferred revenue...... -- 546,079 531,898 648,529 648,529
----------- ------------ ------------ ------------ ------------
Total current
liabilities........ 1,403,117 1,386,800 1,438,564 2,231,808 2,231,808
----------- ------------ ------------ ------------ ------------
Long-Term Debt, less
current portion (note
4)..................... 745,440 1,273,526 1,549,836 2,189,080 2,189,080
----------- ------------ ------------ ------------ ------------
Convertible Debt........ 1,762,236 -- -- -- --
----------- ------------ ------------ ------------ ------------
Commitments (note 8)
Redeemable Convertible
Preferred Stock, $0.01
par value--Authorized--
14,446,382 shares; no
shares pro forma Issued
and outstanding--
2,766,486 shares,
6,025,591 shares,
6,460,591 shares,
7,274,833 shares and no
shares as of December
31, 1995, 1996 and
1997, September 30,
1998 and pro forma
September 30, 1998,
respectively........... 11,893,915 30,945,219 34,186,184 41,138,563 --
----------- ------------ ------------ ------------ ------------
Stockholders' Equity
(Deficit) (note 6):
Preferred stock, $0.01
par value--
Authorized--1,000,000
shares pro forma
Issued and
outstanding--no
shares -- -- -- -- --
Common stock, $0.01
par value--
Authorized--13,000,000
shares actual;
25,000,000 shares pro
forma
Issued and
outstanding--499,035
shares, 529,758
shares, 607,783
shares, 709,949
shares and 5,659,005
shares as of December
31, 1995, 1996 and
1997, September 30,
1998 and pro forma
September 30, 1998,
respectively......... 4,990 5,298 6,078 7,099 56,590
Additional paid-in
capital.............. 7,501 839,919 1,341,534 5,206,617 46,295,689
Deficit accumulated
during the
development stage.... (13,113,348) (22,055,250) (32,233,182) (39,647,629) (39,647,629)
Deferred
compensation......... -- -- -- (1,810,884) (1,810,884)
----------- ------------ ------------ ------------ ------------
Total stockholders'
equity (deficit)... (13,100,857) (21,210,033) (30,885,570) (36,244,797) 4,893,766
----------- ------------ ------------ ------------ ------------
Total liabilities,
redeemable
preferred stock and
stockholders'
equity (deficit)... $ 2,703,851 $ 12,395,512 $ 6,289,014 $ 9,314,654 $ 9,314,654
=========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
NINE MONTHS ENDED (MAY 27,
YEARS ENDED DECEMBER 31, SEPTEMBER 30, 1992) TO
------------------------------------- ------------------------ SEPTEMBER 30,
1995 1996 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Collaborative Revenue... $ 49,632 $ 247,000 $ 1,052,657 $ 730,311 $ 1,100,257 $ 2,551,963
----------- ----------- ----------- ----------- ----------- ------------
Operating Expenses:
Research and
development.......... 3,964,007 5,231,383 7,672,748 5,711,002 5,638,715 27,191,166
General and
administrative....... 1,424,539 1,675,317 1,739,806 1,287,038 1,908,900 8,632,962
Charge for acquired
research and develop-
ment................. -- 1,498,339 1,611,728 1,611,728 -- 4,421,517
----------- ----------- ----------- ----------- ----------- ------------
5,388,546 8,405,039 11,024,282 8,609,768 7,547,615 40,245,645
----------- ----------- ----------- ----------- ----------- ------------
Loss from
operations......... (5,338,914) (8,158,039) (9,971,625) (7,879,457) (6,447,358) (37,693,682)
Other:
Interest income....... 100,801 142,413 383,591 319,702 167,610 1,035,765
Interest expense...... (207,135) (172,505) (155,793) (89,115) (152,833) (935,285)
Foreign currency
translation gain
(loss)............... 6,720 (100,749) (10,185) (13,496) (152,132) (95,662)
----------- ----------- ----------- ----------- ----------- ------------
Net loss............ $(5,438,528) $(8,288,880) $(9,754,012) $(7,662,366) $(6,584,713) $(37,688,864)
=========== =========== =========== =========== =========== ============
Net Loss per Share:
Basic and Diluted..... $ (15.43) $ (19.99) $ (19.53) $ (15.59) $ (12.47)
Pro Forma Basic and
Diluted.............. $ (2.17) $ (1.45)
Weighted Average Common
Shares Outstanding:
Basic and Diluted..... 353,444 434,801 521,178 512,008 593,552
Pro Forma Basic and
Diluted.............. 4,692,624 5,121,511
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
-------------------- ADDITIONAL DURING THE TOTAL
NUMBER OF $0.01 PAR PAID IN DEVELOPMENT DEFERRED STOCKHOLDERS'
SHARES VALUE CAPITAL STAGE COMPENSATION EQUITY (DEFICIT)
--------- --------- ----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Initial Sale of Common
Stock.................. 196,200 $ 1,962 $ 1,038 $ -- $ -- $ 3,000
Exercise of stock
options............... 13,080 131 69 -- -- 200
Accretion of preferred
stock................. -- -- -- (6,093) -- (6,093)
Net loss............... -- -- -- (1,519,500) -- (1,519,500)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1992................... 209,280 2,093 1,107 (1,525,593) -- (1,522,393)
Sale of common stock... 256,695 2,567 1,358 -- -- 3,925
Exercise of stock
options............... 13,080 131 69 -- -- 200
Accretion of preferred
stock................. -- -- -- (15,332) -- (15,332)
Net loss............... -- -- -- (1,876,218) -- (1,876,218)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1993................... 479,055 4,791 2,534 (3,417,143) -- (3,409,818)
Sale of common stock... 4,905 49 4,076 -- -- 4,125
Exercise of stock
options............... 13,521 135 72 -- -- 207
Accretion of preferred
stock................. -- -- -- (15,332) -- (15,332)
Net loss............... -- -- -- (4,227,013) -- (4,227,013)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1994................... 417,481 4,975 6,682 (7,659,488) -- (7,647,831)
Exercise of stock
options............... 1,553 16 818 -- -- 834
Accretion of preferred
stock................. -- -- -- (15,332) -- (15,332)
Net loss............... -- -- -- (5,438,528) -- (5,438,528)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1995................... 499,035 4,990 7,501 (13,113,348) -- (13,100,857)
Exercise of stock
options............... 23,904 239 343 -- -- 582
Exercise of Series C
Warrants (note 6(f)).. -- -- -- (251,447) -- (251,447)
Issuance of stock
options to
consultants........... -- -- 4,890 -- -- 4,890
Repurchase of
restricted stock...... (10,628) (106) (57) -- -- (163)
Issuance of restricted
stock for consulting
services.............. 17,447 174 14,498 -- -- 14,672
Accretion of preferred
stock................. -- -- -- (401,575) -- (401,575)
Warrants issued in
connection with
issuance of Series C
preferred stock (note
6(c))................. -- -- 812,745 -- -- 812,745
Net loss............... -- -- -- (8,288,880) -- (8,288,880)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1996................... 529,758 5,298 839,419 (22,055,250) -- (21,210,033)
Exercise of stock
options............... 36,362 364 24,752 -- -- 25,116
ESOP purchases......... 5,693 57 6,472 -- -- 6,529
Sale of common stock... 35,970 360 35,390 -- -- 35,750
Issuance of Series D
redeemable convertible
preferred stock in
connection with Auda
Pharmaceuticals ApS
acquisition........... -- -- 435,000 -- -- 435,000
Accretion of preferred
stock................. -- -- -- (423,920) -- (423,920)
Net Loss............... -- -- -- (9,754,012) -- (9,754,012)
--------- ------- ----------- ------------ ----------- -----------
Balance, December 31,
1997................... 607,783 6,078 1,341,534 (32,233,182) -- (30,885,570)
Deferred compensation
related to grants or
common stock options.. -- -- 2,115,350 -- (2,115,350) --
Amortization of
deferred
compensation.......... -- -- -- -- 304,466 304,466
Issuance of common
stock options......... -- -- 35,600 -- -- 35,600
Exercise of stock
options............... 85,816 858 70,374 -- -- 71,232
Exercise of Series C
redeemable convertible
preferred stock
warrants (note 6(f)).. -- -- -- (10,333) -- (10,333)
Sale of restricted
common stock.......... 16,350 164 18,587 -- -- 18,750
Value of discount
ascribed to the
guaranteed rate of
return on Series E
redeemable convertible
preferred stock....... -- -- 1,625,172 -- -- 1,625,172
Accretion of preferred
stock................. -- -- -- (413,108) -- (413,108)
Accretion of discount
ascribed to the
guaranteed rate of
return on Series E
redeemable convertible
preferred stock....... -- -- -- (406,293) -- (406,293)
Net Loss............... -- -- -- (6,584,713) -- (6,584,713)
--------- ------- ----------- ------------ ----------- -----------
Balance, September 30,
1998 (unaudited)....... 709,949 7,099 5,206,617 (39,647,629) (1,810,884) (36,244,797)
Conversion of
redeemable convertible
preferred stock into
common stock
(unaudited)........... 4,949,056 49,491 41,089,072 -- -- 41,138,563
--------- ------- ----------- ------------ ----------- -----------
Pro Forma Balance,
September 30, 1998
(unaudited)........... 5,659,005 $56,590 $46,295,689 $(39,647,629) $(1,810,884) $ 4,893,766
========= ======= =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED INCEPTION
YEARS ENDED DECEMBER 31, SEPTEMBER 30, (MAY 27, 1992) TO
------------------------------------- ------------------------ SEPTEMBER 30,
1995 1996 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss............... $(5,438,528) $(8,288,880) $(9,754,012) $(7,662,366) $(6,584,713) $(37,688,864)
Adjustments to
reconcile net loss to
net cash used in
operating activities--
Charge for acquired
research and
development, net of
cash paid............ -- 1,459,651 1,611,728 1,611,728 -- 4,103,038
Stock issuance in
exchange for
interest on bridge
financing loan....... -- 10,622 -- -- -- 70,074
Stock issuance in
exchange for rent.... -- -- -- -- -- 93,500
Stock issuance in
exchange for
consulting
services............. -- 14,406 -- -- -- 14,406
Compensation related
to issuance of
common stock
options.............. -- 4,890 -- -- 340,293 345,183
Depreciation and
amortization......... 485,286 553,878 704,788 493,562 564,289 2,850,531
Changes in assets and
liabilities--
Accounts receivable,
prepaid expenses and
other current
assets.............. 210,404 (110,054) 26,041 (188,400) (62,500) (273,724)
Accounts payable..... (270,888) (225,625) 4,702 264,848 187,576 244,329
Accrued expenses..... (812) 76,499 18,133 97,298 499,293 855,439
Deferred revenue..... 528,421 (14,181) 288,743 116,630 648,528
----------- ----------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities......... (5,014,538) (5,976,192) (7,402,801) (5,094,587) (4,939,132) (28,737,560)
----------- ----------- ----------- ----------- ----------- ------------
Cash Flows from
Investing Activities:
Purchases of equipment
and improvements...... (149,604) (626,723) (913,422) (892,106) (296,894) (4,689,058)
Decrease (increase) in
marketable
securities............ 1,547,640 (6,105,391) 5,655,391 3,455,638 (650,000) (1,100,000)
(Increase) decrease in
restricted cash....... (220,000) 220,000 -- -- -- --
Increase in other
assets................ (19,561) (60,134) (13,803) (17,933) (35,016) (128,514)
Net cash acquired in
acquisition of Auda
Pharmaceuticals ApS,
net of acquisition
costs................. -- -- 1,662,990 1,662,990 -- 1,662,990
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by
(used in) investing
activities......... 1,158,475 (6,572,248) 6,391,156 4,208,589 (981,910) (4,254,582)
----------- ----------- ----------- ----------- ----------- ------------
Cash Flows from
Financing Activities:
Net (payments of)
proceeds from notes
payable............... (266,606) (139,554) (295,420) (228,972) (227,911) 162,115
Proceeds from long-term
debt.................. -- 67,073 627,244 429,140 769,342 1,386,835
Proceeds from
convertible debt...... 1,762,236 -- -- -- -- 1,762,236
Net proceeds from sale
(repurchase) of
preferred stock....... -- 16,058,311 -- -- 7,747,576 35,494,761
Proceeds from sale of
common stock.......... -- (163) 35,750 35,750 18,750 64,387
Proceeds from the
exercise of stock
options and warrants.. 834 985 25,116 20,489 71,249 98,791
Proceeds from ESOP
purchases............. -- -- 6,529 -- -- 6,529
Proceeds from the
issuance of stock in
exchange for
consulting services... -- 266 -- -- -- 266
Net effect of foreign
currency translation
adjustments........... (6,096) 103,039 (56,971) (68,756) 87,555 (96,129)
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 1,490,368 16,089,957 342,248 187,651 8,466,561 38,879,791
----------- ----------- ----------- ----------- ----------- ------------
Net (decrease) increase
in cash and cash
equivalents............ (2,365,695) 3,541,517 (669,397) (698,347) 2,545,519 5,887,649
Cash and Cash
Equivalents, beginning
of period.............. 2,835,705 470,010 4,011,527 4,011,527 3,342,130 --
----------- ----------- ----------- ----------- ----------- ------------
Cash and Cash
Equivalents, end of
period................. $ 470,010 $ 4,011,527 $ 3,342,130 $ 3,313,180 $ 5,887,649 $ 5,887,649
=========== =========== =========== =========== =========== ============
Supplemental Disclosure
of Noncash
Transactions:
Acquisition of Phytera
Ltd.--
Assumed liabilities.... $ -- $ -- $ -- $ -- $ -- $ (1,073,327)
Fair value of assets
acquired.............. -- -- -- -- -- 42,668
Issuance of stock in
connection with
Phytera Ltd.
acquisition........... -- -- -- -- -- 1,000
Acquisition of Neptune
Pharmaceuticals,
Inc.--
Assumed liabilities.... $ -- $ (128,394) $ -- $ -- $ -- $ (128,394)
Fair value of assets
acquired.............. -- 22,018 -- -- -- 22,018
Issuance of stock in
connection with
Neptune
Pharmaceuticals,
Inc................... -- 1,353,275 -- -- -- 1,353,275
Acquisition of Auda
Pharmaceuticals ApS--
Assumed liabilities.... $ -- $ -- $ (44,569) $ (44,569) $ -- $ (44,569)
Fair value of assets
acquired.............. -- -- 1,739,370 1,739,370 -- 1,739,370
Issuance of stock in
connection with Auda
Pharmaceuticals ApS... -- -- 3,262,500 3,262,500 -- 3,262,500
Conversion of
convertible debt and
interest into
preferred stock....... $ -- $ 1,799,038 $ -- $ -- $ -- $ 1,799,038
Supplemental Disclosure
of Cash Flow
Information:
Cash paid for
interest.............. $ 181,079 $ 187,474 $ 134,355 $ 32,113 $ 21,285 $ 692,973
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS
Phytera, Inc. and subsidiaries (the Company) was incorporated on May 27,
1992. The Company is an international biopharmaceutical Company engaged in
identifying and optimizing novel chemical lead structures through its
Combinatorial Drug Discovery Program.
The Company is in the development stage. Under United States generally
accepted accounting principles ("US GAAP"), a development stage enterprise is
defined as an enterprise which is devoting substantially all of its efforts
toward developing products, raising capital and marketing products under
development. Under US GAAP, development stage enterprises are required to
provide certain additional disclosure in their financial statements. The
Company is subject to a number of risks similar to those of other development
stage companies, including dependence on key individuals, competition from
substitute products and larger companies, the development of commercially
usable products and the need to obtain adequate additional financing necessary
to fund the development of its products.
(2) ACQUISITIONS
On July 31, 1996, the Company issued 246,050 shares of its Series B
redeemable convertible preferred stock for 100% of the outstanding capital
stock of Neptune Pharmaceuticals, Inc. ("Neptune"). These shares were valued at
$5.50 per share which represented the fair market value based upon comparable
sales of Series B redeemable convertible preferred stock. The acquisition was
accounted for as a purchase in accordance with Accounting Principles Board
Opinion ("APB") No. 16. The assets acquired from Neptune consisted primarily of
intellectual property which, at the date of acquisition, had not established
technological feasibility and has no alternative future uses. The intellectual
property consisted of know-how and methodologies related to marine extract
cultures and an option to license certain technology from an academic
institution. In order for the intellectual property acquired from Neptune to be
commercialized and generate cash flows, the Company needs to expend a
substantial amount on additional research and development, preclinical testing
and clinical trials, regulatory clearances, and manufacturing, distribution and
marketing arrangements the outcome of which is uncertain. The cost and time
required to complete the development of the intellectual property is
significant and difficult to estimate given the uncertainties of research and
development and the regulatory process. Accordingly, the net realizable value
of the acquired intellectual property is uncertain. The portion of the purchase
price allocated to intellectual property, totaling $1,498,339, was charged to
operations in the year ended December 31, 1996 as in-process research and
development. The results of operations of Neptune have been included in the
accompanying Consolidated Financial Statements since the date of acquisition.
On March 11, 1997, the Company issued 435,000 shares of its Series D
redeemable convertible preferred stock for 100% of the outstanding capital
stock of Auda Pharmaceuticals ApS ("Auda"). These shares were valued at $7.50
per share which represented the fair market value based upon comparable sales
of Series D redeemable convertible preferred stock. The acquisition was
accounted for as a purchase in accordance with APB No. 16. The assets of Auda
consisted primarily of $1,662,990 of cash and intellectual property which, at
the date of acquisition, had not established technological feasibility and has
no alternative future uses. The intellectual property consisted of rights to
three patents licensed from the University of Copenhagen which may have use in
the Company's combinational chemistry programs. In order for the intellectual
property acquired from Auda to be commercialized and generate cash flows the
Company needs to expend a substantial amount on additional research and
development, preclinical testing and clinical trials, regulatory clearances,
and manufacturing, distribution and marketing arrangements the outcome of which
is uncertain. The cost and time required to complete the development of the
intellectual property is significant and difficult to estimate given the
uncertainties of research and development and the regulatory process.
Accordingly, the net realizable value of the intellectual property is
uncertain. The portion of the purchase price allocated to intellectual
property, totaling $1,611,728, was charged to operations in the year ended
December 31, 1997 as in-process research and development. The results of Auda's
operations have been included in the accompanying Consolidated Financial
Statements since the date of acquisition.
The following unaudited pro forma summary information presents the combined
results of operations of the Company, Neptune and Auda as if the acquisitions
had occurred at the beginning of 1996 and 1997, respectively. This unaudited
pro forma financial information is presented for informational purposes only
and
F-7
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
may not be indicative of the results of operations as they would have been if
the Company, Neptune and Auda had been a single entity, nor is it necessarily
indicative of the results of operations that may occur in the future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER NINE MONTHS
31, ENDED
------------------------ SEPTEMBER 30,
1996 1997 1997
----------- ----------- -------------
<S> <C> <C> <C>
Collaborative revenues........... $ 267,200 $ 1,052,657 $ 730,311
Net loss......................... (8,758,011) (9,854,791) (7,763,146)
Basic and diluted net loss per
share........................... (21.07) (19.72) (15.78)
</TABLE>
(3) SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements reflect the application of
certain significant accounting policies as described in this note and elsewhere
in the notes to Consolidated Financial Statements.
(a) Summary of Certain Differences Between US GAAP, Danish generally accepted
accounting principles ("Danish GAAP") and International Accounting
Standards ("IAS")
In preparing its Consolidated Financial Statements for each of the years
ended December 31, 1995, 1996 and 1997 and nine-month periods ended
September 30, 1997 and 1998, the Company has applied accounting principles
which are in accordance with US GAAP. These accounting principles differ in
some respects from Danish GAAP and IAS. The more significant differences
have been summarized below. The following sections list only the material
differences in accounting principles and related presentation and
disclosure items which apply to the Company.
IAS and Danish GAAP differ in certain respects from US GAAP in such
regards as the classification and presentation of items in the balance
sheet and income statement as well as disclosure in the notes. The
explanatory notes to the income statement do differ both in terms of extent
and content. US GAAP require specific disclosures to be made related to the
consolidated statements of operations, consolidated balance sheets, and
accompanying notes. However, IAS tend to be less specific regarding the
form of presentation and structure of such disclosure.
In the balance sheet, US GAAP requires assets and liabilities to be
classified in ascending order, starting with current assets and current
liabilities, whereas the Danish GAAP requires a mandatory line by line
presentation, based on the European Union fourth directive. This structure
lists fixed assets and equity first and current assets and current
liabilities last (in descending order). Further differences relate to the
classification of assets on a line by line basis. US GAAP statements
usually display fixed assets at historical cost and total accumulated
depreciation as a separate line in the balance sheet. Danish GAAP
statements show fixed assets at net book value in the balance sheet with an
accompanying note explaining the "difference" between historical cost and
accumulated depreciation. Furthermore, Danish GAAP classifies current
assets differently on a line by line basis on the balance sheet. US GAAP
classifies leasehold improvements as tangible fixed assets, whereas these
are included in intangible fixed assets according to Danish GAAP. Similarly
the grouping and classification of debt and payables can vary under US GAAP
and Danish GAAP presentation rules.
US GAAP requires research and development costs to be charged to the
profit and loss account as incurred. IAS recognize development costs as an
asset provided that certain conditions are met. Phytera has not recognized
any such assets under IAS, and the development costs are expensed as
incurred in the same way as research costs.
Under US GAAP, a company such as Phytera and subsidiaries is deemed to be
a "development stage company", which requires very strict reporting forms,
including certain aggregate amounts from its inception until the most
recent reporting period to be reported in the consolidated statements of
operations and consolidated statements of cash flows and consolidated
statement of stockholders' equity (deficit). Accounting policy footnotes
require special disclosure explaining accounting for development stage
companies. IAS is less specific regarding the form of presentation and
structure of such disclosure.
F-8
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Consolidation
The accompanying Consolidated Financial Statements include the accounts
of the Company and its wholly owned subsidiaries, Phytera Ltd., Phytera A/S
and Phytera Symbion ApS. All material intercompany accounts and
transactions have been eliminated in consolidation.
(d) Unaudited Pro Forma Presentation
The unaudited Pro Forma Consolidated Balance Sheet as of September 30,
1998 reflects the automatic conversion of all outstanding shares of
redeemable convertible preferred stock into 4,949,056 shares of common
stock which will occur upon the closing of the Company's proposed initial
public offering (assuming the Series E Convertible Preferred Stock converts
into an aggregate of 722,746 shares of common stock and the closing of the
proposed initial public offering on or before February 8, 1999 at an
offering price of $13.00 per share (the mid-point of the expected range)).
(e) Interim Financial Statements
The accompanying Consolidated Financial Statements as of September 30,
1998 and for the nine-month periods ended September 30, 1997 and 1998 are
unaudited, but in the opinion of management, include all adjustments
consisting of normal recurring adjustments necessary for a fair
presentation of results for the interim periods. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted,
although the Company believes that the disclosures included are adequate to
make the information presented not misleading. Results for the nine months
ended September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
(f) Revenue Recognition
Substantially all of the Company's revenues have been derived from
research and development partnerships (see note 9). Research funding, which
is not subject to achieving development milestones, is recognized as
revenue over the life of the research agreement as the required services
are provided and costs are incurred. Revenues derived from providing
extracts are recognized upon shipment of the extracts. Milestone payments
will be recognized as revenue upon achievement of the milestone and receipt
of payment. License fees will be recognized as revenue upon receipt and
fulfillment of all performance obligations. Deferred revenue represents
amounts received prior to recognition as revenue.
(g) Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market.
The Company considers highly liquid investments with maturities of 90 days
or less at the time of acquisition to be cash equivalents. Cash and cash
equivalents include money market accounts that are readily convertible to
cash and commercial paper purchased with a maturity of 90 days or less.
(h) Marketable Securities
The Company accounts for marketable securities under Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company has classified its
marketable securities as held-to-maturity and they are recorded at
amortized cost, which approximates fair market value.
At December 31, 1996, 1997 and September 30, 1998, the Company's
marketable securities consist of corporate bonds that mature within one
year of the balance sheet date.
F-9
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(i) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of equipment and
improvements over their estimated useful lives on a straight-line basis as
follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Laboratory equipment... 5 years
Leasehold
improvements.......... Life of lease
Office equipment....... 3-7 years
</TABLE>
(j) Research and Development Expenses
The Company charges research and development expenses to operations as
incurred.
(k) Foreign Currency Translation
The financial statements of the Company's non US subsidiaries are
translated in accordance with SFAS No. 52, Foreign Currency Translation.
The functional currency of the Company's foreign subsidiaries is the U.S.
Dollar, accordingly, all assets and liabilities of the foreign subsidiaries
are translated using the exchange rate at the balance sheet date, except
for prepaid expenses, equipment and improvements and stockholders' equity
(deficit), which are translated at historical rates. Revenues and expenses
are translated at average rates during the period, except for depreciation
and amortization, which are translated at historical rates. Translation
gains and losses arising from the translations are included in the
consolidated statements of operations, since the functional currency is the
US dollar for all operations.
(l) Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash equivalents, marketable securities, accounts
payable and debt. The estimated fair value of these financial instruments
approximates their carrying value.
(m) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk, requires disclosure of any significant off-balance-sheet and
credit risk concentration. The Company has no significant off-balance-sheet
concentration of credit risk such as foreign exchange contracts or other
hedging arrangements. Financial instruments that subject the Company to
credit risk consist of cash and cash equivalents and marketable securities.
The Company's collaborative revenue for the years ended December 31, 1996
and 1997 and for the nine months ended September 30, 1997 was derived
entirely from Tsumura & Co. Approximately 55%, 31% and 14% of the Company's
collaborative revenue for the nine months ended September 30, 1998 was
derived from Tsumura & Co., Chiron Corporation and Eli Lilly and Company,
respectively. See Note 9.
(n) Net Loss per Share
Basic and diluted net loss per common share was determined by dividing
net loss attributable to common shareholders, which reflects the accretion
of preferred stock to redemption value, by the weighted average vested
common shares outstanding during the period. The computation of basic and
diluted net loss per share reflects adjustments to net loss of $15,332,
$401,575, $423,920, $317,940 and $819,401 for the accretion of preferred
stock to its redemption value for the years ended December 31, 1995, 1996,
1997 and the nine months ended September 30, 1997 and 1998, respectively.
Basic and diluted net loss per share are the same, as outstanding common
stock options and warrants and convertible preferred stock are considered
antidilutive as the Company has recorded a net loss for all periods
presented. Options and warrants to purchase a total of 258,081, 645,576,
747,753, 723,098, and 1,029,437 common shares have been excluded from the
computation of diluted weighted average shares outstanding for the years
ended December 31, 1995, 1996, 1997, and for the nine months ended
September 30, 1997 and 1998, respectively. Shares of common stock issuable
upon the conversion of outstanding redeemable convertible preferred stock
have also been excluded for all periods presented.
F-10
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The calculation of pro forma net loss per common share assumes that all
series of redeemable convertible preferred stock had been converted to
common stock as of the original issuance dates. The calculation also
assumes that the Series E redeemable convertible preferred stock converts
into an aggregate of 722,746 shares of common stock which is based upon a
closing of the Company's proposed initial public offering on or before
February 8, 1999 at an offering price of $13.00 per share (the mid-point of
the expected range).
(o) New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 requires
disclosure of all components of comprehensive income on an annual and
interim basis. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstance from non-operating sources. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The Company has adopted
this statement, however as of September 30, 1998, the Company does not have
any material components of comprehensive income.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain
financial and supplementary information to be disclosed on an annual and
interim basis for each reportable segment of an enterprise. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. The Company
will adopt this statement in their 1998 year end financial statements.
(4) LONG-TERM DEBT
Long-term debt obligations consist of the following as of December 31, 1996
and 1997 and September 30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1996 1997 1998
---------- ---------- -------------
<S> <C> <C> <C>
Note payable to University of
Sheffield........................... $ 822,000 $ 792,384 $ 816,000
Note payable to a Danish
organization........................ 67,073 685,257 1,510,656
Note payable to a United States
bank................................ 550,000 275,000 68,750
Note payable to an unrelated third
party............................... 100,691 73,990 64,656
Note payable to a Danish bank........ 34,755 22,741 18,296
---------- ---------- ----------
1,574,519 1,849,372 2,478,358
Less--Current portion................ 300,993 299,536 289,278
---------- ---------- ----------
$1,273,526 $1,549,836 $2,189,080
========== ========== ==========
</TABLE>
Long-term debt includes a (Pounds)480,000 (approximately $816,000 at the
September 30, 1998 exchange rate) note payable to the University of Sheffield,
bearing interest at 10% per annum, issued in connection with the acquisition of
Phytera Ltd. The note is payable on the closing of a qualified initial public
offering of the Company's common stock, as defined, but may be accelerated upon
the sale or transfer of all or substantially all of the Company's assets or
upon a voluntary petition of bankruptcy. Interest on the unpaid principal
balance is due each October 1.
In 1996, the Company established a credit facility with a Danish organization
to fund the Company's Danish operations. The maximum loan is DKK 13,232,700
($2,086,797 at the September 30, 1998 exchange rate), and is disbursed to the
Company quarterly, based on a percentage of the operating expenses incurred by
the Company's operations in Denmark through December 31, 1998. Interest accrues
from the time of disbursement at a rate of 7.98% per annum. The note and
interest accrued are payable quarterly beginning April 1, 1999. The loan
balance outstanding, including accrued but unpaid interest, at December 31,
1996, 1997 and September 30, 1998, was DKK 397,350, DKK 4,693,541 and DKK
9,564,726, respectively ($67,073, $685,257 and $1,510,656 at the December 31,
1996, and 1997 and September 30, 1998 exchange rates, respectively).
F-11
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In July 1994, the Company entered into a $1,100,000 equipment line of credit
with a US bank. The Company borrowed the maximum amount through December 31,
1994, at which time the amount outstanding under the equipment line of credit
was converted into a promissory note. The note is payable in 48 equal monthly
installments, beginning in January 1995 and bearing interest at the bank's
prime rate (8.5% at September 30, 1998) plus 2%. Borrowings under the note are
secured by substantially all of the Company's assets. The note contains certain
covenants, including minimum levels of liquidity and net worth. The Company was
in compliance with all covenants at December 31, 1997 and September 30, 1998.
In October 1996, the Company entered into a DKK 619,580 ($97,708 at the
September 30, 1998 exchange rate) note payable with a third party for the
purpose of funding leasehold improvements. During 1997, additional leasehold
improvements for the amount of DKK 13,750 ($2,168 at September 30, 1998) were
completed and the amount was added to the existing note balance without any
change in payment terms. The note is payable quarterly over five years
beginning October 1996. The note bears interest at 6% plus a discount rate,
which was 3.25% at September 30, 1998.
In September 1996, the Company entered into a DKK 217,700 ($34,331 at the
September 30, 1998 exchange rate) note payable with a Danish bank for the
purchase of a vehicle. The note is payable in 48 equal monthly installments,
beginning in October 1996 and bearing interest at 6.75%. The note is secured by
the vehicle.
In September 1998, the Company entered into a $1,000,000 equipment line of
credit with a United States finance company. This agreement provides for the
funding of equipment purchases made by the Company through July 15, 1999.
Separate loans are created each time funding is provided, and each loan is to
be repaid over 48 months from the date of the funding with a final payment of
12.5% of the initial principal amount. The repayment amount is based on a
percentage of the outstanding principal of the loan. The percentage rate can
vary prior to each funding, but is then fixed for the term of the specific loan
created by the specific funding event. The line is secured by all equipment
purchased under this agreement. There was no outstanding balance under this
line of credit at September 30, 1998.
(5) CONVERTIBLE DEBT
During 1995, the Company borrowed $1,762,236 from existing investors and
affiliates under convertible promissory notes bearing interest at 7% per annum.
On January 31, 1996, these notes plus accrued interest were converted into
287,846 shares of the Company's Series C convertible preferred stock in
conjunction with the financing discussed in note 6(c).
(6) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Recapitalization
On December 23, 1998, the Company's Board of Directors approved a 0.654-
for-one reverse stock split of the Company's common stock. The reverse
stock split will be effective prior to the consummation of the proposed
initial public offering of common stock. All share and per share amounts of
common stock for all periods have been retroactively adjusted to reflect
the reverse stock split. Upon the closing of the Company's proposed initial
public offering, the Company's certificate of incorporation will be amended
and restated to, among other things, change its authorized capital stock to
25,000,000 shares of $0.01 par value common stock and 1,000,000 shares of
$0.01 par value preferred stock.
(b) Common Stock
As of September 30, 1998, the Company had authorized 13,000,000 shares of
common stock, $0.01 par value and had issued 709,949 of such shares.
F-12
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The Company has authorized the issuance of up to 434,372 shares of common
stock pursuant to restricted stock agreements, of which 429,467 have been
issued at September 30, 1998. A portion of these shares vested immediately,
and the remaining shares vest ratably through 2003. All unvested stock, as
defined, is subject to repurchase at its original issuance price by the
Company upon the employee leaving the Company. In January 1996, the Company
exercised its repurchase right to purchase 10,628 shares of common stock.
As of December 31, 1997 and September 30, 1998, 48,069, and 57,552 shares
of restricted common stock, respectively, were unvested and subject to
repurchase right.
F-13
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(c) Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock activity since inception is as
follows:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E
-------------------- --------------------- -------------------- --------------------- --------------------
NUMBER CARRYING NUMBER CARRYING NUMBER CARRYING NUMBER CARRYING NUMBER CARRYING
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
--------- ---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of Series A
redeemable
convertible
preferred
stock........... 908,602 $1,697,381 -- $ -- -- $ -- -- $ -- -- $ --
Accretion of
preferred
stock.......... -- 6,093 -- -- -- -- -- -- -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance December
31, 1992........ 908,602 1,703,474 -- -- -- -- -- -- -- --
Sale of Series B
redeemable
convertible
preferred
stock.......... -- -- 1,857,884 10,144,445 -- -- -- -- -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- -- -- -- -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance December
31, 1993........ 908,602 1,709,567 1,857,884 10,153,684 -- -- -- -- -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- -- -- -- -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance, December
31, 1994........ 908,602 1,715,660 1,857,884 10,162,923 -- -- -- -- -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- -- -- -- -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance, December
31, 1995........ 908,602 1,721,753 1,857,884 10,172,162 -- -- -- -- -- --
Conversion of
bridge
financing loan
and interest
into preferred
stock.......... -- -- -- -- 287,846 1,799,038 -- -- -- --
Sale of Series C
redeemable
convertible
preferred
stock.......... -- -- -- -- 784,913 4,011,900 -- -- -- --
Issuance of
Series B
redeemable
convertible
preferred stock
in connection
with Neptune
Pharmaceuticals,
Inc.
acquisition.... -- -- 246,050 1,353,275 -- -- -- -- -- --
Sale of Series D
redeemable
convertible
preferred
stock.......... -- -- -- -- -- -- 1,900,000 11,233,666 -- --
Exercise of
warrants to
purchase Series
C redeemable
convertible
preferred stock
(note 6(f)).... -- -- -- -- 40,296 251,850 -- -- -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- 162,976 -- 223,267 -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance, December
31, 1996........ 908,602 1,727,846 2,103,934 11,534,676 1,113,055 6,225,764 1,900,000 11,456,933 -- --
Issuance of
Series D
redeemable
convertible
preferred stock
in connection
with Auda
Pharmaceuticals
ApS
acquisition.... -- -- -- -- -- -- 435,000 2,817,045 -- --
Accretion of
preferred
stock.......... -- 6,093 -- 9,239 -- 182,707 -- 225,881 -- --
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance, December
31, 1997........ 908,602 1,733,939 2,103,934 11,543,915 1,113,055 6,408,471 2,335,000 14,499,859 -- --
Sale of Series E
redeemable
convertible
preferred
stock.......... -- -- -- -- -- -- -- -- 812,586 6,122,629
Amortization of
discount
ascribed to the
guaranteed rate
of return on
Series E
redeemable
convertible
preferred stock
............... -- -- -- -- -- -- -- -- -- 406,293
Exercise of
warrants to
purchase Series
C redeemable
convertible
preferred stock
(note 6(f)).... -- -- -- -- 1,656 10,350 -- -- -- --
Accretion of
preferred
stock.......... -- 4,569 -- 6,929 -- 137,030 -- 170,064 -- 94,515
------- ---------- --------- ----------- --------- ---------- --------- ----------- ------- ----------
Balance,
September 30,
1998 ........... 908,602 $1,738,508 2,103,934 $11,550,844 1,114,711 $6,555,851 2,335,000 $14,669,923 812,586 $6,623,437
======= ========== ========= =========== ========= ========== ========= =========== ======= ==========
</TABLE>
As of September 30, 1998, the Company had authorized the issuance of up
to 14,446,382 shares of preferred stock, $0.01 par value. The authorized
shares have been designated as follows: 908,602 shares of Series A
redeemable convertible preferred stock ("Series A"), 2,194,843 shares each
of Series B and Series BB redeemable convertible preferred stock ("Series
B"), 1,239,047 shares each of Series C and Series CC redeemable convertible
preferred stock ("Series C"), 2,335,000 shares each of Series D and Series
DD redeemable convertible preferred stock ("Series D") and 1,000,000 shares
of Series E and Series EE redeemable convertible preferred stock ("Series
E"), in the aggregate ("the Preferred Stock").
F-14
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The Company has recorded outstanding redeemable convertible preferred
stock outside the equity section of the balance sheet as a liability. The
redeemable convertible preferred stock is recorded at its net sales price
and the carrying value is accreted (increased) over time such that at the
earliest date of potential redemption the redeemable convertible preferred
stock is carried as a liability at its redemption value. The periodic
accretion recorded to increase the carrying value is charged directly to
deficit accumulated during the development stage.
In January 1996, the Company issued 838,359 shares of Series C and
warrants to purchase 115,694 shares of Series C at $0.01 per share in
exchange for cash of $3,440,706 and the conversion of bridge notes payable
of $1,762,236 and accrued interest thereon of $36,802. The Company has
recorded the value attributed to the warrants as additional paid in
capital. The total value attributed to these warrants of approximately
$635,000 will be accreted to the redemption value of the Series C over the
period to its earliest redemption date. In addition, the Company granted
warrants to purchase 18,247 shares of Series C at $5.50 per share in
exchange for a guarantee commitment from certain stockholders. During the
year ended December 31, 1996, certain stockholders exercised warrants to
purchase 40,296 shares of Series C at $0.01 per share.
In July 1996, the Company issued 234,400 shares of Series C and warrants
to purchase 32,347 shares of Series C at $0.01 per share for $1,465,000.
Total net proceeds for the issuance of Series C totaled $6,623,683. The
Company has recorded the value attributed to the warrants as additional
paid in capital. The total value attributed to these warrants of
approximately $177,600 will be accreted to the redemption value of the
Series C over the period to its earliest redemption date. During the nine
months ended September 30, 1998, certain stockholders exercised warrants to
purchase 1,656 shares of Series C at $0.01 per share.
In October 1996, the Company issued 1,900,000 shares of Series D at a
price of $6.50 per share for total net proceeds of $11,233,666.
In March 1997, the Company issued 435,000 shares of its Series D for 100%
of the outstanding capital stock of Auda. The Company recorded these shares
at a value of $7.50 per share pursuant to this transaction.
On May 26, 1998, June 25, 1998, and September 18, 1998, the Company
issued 580,086, 182,500, and 50,000 shares, respectively, of Series E at a
price of $10.00 per share for total net proceeds of $7,747,576.
The rights and privileges of the Preferred Stock are listed below:
Conversion
The Preferred Stock is convertible into common stock at the rate of 0.654
of a share of common stock for each share of Preferred Stock, adjustable
for certain dilutive events except as discussed below for the Series E.
Conversion is at the option of the preferred stockholder but is mandatory
upon the closing of an initial public offering ("IPO") of the Company's
common stock at a per share price of at least $9.65, with gross proceeds to
the Company in excess of $10,000,000.
The Series E is entitled to a contingent conversion price adjustment
under certain circumstances. In the event the Company closes an IPO on or
prior to June 25, 1999, but at a price per share to the public less than a
value reflecting a 25% annualized return above the per share of $10.00, the
conversion price shall be automatically adjusted so that the Series E will
be converted into a number of common shares that would equal a 25%
annualized return. In the event that an IPO is not closed prior to June 25,
1999, the conversion rate of the Series E into common shares will be
adjusted to a rate of one and one half shares of common stock for each
share of Series E. In the event that an IPO is not closed prior to November
25, 1999, the conversion rate of Series E to common shares will be adjusted
to a rate of two shares common stock for each share of Series E. In the
event that an IPO is not closed prior to April 25, 2000, the
F-15
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
conversion rate of Series E to common shares will be adjusted to a rate of
two-and-one-half shares of common stock for each share of Series E. The
terms of this contingent conversion price adjustment are applicable when
the Series E converts to common stock under any circumstances.
The Company has recorded the value attributed to the contingent
conversion price adjustment of the Series E as additional paid in capital.
This amount was determined to be equal to $2.00 per share which will be
accreted to the redemption value of the Series E over the estimated
outstanding period of one year. The Company has determined that $2.00
represents the estimate of the value of the guaranteed return as it
anticipates conversion within one year.
Voting Rights
The holders of Preferred Stock are entitled to vote on all matters and
are entitled to the number of votes equal to the number of shares of common
stock into which the Preferred Stock is convertible.
Dividends
The holders of the Series A shall be entitled to receive, when and if
declared by the Board of Directors, cumulative cash dividends at the annual
rate of $0.1544 per share. Such dividends shall accrue after the first
calendar quarter when the Company's net after-tax income exceeds $100,360.
The holders of the Series B, C, D and E Preferred stock shall be entitled
to receive, when and if declared by the Board of Directors, cumulative cash
dividends at the annual rate of $0.44, $0.50, $0.52 and $0.80 per share,
respectively. Such dividends shall accrue after the first calendar quarter
when the Company's net after-tax income exceeds $500,000. In addition, the
holders of the Preferred Stock shall be entitled to receive a dividend
equal to any dividend paid on common stock.
Liquidation Preference
The holders of the Preferred Stock have preference in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company. The holders of the Series A are entitled to a preference of $1.93
per share, plus any accrued but unpaid dividends. The holders of the Series
B are entitled to a preference of $5.50 per share plus any accrued but
unpaid dividends. The holders of the Series C are entitled to a preference
of $6.25 per share, plus any accrued but unpaid dividends. The holders of
the Series D are entitled to a preference of $6.50 per share, plus any
accrued but unpaid dividends. The holders of the Series E are entitled to a
preference of $10.00 per share, plus any accrued but unpaid dividends.
Redemption
Preferred Stock is redeemable at the option of the holder over a three-
year period commencing on January 1, 2001. On January 1, 2001, 2002 and
2003, the Company shall offer to each holder of the Preferred Stock,
redemption of a maximum of 33 1/3%, 50% and 100%, respectively, of the
total number of shares of Preferred Stock held by such holder on such
redemption date. The redemption price per share shall be equal to $1.93,
$5.50, $6.25, $6.50 and $10.00 for each share of Series A, B, C, D and E,
respectively, plus all accrued and unpaid dividends.
(d) Stock Option Plans
The Company's 1992 Stock Option Plan ("the Plan") provides for the grant
of incentive stock options ("ISOs") and nonqualified options to purchase up
to 915,600 shares of common stock to key employees and consultants. Under
terms of the Plan, the exercise price of options granted shall be
determined by the Compensation Committee and for ISOs, shall not be less
than the fair market value of the stock on the date of grant. The term of
each stock option shall be determined by the Board of Directors but shall
not exceed ten years from the date of grant.
The Company's 1998 Equity Incentive Plan ("the 1998 Plan"), which amends
and restates the Company's 1992 Stock Option Plan, authorizes the grant of
incentive stock options, nonqualified stock
F-16
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
options, stock grants and other stock-based awards for the purchase of an
additional 654,000 shares of Common Stock to employees, consultants and
directors of the Company or any affiliate capable of contributing to the
Company's performance. Grants of Awards under the 1998 Equity Incentive
Plan and all questions of interpretations with respect to the 1998 Plan are
determined by the Board of Directors of the Company. The Board of Directors
has appointed the Compensation Committee to administer the 1998 Plan. This
plan has been adopted by the Board of Directors subject to shareholder
approval.
A summary of option activity under the Plan for the years ended December
31, 1996, 1997 and the nine-months ended September 30, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
PRICE PER EXERCISE
SHARES SHARE PRICE
------- ---------- --------
<S> <C> <C> <C>
Outstanding, December 31, 1995................ 172,443 $0.02-0.84 $0.49
Granted...................................... 418,429 0.84-0.99 0.92
Exercised.................................... (23,904) 0.02-0.84 0.03
Forfeited.................................... (7,030) 0.02-0.84 0.78
------- ---------- -----
Outstanding, December 31, 1996................ 559,938 $0.02-0.99 $0.83
Granted...................................... 118,485 0.99-1.15 1.13
Exercised.................................... (36,362) 0.02-0.99 0.69
Forfeited.................................... (43,034) 0.02-1.15 0.54
------- ---------- -----
Outstanding, December 31, 1997................ 599,027 $0.02-1.15 $0.92
Granted...................................... 304,437 1.15-7.65 1.56
Exercised.................................... (85,816) 0.02-1.15 0.87
Forfeited.................................... (19,810) 0.02-1.15 0.95
------- ---------- -----
Outstanding, September 30, 1998............... 797,838 $0.02-7.65 $1.16
======= ========== =====
Exercisable, September 30, 1998............... 238,446 $0.02-1.53 $1.01
======= ========== =====
</TABLE>
The range of exercise prices for options outstanding and options
exercisable at September 30, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.02 21,566 5.06 years $0.02 17,004 $0.02
$0.84--$1.53 773,983 8.26 years 1.18 221,442 1.09
$7.65 2,289 9.96 years 7.65 -- --
------- ---------- ----- ------- -----
797,838 7.89 years $1.16 238,446 $1.01
======= ========== ===== ======= =====
</TABLE>
In connection with certain stock option grants during the nine months
ended September 30, 1998, the Company recorded deferred compensation of
$2,115,350, which represents the aggregate difference between the exercise
price and the fair market value of the common stock determined for
accounting purposes. The deferred compensation will be recognized as an
expense over the vesting period of the underlying stock options. The
Company recorded compensation expense of $304,466 in the nine months ended
September 30, 1998 related to these options.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock
options or warrants to be included in the statement of income or disclosed
in the notes to the financial statements. The Company has determined that
it will
F-17
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
continue to account for stock-based compensation for employees under APB
No. 25 and elected the disclosure-only alternative under SFAS No. 123 for
options granted in 1995, 1996, 1997 and the nine
months ended September 30, 1998 using the Black-Scholes option pricing
model prescribed by SFAS No. 123. The assumptions used are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
----------------------------- SEPTEMBER 30,
1995 1996 1997 1998
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Risk-free interest rate...... 5.7%-7.8% 5.7%-6.9% 5.8%-6.9% 4.6%-5.7%
Expected dividend yield...... -- -- -- --
Expected lives............... 10 years 10 years 10 years 3-10 years
Expected volatility.......... 60% 60% 60% 60%
Weighted average fair value
per share of options
granted..................... $0.55 $0.61 $0.75 $6.71
Weighted average remaining
contractual life of options
outstanding................. 8.52 8.49 8.21 7.89
</TABLE>
Had compensation cost for the Company's stock plan been determined based
on the fair value at the grant dates, as prescribed in SFAS No. 123, the
Company's net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net loss
As reported............ $5,438,528 $8,288,880 $ 9,754,012 $7,662,366 $6,584,713
Pro forma.............. 5,457,616 8,744,691 10,266,151 8,046,471 7,566,982
Basic and diluted net
loss per common share
As reported............ $ 15.43 $ 19.99 $ 19.53 $ 15.59 $ 12.47
Pro forma.............. 15.44 20.11 19.70 15.72 12.64
</TABLE>
The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option pricing models
require the input of highly subject assumptions, including expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
(e) Employee Stock Purchase Plan
In December 1997, the Company established an Employee Share Ownership
Program ("ESOP") for the Company's employees based in Denmark. This plan
authorizes the Company to issue and sell up to an aggregate of 6,474 shares
of common stock, of which 5,693 shares of common stock were purchased at
fair market value as of December 31, 1997.
The Company has also adopted an Employee Stock Purchase Plan ("the
Purchase Plan") under which employees may purchase shares of common stock
at a discount from fair market value. There are 163,500 shares of common
stock reserved for issuance under the Purchase Plan. To date, no shares of
common stock have been issued under the Purchase Plan. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning
of Section 423 of the Internal Revenue Code. Rights to purchase common
stock under the Purchase Plan are granted at the discretion of the
Compensation Committee, which determines the frequency and duration of
individual offerings under the Purchase Plan and the dates when stock may
be purchased. Eligible employees participate voluntarily and may withdraw
from any offering at
F-18
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
any time before stock is purchased. Participation terminates automatically
upon termination of employment. The purchase price per share of common
stock in an offering is 85% of the lesser of its fair market value at the
beginning of the offering period or on the applicable exercise date and may
be paid through payroll deductions, periodic lump-sum payments or a
combination of both. The Purchase Plan terminates on September 17, 2008.
This plan has been adopted by the Board of Directors subject to shareholder
approval.
(f) Warrants
In connection with certain promissory notes, the Company issued warrants
to purchase 85,637 shares of common stock. These warrants are exercisable
for shares of common stock at an exercise price of $8.41 per share. The
warrants shall be exercisable prior to the earlier of January 31, 1999 or
the effective date of an initial public offering.
As of September 30, 1998 the Company has outstanding 106,089 and 18,247
warrants for the purchase of Series C at $0.01 and $5.50 per share,
respectively, which were issued in connection with the issuance of
convertible debt, as discussed in Note 5.
In December 1997, the Company granted warrants to purchase 39,793 shares
of common stock to selected employees and directors in Denmark. Such
warrants have an exercise price of $1.15 per share, and vest over a three
to five year period beginning on January 1, 1999.
On December 9, 1997 warrants to purchase 22,890 shares of common stock
were granted to a consultant of the Company in Denmark. These warrants have
an exercise price of $0.99 per share and become fully exercisable as of
January 1, 2000.
(7) INCOME TAXES
The Company follows SFAS No. 109, Accounting for Income Taxes, by providing
for income taxes under the liability method. Deferred taxes are determined
based on the difference between the financial statement and tax bases of assets
and liabilities, as measured by the current tax rates. The principal
differences between assets and liabilities for financial reporting and tax
return purposes result primarily from start-up costs and of purchased research
and development costs that have been capitalized for income tax purposes.
The components of the net deferred tax asset with the approximate income tax
effect of each type of temporary difference are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Net operating loss carryforwards.............. $ 7,398,000 $ 10,096,000
Research and development tax credit
carryforwards................................ 270,000 330,000
Purchased research and development............ 600,000 640,000
Temporary differences......................... 74,000 (238,000)
----------- ------------
8,342,000 10,828,000
Valuation allowance........................... (8,342,000) (10,828,000)
----------- ------------
Net deferred tax asset........................ $ -- $ --
=========== ============
</TABLE>
The Company has recorded a full valuation allowance against its deferred tax
assets due to uncertainties surrounding the realization of these assets.
The Company has available net operating loss carryforwards for the period
from inception to December 31, 1996 and 1997 on an aggregate basis, of
approximately $18,495,000 and $25,200,000, respectively, for US federal income
tax purposes, which expire at various dates beginning in 2009. The Company also
has available US federal tax credits of approximately $270,000 and $330,000 at
December 31, 1996 and 1997, respectively, expiring through the year 2010. The
Company's foreign subsidiaries have approximately $690,000 of available
F-19
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
net operating loss carryforwards for foreign income tax reporting purposes as
of December 31, 1997. These carryforwards expire on various dates beginning in
2001.
The US Internal Revenue Code of 1986, as amended (the "Code"), contains
provisions that may limit the US net operating loss and tax credit
carryforwards available to be used in any given year upon the occurrence of
certain events, including changes in the ownership interests of significant
stockholders. In the event of a cumulative change in ownership in excess of 50%
over a three year period, the amount of the US net operating loss carryforwards
and tax credit carryforwards that the Company can utilize in any one year may
be limited. In the event of a change in ownership, as defined, the annual
limitation on the use of the existing net operating loss carryforwards is equal
to an amount determined by multiplying the value of the Company at the time of
the ownership change by the US federal applicable rate of interest as
determined by the US Internal Revenue Service.
(8) COMMITMENTS
The Company leases certain equipment and conducts its operations in leased
facilities under noncancelable operating leases that expire through 2004. Rent
expense was approximately $694,000, $957,000 and $1,132,000, during the years
ended December 31, 1995, 1996 and 1997, respectively. Rent expense for the nine
months ended September 30, 1997 and September 30, 1998 amounted to
approximately $842,000 and $915,000, respectively. The minimum rental payments
under these lease agreements are approximately as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1998.............................. $1,219,000
1999.............................. 1,161,000
2000.............................. 963,000
2001.............................. 885,000
2002.............................. 865,000
Thereafter........................ 1,354,000
----------
$6,447,000
==========
</TABLE>
(9) PARTNERSHIP AGREEMENTS
(a) Tsumura & Co.
In June 1996, the Company entered into a partnership with Tsumura & Co.
("Tsumura") focused on the discovery of novel agents for the treatment of
inflammation and allergies. The Company received nonrefundable payments of
$780,000, $1,002,500 and $652,125 during the years ended December 31, 1996
and 1997 and the nine months ended September 30, 1998, respectively, in
consideration of the Company's agreement to provide certain extracts and
perform research activities for Tsumura. The Company recognizes revenue
under this agreement as it provides the extracts to Tsumura and performs
the required research. The Company recognized $247,000 and $1,052,657 of
revenue for the years ended December 31, 1996 and 1997 and $730,311 and
$605,737 for the nine-month periods ended September 30, 1997 and 1998,
respectively.
(b) Chiron Corporation
In May 1998, the Company entered into a collaboration agreement with
Chiron Corporation ("Chiron"), whereby the Company provides certain
extracts to Chiron in order to facilitate the research and development of
certain pharmaceutical products. For the nine months ended September 30,
1998, the Company received a nonrefundable payment of $150,000 from Chiron.
This payment was related to the shipment of a specified number of extracts
and was recorded as revenue upon shipment.
(c) Eli Lilly and Company
In July 1998, the Company entered into a research collaboration agreement
with Eli Lilly and Company ("Lilly") pursuant to which the Company will
collaborate with Lilly on the discovery of novel
F-20
<PAGE>
PHYTERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
agents for the diagnosis, treatment and prevention of infectious fungal
disease in humans and animals. Under the terms of this two-year agreement,
the Company will receive research funding, an equity investment, and
potential future milestone and royalty payments. In September, 1998 Lilly
purchased 50,000 shares of Series E for $500,000 which represented the fair
value of the Series E on the date of purchase. The Company receives
research funding from Lilly based upon the number of full time equivalent
researchers dedicated to the agreement. The Company recognizes the payments
as revenue as the services are provided. As of September 30, 1998, the
Company received research funding of $428,028 of which $344,520 had been
recognized as revenue. Milestone payments will be recognized as revenue
upon achievement of the specified milestones. No milestone payments have
been received as of September 30, 1998.
(10) ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1997 and September 30, 1998 consist
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1996 1997 1998
-------- -------- -------------
<S> <C> <C> <C>
Accrued payroll and payroll related
expenses............................... $ 70,248 $181,074 $296,204
Other accrued expenses.................. 269,612 182,266 566,429
-------- -------- --------
$339,860 $363,340 $862,633
======== ======== ========
</TABLE>
(11) GEOGRAPHIC INFORMATION
Revenues, net loss and identifiable assets for the Company's U.S. and
European operations are summarized as follows:
<TABLE>
<CAPTION>
EUROPEAN
UNITED STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER
31, 1996
Revenues from unaffili-
ated customers......... $ 247,000 $ -- $ -- $ 247,000
Transfers between geo-
graphic regions........ -- -- -- --
----------- ---------- ----------- -----------
Total Revenue....... $ 247,000 $ -- $ -- $ 247,000
=========== ========== =========== ===========
Net Income (Loss)....... $(8,474,359) $ 185,479 $ -- $(8,288,880)
=========== ========== =========== ===========
Identifiable assets..... $11,644,970 $1,389,281 $ (638,739) $12,395,512
=========== ========== =========== ===========
YEAR ENDED DECEMBER
31, 1997
Revenues from unaffili-
ated customers......... $ 1,052,657 $ -- $ -- $ 1,052,657
Transfers between geo-
graphic regions........ -- -- -- --
----------- ---------- ----------- -----------
Total Revenue....... $ 1,052,657 $ -- $ -- $ 1,052,657
=========== ========== =========== ===========
Net Loss................ $ 7,717,176 $2,036,836 $ -- $ 9,754,012
=========== ========== =========== ===========
Identifiable assets..... $ 6,147,071 $4,166,991 ($4,025,048) $ 6,289,014
=========== ========== =========== ===========
NINE MONTHS ENDED SEP-
TEMBER 30, 1998
Revenues from unaffili-
ated customers......... $ 1,100,257 $ -- $ -- $ 1,100,257
Transfers between geo-
graphic regions........ -- -- -- --
----------- ---------- ----------- -----------
Total Revenue....... $ 1,100,257 $ -- $ -- $ 1,100,257
=========== ========== =========== ===========
Net Loss................ $ 3,883,837 $2,700,876 $ -- $ 6,584,713
=========== ========== =========== ===========
Identifiable assets..... $10,182,807 $5,280,802 ($6,148,955) $ 9,314,654
=========== ========== =========== ===========
</TABLE>
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS RELATES ONLY TO THE COMMON
STOCK AND IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SECURITIES IN ANY UNLAWFUL CIRCUMSTANCES. THE DELIVERY OF THIS PROSPECTUS AND
THE SALE OF THE COMMON STOCK DOES NOT MEAN THAT THE AFFAIRS OF THE COMPANY
HAVE NOT CHANGED SINCE THE DATE OF THIS PROSPECTUS OR THAT THIS PROSPECTUS
WOULD NOT BE REVISED IF ISSUED ON A DATE LATER THAN THE DATE BELOW.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Experts.................................................................. 4
Additional Information................................................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 22
Management............................................................... 42
Certain Transactions..................................................... 48
Principal Stockholders................................................... 49
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 56
Settlement and Clearance................................................. 58
Tax Considerations....................................................... 59
Underwriting............................................................. 66
Subscription and Sale.................................................... 68
Legal Matters............................................................ 71
Index to Financial Statements............................................ F-1
</TABLE>
------------------
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
[PHYTERA, INC. LOGO]
COMMON STOCK
------------------
US PROSPECTUS
------------------
SG COWEN
CARNEGIE INC.
BANCBOSTON
ROBERTSON STEPHENS
[DATE]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[ALTERNATE PAGES FOR EUROPEAN PROSPECTUS]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS +
+NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO +
+BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT +
+PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1998
EUROPEAN PROSPECTUS
2,500,000 SHARES
PHYTERA, INC.
[PHYTERA LOGO]
COMMON STOCK
This is an initial public offering of the shares of common stock of Phytera,
Inc. The shares of common stock will be offered to the public in Denmark.
Additionally, shares of common stock will be offered in private placements in
other European countries. The offering in the United States, Canada and Belgium
will be limited to institutional investors. There is currently no public market
for the shares. Phytera expects that the public offering price will be between
$12.00 and $14.00 per share.
In Europe, we are offering , , shares of common stock. In the United
States and Canada, we are offering , , shares of common stock.
We have applied for admission to trading and quotation of the common stock on
the European Association of Securities Dealers Automated Quotation system,
called EASDAQ, and for listing on the Copenhagen Stock Exchange, called the
CSE. Our trading symbol on EASDAQ and our short name on the CSE will be PHYT.
We expect that these listings will become effective and that trading in the
shares of common stock will begin promptly after the initial public offering
price is determined through negotiations between the Company and the
Underwriters.
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.
NONE OF EASDAQ, THE CSE, THE US SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
<S> <C> <C>
Public offering price............................................... $ $
Underwriting discounts and commissions.............................. $ $
Proceeds, before expenses, to Phytera............................... $ $
</TABLE>
------------
The US Underwriters may also purchase up to an additional shares of
common stock and the European Managers may also purchase up to an additional
shares of common stock, an aggregate of 375,000 shares, at the public
offering price, less the underwriting discounts and commissions, within 30 days
from the date of this Prospectus to cover over-allotments.
In the distribution of the offering, the European Managers will purchase the
offered shares of common stock from the Company and resell such shares to
investors.
SG COWEN INTERNATIONAL
CARNEGIE BANK A/S
BANCBOSTON ROBERTSON STEPHENS
INTERNATIONAL LTD
[ , 1999]
X-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS RELATES ONLY TO THE COMMON STOCK
AND IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES
IN ANY UNLAWFUL CIRCUMSTANCES. THE DELIVERY OF THIS PROSPECTUS AND THE SALE OF
THE COMMON STOCK DOES NOT MEAN THAT THE AFFAIRS OF THE COMPANY HAVE NOT CHANGED
SINCE THE DATE OF THIS PROSPECTUS OR THAT THIS PROSPECTUS WOULD NOT BE REVISED
IF ISSUED ON A DATE LATER THAN THE DATE BELOW.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Experts.................................................................. 4
Additional Information................................................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 22
Management............................................................... 42
Certain Transactions..................................................... 48
Principal Stockholders................................................... 49
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 56
Settlement and Clearance................................................. 58
Tax Considerations....................................................... 59
Underwriting............................................................. 66
Subscription and Sale.................................................... 68
Legal Matters............................................................ 71
Index to Financial Statements............................................ F-1
</TABLE>
-----------------
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,500,000 SHARES
[PHYTERA, INC. LOGO]
COMMON STOCK
---------------------
EUROPEAN PROSPECTUS
---------------------
SG COWEN INTERNATIONAL
CARNEGIE BANK A/S
BANCBOSTON
ROBERTSON STEPHENS
INTERNATIONAL LTD
[DATE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
X-2
<PAGE>
DANISH
APPLICATION FORM PHYTERA, INC
SECURITIES CODES Existing shares Temporary
SUBSCRIPTION , 1999 to the date of determination of the initial
PERIOD public offering price
OFFER PRICE Announced , 1999
INTERVAL
INITIAL PUBLIC To be announced
OFFERING PRICE
SELLING AGENTS SG Cowen International L.P., Carnegie Bank A/S and
BancBoston Robertson Stephens International Ltd
PAYMENT DATE The third day following the determination of the initial
public offering price (fourth day, if the determination is
made after 4:30 p.m. New York time)
LISTING [The day following the determination of the initial public
offering price]
The offer price will be determined through bookbuilding,
see "Underwriting" in the prospectus dated , 1999.
Applications for subscription for amounts of up to and
including DKK 2 million can be submitted using this form.
Applications for subscription for amounts of more than DKK
2 million can be made by contacting the account-holding
institution. If the total number of applications for shares
exceeds the number of shares offered, an allocation will be
made among the applications received as detailed in the
offering circular.
Pursuant to the prospectus dated I/We hereby apply
for subscription of the number of shares of Common Stock of
Phytera, Inc., $0.01 par value, as indicated below.
UP TO AND INCLUDING THE VALUE OF DKK 2 MILLION. SUBMITTED
AS AN IRREVOCABLE APPLICATION.
MAXIMUM PRICE PER SHARE:
------------------------------------------------------------
DKK VALUE:
------------------------------------------------------------
NO. OF SHARES:
------------------------------------------------------------
If no maximum price is indicated the application is
considered to be made at the initial public offer price,
i.e. without limitation.
INVESTOR DECLARES
This application is made pursuant to the conditions
detailed in the prospectus dated , 1999.
This application is irrevocable.
I/We am/are obligated to pay an amount corresponding to the
value of the allocated shares at the offer price. Payment
will take place on , 1999 subsequent to invoice
that is to be sent to me/us, against registration of the
allocated shares in the Danish Securities Centre,
"Vaerdipapircentralen". If the applications exceed the
number of shares offered, an allocation of the shares will
take place as detailed in the prospectus.
INFORMATION AND SIGNATURE
Name VP-account
------------------------------------------------------------
Address Account for settlement
------------------------------------------------------------
Postal code and city Account-holding institution
------------------------------------------------------------
Date To be registered by name in the
company's stock register [_]
(check)
------------------------------------------------------------
Telephone The application has been submitted
through
------------------------------------------------------------
Signature Registration no.
------------------------------------------------------------
CD-ident.
-----------------------------------
Date
-----------------------------------
Company stamp
Telephone
------------------------------------------------------------
THE APPLICATION FORM MUST BE SUBMITTED TO THE ACCOUNT-
HOLDING INSTITUTION ON , 1999 AT 4.00 P.M. AT THE
LATEST.
<TABLE>
<S> <C> <C>
SG Cowen International Carnegie Bank A/S BancBoston Robertson Stephens International Ltd
</TABLE>
X-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered under this registration statement. Except for the SEC registration
fee and the NASD filing fees, all expenses have been estimated and are subject
to future contingencies:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 9,591
EASDAQ listing fee............................................... 93,800
Copenhagen Stock Exchange filing fee............................. 5,434
CBF filing fee................................................... 15,000
NASD filing fees................................................. 3,980
Printing and engraving expenses.................................. 175,000
Accounting fees and expenses..................................... 175,000
Legal fees and expenses.......................................... 300,000
Transfer agent and registrar fees................................ 5,000
Miscellaneous expenses........................................... 82,195
--------
Total.......................................................... $865,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the Company to
indemnify any present or former Director, officer, employee and agent of the
Company against actual and reasonable expenses (including attorneys' fees)
incurred by such person in connection with any action, suit or proceeding
brought against such person by reason of such person's status or service as a
Director, officer, employee or agent by or on behalf of the Company, and, in
the case of a present or former Director or officer of the Company, against
expenses (including attorneys' fees), judgments, fines and settlements actually
and reasonably incurred by such person in connection with any such action, suit
or proceeding, if (i) the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Company, and (ii) in the case of a criminal proceeding, the person had no
reasonable cause to believe such person's conduct was unlawful. Except as
ordered by a court, no indemnification shall be made in connection with any
proceeding brought by or in the right of the corporation where the person
involved is adjudged to be liable to the Company.
Article TENTH of the Company's Certificate of Incorporation as proposed to be
amended and restated effective immediately prior to the closing of this
offering (the "Restated Certificate") provides that the Company shall, to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative by reason of the fact that he is or was, or has agreed to become
a Director or officer of the Company or is or was serving, or has agreed to
serve, at the request of the Company, as a Director, officer or trustee of, or
in a similar capacity with, another corporation, partnership, joint venture,
trust or other enterprise. The indemnification provided for in Article TENTH is
expressly not exclusive of any other rights to which those seeking
indemnification may be entitled under any law, agreement or vote of
shareholders or Directors or otherwise, and shall inure to the benefit of the
heirs, executors and administrators of such persons. Article TENTH also permits
the Board of Directors to authorize the grant of indemnification rights to
other employees and agents of the Company and such rights may be equivalent to,
or greater or less than, those set forth in Article TENTH.
Article V, Section 2 of the Company's By-laws provides that the Company shall
have the power to purchase and maintain insurance on behalf of its officers,
Directors, employees and agents, against any liability asserted against and
incurred by such persons in any such capacity.
The Company has entered into indemnification agreements with each of its
Directors and executive officers and has obtained insurance covering the
officers and Directors of the Company against certain losses and insuring the
Company against certain of its obligations to indemnify its Directors and
officers.
II-1
<PAGE>
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
Director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a Director, provided that such provisions shall not
eliminate or limit the liability of a Director (i) for any breach of the
Director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
Director derived an improper personal benefit. No such provision shall
eliminate or limit the liability of a Director for any act or omission
occurring prior to the date when such provision becomes effective.
Pursuant to the Delaware General Corporation Law, Article NINTH of the
Restated Certificate eliminates a Director's personal liability for monetary
damages to the Company and its shareholders for breach of fiduciary duty as a
Director, except in circumstances involving a breach of the Director's duty of
loyalty to the Company or shareholders, acts or omissions not in good faith,
intentional misconduct, knowing violations of the law, self-dealing or the
unlawful payment of dividends or repurchase of stock.
The Company believes that courts in Europe and the US may have jurisdiction
in an action against the Company, its Directors or officers. Such jurisdiction
will be delivered by the laws of the jurisdiction in effect at that time.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1995, the Company has issued and sold the following
securities, in each case in reliance on an exemption from required registration
pursuant to the Securities Act of 1933, as amended (the "Securities Act"):
1995 Bridge Financing
From September through December 1995, the Company issued certain Convertible
Term Notes (the "Bridge Notes"), for an aggregate principal amount of
$1,762,236 bearing interest on unpaid principal at a rate of 7% per annum and
convertible into Series C Convertible Preferred Stock $0.01 par value per share
("Series C Stock") at the conversion price of $6.25 ($9.56 on an as converted
basis) per share, and certain warrants to purchase 85,637 shares of common
stock (the "Bridge Warrants"), exercisable at the price of $8.41 per share, to
certain current stockholders of the Company (collectively, the "Bridge
Financing").
Series C Private Placement
In January and July 1996, and the Company sold an aggregate of 1,113,055
shares of Series C Stock at a price of $6.25 ($9.56 on an as converted basis)
per share, and issued warrants to purchase an aggregate of 148,041 shares of
Series C Stock at an exercise price of $0.01 per share, such shares of Series C
Stock are convertible into 727,938 and 96,819 shares of common stock,
respectively. In addition, warrants for an aggregate of 18,247 shares of Series
C Stock, convertible into 11,934 shares of common stock, were issued in
consideration of certain financing guaranties by principal stockholders at an
exercise price of $5.50 ($8.41 on an as converted basis) per share
(collectively, the "Series C Private Placement").
Both the 1995 Bridge Financing and the Series C Private Placement were exempt
from the registration requirements of the Securities Act pursuant to the
private offering exemption under Section 4(2) thereof. In determining the
availability of this exemption, the Company relied on representations made by
the purchasers in the stock purchase agreement pursuant to which the Series C
Stock was purchased.
Neptune Acquisition
On July 31, 1996, as consideration for the acquisition by the Company of
Neptune Pharmaceuticals, Inc. ("Neptune"), a US pharmaceutical company, the
Company issued 246,050 shares of Series B Convertible Preferred Stock, $0.01
par value per share ("Series B Stock"), convertible into 160,917 shares of
common stock, to the stockholders of Neptune. Shares of Series B Stock were
valued at $5.50 ($8.41 on an as converted basis) per share.
The shares issued in connection with the Neptune acquisition were exempt from
the registration requirements of the Securities Act pursuant to the private
offering exemption under Section 4(2) thereof. In determining the availability
of this exemption, the Company relied on representations made by the
stockholders of Neptune in the acquisition agreement.
II-2
<PAGE>
Series D Private Placement
In separate closings as of each of October 30 and November 29, 1996, the
Company issued an aggregate of 1,900,000 shares of its Series D Convertible
Preferred Stock, $0.01 par value per share ("Series D Stock"), convertible into
1,242,600 shares of common stock, to a large number of institutional and
individual investors. All purchasers of Series D Stock were "Non-US Persons" as
defined by Rule 902 under Regulation S under the Securities Act, primarily
resident in Scandinavia. In determining the availability of this exemption, the
Company relied on representations made by investors in subscription agreements
pursuant to which the Series D Stock was purchased, as well as certain
representations from the placement agent in the placement agreement. Shares of
Series D Stock were purchased for $6.50 per share, which represents the initial
conversion price at which shares of Series D Stock convert into common stock.
Carnegie Bank A/S, ("Carnegie") acted as placement agent for the sale of the
Series D Stock and, pursuant to the terms of a placement agreement between
Carnegie and the Company dated as of October 5, 1996, received a placement fee
equal to 7% of the aggregate proceeds raised, plus accountable expenses.
Auda Acquisition
On March 11, 1997, as consideration for the acquisition by the Company of
Auda Pharmaceuticals ApS ("Auda"), a Danish pharmaceutical company, the Company
issued additional shares of Series D Stock to the selling stockholders of Auda.
The Company issued 402,000 shares to Danish Venture Finance A/S (previously
known as Danish Development Finance Corporation) and 33,000 shares to GJK
Holding ApS, a Danish corporation. Such shares are convertible into 262,908 and
21,582 shares of common stock, respectively. Shares of Series D Stock were
valued at $7.50 per share.
The private placement of the Series D Stock and the shares issued in
connection with the Auda acquisition were exempt from the registration
requirements of the Securities Act pursuant to Regulation S. In determining the
availability of this exemption, the Company relied on representations made by
Danish Development Finance Corporation and GJK Holding ApS in the Auda
acquisition agreement.
Series E Private Placement
In separate closings as of each of May 26 and June 25, 1998, the Company
issued an aggregate of 762,586 shares of its Series E Convertible Preferred
Stock, $0.01 par value per share ("Series E Stock") to certain "accredited
investors" as defined by Rule 501 under Regulation D promulgated under the
Securities Act. Shares of Series E Stock were purchased for $10.00 per share.
Carnegie acted as placement agent for the sale of the Series E Stock and,
pursuant to the terms of a placement agreement between Carnegie and the Company
dated March 23, 1998, received a placement fee equal to 7% of the gross
proceeds from the subscription of Series E Stock by new investors and 2% of the
gross proceeds from the subscription of Series E Stock by existing investors of
the Company.
An additional 50,000 shares of Series E Stock was purchased by Eli Lilly and
Company ("Lilly") on September 18, 1998 at a price of $10.00 per share. The
issuance to Lilly did not involve any compensation to Carnegie.
The total 812,586 of Series E Stock outstanding are convertible into an
aggregate of 722,746 shares of common stock, assuming the closing of this
offering on February 8, 1998 at an offering price of $13.00 per share (the mid-
point of the expected range).
The sale of the Series E Stock and the sale to Lilly were exempt from the
Securities Act pursuant to Regulation D. In determining the availability of
this exemption, the Company relied on representations made by Series E
investors in subscription agreements for the Series E Stock, as well as selling
restrictions contained in the agreement with the placement agent.
Employee, Director and Consultant Issuances
The following securities have been sold in reliance on an exemption from
registration pursuant to Section 4(2) of the Securities Act:
Since inception, the Company has granted employees and consultants options
under its Amended and Restated 1992 Stock Option Plan which have a ten-year
term and are exercisable at a price equal to the fair
II-3
<PAGE>
market value of the common stock at the date of grant, as determined in good
faith by the Compensation Committee of the Board of Directors. As of November
30, 1998, options for 792,802 shares of the Company's common stock were
outstanding. As of such date, options for 187,775 shares of common stock had
been exercised at an average price of $0.55 per share.
In December 1997, the Company issued warrants to purchase an aggregate of
39,793 shares of its common stock to its Danish employees and certain members
of the Board of Directors based in Denmark which vest over a three to five year
period beginning on January 1, 1999 and are exercisable at $1.15 per share,
being a price equal to the fair market value of the common stock at the date of
grant, as determined in good faith by the Compensation Committee of the Board
of Directors. The Company also issued warrants to DACC ApS to purchase an
aggregate of 22,890 shares of common stock at an exercise price of $0.99 per
share. Such warrants vest over a two-year period beginning on January 1, 1999.
In addition, from inception through November 30, 1998, the Company made
grants of an aggregate of 434,372 shares of common stock to certain employees,
Directors and consultants to the Company. Such shares were sold at fair market
value and are subject to repurchase rights held by the Company.
II-4
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of European Underwriting Agreement. Filed herewith.
1.2 Form of US Underwriting Agreement. Filed herewith.
3.1 Amended and Restated Certificate of Incorporation of Phytera,
Inc., as amended through
May 26, 1998.(1)
3.2 Form of Certificate of Amendment of Restated Certificate of
Incorporation of Phytera, Inc. to be filed immediately prior to
the effectiveness of this offering. Filed herewith.
3.3 Form of Amended and Restated Certificate of Incorporation of
Phytera, Inc. to be filed immediately prior to the closing of
this offering.(1)
3.4 By-laws of Phytera, Inc.(1)
3.5 Form of Amended and Restated By-laws to become effective
immediately prior to the closing of this offering.(1)
4.1 Specimen Common Stock Purchase Warrant, together with a list of
holders. Filed herewith.
4.2 Specimen Common Stock Purchase Warrant, together with a list of
holders. Filed herewith.
4.3 Agreement with VaekstFonden dated April 11, 1996. To be filed by
amendment.
4.4 Note payable to Silicon Valley Bank dated July 15, 1994. This
exhibit has been omitted in reliance on Item 601(b)(4)(iii) of
Regulation S-K. The registrant undertakes to furnish a copy of
the debt instrument on request of the Commission.
4.5 Note payable to Danish Technology Institute dated July 26, 1996.
This exhibit has been omitted in reliance on Item 601(b)(4)(iii)
of Regulation S-K. The registrant undertakes to furnish a copy
of the debt instrument on request of the Commission.
4.6 Note payable to Unibank for the purchase of a vehicle dated
September 24, 1996. This exhibit has been omitted in reliance on
Item 601(b)(4)(iii) of Regulation S-K. The registrant undertakes
to furnish a copy of the debt instrument on request of the
Commission.
5.1 Opinion of Palmer & Dodge LLP as to the legality of the shares
being registered. Filed herewith.
10.1* 1998 Equity Incentive Plan.(1)
10.2* 1998 Employee Stock Purchase Plan.(1)
10.3* Employment Agreement between Phytera, Inc. and Malcolm Morville
dated as of June 5, 1996.(1)
10.4 Form of Indemnification Agreement between Phytera, Inc. and its
Directors and executive officers.(1) Such agreements are
materially different only as to the signing Directors and
executive officers and the dates of execution.
10.5 Amended and Restated Investors' Rights Agreement among Phytera,
Inc. and certain stockholders of the Company dated May 26,
1998.(1)
10.6 Confidentiality Agreement between Phytera, Inc. and Malcolm
Morville dated March 1, 1998.(1)
10.7 Confidentiality Agreement between Phytera, Inc. and Stephen
DiPalma dated November 11, 1997.(1)
10.8 Confidentiality Agreement between Phytera, Inc. and Christopher
Pazoles dated May 24, 1994.(1)
10.9 Noncompetition Agreement between Phytera, Inc. and Malcolm
Morville dated October 28, 1993.(1)
10.10 Noncompetition Agreement between Phytera, Inc. and Stephen
DiPalma dated November 7, 1997.(1)
10.11 Noncompetition Agreement between Phytera, Inc. and Christopher
Pazoles dated May 24, 1994.(1)
10.12 Lease Agreement, dated November 1, 1993, between Phytera, Inc.
and Worcester Business Development Corporation.(1)
10.13 Lease Agreement, dated October 31, 1994, between Phytera, Inc.
and the University of Sheffield. Filed herewith.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.14 Lease Agreement, dated July 26, 1996, between Phytera, Inc. and
Dansk Teknologisk Institut.(1)
10.15 Lease Agreement, dated April 1, 1997, between Phytera, Inc. and
Auda Pharmaceuticals ApS and Symbion A/S.(1)
10.16+ Research Collaboration Agreement between Phytera, Inc. and
Tsumura & Co., dated June 28, 1996, as amended on July 11,
1998.(1)
10.17+ Research Collaboration and License Agreement between Phytera,
Inc. and Galileo Laboratories, Inc., dated April 21, 1998.(1)
10.18+ Research Collaboration and License Agreement between Phytera,
Inc. and NeuroSearch A/S, dated May 1, 1998.(1)
10.19+ Research Collaboration Agreement between Phytera, Inc. and
Chiron Corporation, dated May 20, 1998. Filed herewith.(1)
10.20+ Research Collaboration Agreement between Phytera, Inc. and Eli
Lilly and Company, dated July 21, 1998.(1)
10.21+ Research Collaboration Agreement between Phytera, Inc. and
Nycomed Amersham plc, dated July 30, 1993.(1)
10.22 Amendment to Research Collaboration Agreement between Phytera,
Inc. and Nycomed Amersham plc dated October 29, 1998. Filed
herewith.
10.23 License Agreement between Phytera, Inc. and University of
Maryland dated , 1998. To be filed by amendment.
23.1 Consent of Arthur Andersen LLP. Filed herewith.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as
Exhibit 5.
24 Power of attorney. Included on the signature page.
27 Financial Data Schedule.(1)
</TABLE>
- --------
* Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act.
(1)Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements (filed
herewith as Exhibits 1.1 and 1.2), certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14--Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such Director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WORCESTER,
COMMONWEALTH OF MASSACHUSETTS, ON DECEMBER , 1998.
Phytera, Inc.
/s/ Malcolm Morville, Ph.D.
By: _________________________________
MALCOLM MORVILLE, PH.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Malcolm Morville, Ph.D. President, Chief Executive December , 1998
______________________________________ Officer and Director
MALCOLM MORVILLE, PH.D. (Principal Executive
Officer)
* Vice President, Finance December , 1998
______________________________________ (Principal Financial and
STEPHEN DIPALMA Accounting Officer)
* Director December , 1998
______________________________________
STEVEN J. ROTH
* Director December , 1998
______________________________________
UFFE BUNDGAARD-JORGENSEN, PH.D.
* Director December , 1998
______________________________________
POUL SCHLUTER
* Director December , 1998
______________________________________
ROBERT G. FOSTER
* Director December , 1998
______________________________________
GRAHAM K. CROOKE, M.D.
* Director December , 1998
______________________________________
GUSTAV A. CHRISTENSEN
</TABLE>
/s/ Malcolm Morville, Ph.D.
By: __________________________
MALCOLM MORVILLE, PH.D.
ATTORNEY-IN-FACT
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of European Underwriting Agreement. Filed herewith.
1.2 Form of US Underwriting Agreement. Filed herewith.
3.1 Amended and Restated Certificate of Incorporation of Phytera,
Inc., as amended through
May 26, 1998.(1)
3.2 Form of Certificate of Amendment of Restated Certificate of
Incorporation of Phytera, Inc. to be filed immediately prior to
the effectiveness of this offering. Filed herewith.
3.3 Form of Amended and Restated Certificate of Incorporation of
Phytera, Inc. to be filed immediately prior to the closing of
this offering.(1)
3.4 By-laws of Phytera, Inc.(1)
3.5 Form of Amended and Restated By-laws to become effective
immediately prior to the closing of this offering.(1)
4.1 Specimen Common Stock Purchase Warrant, together with a list of
holders. Filed herewith.
4.2 Specimen Common Stock Purchase Warrant, together with a list of
holders. Filed herewith.
4.3 Agreement with VaekstFonden dated April 11, 1996. To be filed by
amendment.
4.4 Note payable to Silicon Valley Bank dated July 15, 1994. This
exhibit has been omitted in reliance on Item 601(b)(4)(iii) of
Regulation S-K. The registrant undertakes to furnish a copy of
the debt instrument on request of the Commission.
4.5 Note payable to Danish Technology Institute dated July 26, 1996.
This exhibit has been omitted in reliance on Item 601(b)(4)(iii)
of Regulation S-K. The registrant undertakes to furnish a copy
of the debt instrument on request of the Commission.
4.6 Note payable to Unibank for the purchase of a vehicle dated
September 24, 1996. This exhibit has been omitted in reliance on
Item 601(b)(4)(iii) of Regulation S-K. The registrant undertakes
to furnish a copy of the debt instrument on request of the
Commission.
5.1 Opinion of Palmer & Dodge LLP as to the legality of the shares
being registered. Filed herewith.
10.1* 1998 Equity Incentive Plan.(1)
10.2* 1998 Employee Stock Purchase Plan.(1)
10.3* Employment Agreement between Phytera, Inc. and Malcolm Morville
dated as of June 5, 1996.(1)
10.4 Form of Indemnification Agreement between Phytera, Inc. and its
Directors and executive officers.(1) Such agreements are
materially different only as to the signing Directors and
executive officers and the dates of execution.
10.5 Amended and Restated Investors' Rights Agreement among Phytera,
Inc. and certain stockholders of the Company dated May 26,
1998.(1)
10.6 Confidentiality Agreement between Phytera, Inc. and Malcolm
Morville dated March 1, 1998.(1)
10.7 Confidentiality Agreement between Phytera, Inc. and Stephen
DiPalma dated November 11, 1997.(1)
10.8 Confidentiality Agreement between Phytera, Inc. and Christopher
Pazoles dated May 24, 1994.(1)
10.9 Noncompetition Agreement between Phytera, Inc. and Malcolm
Morville dated October 28, 1993.(1)
10.10 Noncompetition Agreement between Phytera, Inc. and Stephen
DiPalma dated November 7, 1997.(1)
10.11 Noncompetition Agreement between Phytera, Inc. and Christopher
Pazoles dated May 24, 1994.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.12 Lease Agreement, dated November 1, 1993, between Phytera, Inc.
and Worcester Business Development Corporation.(1)
10.13 Lease Agreement, dated October 31, 1994, between Phytera, Inc.
and the University of Sheffield. Filed herewith.
10.14 Lease Agreement, dated July 26, 1996, between Phytera, Inc. and
Dansk Teknologisk Institut.(1)
10.15 Lease Agreement, dated April 1, 1997, between Phytera, Inc. and
Auda Pharmaceuticals ApS and Symbion A/S.(1)
10.16+ Research Collaboration Agreement between Phytera, Inc. and
Tsumura & Co., dated June 28, 1996, as amended on July 11,
1998.(1)
10.17+ Research Collaboration and License Agreement between Phytera,
Inc. and Galileo Laboratories, Inc., dated April 21, 1998. (1)
10.18+ Research Collaboration and License Agreement between Phytera,
Inc. and NeuroSearch A/S, dated May 1, 1998. (1)
10.19+ Research Collaboration Agreement between Phytera, Inc. and
Chiron Corporation, dated May 20, 1998. (1)
10.20+ Research Collaboration Agreement between Phytera, Inc. and Eli
Lilly and Company, dated July 21, 1998. (1)
10.21+ Research Collaboration Agreement between Phytera, Inc. and
Nycomed Amersham plc, dated July 30, 1993. (1)
10.22+ Amendment to Research Collaboration Agreement between Phytera,
Inc. and Nycomed Amersham plc dated October 29, 1998. Filed
herewith.
10.23 License Agreement between Phytera, Inc. and University of
Maryland dated , 1998. To be filed by amendment.
23.1 Consent of Arthur Andersen LLP. Filed herewith.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as
Exhibit 5.
24 Power of attorney. Included on the signature page of the
original Registration Statement.
27 Financial Data Schedule. (1)
</TABLE>
- --------
*Indicates a management contract or compensatory plan.
+Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act.
(1)Previously filed.
<PAGE>
Exhibit 1.1
______________ Shares
PHYTERA, INC.
Common Stock
EUROPEAN UNDERWRITING AGREEMENT
-------------------------------
January __, 1999
SG COWEN INTERNATIONAL L.P.
CARNEGIE BANK A/S
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL LTD.
As Representatives of the several European Managers
c/o SG COWEN SECURITIES INTERNATIONAL L.P.
One Angel Court
London EC2R 7HJ
United Kingdom
Dear Sirs:
1. Introductory. Phytera, Inc., a Delaware corporation (the "Company"),
-------------
proposes to sell, pursuant to the terms of this Agreement, to the several
European Managers named in Schedule A hereto (the "European Managers," or,
each, a "European Manager"), an aggregate of ________ shares of Common
Stock, $0.01 par value (the "Common Stock"), of the Company. The aggregate
of _________ shares so proposed to be sold is hereinafter referred to as
the "European Firm Stock". The Company also proposes to sell to the
European Managers, upon the terms and conditions set forth in Section 3
hereof, up to an additional _________ shares of Common Stock (the "European
Optional Stock") solely to cover over-allotments in connection with the
sale of the European Firm Stock. The European Firm Stock and the European
Optional Stock are hereinafter collectively referred to as the "European
Stock." SG Cowen International L.P., Carnegie Bank A/S and Banc Boston
Robertson Stephens International Ltd. are acting as representatives of the
several European Managers and in such capacity are hereinafter referred to
as the "European Representatives."
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "U.S. Underwriting Agreement")
providing for the sale to the several underwriters named in Schedule B
hereto (the "U.S. Underwriters," or, each, a "U.S. Underwriter"), of an
aggregate of ___________ shares of Common Stock of the Company. The
aggregate of __________ shares so proposed to be sold is hereinafter
referred to as the "U.S. Firm Stock." The Company also proposes to sell to
the U.S. Underwriters, upon the terms and conditions set forth in Section 3
thereof, up to an additional _______ shares of Common Stock (the "U.S.
Optional Stock"). The U.S. Firm Stock and the U.S. Optional Stock are
hereinafter collectively referred to as the "U.S. Stock." SG Cowen
Securities Corporation ("SG Cowen"), Carnegie Inc. and BancBoston Robertson
Stephens Inc. are acting as representatives of the several U.S.
Underwriters and in such capacity are hereinafter referred to as the "U.S.
Representatives." The respective closings under this Agreement and the
U.S. Underwriting Agreement are hereby expressly made conditional upon one
another.
<PAGE>
The European Managers and the U.S. Underwriters are hereinafter
collectively referred to as the "Underwriters" and the European Stock and
the U.S. Stock are hereinafter collectively referred to as the "Stock."
The Company understands that the European Managers and the U.S.
Underwriters will concurrently enter into an Intersyndicate Agreement of
even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the
direction of SG Cowen (in such capacity, the "Global Coordinator") and
that, pursuant thereto and subject to the conditions set forth therein, the
European Managers may purchase from the U.S. Underwriters a portion of the
U.S. Stock and the U.S. Underwriters may purchase from the European
Managers a portion of the European Stock. The Company understands that any
purchases and sales between the European Managers and the U.S. Underwriters
shall be governed by the Intersyndicate Agreement and shall not be governed
by the terms of this Agreement or the European Underwriting Agreement.
The Company understands that the European Managers propose to make a public
offering of the European Stock as soon as the European Representatives deem
advisable after this Agreement has been executed and delivered.
2. Representations and Warranties of the Company. The Company represents and
---------------------------------------------
warrants to, and agrees with, the several European Managers that:
(a) A registration statement on Form S-1 (File No. 333-________) in
the form in which it became or becomes effective and also in such form
as it may be when any post-effective amendment thereto shall become
effective with respect to the Stock, including any pre-effective
prospectuses included as part of the registration statement as
originally filed or as part of any amendment or supplement thereto, or
filed pursuant to Rule 424 under the United States Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, copies of which have
heretofore been delivered to you, has been carefully prepared by the
Company in conformity with the requirements of the Securities Act and
has been filed with the Commission under the Securities Act.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this Agreement
shall also include any registration statement relating to the Stock
that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act. The term "Prospectus" as used in this Agreement means
each prospectus in the form included in the Registration Statement,
or, (A) if the prospectuses included in the Registration Statement
omit information in reliance on Rule 430A under the Securities Act and
such information is included in the prospectuses filed with the
Commission pursuant to Rule 424(b) under the Securities Act, the term
"Prospectus" as used in this Agreement means each prospectus in the
form included in the Registration Statement as supplemented by the
addition of the Rule 430A information contained in the prospectus
filed with the Commission pursuant to Rule 424(b) and (B) if
prospectuses that meet the requirements of Section 10(a) of the
Securities Act are delivered pursuant to Rule 434 under the Securities
Act, then (i) the term "Prospectus" as used in this Agreement means
each "prospectus subject to completion" (as such term is defined in
Rule 434(g) under the Securities Act) as supplemented by (a) the
addition of Rule 430A information or other information contained in a
form of prospectus delivered pursuant to Rule 434(b)(2) under the
2
<PAGE>
Securities Act or (b) the information contained in the term sheets
described in Rule 434(b)(3) under the Securities Act, and (ii) the
date of such prospectuses shall be deemed to be the date of the
prospectuses delivered pursuant to Rule 434(b)(2) or the date of the
term sheets.
Two or more forms of Pre-effective Prospectuses (as defined below) and
two forms of Prospectus are to be used in connection with the offering
and sale of the Stock: one or more Pre-effective Prospectuses and a
Prospectus relating to the European Stock (each, a "Form of European
Prospectus") and one or more Pre-effective Prospectuses and a
Prospectus relating to the U.S. Stock (each, a "Form of U.S.
Prospectus"). The Form of European Prospectus is identical to the
Form of U.S. Prospectus, except for the front cover and back cover
pages. The final Form of European Prospectus and the final Form of
U.S. Prospectus, in the forms first furnished to the Underwriters for
use in connection with the offering of the Stock are hereinafter
referred to as the "European Prospectus" and the "U.S. Prospectus,"
respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "European Prospectus" and the "U.S. Prospectus"
shall refer to the preliminary European Prospectus dated ________ __,
1998 and preliminary U.S. Prospectus dated ________ __, 1998,
respectively, each together with the applicable terms sheet described
in Rule 434(b)(3) under the Securities Act, and all references in this
Agreement to the date of such Prospectuses shall mean the date of the
applicable term sheet. For purposes of this Agreement, all references
to the Registration Statement, any preliminary prospectus, the
European Prospectus, the U.S. Prospectus or any term sheet or any
amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").
References to the Prospectuses shall not be deemed to be references to
the prospectus prepared in the Danish language. The Danish language
prospectus, in preliminary and final form, and as amended or
supplemented, shall be collectively referred to as the "Danish
Prospectus." The European Prospectus shall be delivered by the
European Managers to all purchasers of the European Stock. To the
extent, if any, that the content of the Danish Prospectus does not
conform to the European Prospectus, the European Prospectus shall
prevail.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in
the Registration Statement, any preliminary prospectus (including the
Form of European Prospectus and Form of U.S. Prospectus) or the
Prospectuses (or other references of like import) shall be deemed to
mean and include all such financial statements (together with the
notes thereto) and schedules and other information which is
incorporated by reference in the Registration Statement, any
preliminary prospectus (including the Form of European Prospectus and
Form of U.S. Prospectus) or the Prospectuses, as the case may be.
The terms "Pre-effective Prospectus" and "preliminary prospectus" as
used in this Agreement mean each prospectus subject to completion in
the forms included in the Registration Statement at the time of the
initial filing of the Registration Statement with the Commission, and
as each such prospectus shall have been amended from time to time
prior to the date of the Prospectuses.
The Company has not and will not directly or indirectly bid for,
purchase, or attempt to induce any person to bid for or purchase,
Common Stock during the applicable restricted period under Section
242.102 of Regulation M under the Securities Act.
3
<PAGE>
In addition, the Company has caused copies of the European Prospectus
to be filed with the Market Authority of the European Association of
Securities Dealers Automated Quotation market for financial
instruments ("EASDAQ"), the Banking and Finance Commission (the "CBF")
of the Kingdom of Belgium and the Copenhagen Stock Exchange (the
"CSE").
(b) None of the Commission, the EASDAQ Market Authority, the CBF nor
the CSE has issued or threatened to issue any order preventing or
suspending the use of any Pre-effective Prospectus, and, at its date
of issue, each Pre-effective Prospectus conformed in all material
respects with the requirements of the Securities Act and the Rules and
Regulations, and each Pre-effective European Prospectus conformed in
all material respects with the requirements of the CSE, the CBF and
EASDAQ, and each Pre-effective Prospectus did not include any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
and, when the Registration Statement is effective under the rules of
the Commission and at all times subsequent thereto up to and including
each of the Closing Dates (as hereinafter defined), the Registration
Statement and the Prospectuses and any amendments or supplements
thereto contained and will contain all material statements and
information required to be included therein by the Securities Act and
the Rules and Regulations, and conformed and will conform to the
requirements of the Securities Act and the Rules and Regulations, and
the European Prospectus and any supplement thereto contained all
material statements and information required to be included therein by
the CSE, the CBF and EASDAQ and conformed and will conform to the
requirements of the CSE, CBF and EASDAQ, and neither of the
Prospectuses, nor any supplement thereto, includes or will include any
untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing
representations, warranties and agreements shall not apply to
information contained in or omitted from the Registration Statement or
any Pre-effective Prospectuses or the Prospectuses or any such
amendment or supplement thereto in reliance upon, and in conformity
with, written information furnished to the Company by or on behalf of
any European Manager, directly or through any European Representative,
specifically for use in the preparation thereof; there is no
franchise, lease, contract, agreement, instrument or other document or
law, rule, regulation, order, judgment, decree or legal or
governmental proceeding required to be described in the Registration
Statement or Prospectuses or to be filed as an exhibit to the
Registration Statement which is not described or filed therein as
required; and all descriptions of any such franchises, leases,
contracts, agreements, instruments or other documents or law, rule,
regulation, order, judgment, decree or legal or governmental
proceeding contained in the Registration Statement are accurate and
complete descriptions of such documents in all material respects.
(c) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectuses, and except as
set forth or contemplated in the Prospectuses or otherwise in the
ordinary course of business since such dates, neither the Company nor
any of the Subsidiaries (as defined below) has incurred any
liabilities or obligations, direct or contingent, nor entered into any
transactions not in the ordinary course of business, and there has not
been any material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net worth or
results of operations of the Company and the Subsidiaries considered
as a whole, or any change in the capital stock, short-term or long-
term debt of the Company and the Subsidiaries considered as a whole.
The Company and its subsidiaries have no material contingent
obligations which are not disclosed in the Company's consolidated
financial statements included in the Prospectuses.
4
<PAGE>
(d) The financial statements, together with the related notes and
schedules, set forth in the Prospectuses and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and cash flows and changes in financial position of the
Company and its consolidated subsidiaries at the respective dates or
for the respective periods therein specified. Such statements and
related notes and schedules have been prepared in accordance with
United States generally accepted accounting principles applied on a
consistent basis except as may be set forth in the Prospectuses, and
all adjustments necessary for a fair presentation of results for such
periods have been made. The selected financial and statistical data
set forth in the Prospectuses under the captions "Prospectus
Summary -- Summary Financial Data," "Capitalization," "Dilution,"
"Selected Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Management Executive Compensation," "Certain Transactions,"
"Principal Stockholders" and "Shares Eligible for Future Sale" fairly
present, on the basis stated in the Registration Statement and the
Prospectuses, the information set forth therein and such data has been
compiled on a basis consistent with the financial statements presented
therein and the books and records of the Company.
(e) Arthur Andersen LLP, who have expressed their opinions on the
audited financial statements and related schedules included in the
Registration Statement and the Prospectuses, are independent public
accountants as required by the Securities Act and the Rules and
Regulations.
(f) Each of the Company and the Subsidiaries has been duly organized
and is validly existing and in good standing as a corporation under
the laws of its respective jurisdiction of organization, with power
and authority (corporate and other) to own or lease its properties and
to conduct its businesses as described in the Prospectuses; each of
the Company and the Subsidiaries are in possession of and operating in
compliance with all material franchises, grants, authorizations,
approvals, registrations, qualifications, licenses, permits,
easements, consents, certificates and orders required for the conduct
of its business, all of which are valid and in full force and effect;
and each of the Company and the Subsidiaries is duly qualified to do
business and in good standing as a foreign corporation in all other
jurisdictions where its ownership or leasing of properties or the
conduct of its businesses requires such qualification. Each of the
Company and the Subsidiaries has all requisite power and authority,
and all necessary material consents, approvals, authorizations,
orders, registrations, qualifications, licenses, certificates and
permits of and from all public regulatory or governmental agencies and
bodies to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Registration
Statement and the Prospectuses, and no such consent, approval,
authorization, order, registration, qualification, license or permit
contains a materially burdensome restriction not adequately disclosed
in the Registration Statement and the Prospectuses. The Company owns
or controls, directly or indirectly, only the following corporations,
associations or other entities (each, a "Subsidiary" and collectively,
the Subsidiaries"):
(1) Phytera A/S;
(2) Phytera Limited; and
(3) Phytera Symbion ApS.
All outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued, and are fully paid and non-
assessable and (except for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of any liens,
5
<PAGE>
encumbrances, equities or claims, and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into or exchange any obligations for
shares of capital stock or ownership interests in any Subsidiary are
outstanding.
(g) The Company's authorized capital stock is on the date hereof, and
will be on the Closing Dates, as set forth under the heading
"Capitalization" in the Prospectuses; the Company's outstanding
capital stock was, as of the date set forth in the Prospectuses, the
amount so set forth; the outstanding shares of Common Stock (including
the outstanding shares of the Stock) of the Company conform to the
description thereof in the Prospectuses and have been duly authorized
and validly issued and are fully paid and non-assessable and have been
issued in compliance with all federal and applicable state securities
laws and were not issued in violation of or subject to any preemptive
rights or similar rights to subscribe for or purchase securities and
conform to the description thereof contained in the Prospectuses. Any
and all certificates representing the Stock are in due and proper form
and comply with all legal requirements and requirements of the
Company's Certificate of Incorporation, By-laws and other
organizational documents. Except as disclosed in and or contemplated
by the Prospectuses and the financial statements of the Company and
related notes thereto included in the Prospectuses, the Company does
not have outstanding any options, warrants, preemptive or other rights
to purchase or subscribe for shares of its capital stock or any
securities or obligations convertible or exchangeable into its shares
of capital stock, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, securities or
obligations, except for those granted subsequent to the date of
information provided in the Prospectuses pursuant to the Company's
employee and stock option plans as disclosed in the Prospectuses. The
description of the Company's stock option and other stock plans or
arrangements, and the options or other rights granted or exercised
thereunder, as set forth in the Prospectuses, accurately and fairly
presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(h) The European Stock to be issued and sold by the Company to the
European Managers hereunder and the U.S. Stock to be issued and sold
by the Company to the U.S. Underwriters under the U.S. Underwriting
Agreement has been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly
and validly issued, fully paid and non-assessable and free of any
preemptive or similar rights and will conform to the description
thereof in the Prospectuses.
(i) Except as set forth in the Prospectuses, there are no legal or
governmental proceedings pending to which the Company or any of the
Subsidiaries is a party or of which any property of the Company or any
Subsidiary is the subject, which, if determined adversely to the
Company or any such Subsidiary, might individually or in the aggregate
(i) prevent or adversely affect the transactions contemplated by this
Agreement, (ii) suspend the effectiveness of the Registration
Statement, (iii) prevent or suspend the use of the Pre-effective
Prospectuses in any jurisdiction or (iv) result in a material adverse
change in the condition (financial or otherwise), properties,
business, business prospects, net worth or results of operations of
the Company and its subsidiaries considered as a whole and to the best
of the Company's knowledge there is no valid basis for any such legal
or governmental proceeding; and to the best of the Company's knowledge
no such proceedings are threatened or contemplated against the Company
or any Subsidiary by any governmental authority or any other person.
The Company is not a party nor subject to the provisions of any
material injunction, judgment, decree or order of any court,
regulatory body or other governmental agency or body. The description
of the Company's litigation and legal proceedings under the heading
"Business -- Legal
6
<PAGE>
Proceedings" in the Prospectuses is true and correct and complies with
the Rules and Regulations and the rules and regulations of the CSE,
the CBF and EASDAQ.
(j) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute
a summary of the terms of the capital stock, or under the captions
"Management," "Certain Transactions," "Principal Stockholders" and
"Shares Eligible for Future Sale," insofar as they purport to describe
facts or the provisions of the documents referred to therein, are
accurate and complete in all material respects.
(k) The execution, delivery and performance of this Agreement and the
U.S. Underwriting Agreement and the consummation of the transactions
herein and therein contemplated (A) will not conflict with or result
in a breach or any violation of any of the terms or provisions of the
Certificate of Incorporation, By-laws or other organizational
documents of the Company or any of the Subsidiaries, or any law,
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of the Subsidiaries or any
of their respective properties or assets, (B) will not conflict with
or result in a breach or violation of any of the terms or provisions
of or constitute a default under any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which it or any of
its or their respective properties or assets is or may be bound, and
(C) do not and will not result in the creation of a lien against any
such property.
(l) None of the Company or any of the Subsidiaries is, or with notice
or lapse of time or both will be, in violation of or in default under
its Certificate of Incorporation or By-laws or other organizational
documents or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, note, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or
any of its properties may be bound. None of the Company or any of the
Subsidiaries has received any notice of such violation or default.
(m) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement or the U.S. Underwriting Agreement
by the Company and the consummation of the transactions contemplated
herein or therein, except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD"), the Commission,
the CSE, the CBF, the European Association of Securities Dealers,
Inc., or under the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or the securities or "Blue Sky"
laws of any jurisdiction in connection with the purchase and
distribution of the European Stock by the European Managers and the
U.S. Stock by the U.S. Underwriters.
(n) The Company has the full corporate power and authority to enter
into this Agreement and the U.S. Underwriting Agreement and to perform
its obligations hereunder and thereunder (including to issue, sell and
deliver the European Stock and U.S. Stock), and this Agreement and the
U.S. Underwriting Agreement have each been duly and validly
authorized, executed and delivered by the Company and constitute valid
and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except to the extent that
rights to indemnity and contribution hereunder or thereunder may be
limited by securities laws of any applicable national or state
jurisdiction or the public policy underlying such laws.
7
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(o) The Company and each of the Subsidiaries is in all material
respects in compliance with, and conduct their businesses in
conformity with, all applicable laws, rules and regulations and
decisions and orders of any court or governmental agency or body
having competent jurisdiction over it; to the knowledge of the Company
after due inquiry, except as set forth in the Registration Statement
and the Prospectuses, no prospective change in any of such laws, rules
or regulations has been adopted which, when made effective, would have
a material adverse effect on the operations of the Company and the
Subsidiaries, individually or taken as a whole. In the ordinary
course of business, employees of the Company and the Subsidiaries
conduct periodic reviews of the effect of Environmental Laws (as
defined below) on the business operations and properties of the
Company and the Subsidiaries, in the ordinary course of which they
seek to identify and evaluate associated costs and liabilities.
Except as disclosed in the Registration Statement and the
Prospectuses, each of the Company and the Subsidiaries is in
compliance with all applicable existing national, state and local laws
and regulations relating to the protection of human health or the
environment or imposing liability or requiring standards of conduct
concerning any Hazardous Materials ("Environmental Laws"), except for
such instances of noncompliance which, either singly or in the
aggregate, would not have a material adverse effect. The term
"Hazardous Material" means (i) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act, as amended, (iii) any
petroleum or petroleum product, (iv) any polychlorinated biphenyl and
(v) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, waste or substance regulated under or within the
meaning of any other Environmental Law.
(p) The Company and each of the Subsidiaries has filed all necessary
national, state and local income, payroll, franchise and other tax
returns and have paid all taxes shown as due thereon or with respect
to any of its properties, and there is no tax deficiency that has
been, or to the knowledge of the Company is likely to be, asserted
against the Company or any of the Subsidiaries or any of their
respective properties or assets that would adversely affect the
financial position, business or operations of the Company and the
Subsidiaries, individually or taken as a whole. All tax liabilities
of the Company and each of the Subsidiaries have been adequately
provided for, as reflected in the financial statements and related
notes.
(q) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of
the filing or effectiveness of the Registration Statement or
otherwise, except for persons and entities who have expressly waived
such right or who have been given proper notice and have failed to
exercise such right within the time or times required under the terms
and conditions of such right.
(r) Neither the Company nor any of its officers, directors or
affiliates (as defined in Rule 405 of the Securities Act) has taken or
will take, directly or indirectly, any action designed or intended to
stabilize or manipulate the price of any security of the Company, or
which caused or resulted in, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of
the price of any security of the Company.
(s) The Company has provided you with all financial statements since
December 31, 1997 to the date hereof that are available to the
officers of the Company, including financial statements for the three
month period ended March 31, 1998, the three month and six month
periods ended June 30, 1998 and the three month and nine month periods
ended September 30, 1998, and for the months of October and November
1998.
8
<PAGE>
(t) The Company and the Subsidiaries own or possess the right to use
all patents, trademarks, trademark registrations, service marks,
service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets, know-how and rights (collectively,
"Intellectual Property Rights") described in the Prospectuses as being
owned by them or any of them or necessary for the conduct of their
respective businesses, and neither the Company nor any Subsidiary is
aware of any claim to the contrary or any challenge or infringement by
any other person to or of the rights of the Company and the
Subsidiaries with respect to the foregoing. The business of the
Company and each Subsidiary as now conducted and as proposed to be
conducted as described in the Prospectuses does not and, to the
knowledge of the Company, will not infringe or conflict with any
Intellectual Property Rights or franchise right of any person. Except
as disclosed in the Prospectuses, the expiration or loss of any
Intellectual Property Right of the Company or any Subsidiary would not
have a material effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company and the
Subsidiaries considered as a whole.
(u) The Company and the Subsidiaries have performed all material
obligations required to be performed by them under all contracts
required by the Rules and Regulations to be described in or filed as
exhibits to the Registration Statement, all such contracts have been
so described and/or filed, and none of the Company or any of the
Subsidiaries or any other party to any such contract is in default
under its terms or in breach of any of its respective obligations
thereunder. Neither the Company nor any of the Subsidiaries has
received any notice of any such default or breach.
(v) The Company is not involved in any labor dispute nor is any such
dispute threatened. The Company is not aware that (A) any executive,
key employee or significant group of employees of the Company or any
Subsidiary plans to terminate employment with the Company or any such
Subsidiary or (B) any such executive or key employee is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or
similar agreement that would be violated by any such person's
participation in the present or proposed business activities of the
Company and the Subsidiaries as described in the Prospectuses. Neither
the Company nor any Subsidiary has or expects to have any liability
for any prohibited transaction or funding deficiency or any complete
or partial withdrawal liability with respect to any pension, profit
sharing or other plan which is subject to the United States Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any
similar plan subject to the laws and rules and regulations of any
other jurisdiction, to which the Company or any such Subsidiary makes
or ever has made a contribution and in which any employee of the
Company or any Subsidiary is or has ever been a participant. With
respect to such plans, the Company and each Subsidiary are in
compliance in all material respects with all applicable provisions of
ERISA and all other such laws.
(w) The Company has obtained the written agreement described in
Section 9(p) of this Agreement from each of its officers, directors
and holders of Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock listed on Schedule C
hereto.
(x) The Company and the Subsidiaries have, and the Company and the
Subsidiaries as of each of the Closing Dates will have, good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned or proposed to be
owned by them which is material to the business of the Company or of
the Subsidiaries, in each case free and clear of all liens,
encumbrances and defects, except such as are described the
Prospectuses or such as would in the aggregate not have a material
adverse effect on the Company and the Subsidiaries considered as a
whole; and
9
<PAGE>
any real property and buildings held under lease by the Company and
the Subsidiaries or proposed to be leased by any of them after giving
effect to the transactions described in the Prospectuses are, or as of
each of the Closing Dates will be, held by them under valid, existing
and enforceable leases except as would not have a material adverse
effect on the Company and the Subsidiaries considered as a whole, in
each case except as described in the Prospectuses.
(y) The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are customary in the businesses in which they are
engaged or propose to engage after giving effect to the transactions
described in the Prospectuses; and neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary
to continue their business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and the Subsidiaries
considered as a whole, except as described in the Prospectuses.
(z) Other than as contemplated by this Agreement or the U.S.
Underwriting Agreement, there is no broker, finder or other party that
is entitled to receive from the Company any brokerage or finder's fee
or other fee, commission or other compensation as a result of any of
the transactions contemplated by this Agreement or the U.S.
Underwriting Agreement.
(aa) The Company and each of the Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(bb) To the Company's knowledge, neither the Company nor any of the
Subsidiaries nor any employee or agent of the Company or any of the
Subsidiaries has made any payment of funds of the Company or any of
the Subsidiaries or received or retained any funds in violation of any
law, rule or regulation.
(cc) Neither the Company nor any of the Subsidiaries is or, after
application of the net proceeds of this offering as described under
the caption "Use of Proceeds" in the Prospectuses, will become an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the United States Investment
Company Act of 1940, as amended (the "Investment Company Act"). The
Company intends to conduct its affairs in a manner such that it will
not become an entity required to register as an "investment company"
subject to regulation under the Investment Company Act.
(dd) The Common Stock has been approved for listing and admission to
trading on the CSE and EASDAQ, respectively, subject to official
notice of issuance.
Each certificate signed by any officer of the Company and delivered to the
European Managers or counsel for the European Managers shall be deemed to be a
representation and warranty by the Company as to the matters covered thereby.
10
<PAGE>
3. Purchase by, and Sale and Delivery to, European Managers - Closing Dates.
------------------------------------------------------------------------
The Company agrees to sell to the European Managers the European Firm Stock
and, on the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein
set forth, each European Manager agrees, severally and not jointly, to
purchase the European Firm Stock from the Company, the number of shares of
European Firm Stock to be purchased by each European Manager being set
opposite its name in Schedule A, subject to adjustment in accordance with
Section 13 hereof.
The purchase price per share to be paid by the European Managers to the
Company will be the price per share set forth in the table on the cover
page of the Prospectus as the "Proceeds, before expenses, to Phytera" (the
"Purchase Price").
Each European Manager agrees that, except to the extent permitted by the
Intersyndicate Agreement, it will not offer or sell any of the European
Stock outside of the United States and Canada or to anyone other than a
United States or Canadian person. As used herein, "United States or
Canadian Person" means any national or resident of the United States or
Canada or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the
United States or Canada of any United States or Canadian Person), and
includes any United States or Canadian branch of a person who is otherwise
not a United States or Canadian Person.
The Company will deliver the European Firm Stock to the European
Representatives for the respective accounts of the several European
Managers (in the form of definitive certificates or book entries, as
instructed by the European Managers, issued in such names and in such
denominations as the European Representatives may direct by notice in
writing to the Company given at or prior to 12:00 Noon, New York Time, not
later than the second full business day preceding the First Closing Date
(as defined below) or, if no such direction is received, in the names of
the respective European Managers or in such other names as SG Cowen
International L.P. may designate (solely for the purpose of administrative
convenience) and in such denominations as SG Cowen International L.P. may
determine, against payment of the aggregate Purchase Price therefor by wire
transfer or certified or official bank check or checks in Federal or
similar same-day funds, payable to the order of the Company, all at the
offices of Brown & Wood LLP, One World Trade Center, New York, New York
10048. The time and date of the delivery and closing shall be at 10:00
A.M., New York time, on ____________, 1999, in accordance with Rule 15c6-1
of the Exchange Act. The time and date of such payment and delivery are
herein referred to as the "First Closing Date". The First Closing Date and
the location of delivery of, and the form of payment for, the European Firm
Stock may be varied by agreement between the Company and SG Cowen
International L.P. The First Closing Date may be postponed pursuant to the
provisions of Section 13 hereof.
The Company shall make the certificates, if any, for the European Stock
available to the European Representatives for examination on behalf of the
European Managers not later than 10:00 A.M., New York Time, on the business
day preceding the First Closing Date at the offices of SG Cowen
International L.P., One Angel Court, London EC2R 7HJ, United Kingdom.
It is understood that SG Cowen International L.P., individually and not as
European Representative of the several European Managers, may (but shall
not be obligated to) make payment to the Company on behalf of any European
Manager or European Managers, for the Stock to be purchased by such
European Manager or European Managers. Any such payment by SG Cowen
International L.P. shall not relieve such European Manager or European
Managers from any of its or their other obligations hereunder.
11
<PAGE>
The several European Managers agree to make an initial public offering of
the European Firm Stock at the initial public offering price (the price per
share set forth on the cover page of the Prospectuses as the "Public
offering price") as soon after the effectiveness of the Registration
Statement as in their judgment is advisable. The European Representatives
shall promptly advise the Company of the making of the initial public
offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the European Firm Stock as contemplated by the
European Prospectus, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company hereby grants to the European Managers an option to purchase,
severally and not jointly, up to the number of shares of European Optional
Stock set forth on Schedule A hereto, for an aggregate of up to __________
shares. The price per share to be paid for the Optional Stock shall be the
Purchase Price. The option granted hereby may be exercised as to all or
any part of the European Optional Stock at any time, and from time to time,
not more than thirty (30) days subsequent to the effective date of this
Agreement. No European Optional Stock shall be sold and delivered unless
the European Firm Stock previously has been, or simultaneously is, sold and
delivered. The right to purchase the European Optional Stock or any
portion thereof may be surrendered and terminated at any time upon notice
by the European Managers to the Company.
The option granted hereby may be exercised by the European Managers by
written notice from SG Cowen to the Company setting forth the number of
shares of the European Optional Stock to be purchased by them and the date
and time for delivery of and payment for the European Optional Stock. Each
date and time for delivery of and payment for European Optional Stock
(which may be the First Closing Date, but not earlier) is herein called an
"Option Closing Date" and shall in no event be earlier than two (2)
business days nor later than ten (10) business days after written notice is
given. Each Option Closing Date and the First Closing Date are herein
called the "Closing Dates." All purchases of European Optional Stock from
the Company shall be made on a pro rata basis. European Optional Stock
shall be purchased for the account of each European Manager in the same
proportion (or as nearly as practicable) as the number of shares of
European Firm Stock set forth opposite such European Manager's name in
Schedule A hereto bears to the total number of shares of European Firm
Stock (subject to adjustment by the European Managers to eliminate odd
lots). Upon exercise of the option by the European Managers, the Company
agrees to sell to the European Managers the number of shares of European
Optional Stock set forth in the written notice of exercise and the European
Managers agree, severally and not jointly and subject to the terms and
conditions herein set forth, to purchase the number of such shares
determined as aforesaid.
The Company will deliver the European Optional Stock to the European
Managers in the form of definitive certificates or book entries, as
instructed by the European Managers, issued in such names and in such
denominations as the European Representatives may direct by notice in
writing to the Company given at or prior to 12:00 Noon, New York time, not
later than the second full business day preceding the Option Closing Date
or, if no such direction is received, in the names of the respective
European Managers or in such other names as SG Cowen International L.P. may
designate (solely for the purpose of administrative convenience) and in
such denominations as SG Cowen International L.P. may determine, against
payment of the aggregate Purchase Price therefor by wire transfer or
certified or official bank check or checks in Federal or similar same-day
funds, payable to the order of the Company all at the offices of Brown &
Wood llp, One World Trade Center, New York, New York 10048. The Company
shall make the certificates, if any, for the Optional Stock available to
the European Managers for examination on behalf of the European Managers
not later than 10:00 A.M., New York time, on the business day preceding the
relevant Option Closing Date at the offices of SG Cowen International L.P.,
One Angel Court, London EC2R 7HJ, United Kingdom. The Option Closing Date
and the location of delivery of, and the form of payment for, the U.S.
Option Stock may be varied by agreement
12
<PAGE>
between the Company and SG Cowen International L.P. The Option Closing Date
may be postponed pursuant to the provisions of Section 13 hereto.
4. [Intentionally omitted]
5. Covenants and Agreements of the Company. The Company covenants and agrees
---------------------------------------
with the several European Managers that:
(a) The Company will (i) if the Company and the European
Representatives have determined not to proceed pursuant to Rule 430A
of the Rules and Regulations, use its best efforts to cause the
Registration Statement to become effective as soon as practicable
after the execution of this Agreement, (ii) if the Company and the
European Representatives have determined to proceed pursuant to Rule
430A of the Rules and Regulations, use its best efforts to comply with
the provisions of and make all requisite filings with the Commission
pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(iii) if the Company and the European Representatives have determined
to deliver Prospectuses pursuant to Rule 434 of the Rules and
Regulations, to use its best efforts to comply with all the applicable
provisions thereof. The Company will use its best efforts to obtain
any approval of the European Prospectus from each of the CSE, the CBF
and the EASDAQ Market Authority required to permit the offer and sale
to the public of the European Stock in Belgium, Denmark and such other
jurisdictions in Europe as the European Representatives may request
and the listing and admission to trading of the Common Stock on the
CSE and EASDAQ, respectively. The Company will advise the European
Representatives promptly as to the time at which the Registration
Statement or any post-effective amendment thereto becomes effective
and the Prospectuses have been approved, as the case may be, will
advise the European Representatives promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, or by the CSE, the CBF and EASDAQ of any order
preventing or suspending the use of any Pre-effective European
Prospectus or the European Prospectus, or of the institution of any
proceedings for any of those purposes, and will use its best efforts
to prevent the issuance of any such order and to obtain as soon as
possible the lifting thereof, if issued. The Company will advise the
European Representatives promptly of the receipt of any comments of
the Commission, the CSE, the CBF or the EASDAQ Market Authority or any
request by the Commission, the CSE, the CBF or the EASDAQ Market
Authority for any amendment of or supplement to the Registration
Statement or the Prospectuses or for additional information and will
not at any time file any amendment to the Registration Statement or
supplement to the Prospectuses which shall not previously have been
submitted to the European Representatives a reasonable time prior to
the proposed filing thereof or to which the European Representatives
shall reasonably object in writing or which is not in compliance with
the Securities Act and the Rules and Regulations or the rules and
regulations of the CSE, the CBF or EASDAQ.
(b) The Company will prepare and file with the Commission, the CSE,
the CBF and EASDAQ promptly upon the request of the European
Representatives, any amendments or supplements to the Registration
Statement or the Prospectuses which in the reasonable opinion of the
European Representatives may be necessary to enable the several
European Managers to continue the distribution of the European Stock
and the several U.S. Underwriters to continue the distribution of the
U.S. Stock and will use its best efforts to cause the same to become
effective or approved, as the case may be, as promptly as possible.
(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Securities Act or the
13
<PAGE>
rules and regulations of the CSE, the CBF or EASDAQ any event relating
to or affecting the Company or any of the Subsidiaries occurs as a
result of which the Prospectuses or any other prospectus as then in
effect would include an untrue statement of a material fact, or omit
to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the
Prospectuses to comply with the Securities Act and the Rules and
Regulations, or the rules and regulations of the CSE, the CBF or
EASDAQ, the Company will promptly notify the European Representatives
thereof and will prepare amended or supplemented prospectuses which
will correct such statement or omission; and in case any European
Manager is required to deliver a prospectus relating to the European
Stock nine months or more after the effective date of the Registration
Statement, the Company, upon the request of the European
Representatives and at the expense of such European Manager, will
prepare promptly such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the
Securities Act or any equivalent rules and regulations of the CSE, the
CBF and EASDAQ.
(d) The Company will deliver to the European Representatives, at or
before the Closing Dates, four signed copies of the Registration
Statement, as originally filed with the Commission, and all amendments
thereto, including all financial statements and exhibits thereto, and
four signed copies of the European Prospectus and all supplements
thereto, and will deliver to the European Representatives such number
of copies of the Registration Statement, including such financial
statements but without exhibits, and all amendments thereto, as the
European Representatives may reasonably request. The Company will
deliver or mail to or upon the order of the European Representatives,
from time to time until the effective date of the Registration
Statement, as many copies of the Pre-effective Prospectus as the
Representatives may reasonably request. The Company will deliver or
mail to or upon the order of the European Representatives on the date
of the initial public offering, and thereafter from time to time
during the period when delivery of a prospectus relating to the
European Stock is required under the Securities Act and the Rules and
Regulations, as many copies of the European Prospectus, in final form
or as thereafter amended or supplemented as the European
Representatives may reasonably request; provided, however, that the
expense of the preparation and delivery of any European Prospectus
required for use nine months or more after the effective date of the
Registration Statement shall be borne by the European Managers
required to deliver such European Prospectus.
(e) The Company will make generally available to its shareholders as
soon as practicable, but not later than 15 months after the effective
date of the Registration Statement, an earning statement which will be
in reasonable detail (but which need not be audited) and which will
comply with Section 11(a) of the Securities Act, covering a period of
at least 12 consecutive months beginning after the "effective date"
(as defined in Rule 158 under the Securities Act) of the Registration
Statement and will advise SG Cowen in writing when such statement has
been made available.
(f) The Company will cooperate with the European Representatives to
enable the Stock to be registered or qualified for offering and sale
by the European Managers and by dealers under the securities laws of
such jurisdictions as the European Representatives may designate and
at the request of the European Representatives will make such
applications and furnish such consents to service of process or other
documents as may be required of it as the issuer of the European Stock
for that purpose; provided, however, that the Company shall not be
required to qualify to do business or to file a general consent (other
than that arising out of the offering or sale of the Stock) to service
of process in any such jurisdiction where it is not now so subject.
The Company will, from time to time, prepare and file such statements
and reports as are or may be required of it
14
<PAGE>
as the issuer of the Stock to continue such qualifications in effect
for so long a period as the European Representatives may reasonably
request for the distribution of the Stock. The Company will advise the
European Representatives promptly after the Company becomes aware of
the suspension of the qualifications or registration of (or any such
exception relating to) the Common Stock of the Company for offering,
sale or trading in any jurisdiction or of any initiation or threat of
any proceeding for any such purpose, and in the event of the issuance
of any orders suspending such qualifications, registration or
exception, the Company will, with the cooperation of the European
Representatives use its best efforts to obtain the withdrawal thereof.
(g) As and when required by the Rules and Regulations or, if more
frequently or sooner by applicable regulations of the CSE, the CBF and
EASDAQ, the Company will furnish to its shareholders annual reports
containing financial statements certified by independent public
accountants, and quarterly summary financial information in reasonable
detail which may be unaudited. During the period of five years from
the date hereof, the Company will deliver to the European
Representatives and, upon request of the European Representatives, to
each of the other European Managers, (i) as soon as practicable after
the end of each fiscal year, copies of each annual report of the
Company containing financial statements certified by independent
public accountants and each other report furnished by the Company to
its shareholders, (ii) as soon as they are available, copies of any
other reports (financial or other) which the Company shall publish or
otherwise make available to any of its shareholders as such, (iii) as
soon as practicable after the filing thereof, copies of any reports,
documents, financial statements and other information furnished to or
filed by the Company with the Commission, the NASD, the CSE, the CBF,
EASDAQ or any other securities exchange or electronic quotation
system, including each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q and Report on Form 8-K filed with the
Commission and (iv) from time to time such other information
concerning the Company as the European Representatives may request.
So long as the Company has active subsidiaries, such financial
statements will be on a consolidated basis to the extent the accounts
of the Company and its subsidiaries are consolidated in reports
furnished to its shareholders generally. Separate financial statements
shall be furnished for all subsidiaries whose accounts are not
consolidated but which at the time are significant subsidiaries as
defined in the Rules and Regulations.
(h) The Company will comply with all applicable rules and regulations
with respect to listing on the CSE and admission to trading securities
on EASDAQ and with all CSE and EASDAQ rules and regulations. The
Company will use its best efforts to maintain the listing and
admission to trading of the Common Stock on the CSE and EASDAQ,
respectively, for a period of not less than five years after the
effective date of the Registration Statement.
(i) The Company will maintain one or more independent registrars and
transfer agents for its Common Stock.
(j) Prior to filing its quarterly financial statements on Form 10-Q,
the Company will have its independent auditors perform a limited
quarterly review of its quarterly financial statements and other
financial and statistical data required to be included therein.
(k) The Company will not offer, sell, assign, transfer, encumber,
contract to sell, grant an option to purchase or otherwise dispose of
any shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock (including, without
limitation, Common Stock of the Company which may be deemed to be
beneficially owned by the Company in accordance with the Rules and
Regulations)
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during the 180 days following the date on which the price of the
European Stock to be purchased by the European Managers is set, other
than (i) the Company's sale of Common Stock hereunder, (ii) the
Company's issuance of Common Stock upon the exercise of warrants or
stock options which are presently outstanding and described in the
Prospectuses and (iii) the issuance by the Company of any shares or
option to purchase any shares of Common Stock pursuant to its option
plan or employee stock purchase plan described in the Prospectuses.
(l) Prior to filing with the Commission any reports required pursuant
to Rule 463 of Rules and Regulations, the Company will furnish a copy
thereof to the counsel for the European Managers and receive and
consider its comments thereon, and will deliver promptly to the
European Representatives four signed copies of each such report filed
by it with the Commission.
(m) The Company will apply the net proceeds from the sale of the
Stock as set forth in the description under "Use of Proceeds" in the
Prospectuses, which description complies in all respects with the
requirements of Item 504 of Regulation S-K.
(n) The Company will supply you with copies of all correspondence to
and from, and all documents issued to and by the Commission, in
connection with the registration of the Stock under the Securities Act
and the Exchange Act, and the CSE, the CBF and EASDAQ, in connection
with the offer and sale of the Stock and the listing and admission to
trading of the Common Stock on the CSE and EASDAQ.
(o) Prior to each of the Closing Dates the Company will furnish to
the European Representatives, as soon as they have been prepared,
copies of any unaudited interim consolidated financial statements of
the Company and its subsidiaries for any periods subsequent to the
periods covered by the financial statements appearing in the
Registration Statement and the Prospectuses.
(p) Prior to each of the Closing Dates the Company will issue no
press release or other communications directly or indirectly and hold
no press conference with respect to the Company or any of the
Subsidiaries, the financial condition, results of operations,
business, prospects, assets or liabilities of any of them, or the
offering of the Stock, without the prior written consent of SG Cowen.
For a period of 12 months following the first Closing Date, the
Company will provide to SG Cowen copies of each press release or other
public communications with respect to the financial condition, results
of operations, business, prospects, assets or liabilities of the
Company at least 24 hours prior to the public issuance thereof or such
longer advance period as may reasonably be practicable.
(q) The Company shall not invest or otherwise use the proceeds
received by the Company from its sale of the Stock in such a manner as
would require the Company or any of its subsidiaries to register as an
investment company under the Investment Company Act.
(r) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
6. Payment of Expenses. (a) The Company will pay (directly or by
-------------------
reimbursement) all of its costs, fees and expenses incident to the
performance of its obligations under this Agreement and the U.S.
Underwriting Agreement and in connection with the transactions contemplated
hereby, including but not limited to (i) all expenses and taxes incident to
the issuance and delivery of the
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European Stock to the European Managers; (ii) all expenses incident to the
registration of the Stock under the Securities Act and approval of the
Stock for offer and sale in Belgium and Denmark and such other
jurisdictions as may be requested by the European Managers; (iii) the costs
of preparing stock certificates (including printing and engraving costs);
(iv) all fees and expenses of each registrar and transfer agent of the
Stock; (v) fees and expenses of the Company's counsel and the Company's
independent accountants; (vi) all costs and expenses incurred in connection
with the preparation, printing filing, shipping and distribution of the
Registration Statement, each Pre-effective Prospectus and the Prospectuses
(including all exhibits and financial statements) and all amendments and
supplements provided for herein, the "Agreement Among Managers" between the
European Representatives and the European Managers, the "Intersyndicate
Agreement" between the European Representatives and U.S. Representatives,
the Master Selected Dealers' Agreement, the U.S. Underwriters'
Questionnaire and the Blue Sky memoranda (including related fees and
expenses of counsel to the European Managers) and this Agreement; (vii) all
filing fees, attorneys' fees and expenses incurred by the Company or the
European Managers in connection with exemptions from the qualifying or
registering (or obtaining qualification or registration of) all or any part
of the Stock for offer and sale and determination of its eligibility for
investment under the Blue Sky or other securities laws of such
jurisdictions as the European Representatives may designate; (viii) all
fees and expenses paid or incurred in connection with filings made with the
NASD; (ix) fees and expenses associated with listing the Common Stock on
the CSE and admission to trading on EASDAQ, and filing with the CBF; and
(x) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in
this Section.
(b) In addition to its other obligations under Section 7(a) hereof, the
Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon (i) any statement or omission, or any alleged statement or
omission, in the Registration Statement or the Prospectuses, (ii) any act
or failure to act or any alleged act or failure to act or (iii) any breach
or inaccuracy in its representations and warranties, it will reimburse each
European Manager on a quarterly basis upon written request to the Company
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the Company's obligation to reimburse each European
Manager (and, to the extent applicable, each officer, director or
controlling person of such European Manager) for such expenses and the
possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each European
Manager shall promptly return it to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing)
announced from time to timed by The Chase Manhattan Bank, New York, New
York (the "Prime Rate"). Any such interim reimbursement payments which are
not made to a European Manager in a timely manner as provided below shall
bear interest at the Prime Rate from the due date for such reimbursement.
This expense reimbursement agreement will be in addition to any other
liability which the Company may otherwise have.
(c) In addition to its other obligations under Section 7(b) hereof, each
European Manager severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in Section 7(b) hereof which relates to
information furnished to the Company pursuant to Section 7(b) hereof, it
will reimburse the Company (and, to the
17
<PAGE>
extent applicable, each officer, director or controlling person of the
Company) on a quarterly basis upon written request to such European Manager
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination of such European Manager's obligation to reimburse the
Company (and, to the extent applicable, each officer, director or
controlling person of the Company) for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Company (and, to the extent
applicable, each officer, director or controlling person of the Company)
shall promptly return it to such European Manager together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within 30
days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in addition
to any liability which such European Manager may otherwise have.
(d) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in paragraph (b) and/or (c) of
this Section 6, including the timing and amounts of any requested
reimbursement payments and the method of determining such amounts, shall be
settled by arbitration conducted under the following provisions. Any such
arbitration must be commenced by service of a written demand for
arbitration or written notice of intention to arbitrate. Upon commencement,
each party shall select one arbitrator, and the two arbitrators so selected
shall together select a mutually satisfactory third arbitrator. The three
arbitrators shall determine the procedures that they shall follow in
arbitrating the controversy arising out of the operation of the interim
reimbursement arrangements set forth in paragraph (b) and/or (c) of this
Section 6 in respect of which such arbitrators were selected. Any such
arbitration would be limited to the operation of the interim reimbursement
provisions contained in paragraph (b) and/or (c) of this Section 6 and
would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of
Section 7. Any payments which are the subject of any pending arbitration
proceeding under this Section 6(d) shall be suspended until such matter is
resolved in accordance with this Section 6(d) or by a court of competent
jurisdiction.
7. Indemnification and Contribution. (a) The Company agrees to indemnify and
--------------------------------
hold harmless each European Manager and each person, if any, who controls
such European Manager within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of each of such
European Manager (collectively, the "European Manager Indemnified Parties"
and, each, a "European Manager Indemnified Party"), against any losses,
claims, damages, liabilities or expenses (including the reasonable cost of
investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which may be based
upon the Securities Act, or any other statute or at common law, (i) on the
ground or alleged ground that any Pre-effective Prospectus, the
Registration Statement or the Prospectuses (or any Pre-effective
Prospectus, the Registration Statement or the Prospectuses as from time to
time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading,
unless such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by any
European Manager, directly or through the European Representatives,
specifically for use in the preparation thereof or (ii) for any act or
failure to act or any alleged act, or failure to act, by any European
Manager in connection with, or relating in any manner to, any loss, claim,
damage, liability or expense referred to in clause (i) above; provided that
the Company shall not be liable under this clause (i) with respect to a
prospectus delivered by a European Manager after the Company has given
notice pursuant to Section 5(c) above that such prospectus is being amended
by the Company; and provided, further, that the Company shall not be liable
under this clause (ii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim,
damage, or liability or expense resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such European Manager
through its gross negligence or willful misconduct; provided, however, that
in no case is the Company to be liable with respect to any claims made
against any
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European Manager Indemnified Party against whom the action is brought
unless such European Manager Indemnified Party shall have not notified the
Company in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall
have been served upon the European Manager Indemnified Party, but failure
to notify the Company of such claim shall not relieve it from any liability
which it may have to any European Manager Indemnified Party otherwise than
on account of its indemnity agreement contained in this paragraph. The
Company will be entitled to participate at its own expense in the defense
or, if it so elects, to assume the defense of any suit brought to enforce
any such liability, but if the Company elects to assume the defense, such
defense shall be conducted by counsel chosen by it and reasonably
acceptable to the European Managers. In the event the Company elects to
assume the defense of any such suit and retain such counsel, any European
Manager Indemnified Party, defendant or defendants in the suit, may retain
additional counsel but shall bear the fees and expenses of such counsel
unless (i) the Company shall have specifically authorized the retaining of
such counsel or (ii) the parties to such suit include such European Manager
Indemnified Party, and the Company and such European Manager Indemnified
Party have been advised by counsel to the European Managers that one or
more legal defenses at law or in equity may be available to it or them
which may not be available to the Company, in which case the Company shall
bear the reasonable fees and expenses of one counsel for the European
Managers. In the event that the Company must bear the fees and expenses of
counsel to a European Manager Indemnified Party under clause (ii) of the
foregoing sentence, the Company shall not be entitled to assume the defense
of such suit notwithstanding its obligation to bear the fees and expenses
of such counsel. The Company Indemnified Party against whom indemnity may
be sought shall not be liable to indemnify any person for any settlement of
any such claim effected without the Company's consent. This indemnity
agreement is not exclusive and is in addition to any liability which the
Company might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to each European
Manager Indemnified Party.
(b) Each European Manager severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act (collectively, the "Company Indemnified
Parties" and, each, a "Company Indemnified Party") against any losses,
claims, damages, liabilities or expenses (including, unless the European
Manager or European Managers elect to assume the defense, the reasonable
cost of investigating and defending against any claims therefor and counsel
fees incurred in connection therewith), joint or several, which arise out
of or are based in whole or in part upon the Securities Act, the Exchange
Act, the rules and regulations thereunder or any other statute at common
law, on the ground or alleged ground that any Pre-effective Prospectuses,
the Registration Statement or the Prospectuses (or any Pre-effective
Prospectuses, the Registration Statement or the Prospectuses, as from time
to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading, but only insofar
as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
European Manager, directly or through the European Representatives,
specifically for use in the preparation thereof; provided, however, that in
no case is such European Manager to be liable with respect to any claims
made against any Company Indemnified Party against whom the action is
brought unless such Company Indemnified Party shall have notified such
European Manager in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim
shall have been served upon the Company Indemnified Party, but failure to
notify such European Manager of such claim shall not relieve it from any
liability which it may have to any Company Indemnified Party otherwise than
on account of its indemnity agreement contained in this paragraph. Such
European Manager shall be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if such
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<PAGE>
European Manager elects to assume the defense, such defense shall be
conducted by counsel chosen by it. In the event that any European Manager
elects to assume the defense of any such suit and retain such counsel, the
Company Indemnified Parties and any other European Manager or European
Managers or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained
by them, respectively. The European Manager against whom indemnity may be
sought shall not be liable to indemnify any person for any settlement of
any such claim effected without such European Manager's consent. This
indemnity agreement is not exclusive and will be in addition to any
liability which such European Manager might otherwise have and shall not
limit any rights or remedies which may otherwise be available at law or in
equity to any Company Indemnified Party.
(c) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to herein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the European Managers on the other from the offering of the
Stock. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party
shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and the
European Managers on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the European Managers on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the European Managers, in each case
as set forth in the table on the cover page of the Prospectuses. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or the European Managers and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the
European Managers agree that it would not be just and equitable if
contribution were determined by pro rata allocation (even if the European
Managers were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities
or expenses (or actions in respect thereof) referred to above shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, defending, settling or
compromising any such claim. Notwithstanding the provisions of this
subsection (c), no European Manager shall be required to contribute any
amount in excess of the amount by which the total price at which the shares
of the Stock underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages which such European Manager
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. The European Managers'
obligations to contribute are several in proportion to their respective
underwriting obligations and not joint. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
8. Survival of Indemnities, Representations, Warranties, etc. The respective
---------------------------------------------------------
indemnities, covenants, agreements, representations, warranties and other
statements of the Company and the several European Managers, as set forth
in this Agreement or made by them respectively, pursuant to this Agreement,
shall remain in full force and effect, regardless of any investigation made
by or on
20
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behalf of any European Manager, the Company or any of its officers
or directors or any controlling person, and shall survive delivery of and
payment for the Stock.
9. Conditions of European Managers' Obligations. The respective obligations
--------------------------------------------
of the several European Managers hereunder shall be subject to the
accuracy, at and (except as otherwise stated herein) as of the date hereof
and at and as of each of the Closing Dates, of the representations and
warranties made herein by the Company, to compliance at and as of each of
the Closing Dates by the Company with its covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to each
of the Closing Dates, and to the following additional conditions.
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company or the European Representatives, shall be contemplated or
threatened by the Commission, and any request for additional information on
the part of the Commission (to be included in the Registration Statement or
the Prospectuses or otherwise) shall have been complied with to the
reasonable satisfaction of the European Representatives and no injunction,
restraining order or order of any nature shall have been issued as of each
of the Closing Dates which would prevent the issuance of the Stock. Any
filings of the Prospectuses, or any supplement thereto, required pursuant
to Rule 424(b) or Rule 434 of the Rules and Regulations, shall have been
made in the manner and within the time period required by Rule 424(b) and
Rule 434 of the Rules and Regulations, as the case may be.
(b) The European Prospectus shall have been approved by each of the CSE,
the CBF, and EASDAQ and shall comply in all material respects with all
applicable legal requirements for use in a public offering in Belgium and
Denmark and such other jurisdictions in Europe as the European
Representatives shall have requested, and no action shall have been taken
and no proceeding shall have been initiated by the CSE, the CBF or EASDAQ
for the purpose of rescinding such approval.
(c) The European Representatives shall have been satisfied that there
shall not have occurred any change, on a consolidated basis, prior to each
of the Closing Dates in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of the
Company and its subsidiaries considered as a whole, or any change in the
capital stock, short-term or long-term debt of the Company and its
subsidiaries considered as a whole, such that (i) the Registration
Statement or the Prospectuses, or any amendment or supplement thereto,
contains an untrue statement of fact which, in the opinion of the European
Representatives, is material, or omits to state a fact which, in the
opinion of the European Representatives, is required to be stated therein
or is necessary to make the statements therein not misleading, or (ii) it
is unpracticable in the reasonable judgment of the European Representatives
to proceed with the public offering or to purchase the European Stock as
contemplated hereby.
(d) The European Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's ability to perform its obligations under this Agreement or the
U.S. Underwriting Agreement shall have been instituted or threatened and
there shall have occurred no material adverse development in any such
existing action, suit or proceeding.
(e) At the time of execution of this Agreement, the European
Representatives shall have received from Arthur Andersen LLP, independent
certified public accountants, a letter, dated the date hereof, in form and
substance satisfactory to the European Managers.
(f) The European Representatives shall have received from Arthur Andersen
LLP, independent certified public accountants, letters, dated each of the
Closing Dates, to the effect that such accountants reaffirm, as of each of
the Closing Dates, and as though made on each of
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the Closing Dates, the statements made in the letter furnished by such
accountants pursuant to paragraph (e) of this Section 9.
(g) The European Representatives shall have received from Palmer & Dodge
LLP, counsel for the Company, opinions, dated each of the Closing Dates, to
the effect set forth in Exhibit I hereto.
(h) The European Representatives shall have received from Dragsted &
Helmer Nielsen, Danish counsel for the Company, opinions, dated each of the
Closing Dates, in a form reasonably satisfactory to the European
Representatives.
(i) The European Representatives shall have received from Denton Hall,
English counsel for the Company, opinions, dated each of the Closing Dates,
in a form reasonably satisfactory to the European Representatives.
(j) The European Representatives shall have received from Clarke & Elbing,
U.S. patent counsel for the Company, opinions, dated each of the Closing
Dates, to the effect set forth in Exhibit II hereto.
(k) The European Representatives shall have received from Ploughmann,
Vingtoft & Partners, Danish patent counsel for the Company, opinions, dated
each of the Closing Dates, to the effect set forth in Exhibit III hereto.
(l) The European Representatives shall have received from Brown & Wood
LLP, counsel for the European Managers, their opinions dated each of the
Closing Dates with respect to the incorporation of the Company, the
validity of the Stock, the Registration Statement and the Prospectuses
(other than financial data contained therein) and such other related
matters as it may reasonably request, and the Company shall have furnished
to such counsel such documents as they may request for the purpose of
enabling them to pass upon such matters.
(m) The European Representatives shall have received from, Bech-Bruun &
Trolle, Danish counsel for the European Managers, opinions, dated each of
the Closing Dates, in a form reasonably satisfactory to the European
Representatives.
(n) The European Representatives shall have received from, ______________,
English counsel for the European Managers, opinions, dated each of the
Closing Dates, in a form reasonably satisfactory to the European
Representatives.
(o) On each Closing Date, the European Representatives shall have received
a certificate, dated such Closing Date, of the President and Chief
Executive Officer and the chief financial or accounting officer of the
Company to the effect that:
(i) The Registration Statement has become effective under the
Securities Act and all filings required to have been made
pursuant to Rule 424 or 430A under the Securities Act have been
made;
(ii) The European Prospectus has been approved by each of the CBF,
EASDAQ and the CSE.
(iii) None of the Commission, the CSE, the CBF, nor the EASDAQ Market
Authority, as the case may be, has issued any stop order or
equivalent order suspending the effectiveness of the
Registration Statement or the Prospectuses, and, to the best of
the knowledge of the Company, no proceedings for that purpose
have been instituted or are pending or
22
<PAGE>
contemplated by the Commission, the CSE, the CBF, or the EASDAQ
Market Authority;
(iv) Each such officer has carefully examined the Registration
Statement and the Prospectuses, and in each such officer's
opinion, the statements contained in the Registration Statement
and the Prospectuses were true and correct as of their
respective dates, and none of any Pre-effective Prospectus, as
of its date, nor the Registration Statement nor the
Prospectuses or the Danish Prospectus, nor any amendment or
supplement thereto, as of the time when the Registration
Statement became effective and the European Prospectus was
approved and at all times subsequent thereto up to the delivery
of such certificate, included any untrue statement of a
material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading;
(v) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectuses, and
except as set forth or contemplated in the Prospectuses,
neither the Company nor any of its Subsidiaries has incurred
any material liabilities or obligations, direct or contingent,
or has entered into any material transactions not in the
ordinary course of business and there has not been any material
adverse change in the condition (financial or otherwise),
properties, business, management, prospects, net worth or
results of operations of the Company and its subsidiaries
considered as a whole, and there has not been any change in the
capital stock of the Company or any of the Subsidiaries or any
change in the short-term or long-term debt of the Company and
its subsidiaries considered as a whole;
(vi) The representations and warranties of the Company in this
Agreement are true and correct at and as of each of the Closing
Dates, and the Company has complied with all the agreements and
performed or satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Dates; and
(vii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectuses, and except as
disclosed in the Prospectuses, (i) there has not been any
material adverse change or a development involving a material
adverse change in the condition (financial or otherwise),
properties, business, management, prospects, net worth or
results of operations of the Company and its subsidiaries
considered as a whole; (ii) the business and operations
conducted by the Company and the Subsidiaries have not
sustained a loss by strike, fire, flood, accident or other
calamity (whether or not insured) of such a character as to
interfere materially with the conduct of the business and
operations of the Company and its subsidiaries considered as a
whole; (iii) no legal or governmental action, suit or
proceeding is pending or threatened against the Company which
is material to the Company, whether or not arising from
transactions in the ordinary course of business, or which may
materially and adversely affect the transactions contemplated
by this Agreement or the U.S. Underwriting Agreement; (iv)
since such dates and except as so disclosed, the Company has
not incurred any material liability or obligation, direct,
contingent or indirect,
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<PAGE>
made any change in its capital stock (except pursuant to its
stock plans), made any material change in its short-term or
funded debt or repurchased or otherwise acquired any of the
Company's capital stock; and (v) the Company has not declared
or paid any dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of record on
a date prior to the Closing Date.
(p) The Company shall have furnished to the European Representatives such
additional certificates as the European Representatives may have reasonably
requested as to the accuracy, at and as of each of the Closing Dates, of
the representations and warranties made herein by it and as to compliance
at and as of each of the Closing Dates by it with its covenants and
agreements herein contained and other provisions hereof to be satisfied at
or prior to each of the Closing Dates, and as to satisfaction of the other
conditions to the obligations of the European Managers hereunder.
(q) SG Cowen shall have received the written agreements, substantially in
the form of Exhibit IV hereto, of each of the officers, directors and
holders of Common Stock, or securities convertible into or exchangeable or
exercisable for Common Stock listed in Schedule C that each of them will
not offer, sell, assign, transfer, encumber, contract to sell, grant an
option to purchase or otherwise dispose of, any shares of Common Stock
(including, without limitation, Common Stock which may be deemed to be
beneficially owned by such officer, director or holder in accordance with
the Rules and Regulations) during the 180 days following the date of the
final Prospectuses.
(r) The CSE and EASDAQ shall have approved the Common Stock for listing
and admission for trading, respectively, subject only to official notice of
issuance.
(s) Contemporaneously with the purchase by the European Managers of the
European Firm Stock under this Agreement, the U.S. Underwriters shall have
purchased the U.S. Firm Stock under the U.S. Underwriting Agreement.
(t) The NASD shall not have raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in
form and substance to the European Representatives. The Company will
furnish to the European Representatives conformed copies of such opinions,
certificates, letters and other documents as the European Representatives
shall reasonably request. If any of the conditions hereinabove provided
for in this Section 9 shall not have been satisfied when and as required by
this Agreement, this Agreement may be terminated by the European
Representatives by notifying the Company of such termination in writing or
by telegram at or prior to each of the Closing Dates, but SG Cowen
International L.P., on behalf of the European Representatives, shall be
entitled to waive any of such conditions.
10. Effective Date. This Agreement shall become effective immediately as to
--------------
Sections 6, 7, 8, 10, 11,12, 14, 15, 16, 17 and 18 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the date of effectiveness of the Registration Statement or at
such earlier time after the date hereof and after the Registration
Statement becomes effective as the European Representatives may determine
on and by notice to the Company or by release of any of the Stock for sale
to the public. For the purposes of this Section 10, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising European Managers that the shares of Stock are
released for public offering or (ii) offering the Stock for sale to
securities dealers, whichever may occur first.
24
<PAGE>
11. Termination. This Agreement (except for the provisions of Section 6) may
-----------
be terminated by the Company at any time before it becomes effective in
accordance with Section 10 by notice to the European Representatives and
may be terminated by the European Representatives at any time before it
becomes effective in accordance with Section 10 by notice to the Company.
In the event of any termination of this Agreement under this or any other
provision of this Agreement, there shall be no liability of any party to
this Agreement to any other party, other than as provided in Sections 6, 7
and 12 and other than as provided in Section 13 as to the liability of
defaulting European Managers.
This Agreement may be terminated after it becomes effective by the European
Representatives by notice to the Company (i) if at or prior to the First
Closing Date trading in securities on any of the New York Stock Exchange,
American Stock Exchange, Nasdaq National Market, the CSE, or EASDAQ shall
have been suspended or minimum or maximum prices shall have been
established on any such exchange or market, or a banking moratorium shall
have been declared by New York, or United States, Danish or Belgian
authorities; (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market; (iii) if at or
prior to the First Closing Date there shall have been (A) an outbreak or
escalation of hostilities between any of the United States, Denmark or the
United Kingdom and any foreign power or of any other insurrection or armed
conflict involving the United States, Denmark or the United Kingdom or (B)
any change in financial markets or any calamity or crisis which, in the
judgment of the European Representatives, makes it impractical or
inadvisable to offer or sell the Stock on the terms contemplated by the
Prospectuses; (iv) if there shall have been any development or prospective
development involving particularly the business or properties or securities
of the Company or any of the Subsidiaries or the transactions contemplated
by this Agreement, which, in the judgment of the European Representatives,
makes it impracticable or inadvisable to offer or deliver the Stock on the
terms contemplated by the Prospectuses; (v) if there shall be any
litigation or proceeding, pending or threatened, which, in the judgment of
the European Representatives, makes it impracticable or inadvisable to
offer or deliver the on the terms contemplated by the Prospectuses; or (vi)
if there shall have occurred any of the events specified in the immediately
preceding clauses (i) - (v) together with any other such event that makes
it, in the judgment of the European Representatives, impractical or
inadvisable to offer or deliver the Stock on the terms contemplated by the
Prospectuses.
12. Reimbursement of European Managers. Notwithstanding any other provisions
----------------------------------
hereof, if this Agreement shall not become effective by reason of any
election of the Company pursuant to the first paragraph of Section 11 or
shall be terminated by the European Representatives under Section 9 or
Section 11, the Company will bear and pay the expenses specified in Section
6 hereof and, in addition to its obligations pursuant to Section 7 hereof,
the Company will reimburse the reasonable out-of-pocket expenses of the
several European Managers (including reasonable fees and disbursements of
counsel for the European Managers) incurred in connection with this
Agreement and the proposed purchase of the European Stock, and promptly
upon demand the Company will pay such amounts to you as European
Representatives.
13. Substitution of European Managers. If any European Manager or European
---------------------------------
Managers shall default in its or their obligations to purchase shares of
European Stock hereunder and the aggregate number of shares which such
defaulting European Manager or European Managers agreed but failed to
purchase does not exceed ten percent (10%) of the total number of shares of
European Stock underwritten, the other European Managers shall be obligated
severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting European Manager or European
Managers agreed but failed to purchase. If any European Manager or European
Managers shall so default and the aggregate number of shares with respect
to which such default or defaults occur is more than ten percent (10%) of
the total number of shares of European Stock underwritten and arrangements
satisfactory to the
25
<PAGE>
Representatives and the Company for the purchase of such shares by other
persons are not made within forty-eight (48) hours after such default, this
Agreement shall terminate.
If the remaining European Managers or substituted European Managers are
required hereby or agree to take up all or part of the shares of European
Stock of a defaulting European Manager or European Managers as provided in
this Section 13, (i) the Company shall have the right to postpone the
Closing Dates for a period of not more than five (5) full business days in
order that the Company may effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectuses, or in any
other documents or arrangements, and the Company agrees promptly to file
any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares to be purchased by the remaining European Managers or
substituted European Managers shall be taken as the basis of their
underwriting obligation for all purposes of this Agreement. Nothing herein
contained shall relieve any defaulting European Manager of its liability to
the Company or the other European Managers for damages occasioned by its
default hereunder. Any termination of this Agreement pursuant to this
Section 13 shall be without liability on the part of any non-defaulting
European Manager or the Company, except for expenses to be paid or
reimbursed pursuant to Section 6 and except for the provisions of Section
7.
14. Notices. All communications hereunder shall be in writing and, if sent to
-------
the European Managers shall be mailed, delivered or telegraphed and
confirmed to you, as their European Representatives c/o SG Cowen
International, L.P. at One Angel Court, London EC2R 7HJ, United Kingdom
except that notices given to a European Manager pursuant to Section 7
hereof shall be sent to such European Manager at the address furnished by
the European Representatives or, if sent to the Company, shall be mailed,
delivered or telegraphed and confirmed c/o Phytera, Inc. at 377 Plantation
Street, Worcester , Massachusetts 01605.
15. Successors. This Agreement shall inure to the benefit of and be binding
----------
upon the several European Managers, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person other
than the persons mentioned in the preceding sentence any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person; except that
the representations, warranties, covenants, agreements and indemnities of
the Company contained in this Agreement shall also be for the benefit of
the person or persons, if any, who control any European Manager or European
Managers within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, and the indemnities of the several European
Managers shall also be for the benefit of each director of the Company,
each of its officers who has signed the Registration Statement and the
person or persons, if any, who control the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act.
16. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of New York.
17. Authority of the European Representatives. In connection with this
-----------------------------------------
Agreement, you will act for and on behalf of the several European Managers,
and any action taken under this Agreement by Cowen, as European
Representative, will be binding on all the European Managers.
18. Partial Unenforceability. The invalidity or unenforceability of any
------------------------
Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision
hereof. If any Section, paragraph or provision of this Agreement is for
any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are
necessary to make it valid and enforceable.
26
<PAGE>
19. General. This Agreement constitutes the entire agreement of the parties to
-------
this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. In this Agreement, the masculine,
feminine and neuter genders and the singular and the plural include one
another. The section headings in this Agreement are for the convenience of
the parties only and will not affect the construction or interpretation of
this Agreement. This Agreement may be amended or modified, and the
observance of any term of this Agreement (other than the conditions set
forth in Section 9 which may be waived on behalf of the European Managers
solely by SG Cowen International L.P.) may be waived, only by a writing
signed by the Company and the European Representatives.
20. Counterparts. This Agreement may be signed in two or more counterparts,
------------
each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
27
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
PHYTERA, INC.
By: _________________________________
President and Chief Executive Officer
Accepted and delivered as of
the date first above written.
SG COWEN INTERNATIONAL L.P.
CARNEGIE BANK A/S
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL LTD.
Acting on their own behalf
and as Representatives of the several
European Managers referred to in the
foregoing Agreement.
By: SG COWEN INTERNATIONAL L.P.
By: _________________________
Name:
Title:
28
<PAGE>
SCHEDULE A
Number of European Number of European
Firm Shares to be Optional Shares to be
------------
Name Purchased Purchased
---- --------- ---------
SG Cowen International L.P.
Carnegie Bank A/S
BancBoston Robertson Stephens
International Ltd.
-------- ---------
Total
======== =========
29
<PAGE>
SCHEDULE B
Number of U.S. Firm Number of U.S.
Shares to be Optional Shares to be
Name Purchased Purchased
---- --------- ---------
SG Cowen Securities Corporation
Carnegie Inc.
BancBoston Robertson Stephens Inc.
-------- ---------
Total
======== =========
30
<PAGE>
SCHEDULE C
[DIRECTORS, OFFICERS AND SHAREHOLDERS EXECUTING LOCK-UP AGREEMENTS]
31
<PAGE>
Exhibit I
Form of Opinion of Issuer's Counsel
____________, 1998
SG Cowen International L.P.
Carnegie Bank A/S
BancBoston Robertson Stephens International Ltd.
As representatives of the several
European Managers named in Schedule A to
the Underwriting Agreement
c/o SG Cowen International L.P.
One Angel Court
London EC2R 7HJ
United Kingdom
Re: Phytera, Inc.
____ Shares of Common Stock
Dear Ladies and Gentlemen:
We have acted as counsel for Phytera, Inc., a Delaware corporation (the
"Company"), in connection with the sale by the Company and purchase of ____
shares of Common Stock, par value $0.01 per share, of the Company (the "European
Stock") by the several European Managers listed in Schedule A to the
Underwriting Agreement, dated _______,1999 among the Company, SG Cowen
International L.P., Carnegie Bank A/S and BancBoston Robertson Stephens
International Ltd., as European Representatives of the several European Managers
named therein (the "European Underwriting Agreement"). This opinion is being
furnished pursuant to Section 9(g) of the European Underwriting Agreement. All
capitalized terms not defined herein shall have the meanings ascribed to them in
the U.S. Underwriting Agreement.
We are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified to do business and is in good standing as foreign corporation in the
Commonwealth of Massachusetts, and has all power and authority necessary to own
or hold its properties and conduct the businesses in which it is engaged;
2. The Company has an authorized capitalization as set forth in the
Prospectuses, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and all of the shares of Stock to be issued and sold by the Company to the
European Managers pursuant to the European Underwriting Agreement have been duly
and validly authorized and, when issued and delivered against payment therefor
as provided for in the European Underwriting Agreement, shall be duly and
validly issued, fully paid and non-assessable; all of the issued shares of
capital stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid, non-assessable and are owned directly
or indirectly by the Company, free and clear of all liens,
32
<PAGE>
encumbrances, equities or claims; and the only Subsidiaries of the Company are
the Subsidiaries listed on Exhibit 21 to the Registration Statement;
3. All of the shares of Stock conform to the description thereof contained in
the Prospectuses; the certificates for the shares of Stock are in due and proper
form and comply with all applicable statutory requirements, with any applicable
requirements of the Certificate of Incorporation and By-Laws of the Company and
the requirements of the CSE, the CBF and EASDAQ and no holders of shares of
Stock will be subject to personal liability solely as a result of being such a
holder;
4. There are no preemptive or other rights (contractual or statutory) to
subscribe for or to purchase or to convert or exchange any obligations or
capital stock into or for, nor any restriction upon the voting or transfer of,
any of the shares of Stock pursuant to the Company's Certificate of
Incorporation or By-Laws or any agreement or other instrument as to which the
Company is bound. Except as described in or contemplated by the Prospectuses,
to our knowledge, (a) there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and (b) there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such capital stock;
5. To the best of our knowledge without inquiry of court dockets, there are no
legal or governmental proceedings pending to which the Company or any of the
Subsidiaries is a party or of which any property or assets of the Company or any
of its Subsidiaries is the subject; and, to the best of our knowledge, no such
proceedings are threatened or contemplated by governmental authorities or other
third parties;
6. The Company and each of the Subsidiaries own or use under valid licenses all
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectuses as being owned by them or any of them or necessary
for the conduct of their respective businesses, and the Company is not aware of
any claim to the contrary or any challenge by any other person to the rights of
the Company or any of the Subsidiaries with respect to the foregoing. The
Company's business as now conducted and as proposed to be conducted does not and
will not infringe or conflict with any trademarks, service marks, trade names,
copyrights, trade secrets, licenses or other intellectual property or franchise
right of any person;
7. The Company has, and the Company as of the Closing Dates will have, good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned or proposed to be owned by it which is
material to the business of the Company, in each case free and clear of all
liens, encumbrances and defects except such as are described in the Prospectuses
or such as would in the aggregate not have a material adverse effect on the
Company and its subsidiaries considered as a whole; and any real property and
buildings held under lease by the Company or proposed to be leased after giving
effect to the transactions described in the Prospectuses are, or will be as of
each of the Closing Dates, held by it under valid, subsisting and enforceable
leases with such exceptions as would in the aggregate not have a material
adverse effect on the Company and its subsidiaries considered as a whole, in
each case except as are described in the Prospectuses;
8. The Company has full corporate power and authority to enter into the
European Underwriting Agreement and to perform its obligations thereunder
(including to issue, sell and deliver the shares of Stock), and the European
Underwriting Agreement has been duly and validly authorized, executed and
delivered by the Company;
9. To the best of our knowledge after due inquiry, the execution, delivery and
performance of the European Underwriting Agreement and the consummation of the
transactions therein contemplated do not and will not conflict with or result in
a breach or violation of any of the terms or provisions of or constitute a
default under any indenture, mortgage, deed of trust, note agreement or other
agreement or
33
<PAGE>
instrument to which the Company is a party or by which it or any of its
properties is or may be bound, the Certificate of Incorporation, By-laws or
other organizational documents of the Company, or any law, order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its properties or result in the creation of a lien;
10. No consent, approval, authorization or order of any court or regulatory,
administrative or other governmental agency or body is required for the
consummation by the Company of the transactions contemplated by the European
Underwriting Agreement, except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or under the Securities Act
or the securities or "Blue Sky" laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the European Managers;
11. The Company is in compliance with, and conducts its businesses in
conformity with, all applicable United States federal, state and local laws,
rules and regulations, and the laws, rules and regulations of other applicable
jurisdictions including, but not limited to, those relating to the protection of
human health or the environment or imposing liability or requiring standards of
conduct concerning any Hazardous Materials (as defined in the European
Underwriting Agreement) and the regulations, decisions and rulings of any
governmental agency, court or tribunal; to the best of our knowledge, no
prospective change in any of such federal, state, local or foreign laws, rules
or regulations has been adopted which, when made effective, would have a
material adverse effect on the operations of the Company and its subsidiaries
considered as a whole;
12. The Registration Statement was declared effective under the Securities Act
as of __________, 1999, the Prospectuses were filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations on __________, 1999, and no stop
order or equivalent order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose is pending or, to
the best of our knowledge, threatened by the Commission;
13. The Registration Statement and the Prospectuses and any amendments or
supplements thereto comply as to form in all respects with the requirements of
the Securities Act and the Rules and Regulations, and if Rule 434 has been
relied upon, the Prospectuses were not "materially different," as such term is
used in Rule 434, from the prospectuses included in the Registration Statement
at the time it became effective;
14. To the best of our knowledge, there are no contracts or other documents
which are required by the Securities Act or by the Rules and Regulations to be
described in the Prospectuses or filed as exhibits to the Registration Statement
which have not been described in the Prospectuses or filed as exhibits to the
Registration Statement;
15. To the best of our knowledge, other than as described in the Prospectuses,
there are no contracts, agreements or understandings between the Company and any
person granting such person the right (other than rights which have been waived
or satisfied) to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act. To the best of our knowledge, no
person or entity has the right to require registration of shares of Common Stock
or other securities of the Company because of the filing or effectiveness of the
Registration Statement or otherwise, except for persons and entities who have
expressly waived such right or who have been given proper notice and have failed
to exercise such right within the time or times required under the terms and
conditions of such right;
16. The descriptions in the Registration Statement and Prospectuses of
statutes, rules, regulations, legal or governmental proceedings, contracts and
other documents are accurate and such descriptions fairly present the
information required to be disclosed; and to the best of our knowledge, there
are no legal or
34
<PAGE>
governmental proceedings, statutes, rules or regulations, or any contracts or
documents of a character required to be described in the Registration Statement
or the Prospectuses or to be filed as exhibits to the Registration Statement
which are not described and filed as required;
17. The statements under the captions "Risk Factors Dependence on
Partnerships," "--Future Capital Needs; Uncertainty of Additional Funding," "--
Sourcing Agreements," "--Regulation," "Potential Liability Regarding Hazardous
Materials," "--Control by Management and Existing Stockholders," "--Dilutive
Effect of Series E Convertible Preferred stock Conversion Rate Provision," "--
Shares Eligible for Future Sale and Potential Adverse Effect on Market Price,"
"--Anti-Takeover Effect of Certain Charter and By-Law Provisions and Delaware
Law," "--Year 2000 Compliance," "Business - Corporate Partnerships," "--
Biodiversity Sourcing Agreements," "--Regulation," "--Litigation; Legal
Proceedings," "Management," "Certain Transactions," "Description of Capital
Stock," "Shares Eligible for Future Sale," and "Tax Considerations," to the
extent they reflect matters of federal law arising under the laws of the United
States or legal conclusions relating to such law, accurately summarize and
fairly present the legal and regulatory matters described therein; and
18. The Company and each of the Subsidiaries are not, nor will they be
immediately after receiving the proceeds from the sale of the Stock, an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended.
The foregoing opinion is limited to matters governed by the Federal laws of the
United States of America, the general corporate law of the State of Delaware.
We have acted as counsel to the Company on a regular basis, have acted as
counsel to the Company in connection with previous financing transactions and
have acted as counsel to the Company in connection with the preparation and
filing of the Registration Statement and the Prospectuses, and based on the
foregoing, no facts have come to our attention which lead us to believe that the
Registration Statement or any amendment thereto, as of the Effective Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectuses contained or contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Very truly yours,
35
<PAGE>
Exhibit II
Form of Opinion of Issuer's U.S. Patent Counsel
____________, 1999
SG Cowen International L.P.
Carnegie Bank A/S
BancBoston Robertson Stephens International Ltd.
As representatives of the several
European Managers named in Schedule A to
the Underwriting Agreement
c/o SG Cowen International L.P.
One Angel Court
London EC2R 7HJ
United Kingdom
Re: Phytera, Inc.
____ Shares of Common Stock
Dear Ladies and Gentlemen:
This opinion is being delivered pursuant to Section 9(i) of the European
Underwriting Agreement dated _________, 1999, among the Phytera, Inc., a
Delaware corporation (the "Company"), SG Cowen International L.P., Carnegie Bank
A/S and BancBoston Robertson Stephens International Ltd., as representatives of
the several European Managers named therein (the "European Underwriting
Agreement").
We are of the opinion that:
1. The statements in the Prospectuses under the headings "Risk Factors
Dependence on Patents and Proprietary Rights" and "Business - Patents and
Proprietary Rights," "--In-Licensing Risk," in each case insofar as such
statements constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein.
2. We do not know of any legal or government proceedings pending relating to
patents, patent applications or intellectual property rights covering
technology of the Company described in the Prospectuses to which the
Company is a party or to which any patents, patent applications or
intellectual property rights covering technology of the Company described
in the Prospectuses are subject, which, if adversely decided, would have a
material adverse effect on the business, financial condition or results of
the operations of the Company and its subsidiaries, taken as a whole, and
we do not know of any such proceedings which are threatened or contemplated
by governmental authorities or others.
36
<PAGE>
3. We are unaware of any basis for a finding that the Company does not have
clear title or valid license rights to the patents or patent applications
referenced in the Prospectuses as being owned by or licensed to the Company
and covering the Company's technology, and we are of the opinion that any
such patents are valid and enforceable.
4. Other than as described in the Prospectuses, based upon a review of the
third party rights made known to us and discussions with Company scientific
personnel, we are not aware of any United States patent containing any
valid claim that is or would be infringed, either literally or under the
doctrine of equivalents, by the current or proposed activities of the
Company in the use of any of the technology described in the Prospectuses,
including, without limitation, __________ and _________.
Very truly yours,
37
<PAGE>
Exhibit III
Form of Opinion of Issuer's Danish Patent Counsel
____________, 1999
SG Cowen International L.P.
Carnegie Bank A/S
BancBoston Robertson Stephens International Ltd.
As representatives of the several
European Managers named in Schedule A to
the Underwriting Agreement
c/o SG Cowen International L.P.
One Angel Court
London EC2R 7HJ
United Kingdom
Re: Phytera, Inc.
____ Shares of Common Stock
Dear Ladies and Gentlemen:
This opinion is being delivered pursuant to Section 9(i) of the European
Underwriting Agreement dated _________, 1999, among the Phytera, Inc., a
Delaware corporation (the "Company"), SG Cowen International L.P., Carnegie Bank
A/S and BancBoston Robertson Stephens International Ltd., as representatives of
the several European Managers named therein (the "European Underwriting
Agreement").
We are of the opinion that:
1. The statements in the Prospectuses under the headings "Risk Factors
Dependence on Patents and Proprietary Rights," "--In-Licensing Risk," and
"Business - Patents and", in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings in
Denmark or with respect to Danish law referred to therein, fairly present
the information called for with respect to such legal matters, documents
and proceedings and fairly summarize the matters referred to therein.
2. We do not know of any legal or government proceedings in Denmark or with
respect to Danish law pending relating to patents, patent applications or
intellectual property rights covering technology of the Company described
in the Prospectuses to which the Company is a party or to which any
patents, patent applications or intellectual property rights covering
technology of the Company described in the Prospectuses are subject, which,
if adversely decided, would have a material adverse effect on the business,
financial condition or results of the operations of the Company and its
subsidiaries, taken as a whole, and we do not know of any such proceedings
which are threatened or contemplated by governmental authorities or others.
38
<PAGE>
3. We are unaware of any basis for a finding that the Company does not have
clear title or valid license rights to the Danish patents or patent
applications referenced in the Prospectuses as being owned by or licensed
to the Company and covering the Company's technology, and we are of the
opinion that any such patents are valid and enforceable in Denmark.
4. Other than as described in the Prospectuses, based upon a review of the
third party rights made known to us and discussions with Company scientific
personnel, we are not aware of any Danish patent containing any valid claim
that is or would be infringed, either literally or under the doctrine of
equivalents, by the current or proposed activities of the Company in the
use of any of the technology described in the Prospectuses, including,
without limitation, __________ and _________.
Very truly yours,
39
<PAGE>
Exhibit IV
Form of Lock-Up Agreement
______________, 1998
SG Cowen Securities Corporation
Carnegie Inc.
BancBoston Robertson Stephens Inc.
As representatives of the
several U.S. Underwriters
c/o SG Cowen Securities Corporation
Financial Square
New York, New York 10005
Re: Phytera, Inc.
__________ Shares of Common Stock
Dear Ladies and Gentlemen:
In order to induce you and your affiliates to enter into certain underwriting
agreements with Phytera, Inc., a Delaware corporation (the "Company"), with
respect to the public offering of shares of the Company's Common Stock, par
value $0.01 per share ( the "Common Stock"), the undersigned hereby agrees that
for a period of 180 days following the date of the final prospectus filed by the
Company with the Securities and Exchange Commission in connection with such
public offering, the undersigned will not, without the prior written consent of
SG Cowen Securities Corporation, directly or indirectly, offer, sell, assign,
transfer, encumber, pledge, contract to sell, grant an option to purchase or
otherwise dispose of, other than by operation of law, any shares of the Common
Stock or securities convertible into or exchangeable or exercisable for shares
of the Common Stock, including, without limitation, options, warrants and the
like, which are owned of record or which may be deemed to be beneficially owned
by the undersigned in accordance with the rules and regulations promulgated
under the United States Securities Act of 1933, as the same may be amended or
supplemented from time to time (collectively, the "Securities").
Anything contained herein to the contrary notwithstanding, any person to whom
Securities are transferred from the undersigned shall be bound by the terms of
this Agreement.
In addition, the undersigned hereby waives, from the date hereof until the
expiration of the one-year period following the date of the Company's final
prospectus, any and all rights, if any, to request or demand registration
pursuant to the Securities Act of any shares of the Common Stock that are
registered in the name of the undersigned or that may be beneficially owned by
the undersigned.
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Common Stock with respect to any Securities.
By: _________________________________
Name:
Title:
40
<PAGE>
Exhibit 1.2
______________ Shares
PHYTERA, INC.
Common Stock
U.S. UNDERWRITING AGREEMENT
---------------------------
January __, 1999
SG COWEN SECURITIES CORPORATION
CARNEGIE INC.
BANCBOSTON ROBERTSON STEPHENS INC.
As Representatives of the several U.S. Underwriters
c/o SG COWEN SECURITIES CORPORATION
Financial Square
New York, New York 10005
Dear Sirs:
1. Introductory. Phytera, Inc., a Delaware corporation (the "Company"),
-------------
proposes to sell, pursuant to the terms of this Agreement, to the several
U.S. underwriters named in Schedule A hereto (the "U.S. Underwriters," or,
each, a "U.S. Underwriter"), an aggregate of ________ shares of Common
Stock, $0.01 par value (the "Common Stock"), of the Company. The aggregate
of _________ shares so proposed to be sold is hereinafter referred to as the
"U.S. Firm Stock". The Company also proposes to sell to the U.S.
Underwriters, upon the terms and conditions set forth in Section 3 hereof,
up to an additional _________ shares of Common Stock (the "U.S. Optional
Stock") solely to cover over-allotments in connection with the sale of the
U.S. Firm Stock. The U.S. Firm Stock and the U.S. Optional Stock are
hereinafter collectively referred to as the "U.S. Stock." SG Cowen
Securities Corporation ("SG Cowen"), Carnegie Inc. and Banc Boston Robertson
Stephens Inc. are acting as representatives of the several U.S. Underwriters
and in such capacity are hereinafter referred to as the "U.S.
Representatives."
It is understood that the Company is concurrently entering into an agreement
dated the date hereof (the "European Underwriting Agreement") providing for
the sale to the several underwriters named in Schedule B hereto (the
"European Managers," or, each, a "European Manager"), of an aggregate of
___________ shares of Common Stock of the Company. The aggregate of
__________ shares so proposed to be sold is hereinafter referred to as the
"European Firm Stock." The Company also proposes to sell to the European
Managers, upon the terms and conditions set forth in Section 3 thereof, up
to an additional _______ shares of Common Stock (the "European Optional
Stock"). The European Firm Stock and the European Optional Stock are
hereinafter collectively referred to as the "European Stock." SG Cowen
International L.P., Carnegie Bank A/S and BancBoston Robertson Stephens
International Ltd. are acting as representatives of the several European
Managers and in such capacity are hereinafter referred to as the "European
Representatives." The respective closings under this Agreement and the
European Underwriting Agreement are hereby expressly made conditional upon
one another.
The U.S. Underwriters and the European Managers are hereinafter collectively
referred to as the "Underwriters" and the U.S. Stock and the European Stock
are hereinafter collectively referred to as the "Stock."
<PAGE>
The Company understands that the U.S. Underwriters and the European
Managers will concurrently enter into an Intersyndicate Agreement of even
date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the
direction of SG Cowen (in such capacity, the "Global Coordinator") and
that, pursuant thereto and subject to the conditions set forth therein, the
European Managers may purchase from the U.S. Underwriters a portion of the
U.S. Stock and the U.S. Underwriters may purchase from the European
Managers a portion of the European Stock. The Company understands that any
purchases and sales between the European Managers and the U.S. Underwriters
shall be governed by the Intersyndicate Agreement and shall not be governed
by the terms of this Agreement or the European Underwriting Agreement.
The Company understands that the U.S. Underwriters propose to make a public
offering of the U.S. Stock as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.
2. Representations and Warranties of the Company. The Company represents and
---------------------------------------------
warrants to, and agrees with, the several U.S. Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-________) in
the form in which it became or becomes effective and also in such form
as it may be when any post-effective amendment thereto shall become
effective with respect to the Stock, including any pre-effective
prospectuses included as part of the registration statement as
originally filed or as part of any amendment or supplement thereto, or
filed pursuant to Rule 424 under the United States Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, copies of which have
heretofore been delivered to you, has been carefully prepared by the
Company in conformity with the requirements of the Securities Act and
has been filed with the Commission under the Securities Act.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this
Agreement shall also include any registration statement relating to
the Stock that is filed and declared effective pursuant to Rule 462(b)
under the Securities Act. The term "Prospectus" as used in this
Agreement means each prospectus in the form included in the
Registration Statement, or, (A) if the prospectuses included in the
Registration Statement omit information in reliance on Rule 430A under
the Securities Act and such information is included in the
prospectuses filed with the Commission pursuant to Rule 424(b) under
the Securities Act, the term "Prospectus" as used in this Agreement
means each prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information
contained in the prospectus filed with the Commission pursuant to Rule
424(b) and (B) if prospectuses that meet the requirements of Section
10(a) of the Securities Act are delivered pursuant to Rule 434 under
the Securities Act, then (i) the term "Prospectus" as used in this
Agreement means each "prospectus subject to completion" (as such term
is defined in Rule 434(g) under the Securities Act) as supplemented by
(a) the addition of Rule 430A information or other information
contained in a form of prospectus delivered pursuant to Rule 434(b)(2)
under the Securities Act or (b) the information contained in the term
sheets described in Rule 434(b)(3) under the Securities Act, and (ii)
the date of such prospectuses shall be deemed to be the date of the
prospectuses delivered pursuant to Rule 434(b)(2) or the date of the
term sheets.
2
<PAGE>
Two or more forms of Pre-effective Prospectuses (as defined below) and
two forms of Prospectus are to be used in connection with the offering
and sale of the Stock: one or more Pre-effective Prospectuses and a
Prospectus relating to the U.S. Stock (each, a "Form of U.S.
Prospectus") and one or more Pre-effective Prospectuses and a
Prospectus relating to the European Stock (each, a "Form of European
Prospectus"). The Form of U.S. Prospectus is identical to the Form of
European Prospectus, except for the front cover and back cover pages.
The final Form of U.S. Prospectus and the final Form of European
Prospectus, in the forms first furnished to the Underwriters for use
in connection with the offering of the Stock are hereinafter referred
to as the "U.S. Prospectus" and the "European Prospectus,"
respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "U.S. Prospectus" and the "European Prospectus"
shall refer to the preliminary U.S. Prospectus dated ________ __, 1998
and preliminary European Prospectus dated ________ __, 1998,
respectively, each together with the applicable terms sheet described
in Rule 434(b)(3) under the Securities Act, and all references in this
Agreement to the date of such Prospectuses shall mean the date of the
applicable term sheet. For purposes of this Agreement, all references
to the Registration Statement, any preliminary prospectus, the U.S.
Prospectus, the European Prospectus or any term sheet or any amendment
or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
References to the Prospectuses shall not be deemed to be references to
the prospectus prepared in the Danish language. The Danish language
prospectus, in preliminary and final form, and as amended or
supplemented, shall be collectively referred to as the "Danish
Prospectus." The European Prospectus shall be delivered by the
European Managers to all purchasers of the European Stock. To the
extent, if any, that the content of the Danish Prospectus does not
conform to the European Prospectus, the European Prospectus shall
prevail.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in
the Registration Statement, any preliminary prospectus (including the
Form of European Prospectus and Form of U.S. Prospectus) or the
Prospectuses (or other references of like import) shall be deemed to
mean and include all such financial statements (together with the
notes thereto) and schedules and other information which is
incorporated by reference in the Registration Statement, any
preliminary prospectus (including the Form of European Prospectus and
Form of U.S. Prospectus) or the Prospectuses, as the case may be.
The terms "Pre-effective Prospectus" and "preliminary prospectus" as
used in this Agreement mean each prospectus subject to completion in
the forms included in the Registration Statement at the time of the
initial filing of the Registration Statement with the Commission, and
as each such prospectus shall have been amended from time to time
prior to the date of the Prospectuses.
The Company has not and will not directly or indirectly bid for,
purchase, or attempt to induce any person to bid for or purchase,
Common Stock during the applicable restricted period under Section
242.102 of Regulation M under the Securities Act.
In addition, the Company has caused copies of the European Prospectus
to be filed with the Market Authority of the European Association of
Securities Dealers Automated Quotation market for financial
instruments ("EASDAQ"), the Banking and Finance Commission (the "CBF")
of the Kingdom of Belgium and the Copenhagen Stock Exchange (the
"CSE").
3
<PAGE>
(b) None of the Commission, the EASDAQ Market Authority, the CBF nor
the CSE has issued or threatened to issue any order preventing or
suspending the use of any Pre-effective Prospectus, and, at its date
of issue, each Pre-effective Prospectus conformed in all material
respects with the requirements of the Securities Act and the Rules and
Regulations, and each Pre-effective European Prospectus conformed in
all material respects with the requirements of the CSE, the CBF and
EASDAQ, and each Pre-effective Prospectus did not include any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
and, when the Registration Statement is effective under the rules of
the Commission and at all times subsequent thereto up to and including
each of the Closing Dates (as hereinafter defined), the Registration
Statement and the Prospectuses and any amendments or supplements
thereto contained and will contain all material statements and
information required to be included therein by the Securities Act and
the Rules and Regulations, and conformed and will conform to the
requirements of the Securities Act and the Rules and Regulations, and
the European Prospectus and any supplement thereto contained all
material statements and information required to be included therein by
the CSE, the CBF and EASDAQ and conformed and will conform to the
requirements of the CSE, CBF and EASDAQ, and neither of the
Prospectuses, nor any supplement thereto, includes or will include any
untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing
representations, warranties and agreements shall not apply to
information contained in or omitted from the Registration Statement or
any Pre-effective Prospectuses or the Prospectuses or any such
amendment or supplement thereto in reliance upon, and in conformity
with, written information furnished to the Company by or on behalf of
any U.S. Underwriter, directly or through any U.S. Representative,
specifically for use in the preparation thereof; there is no
franchise, lease, contract, agreement, instrument or other document or
law, rule, regulation, order, judgment, decree or legal or
governmental proceeding required to be described in the Registration
Statement or Prospectuses or to be filed as an exhibit to the
Registration Statement which is not described or filed therein as
required; and all descriptions of any such franchises, leases,
contracts, agreements, instruments or other documents or law, rule,
regulation, order, judgment, decree or legal or governmental
proceeding contained in the Registration Statement are accurate and
complete descriptions of such documents in all material respects.
(c) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectuses, and except as
set forth or contemplated in the Prospectuses or otherwise in the
ordinary course of business since such dates, neither the Company nor
any of the Subsidiaries (as defined below) has incurred any
liabilities or obligations, direct or contingent, nor entered into any
transactions not in the ordinary course of business, and there has not
been any material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net worth or
results of operations of the Company and the Subsidiaries considered
as a whole, or any change in the capital stock, short-term or long-
term debt of the Company and the Subsidiaries considered as a whole.
The Company and its subsidiaries have no material contingent
obligations which are not disclosed in the Company's consolidated
financial statements included in the Prospectuses.
(d) The financial statements, together with the related notes and
schedules, set forth in the Prospectuses and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and cash flows and changes in financial position of the
Company and its consolidated subsidiaries at the respective dates or
for the respective periods therein
4
<PAGE>
specified. Such statements and related notes and schedules have been
prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis except as may be
set forth in the Prospectuses, and all adjustments necessary for a
fair presentation of results for such periods have been made. The
selected financial and statistical data set forth in the Prospectuses
under the captions "Prospectus Summary Summary Financial Data,"
"Capitalization," "Dilution," "Selected Financial Information,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Management Executive Compensation," "Certain
Transactions," "Principal Stockholders" and "Shares Eligible for
Future Sale" fairly present, on the basis stated in the Registration
Statement and the Prospectuses, the information set forth therein and
such data has been compiled on a basis consistent with the financial
statements presented therein and the books and records of the Company.
(e) Arthur Andersen LLP, who have expressed their opinions on the
audited financial statements and related schedules included in the
Registration Statement and the Prospectuses, are independent public
accountants as required by the Securities Act and the Rules and
Regulations.
(f) Each of the Company and the Subsidiaries has been duly organized
and is validly existing and in good standing as a corporation under
the laws of its respective jurisdiction of organization, with power
and authority (corporate and other) to own or lease its properties and
to conduct its businesses as described in the Prospectuses; each of
the Company and the Subsidiaries are in possession of and operating in
compliance with all material franchises, grants, authorizations,
approvals, registrations, qualifications, licenses, permits,
easements, consents, certificates and orders required for the conduct
of its business, all of which are valid and in full force and effect;
and each of the Company and the Subsidiaries is duly qualified to do
business and in good standing as a foreign corporation in all other
jurisdictions where its ownership or leasing of properties or the
conduct of its businesses requires such qualification. Each of the
Company and the Subsidiaries has all requisite power and authority,
and all necessary material consents, approvals, authorizations,
orders, registrations, qualifications, licenses, certificates and
permits of and from all public regulatory or governmental agencies and
bodies to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Registration
Statement and the Prospectuses, and no such consent, approval,
authorization, order, registration, qualification, license or permit
contains a materially burdensome restriction not adequately disclosed
in the Registration Statement and the Prospectuses. The Company owns
or controls, directly or indirectly, only the following corporations,
associations or other entities (each, a "Subsidiary" and collectively,
the Subsidiaries"):
(1) Phytera A/S;
(2) Phytera Limited; and
(3) Phytera Symbion ApS.
All outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued, and are fully paid and non-
assessable and (except for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of any liens,
encumbrances, equities or claims, and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into or exchange any obligations for
shares of capital stock or ownership interests in any Subsidiary are
outstanding.
5
<PAGE>
(g) The Company's authorized capital stock is on the date hereof, and
will be on the Closing Dates, as set forth under the heading
"Capitalization" in the Prospectuses; the Company's outstanding
capital stock was, as of the date set forth in the Prospectuses, the
amount so set forth; the outstanding shares of Common Stock (including
the outstanding shares of the Stock) of the Company conform to the
description thereof in the Prospectuses and have been duly authorized
and validly issued and are fully paid and non-assessable and have been
issued in compliance with all federal and applicable state securities
laws and were not issued in violation of or subject to any preemptive
rights or similar rights to subscribe for or purchase securities and
conform to the description thereof contained in the Prospectuses. Any
and all certificates representing the Stock are in due and proper form
and comply with all legal requirements and requirements of the
Company's Certificate of Incorporation, By-laws and other
organizational documents. Except as disclosed in and or contemplated
by the Prospectuses and the financial statements of the Company and
related notes thereto included in the Prospectuses, the Company does
not have outstanding any options, warrants, preemptive or other rights
to purchase or subscribe for shares of its capital stock or any
securities or obligations convertible or exchangeable into its shares
of capital stock, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, securities or
obligations, except for those granted subsequent to the date of
information provided in the Prospectuses pursuant to the Company's
employee and stock option plans as disclosed in the Prospectuses. The
description of the Company's stock option and other stock plans or
arrangements, and the options or other rights granted or exercised
thereunder, as set forth in the Prospectuses, accurately and fairly
presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(h) The U.S. Stock to be issued and sold by the Company to the U.S.
Underwriters hereunder and the European Stock to be issued and sold by
the Company to the European Managers under the European Underwriting
Agreement has been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly
and validly issued, fully paid and non-assessable and free of any
preemptive or similar rights and will conform to the description
thereof in the Prospectuses.
(i) Except as set forth in the Prospectuses, there are no legal or
governmental proceedings pending to which the Company or any of the
Subsidiaries is a party or of which any property of the Company or any
Subsidiary is the subject, which, if determined adversely to the
Company or any such Subsidiary, might individually or in the aggregate
(i) prevent or adversely affect the transactions contemplated by this
Agreement, (ii) suspend the effectiveness of the Registration
Statement, (iii) prevent or suspend the use of the Pre-effective
Prospectuses in any jurisdiction or (iv) result in a material adverse
change in the condition (financial or otherwise), properties,
business, business prospects, net worth or results of operations of
the Company and its subsidiaries considered as a whole and to the best
of the Company's knowledge there is no valid basis for any such legal
or governmental proceeding; and to the best of the Company's knowledge
no such proceedings are threatened or contemplated against the Company
or any Subsidiary by any governmental authority or any other person.
The Company is not a party nor subject to the provisions of any
material injunction, judgment, decree or order of any court,
regulatory body or other governmental agency or body. The description
of the Company's litigation and legal proceedings under the heading
"Business Legal Proceedings" in the Prospectuses is true and correct
and complies with the Rules and Regulations and the rules and
regulations of the CSE, the CBF and EASDAQ.
(j) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute
a summary of the terms of the capital stock, or under the captions
"Management," "Certain Transactions," "Principal
6
<PAGE>
Stockholders" and "Shares Eligible for Future Sale," insofar as they
purport to describe facts or the provisions of the documents referred
to therein, are accurate and complete in all material respects.
(k) The execution, delivery and performance of this Agreement and the
European Underwriting Agreement and the consummation of the
transactions herein and therein contemplated (A) will not conflict
with or result in a breach or any violation of any of the terms or
provisions of the Certificate of Incorporation, By-laws or other
organizational documents of the Company or any of the Subsidiaries, or
any law, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or any of the
Subsidiaries or any of their respective properties or assets, (B) will
not conflict with or result in a breach or violation of any of the
terms or provisions of or constitute a default under any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of the Subsidiaries is a party
or by which it or any of its or their respective properties or assets
is or may be bound, and (C) do not and will not result in the creation
of a lien against any such property.
(l) None of the Company or any of the Subsidiaries is, or with notice
or lapse of time or both will be, in violation of or in default under
its Certificate of Incorporation or By-laws or other organizational
documents or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, note, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or
any of its properties may be bound. None of the Company or any of the
Subsidiaries has received any notice of such violation or default.
(m) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement or the European Underwriting
Agreement by the Company and the consummation of the transactions
contemplated herein or therein, except such as may be required by the
National Association of Securities Dealers, Inc. (the "NASD"), the
Commission, the CSE, the CBF, the European Association of Securities
Dealers, Inc., or under the Securities Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or the securities or
"Blue Sky" laws of any jurisdiction in connection with the purchase
and distribution of the U.S. Stock by the U.S. Underwriters and the
European Stock by the European Managers.
(n) The Company has the full corporate power and authority to enter
into this Agreement and the European Underwriting Agreement and to
perform its obligations hereunder and thereunder (including to issue,
sell and deliver the U.S. Stock and European Stock), and this
Agreement and the European Underwriting Agreement have each been duly
and validly authorized, executed and delivered by the Company and
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except to the
extent that rights to indemnity and contribution hereunder or
thereunder may be limited by securities laws of any applicable
national or state jurisdiction or the public policy underlying such
laws.
(o) The Company and each of the Subsidiaries is in all material
respects in compliance with, and conduct their businesses in
conformity with, all applicable laws, rules and regulations and
decisions and orders of any court or governmental agency or body
having competent jurisdiction over it; to the knowledge of the Company
after due inquiry, except as set forth in the Registration Statement
and the Prospectuses, no prospective change in any of such laws, rules
or regulations has been adopted which, when made effective, would have
a material adverse effect on the operations of the
7
<PAGE>
Company and the Subsidiaries, individually or taken as a whole. In the
ordinary course of business, employees of the Company and the
Subsidiaries conduct periodic reviews of the effect of Environmental
Laws (as defined below) on the business operations and properties of
the Company and the Subsidiaries, in the ordinary course of which they
seek to identify and evaluate associated costs and liabilities. Except
as disclosed in the Registration Statement and the Prospectuses, each
of the Company and the Subsidiaries is in compliance with all
applicable existing national, state and local laws and regulations
relating to the protection of human health or the environment or
imposing liability or requiring standards of conduct concerning any
Hazardous Materials ("Environmental Laws"), except for such instances
of noncompliance which, either singly or in the aggregate, would not
have a material adverse effect. The term "Hazardous Material" means
(i) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, (ii) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (iii) any petroleum or
petroleum product, (iv) any polychlorinated biphenyl and (v) any
pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulated under or within the meaning of
any other Environmental Law.
(p) The Company and each of the Subsidiaries has filed all necessary
national, state and local income, payroll, franchise and other tax
returns and have paid all taxes shown as due thereon or with respect
to any of its properties, and there is no tax deficiency that has
been, or to the knowledge of the Company is likely to be, asserted
against the Company or any of the Subsidiaries or any of their
respective properties or assets that would adversely affect the
financial position, business or operations of the Company and the
Subsidiaries, individually or taken as a whole. All tax liabilities
of the Company and each of the Subsidiaries have been adequately
provided for, as reflected in the financial statements and related
notes.
(q) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of
the filing or effectiveness of the Registration Statement or
otherwise, except for persons and entities who have expressly waived
such right or who have been given proper notice and have failed to
exercise such right within the time or times required under the terms
and conditions of such right.
(r) Neither the Company nor any of its officers, directors or
affiliates (as defined in Rule 405 of the Securities Act) has taken or
will take, directly or indirectly, any action designed or intended to
stabilize or manipulate the price of any security of the Company, or
which caused or resulted in, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of
the price of any security of the Company.
(s) The Company has provided you with all financial statements since
December 31, 1997 to the date hereof that are available to the
officers of the Company, including financial statements for the three
month period ended March 31, 1998, the three month and six month
periods ended June 30, 1998 and the three month and nine month periods
ended September 30, 1998, and for the months of October and November
1998.
(t) The Company and the Subsidiaries own or possess the right to use
all patents, trademarks, trademark registrations, service marks,
service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets, know-how and rights (collectively,
"Intellectual Property Rights") described in the Prospectuses as being
owned by them or any of them or necessary for the conduct of their
respective businesses, and neither the Company nor any Subsidiary is
aware of any claim to the contrary or any challenge or infringement by
any other person to or of the rights of the Company and the
Subsidiaries
8
<PAGE>
with respect to the foregoing. The business of the Company and each
Subsidiary as now conducted and as proposed to be conducted as
described in the Prospectuses does not and, to the knowledge of the
Company, will not infringe or conflict with any Intellectual Property
Rights or franchise right of any person. Except as disclosed in the
Prospectuses, the expiration or loss of any Intellectual Property
Right of the Company or any Subsidiary would not have a material
effect on the condition (financial or otherwise), business, results of
operations or prospects of the Company and the Subsidiaries considered
as a whole.
(u) The Company and the Subsidiaries have performed all material
obligations required to be performed by them under all contracts
required by the Rules and Regulations to be described in or filed as
exhibits to the Registration Statement, all such contracts have been
so described and/or filed, and none of the Company or any of the
Subsidiaries or any other party to any such contract is in default
under its terms or in breach of any of its respective obligations
thereunder. Neither the Company nor any of the Subsidiaries has
received any notice of any such default or breach.
(v) The Company is not involved in any labor dispute nor is any such
dispute threatened. The Company is not aware that (A) any executive,
key employee or significant group of employees of the Company or any
Subsidiary plans to terminate employment with the Company or any such
Subsidiary or (B) any such executive or key employee is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or
similar agreement that would be violated by any such person's
participation in the present or proposed business activities of the
Company and the Subsidiaries as described in the Prospectuses.
Neither the Company nor any Subsidiary has or expects to have any
liability for any prohibited transaction or funding deficiency or any
complete or partial withdrawal liability with respect to any pension,
profit sharing or other plan which is subject to the United States
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or any similar plan subject to the laws and rules and regulations of
any other jurisdiction, to which the Company or any such Subsidiary
makes or ever has made a contribution and in which any employee of the
Company or any Subsidiary is or has ever been a participant. With
respect to such plans, the Company and each Subsidiary are in
compliance in all material respects with all applicable provisions of
ERISA and all other such laws.
(w) The Company has obtained the written agreement described in
Section 9(p) of this Agreement from each of its officers, directors
and holders of Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock listed on Schedule C
hereto.
(x) The Company and the Subsidiaries have, and the Company and the
Subsidiaries as of each of the Closing Dates will have, good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned or proposed to be
owned by them which is material to the business of the Company or of
the Subsidiaries, in each case free and clear of all liens,
encumbrances and defects, except such as are described the
Prospectuses or such as would in the aggregate not have a material
adverse effect on the Company and the Subsidiaries considered as a
whole; and any real property and buildings held under lease by the
Company and the Subsidiaries or proposed to be leased by any of them
after giving effect to the transactions described in the Prospectuses
are, or as of each of the Closing Dates will be, held by them under
valid, existing and enforceable leases except as would not have a
material adverse effect on the Company and the Subsidiaries considered
as a whole, in each case except as described in the Prospectuses.
9
<PAGE>
(y) The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are customary in the businesses in which they are
engaged or propose to engage after giving effect to the transactions
described in the Prospectuses; and neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary
to continue their business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and the Subsidiaries
considered as a whole, except as described in the Prospectuses.
(z) Other than as contemplated by this Agreement or the European
Underwriting Agreement, there is no broker, finder or other party that
is entitled to receive from the Company any brokerage or finder's fee
or other fee, commission or other compensation as a result of any of
the transactions contemplated by this Agreement or the European
Underwriting Agreement.
(aa) The Company and each of the Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(bb) To the Company's knowledge, neither the Company nor any of the
Subsidiaries nor any employee or agent of the Company or any of the
Subsidiaries has made any payment of funds of the Company or any of
the Subsidiaries or received or retained any funds in violation of any
law, rule or regulation.
(cc) Neither the Company nor any of the Subsidiaries is or, after
application of the net proceeds of this offering as described under
the caption "Use of Proceeds" in the Prospectuses, will become an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the United States Investment
Company Act of 1940, as amended (the "Investment Company Act"). The
Company intends to conduct its affairs in a manner such that it will
not become an entity required to register as an "investment company"
subject to regulation under the Investment Company Act.
(dd) The Common Stock has been approved for listing and admission to
trading on the CSE and EASDAQ, respectively, subject to official
notice of issuance.
Each certificate signed by any officer of the Company and delivered to the
U.S. Underwriters or counsel for the U.S. Underwriters shall be deemed to be a
representation and warranty by the Company as to the matters covered thereby.
3. Purchase by, and Sale and Delivery to, U.S. Underwriters - Closing Dates.
------------------------------------------------------------------------
The Company agrees to sell to the U.S. Underwriters the U.S. Firm Stock
and, on the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein
set forth, each U.S. Underwriter agrees, severally and not jointly, to
purchase the U.S. Firm Stock from the Company, the number of shares of U.S.
Firm Stock to be purchased by each
10
<PAGE>
U.S. Underwriter being set opposite its name in Schedule A, subject to
adjustment in accordance with Section 13 hereof.
The purchase price per share to be paid by the U.S. Underwriters to the
Company will be the price per share set forth in the table on the cover
page of the Prospectus as the "Proceeds, before expenses, to Phytera" (the
"Purchase Price").
Each U.S. Underwriter agrees that, except to the extent permitted by the
Intersyndicate Agreement, it will not offer or sell any of the U.S. Stock
outside of the United States and Canada or to anyone other than a United
States or Canadian person. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada or
any corporation, pension, profit-sharing or other trust or other entity
organized under the laws of the United States or Canada or of any political
subdivision thereof (other than a branch located outside the United States
or Canada of any United States or Canadian Person), and includes any United
States or Canadian branch of a person who is otherwise not a United States
or Canadian Person.
The Company will deliver the U.S. Firm Stock to the U.S. Representatives
for the respective accounts of the several U.S. Underwriters (in the form
of definitive certificates or book entries, as instructed by the U.S.
Underwriters, issued in such names and in such denominations as the U.S.
Representatives may direct by notice in writing to the Company given at or
prior to 12:00 Noon, New York Time, not later than the second full business
day preceding the First Closing Date (as defined below) or, if no such
direction is received, in the names of the respective U.S. Underwriters or
in such other names as SG Cowen may designate (solely for the purpose of
administrative convenience) and in such denominations as SG Cowen may
determine, against payment of the aggregate Purchase Price therefor by wire
transfer or certified or official bank check or checks in Federal or
similar same-day funds, payable to the order of the Company, all at the
offices of Brown & Wood llp, One World Trade Center, New York, New York
10048. The time and date of the delivery and closing shall be at 10:00
A.M., New York time, on ____________, 1999, in accordance with Rule 15c6-1
of the Exchange Act. The time and date of such payment and delivery are
herein referred to as the "First Closing Date". The First Closing Date and
the location of delivery of, and the form of payment for, the U.S. Firm
Stock may be varied by agreement between the Company and SG Cowen. The
First Closing Date may be postponed pursuant to the provisions of Section
13 hereof.
The Company shall make the certificates, if any, for the U.S. Stock
available to the U.S. Representatives for examination on behalf of the U.S.
Underwriters not later than 10:00 A.M., New York Time, on the business day
preceding the First Closing Date at the offices of SG Cowen, Financial
Square, New York, New York 10005.
It is understood that SG Cowen , individually and not as U.S.
Representative of the several U.S. Underwriters or as Global Coordinator,
may (but shall not be obligated to) make payment to the Company on behalf
of any U.S. Underwriter or U.S. Underwriters, for the Stock to be purchased
by such U.S. Underwriter or U.S. Underwriters. Any such payment by SG
Cowen shall not relieve such U.S. Underwriter or U.S. Underwriters from any
of its or their other obligations hereunder.
The several U.S. Underwriters agree to make an initial public offering of
the U.S. Firm Stock at the initial public offering price (the price per
share set forth on the cover page of the Prospectuses as the "Public
offering price") as soon after the effectiveness of the Registration
Statement as in their judgment is advisable. Such offering in the United
States shall be made only to "qualified institutional buyers" ("QIBS"), as
defined in Rule 144A under the Securities Act, but only to the extent that
such offering is in compliance with applicable state securities laws. The
U.S. Representatives shall promptly advise the Company of the making of the
initial public offering.
11
<PAGE>
For the purpose of covering any over-allotments in connection with the
distribution and sale of the U.S. Firm Stock as contemplated by the U.S.
Prospectus, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the
Company hereby grants to the U.S. Underwriters an option to purchase,
severally and not jointly, up to the number of shares of U.S. Optional
Stock set forth on Schedule A hereto, for an aggregate of up to __________
shares. The price per share to be paid for the Optional Stock shall be the
Purchase Price. The option granted hereby may be exercised as to all or
any part of the U.S. Optional Stock at any time, and from time to time, not
more than thirty (30) days subsequent to the effective date of this
Agreement. No U.S. Optional Stock shall be sold and delivered unless the
U.S. Firm Stock previously has been, or simultaneously is, sold and
delivered. The right to purchase the U.S. Optional Stock or any portion
thereof may be surrendered and terminated at any time upon notice by the
U.S. Underwriters to the Company.
The option granted hereby may be exercised by the U.S. Underwriters by
written notice from SG Cowen to the Company setting forth the number of
shares of the U.S. Optional Stock to be purchased by them and the date and
time for delivery of and payment for the U.S. Optional Stock. Each date
and time for delivery of and payment for U.S. Optional Stock (which may be
the First Closing Date, but not earlier) is herein called an "Option
Closing Date" and shall in no event be earlier than two (2) business days
nor later than ten (10) business days after written notice is given. Each
Option Closing Date and the First Closing Date are herein called the
"Closing Dates." All purchases of U.S. Optional Stock from the Company
shall be made on a pro rata basis. U.S. Optional Stock shall be purchased
for the account of each U.S. Underwriter in the same proportion (or as
nearly as practicable) as the number of shares of U.S. Firm Stock set forth
opposite such U.S. Underwriter's name in Schedule A hereto bears to the
total number of shares of U.S. Firm Stock (subject to adjustment by the
U.S. Underwriters to eliminate odd lots). Upon exercise of the option by
the U.S. Underwriters, the Company agrees to sell to the U.S. Underwriters
the number of shares of U.S. Optional Stock set forth in the written notice
of exercise and the U.S. Underwriters agree, severally and not jointly and
subject to the terms and conditions herein set forth, to purchase the
number of such shares determined as aforesaid.
The Company will deliver the U.S. Optional Stock to the U.S. Underwriters
in the form of definitive certificates or book entries, as instructed by
the U.S. Underwriters, issued in such names and in such denominations as
the U.S. Representatives may direct by notice in writing to the Company
given at or prior to 12:00 Noon, New York time, not later than the second
full business day preceding the Option Closing Date or, if no such
direction is received, in the names of the respective U.S. Underwriters or
in such other names as SG Cowen may designate (solely for the purpose of
administrative convenience) and in such denominations as SG Cowen may
determine, against payment of the aggregate Purchase Price therefor by wire
transfer or certified or official bank check or checks in Federal or
similar same-day funds, payable to the order of the Company all at the
offices of Brown & Wood llp, One World Trade Center, New York, New York
10048. The Company shall make the certificates, if any, for the Optional
Stock available to the U.S. Underwriters for examination on behalf of the
U.S. Underwriters not later than 10:00 A.M., New York time, on the business
day preceding the relevant Option Closing Date at the offices of SG Cowen,
Financial Square, New York, New York 10005. The Option Closing Date and
the location of delivery of, and the form of payment for, the U.S. Option
Stock may be varied by agreement between the Company and SG Cowen. The
Option Closing Date may be postponed pursuant to the provisions of Section
13 hereto.
4. Offers and Sales of the Stock to United States or Canadian Persons. Each
------------------------------------------------------------------
of the U.S. Underwriters and the Company hereby establish and agree to
observe the following procedures in connection with the offer and sale of
the Stock to "United States or Canadian Persons":
(a) Offers and sales of shares of Stock to United States persons will
be made only by the U.S. Underwriters or affiliates thereof qualified
to do so in the jurisdiction in which
12
<PAGE>
such offers or sales are made. Each such offer or sale shall only be
made to certain persons, each of whom the offeror or seller, or any
person acting on behalf of the offeror or seller, reasonably believes
to be a QIB.
(b) In the case of a non-bank purchaser acting as a fiduciary for one
or more third parties, in connection with an offer and sale to such
purchaser pursuant to clause (a) above, each such third party shall in
the judgment of the applicable U.S. Underwriter be a QIB.
5. Covenants and Agreements of the Company. The Company covenants and agrees
---------------------------------------
with the several U.S. Underwriters that:
(a) The Company will (i) if the Company and the U.S. Representatives
have determined not to proceed pursuant to Rule 430A of the Rules and
Regulations, use its best efforts to cause the Registration Statement
to become effective as soon as practicable after the execution of this
Agreement, (ii) if the Company and the U.S. Representatives have
determined to proceed pursuant to Rule 430A of the Rules and
Regulations, use its best efforts to comply with the provisions of and
make all requisite filings with the Commission pursuant to Rule 430A
and Rule 424 of the Rules and Regulations and (iii) if the Company and
the U.S. Representatives have determined to deliver Prospectuses
pursuant to Rule 434 of the Rules and Regulations, to use its best
efforts to comply with all the applicable provisions thereof. The
Company will use its best efforts to obtain any approval of the
European Prospectus from each of the CSE, the CBF and the EASDAQ
Market Authority required to permit the offer and sale to the public
of the European Stock in Belgium, Denmark and such other jurisdictions
in Europe as the European Representatives may request and the listing
and admission to trading of the Common Stock on the CSE and EASDAQ,
respectively. The Company will advise the U.S. Representatives
promptly as to the time at which the Registration Statement or any
post-effective amendment thereto becomes effective and the
Prospectuses have been approved, as the case may be, will advise the
U.S. Representatives promptly of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement,
or by the CSE, the CBF and EASDAQ of any order preventing or
suspending the use of any Pre-effective European Prospectus or the
European Prospectus, or of the institution of any proceedings for any
of those purposes, and will use its best efforts to prevent the
issuance of any such order and to obtain as soon as possible the
lifting thereof, if issued. The Company will advise the U.S.
Representatives promptly of the receipt of any comments of the
Commission, the CSE, the CBF or the EASDAQ Market Authority or any
request by the Commission, the CSE, the CBF or the EASDAQ Market
Authority for any amendment of or supplement to the Registration
Statement or the Prospectuses or for additional information and will
not at any time file any amendment to the Registration Statement or
supplement to the Prospectuses which shall not previously have been
submitted to the U.S. Representatives a reasonable time prior to the
proposed filing thereof or to which the U.S. Representatives shall
reasonably object in writing or which is not in compliance with the
Securities Act and the Rules and Regulations or the rules and
regulations of the CSE, the CBF or EASDAQ.
(b) The Company will prepare and file with the Commission, the CSE,
the CBF and EASDAQ promptly upon the request of the U.S.
Representatives, any amendments or supplements to the Registration
Statement or the Prospectuses which in the reasonable opinion of the
U.S. Representatives may be necessary to enable the several U.S.
Underwriters to continue the distribution of the U.S. Stock and the
several European Managers to continue the distribution of the European
Stock and will use its best efforts to cause the same to become
effective or approved, as the case may be, as promptly as possible.
13
<PAGE>
(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Securities Act or the rules and regulations of the
CSE, the CBF or EASDAQ any event relating to or affecting the Company
or any of the Subsidiaries occurs as a result of which the
Prospectuses or any other prospectus as then in effect would include
an untrue statement of a material fact, or omit to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectuses to comply with the
Securities Act and the Rules and Regulations, or the rules and
regulations of the CSE, the CBF or EASDAQ, the Company will promptly
notify the U.S. Representatives thereof and will prepare amended or
supplemented prospectuses which will correct such statement or
omission; and in case any U.S. Underwriter is required to deliver a
prospectus relating to the U.S. Stock nine months or more after the
effective date of the Registration Statement, the Company, upon the
request of the U.S. Representatives and at the expense of such U.S.
Underwriter, will prepare promptly such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section
10(a)(3) of the Securities Act or any equivalent rules and regulations
of the CSE, the CBF and EASDAQ.
(d) The Company will deliver to the U.S. Representatives, at or before
the Closing Dates, four signed copies of the Registration Statement,
as originally filed with the Commission, and all amendments thereto,
including all financial statements and exhibits thereto, and four
signed copies of the European Prospectus and all supplements thereto,
and will deliver to the U.S. Representatives such number of copies of
the Registration Statement, including such financial statements but
without exhibits, and all amendments thereto, as the U.S.
Representatives may reasonably request. The Company will deliver or
mail to or upon the order of the U.S. Representatives, from time to
time until the effective date of the Registration Statement, as many
copies of the Pre-effective Prospectus as the Representatives may
reasonably request. The Company will deliver or mail to or upon the
order of the U.S. Representatives on the date of the initial public
offering, and thereafter from time to time during the period when
delivery of a prospectus relating to the U.S. Stock is required under
the Securities Act and the Rules and Regulations, as many copies of
the U.S. Prospectus, in final form or as thereafter amended or
supplemented as the U.S. Representatives may reasonably request;
provided, however, that the expense of the preparation and delivery of
any U.S. Prospectus required for use nine months or more after the
effective date of the Registration Statement shall be borne by the
U.S. Underwriters required to deliver such U.S. Prospectus.
(e) The Company will make generally available to its shareholders as
soon as practicable, but not later than 15 months after the effective
date of the Registration Statement, an earning statement which will be
in reasonable detail (but which need not be audited) and which will
comply with Section 11(a) of the Securities Act, covering a period of
at least 12 consecutive months beginning after the "effective date"
(as defined in Rule 158 under the Securities Act) of the Registration
Statement and will advise SG Cowen in writing when such statement has
been made available.
(f) The Company will cooperate with the U.S. Representatives to enable
the Stock to be registered or qualified for offering and sale by the
U.S. Underwriters and by dealers under the securities laws of such
jurisdictions as the U.S. Representatives may designate and at the
request of the U.S. Representatives will make such applications and
furnish such consents to service of process or other documents as may
be required of it as the issuer of the U.S. Stock for that purpose;
provided, however, that the Company shall not be required to qualify
to do business or to file a general consent (other than that arising
out of the offering or sale of the Stock) to service of process in any
such jurisdiction where it is not now so subject. The Company will,
from time to time, prepare and file
14
<PAGE>
such statements and reports as are or may be required of it as the
issuer of the Stock to continue such qualifications in effect for so
long a period as the U.S. Representatives may reasonably request for
the distribution of the Stock. The Company will advise the U.S.
Representatives promptly after the Company becomes aware of the
suspension of the qualifications or registration of (or any such
exception relating to) the Common Stock of the Company for offering,
sale or trading in any jurisdiction or of any initiation or threat of
any proceeding for any such purpose, and in the event of the issuance
of any orders suspending such qualifications, registration or
exception, the Company will, with the cooperation of the U.S.
Representatives use its best efforts to obtain the withdrawal thereof.
(g) As and when required by the Rules and Regulations or, if more
frequently or sooner by applicable regulations of the CSE, the CBF and
EASDAQ, the Company will furnish to its shareholders annual reports
containing financial statements certified by independent public
accountants, and quarterly summary financial information in reasonable
detail which may be unaudited. During the period of five years from
the date hereof, the Company will deliver to the U.S. Representatives
and, upon request of the U.S. Representatives, to each of the other
U.S. Underwriters, (i) as soon as practicable after the end of each
fiscal year, copies of each annual report of the Company containing
financial statements certified by independent public accountants and
each other report furnished by the Company to its shareholders, (ii)
as soon as they are available, copies of any other reports (financial
or other) which the Company shall publish or otherwise make available
to any of its shareholders as such, (iii) as soon as practicable after
the filing thereof, copies of any reports, documents, financial
statements and other information furnished to or filed by the Company
with the Commission, the NASD, the CSE, the CBF, EASDAQ or any other
securities exchange or electronic quotation system, including each
proxy statement, Annual Report on Form 10-K, Quarterly Report on Form
10-Q and Report on Form 8-K filed with the Commission and (iv) from
time to time such other information concerning the Company as the U.S.
Representatives may request. So long as the Company has active
subsidiaries, such financial statements will be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries
are consolidated in reports furnished to its shareholders generally.
Separate financial statements shall be furnished for all subsidiaries
whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
(h) The Company will comply with all applicable rules and regulations
with respect to listing on the CSE and admission to trading securities
on EASDAQ and with all CSE and EASDAQ rules and regulations. The
Company will use its best efforts to maintain the listing and
admission to trading of the Common Stock on the CSE and EASDAQ,
respectively, for a period of not less than five years after the
effective date of the Registration Statement.
(i) The Company will maintain one or more independent registrars and
transfer agents for its Common Stock.
(j) Prior to filing its quarterly financial statements on Form 10-Q,
the Company will have its independent auditors perform a limited
quarterly review of its quarterly financial statements and other
financial and statistical data required to be included therein.
(k) The Company will not offer, sell, assign, transfer, encumber,
contract to sell, grant an option to purchase or otherwise dispose of
any shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock (including, without
limitation, Common Stock of the Company which may be deemed to be
beneficially owned by the Company in accordance with the Rules and
Regulations)
15
<PAGE>
during the 180 days following the date on which the price of the U.S.
Stock to be purchased by the U.S. Underwriters is set, other than (i)
the Company's sale of Common Stock hereunder, (ii) the Company's
issuance of Common Stock upon the exercise of warrants or stock
options which are presently outstanding and described in the
Prospectuses and (iii) the issuance by the Company of any shares or
option to purchase any shares of Common Stock pursuant to its option
plan or employee stock purchase plan described in the Prospectuses.
(l) Prior to filing with the Commission any reports required pursuant
to Rule 463 of Rules and Regulations, the Company will furnish a copy
thereof to the counsel for the U.S. Underwriters and receive and
consider its comments thereon, and will deliver promptly to the U.S.
Representatives four signed copies of each such report filed by it
with the Commission.
(m) The Company will apply the net proceeds from the sale of the Stock
as set forth in the description under "Use of Proceeds" in the
Prospectuses, which description complies in all respects with the
requirements of Item 504 of Regulation S-K.
(n) The Company will supply you with copies of all correspondence to
and from, and all documents issued to and by the Commission, in
connection with the registration of the Stock under the Securities Act
and the Exchange Act, and the CSE, the CBF and EASDAQ, in connection
with the offer and sale of the Stock and the listing and admission to
trading of the Common Stock on the CSE and EASDAQ.
(o) Prior to each of the Closing Dates the Company will furnish to the
U.S. Representatives, as soon as they have been prepared, copies of
any unaudited interim consolidated financial statements of the Company
and its subsidiaries for any periods subsequent to the periods covered
by the financial statements appearing in the Registration Statement
and the Prospectuses.
(p) Prior to each of the Closing Dates the Company will issue no press
release or other communications directly or indirectly and hold no
press conference with respect to the Company or any of the
Subsidiaries, the financial condition, results of operations,
business, prospects, assets or liabilities of any of them, or the
offering of the Stock, without the prior written consent of SG Cowen.
For a period of 12 months following the first Closing Date, the
Company will provide to SG Cowen copies of each press release or other
public communications with respect to the financial condition, results
of operations, business, prospects, assets or liabilities of the
Company at least 24 hours prior to the public issuance thereof or such
longer advance period as may reasonably be practicable.
(q) The Company shall not invest or otherwise use the proceeds
received by the Company from its sale of the Stock in such a manner as
would require the Company or any of its subsidiaries to register as an
investment company under the Investment Company Act.
(r) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
6. Payment of Expenses. (a) The Company will pay (directly or by
-------------------
reimbursement) all of its costs, fees and expenses incident to the
performance of its obligations under this Agreement and the European
Underwriting Agreement and in connection with the transactions contemplated
hereby, including but not limited to (i) all expenses and taxes incident to
the issuance and delivery of the
16
<PAGE>
U.S. Stock to the U.S. Underwriters; (ii) all expenses incident to the
registration of the Stock under the Securities Act and approval of the
Stock for offer and sale in Belgium and Denmark and such other
jurisdictions as may be requested by the European Managers; (iii) the costs
of preparing stock certificates (including printing and engraving costs);
(iv) all fees and expenses of each registrar and transfer agent of the
Stock; (v) fees and expenses of the Company's counsel and the Company's
independent accountants; (vi) all costs and expenses incurred in connection
with the preparation, printing filing, shipping and distribution of the
Registration Statement, each Pre-effective Prospectus and the Prospectuses
(including all exhibits and financial statements) and all amendments and
supplements provided for herein, the "Agreement Among U.S. Underwriters"
between the U.S. Representatives and the U.S. Underwriters, the
"Intersyndicate Agreement" between the U.S. Representatives and European
Representatives, the Master Selected Dealers' Agreement, the U.S.
Underwriters' Questionnaire and the Blue Sky memoranda (including related
fees and expenses of counsel to the U.S. Underwriters) and this Agreement;
(vii) all filing fees, attorneys' fees and expenses incurred by the Company
or the U.S. Underwriters in connection with exemptions from the qualifying
or registering (or obtaining qualification or registration of) all or any
part of the Stock for offer and sale and determination of its eligibility
for investment under the Blue Sky or other securities laws of such
jurisdictions as the U.S. Representatives may designate; (viii) all fees
and expenses paid or incurred in connection with filings made with the
NASD; (ix) fees and expenses associated with listing the Common Stock on
the CSE and admission to trading on EASDAQ, and filing with the CBF; and
(x) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in
this Section.
(b) In addition to its other obligations under Section 7(a) hereof, the
Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon (i) any statement or omission, or any alleged statement or
omission, in the Registration Statement or the Prospectuses, (ii) any act
or failure to act or any alleged act or failure to act or (iii) any breach
or inaccuracy in its representations and warranties, it will reimburse each
U.S. Underwriter on a quarterly basis upon written request to the Company
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the Company's obligation to reimburse each U.S.
Underwriter (and, to the extent applicable, each officer, director or
controlling person of such U.S. Underwriter) for such expenses and the
possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each U.S.
Underwriter shall promptly return it to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing)
announced from time to timed by The Chase Manhattan Bank, New York, New
York (the "Prime Rate"). Any such interim reimbursement payments which are
not made to a U.S. Underwriter in a timely manner as provided below shall
bear interest at the Prime Rate from the due date for such reimbursement.
This expense reimbursement agreement will be in addition to any other
liability which the Company may otherwise have.
(c) In addition to its other obligations under Section 7(b) hereof, each
U.S. Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in Section 7(b) hereof which relates to
information furnished to the Company pursuant to Section 7(b) hereof, it
will reimburse the Company (and, to the extent applicable, each officer,
director or controlling person of the Company) on a quarterly basis upon
written request to such U.S. Underwriter for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination of such U.S. Underwriter's
obligation to reimburse the Company (and, to the extent
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<PAGE>
applicable, each officer, director or controlling person of the Company)
for such expenses and the possibility that such payments might later be
held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company (and, to the extent applicable, each officer,
director or controlling person of the Company) shall promptly return it to
such U.S. Underwriter together with interest, compounded daily, determined
on the basis of the Prime Rate. Any such interim reimbursement payments
which are not made to the Company within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability
which such U.S. Underwriter may otherwise have.
(d) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in paragraph (b) and/or (c) of
this Section 6, including the timing and amounts of any requested
reimbursement payments and the method of determining such amounts, shall be
settled by arbitration conducted under the following provisions. Any such
arbitration must be commenced by service of a written demand for
arbitration or written notice of intention to arbitrate. Upon commencement,
each party shall select one arbitrator, and the two arbitrators so selected
shall together select a mutually satisfactory third arbitrator. The three
arbitrators shall determine the procedures that they shall follow in
arbitrating the controversy arising out of the operation of the interim
reimbursement arrangements set forth in paragraph (b) and/or (c) of this
Section 6 in respect of which such arbitrators were selected. Any such
arbitration would be limited to the operation of the interim reimbursement
provisions contained in paragraph (b) and/or (c) of this Section 6 and
would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of
Section 7. Any payments which are the subject of any pending arbitration
proceeding under this Section 6(d) shall be suspended until such matter is
resolved in accordance with this Section 6(d) or by a court of competent
jurisdiction.
7. Indemnification and Contribution. (a) The Company agrees to indemnify and
--------------------------------
hold harmless each U.S. Underwriter and each person, if any, who controls
such U.S. Underwriter within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of each of such
U.S. Underwriter (collectively, the "U.S. Underwriter Indemnified Parties"
and, each, a "U.S. Underwriter Indemnified Party"), against any losses,
claims, damages, liabilities or expenses (including the reasonable cost of
investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which may be based
upon the Securities Act, or any other statute or at common law, (i) on the
ground or alleged ground that any Pre-effective Prospectus, the
Registration Statement or the Prospectuses (or any Pre-effective
Prospectus, the Registration Statement or the Prospectuses as from time to
time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading,
unless such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by any U.S.
Underwriter, directly or through the U.S. Representatives, specifically for
use in the preparation thereof or (ii) for any act or failure to act or any
alleged act, or failure to act, by any U.S. Underwriter in connection with,
or relating in any manner to, any loss, claim, damage, liability or expense
referred to in clause (i) above; provided that the Company shall not be
liable under this clause (i) with respect to a prospectus delivered by a
U.S. Underwriter after the Company has given notice pursuant to Section
5(c) above that such prospectus is being amended by the Company; and
provided, further, that the Company shall not be liable under this clause
(ii) to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, or liability or
expense resulted directly from any such acts or failures to act undertaken
or omitted to be taken by such U.S. Underwriter through its gross
negligence or willful misconduct; provided, however, that in no case is the
Company to be liable with respect to any claims made against any U.S.
Underwriter Indemnified
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<PAGE>
Party against whom the action is brought unless such U.S. Underwriter
Indemnified Party shall have not notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the U.S.
Underwriter Indemnified Party, but failure to notify the Company of such
claim shall not relieve it from any liability which it may have to any U.S.
Underwriter Indemnified Party otherwise than on account of its indemnity
agreement contained in this paragraph. The Company will be entitled to
participate at its own expense in the defense or, if it so elects, to
assume the defense of any suit brought to enforce any such liability, but
if the Company elects to assume the defense, such defense shall be
conducted by counsel chosen by it and reasonably acceptable to the U.S.
Underwriters. In the event the Company elects to assume the defense of any
such suit and retain such counsel, any U.S. Underwriter Indemnified Party,
defendant or defendants in the suit, may retain additional counsel but
shall bear the fees and expenses of such counsel unless (i) the Company
shall have specifically authorized the retaining of such counsel or (ii)
the parties to such suit include such U.S. Underwriter Indemnified Party,
and the Company and such U.S. Underwriter Indemnified Party have been
advised by counsel to the U.S. Underwriters that one or more legal defenses
at law or in equity may be available to it or them which may not be
available to the Company, in which case the Company shall bear the
reasonable fees and expenses of one counsel for the U.S. Underwriters. In
the event that the Company must bear the fees and expenses of counsel to a
U.S. Underwriter Indemnified Party under clause (ii) of the foregoing
sentence, the Company shall not be entitled to assume the defense of such
suit notwithstanding its obligation to bear the fees and expenses of such
counsel. The Company Indemnified Party against whom indemnity may be sought
shall not be liable to indemnify any person for any settlement of any such
claim effected without the Company's consent. This indemnity agreement is
not exclusive and is in addition to any liability which the Company might
otherwise have and shall not limit any rights or remedies which may
otherwise be available at law or in equity to each U.S. Underwriter
Indemnified Party.
(b) Each U.S. Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act (collectively, the "Company Indemnified
Parties" and, each, a "Company Indemnified Party") against any losses,
claims, damages, liabilities or expenses (including, unless the U.S.
Underwriter or U.S. Underwriters elect to assume the defense, the
reasonable cost of investigating and defending against any claims therefor
and counsel fees incurred in connection therewith), joint or several, which
arise out of or are based in whole or in part upon the Securities Act, the
Exchange Act, the rules and regulations thereunder or any other statute at
common law, on the ground or alleged ground that any Pre-effective
Prospectuses, the Registration Statement or the Prospectuses (or any Pre-
effective Prospectuses, the Registration Statement or the Prospectuses, as
from time to time amended and supplemented) includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading, but only insofar
as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such U.S.
Underwriter, directly or through the U.S. Representatives, specifically for
use in the preparation thereof; provided, however, that in no case is such
U.S. Underwriter to be liable with respect to any claims made against any
Company Indemnified Party against whom the action is brought unless such
Company Indemnified Party shall have notified such U.S. Underwriter in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon the Company Indemnified Party, but failure to notify such U.S.
Underwriter of such claim shall not relieve it from any liability which it
may have to any Company Indemnified Party otherwise than on account of its
indemnity agreement contained in this paragraph. Such U.S. Underwriter
shall be entitled to participate at its own expense in the defense, or, if
it so elects, to assume the
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<PAGE>
defense of any suit brought to enforce any such liability, but, if such
U.S. Underwriter elects to assume the defense, such defense shall be
conducted by counsel chosen by it. In the event that any U.S. Underwriter
elects to assume the defense of any such suit and retain such counsel, the
Company Indemnified Parties and any other U.S. Underwriter or U.S.
Underwriters or controlling person or persons, defendant or defendants in
the suit, shall bear the fees and expenses of any additional counsel
retained by them, respectively. The U.S. Underwriter against whom indemnity
may be sought shall not be liable to indemnify any person for any
settlement of any such claim effected without such U.S. Underwriter's
consent. This indemnity agreement is not exclusive and will be in addition
to any liability which such U.S. Underwriter might otherwise have and shall
not limit any rights or remedies which may otherwise be available at law or
in equity to any Company Indemnified Party.
(c) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to herein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the U.S. Underwriters on the other from the offering of the
Stock. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party
shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and the
U.S. Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the U.S. Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the U.S. Underwriters, in each case
as set forth in the table on the cover page of the Prospectuses. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or the U.S. Underwriters and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the U.S.
Underwriters agree that it would not be just and equitable if contribution
were determined by pro rata allocation (even if the U.S. Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses (or actions
in respect thereof) referred to above shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in
connection with investigating, defending, settling or compromising any such
claim. Notwithstanding the provisions of this subsection (c), no U.S.
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the shares of the Stock
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such U.S. Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. The U.S. Underwriters' obligations to
contribute are several in proportion to their respective underwriting
obligations and not joint. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8. Survival of Indemnities, Representations, Warranties, etc. The respective
---------------------------------------------------------
indemnities, covenants, agreements, representations, warranties and other
statements of the Company and the several U.S. Underwriters, as set forth
in this Agreement or made by them respectively, pursuant to this Agreement,
shall remain in full force and effect, regardless of any investigation made
by or on
20
<PAGE>
behalf of any U.S. Underwriter, the Company or any of its officers or
directors or any controlling person, and shall survive delivery of and
payment for the Stock.
9. Conditions of U.S. Underwriters' Obligations. The respective obligations
--------------------------------------------
of the several U.S. Underwriters hereunder shall be subject to the
accuracy, at and (except as otherwise stated herein) as of the date hereof
and at and as of each of the Closing Dates, of the representations and
warranties made herein by the Company, to compliance at and as of each of
the Closing Dates by the Company with its covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to each
of the Closing Dates, and to the following additional conditions.
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company or the U.S. Representatives, shall be contemplated or
threatened by the Commission, and any request for additional information on
the part of the Commission (to be included in the Registration Statement or
the Prospectuses or otherwise) shall have been complied with to the
reasonable satisfaction of the U.S. Representatives and no injunction,
restraining order or order of any nature shall have been issued as of each
of the Closing Dates which would prevent the issuance of the Stock. Any
filings of the Prospectuses, or any supplement thereto, required pursuant
to Rule 424(b) or Rule 434 of the Rules and Regulations, shall have been
made in the manner and within the time period required by Rule 424(b) and
Rule 434 of the Rules and Regulations, as the case may be.
(b) The European Prospectus shall have been approved by each of the CSE,
the CBF, and EASDAQ and shall comply in all material respects with all
applicable legal requirements for use in a public offering in Belgium and
Denmark and such other jurisdictions in Europe as the European
Representatives shall have requested, and no action shall have been taken
and no proceeding shall have been initiated by the CSE, the CBF or EASDAQ
for the purpose of rescinding such approval.
(c) The U.S. Representatives shall have been satisfied that there shall
not have occurred any change, on a consolidated basis, prior to each of the
Closing Dates in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of the
Company and its subsidiaries considered as a whole, or any change in the
capital stock, short-term or long-term debt of the Company and its
subsidiaries considered as a whole, such that (i) the Registration
Statement or the Prospectuses, or any amendment or supplement thereto,
contains an untrue statement of fact which, in the opinion of the U.S.
Representatives, is material, or omits to state a fact which, in the
opinion of the U.S. Representatives, is required to be stated therein or is
necessary to make the statements therein not misleading, or (ii) it is
unpracticable in the reasonable judgment of the U.S. Representatives to
proceed with the public offering or to purchase the U.S. Stock as
contemplated hereby.
(d) The U.S. Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's ability to perform its obligations under this Agreement or the
European Underwriting Agreement shall have been instituted or threatened
and there shall have occurred no material adverse development in any such
existing action, suit or proceeding.
(e) At the time of execution of this Agreement, the U.S. Representatives
shall have received from Arthur Andersen LLP, independent certified public
accountants, a letter, dated the date hereof, in form and substance
satisfactory to the U.S. Underwriters.
(f) The U.S. Representatives shall have received from Arthur Andersen LLP,
independent certified public accountants, letters, dated each of the
Closing Dates, to the effect that such accountants reaffirm, as of each of
the Closing Dates, and as though made on each of the Closing
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<PAGE>
Dates, the statements made in the letter furnished by such accountants
pursuant to paragraph (e) of this Section 9.
(g) The U.S. Representatives shall have received from Palmer & Dodge LLP,
counsel for the Company, opinions, dated each of the Closing Dates, to the
effect set forth in Exhibit I hereto.
(h) The U.S. Representatives shall have received from Dragsted & Helmer
Nielsen, Danish counsel for the Company, opinions, dated each of the
Closing Dates, in a form reasonably satisfactory to the U.S.
Representatives.
(i) The U.S. Representatives shall have received from Denton Hall, English
counsel for the Company, opinions, dated each of the Closing Dates, in a
form reasonably satisfactory to the U.S. Representatives.
(j) The U.S. Representatives shall have received from Clarke & Elbing,
U.S. patent counsel for the Company, opinions, dated each of the Closing
Dates, to the effect set forth in Exhibit II hereto.
(k) The U.S. Representatives shall have received from Ploughmann, Vingtoft
& Partners, Danish patent counsel for the Company, opinions, dated each of
the Closing Dates, to the effect set forth in Exhibit III hereto.
(l) The U.S. Representatives shall have received from Brown & Wood llp,
counsel for the U.S. Underwriters, their opinions dated each of the Closing
Dates with respect to the incorporation of the Company, the validity of the
Stock, the Registration Statement and the Prospectuses (other than
financial data contained therein) and such other related matters as it may
reasonably request, and the Company shall have furnished to such counsel
such documents as they may request for the purpose of enabling them to pass
upon such matters.
(m) The U.S. Representatives shall have received from, Bech-Bruun &
Trolle, Danish counsel for the U.S. Underwriters, opinions, dated each of
the Closing Dates, in a form reasonably satisfactory to the U.S.
Representatives.
(n) The U.S. Representatives shall have received from, ________________,
English counsel for the U.S. Underwriters, opinions, dated each of the
Closing Dates, in a form reasonably satisfactory to the U.S.
Representatives.
(o) On each Closing Date, the U.S. Representatives shall have received a
certificate, dated such Closing Date, of the President and Chief Executive
Officer and the chief financial or accounting officer of the Company to the
effect that:
(i) The Registration Statement has become effective
under the Securities Act and all filings required
to have been made pursuant to Rule 424 or 430A
under the Securities Act have been made;
(ii) The European Prospectus has been approved by each
of the CBF, EASDAQ and the CSE.
(iii) None of the Commission, the CSE, the CBF, nor the
EASDAQ Market Authority, as the case may be, has
issued any stop order or equivalent order
suspending the effectiveness of the Registration
Statement or the Prospectuses, and, to the best of
the knowledge of the Company, no proceedings for
that purpose have been instituted or are pending or
contemplated by the Commission, the CSE, the CBF,
or the EASDAQ Market Authority;
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<PAGE>
(iv) Each such officer has carefully examined the
Registration Statement and the Prospectuses, and in
each such officer's opinion, the statements
contained in the Registration Statement and the
Prospectuses were true and correct as of their
respective dates, and none of any Pre-effective
Prospectus, as of its date, nor the Registration
Statement nor the Prospectuses or the Danish
Prospectus, nor any amendment or supplement
thereto, as of the time when the Registration
Statement became effective and the European
Prospectus was approved and at all times subsequent
thereto up to the delivery of such certificate,
included any untrue statement of a material fact or
omitted to state any material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading;
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement
and the Prospectuses, and except as set forth or
contemplated in the Prospectuses, neither the
Company nor any of its Subsidiaries has incurred
any material liabilities or obligations, direct or
contingent, or has entered into any material
transactions not in the ordinary course of business
and there has not been any material adverse change
in the condition (financial or otherwise),
properties, business, management, prospects, net
worth or results of operations of the Company and
its subsidiaries considered as a whole, and there
has not been any change in the capital stock of the
Company or any of the Subsidiaries or any change in
the short-term or long-term debt of the Company and
its subsidiaries considered as a whole;
(vi) The representations and warranties of the Company
in this Agreement are true and correct at and as of
each of the Closing Dates, and the Company has
complied with all the agreements and performed or
satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing
Dates; and
(vvi) Since the respective dates as of which information
is given in the Registration Statement and the
Prospectuses, and except as disclosed in the
Prospectuses, (i) there has not been any material
adverse change or a development involving a
material adverse change in the condition (financial
or otherwise), properties, business, management,
prospects, net worth or results of operations of
the Company and its subsidiaries considered as a
whole; (ii) the business and operations conducted
by the Company and the Subsidiaries have not
sustained a loss by strike, fire, flood, accident
or other calamity (whether or not insured) of such
a character as to interfere materially with the
conduct of the business and operations of the
Company and its subsidiaries considered as a whole;
(iii) no legal or governmental action, suit or
proceeding is pending or threatened against the
Company which is material to the Company, whether
or not arising from transactions in the ordinary
course of business, or which may materially and
adversely affect the transactions contemplated by
this Agreement or the European Underwriting
Agreement; (iv) since such dates and except as so
disclosed, the Company has not incurred any
material liability or obligation, direct,
contingent or indirect, made any change in its
capital stock (except pursuant to its stock plans),
made any material change in its short-term or
funded debt or repurchased or otherwise acquired
any of the Company's
23
<PAGE>
capital stock; and (v) the Company has not declared
or paid any dividend, or made any other
distribution, upon its outstanding capital stock
payable to stockholders of record on a date prior
to the Closing Date.
(p) The Company shall have furnished to the U.S. Representatives such
additional certificates as the U.S. Representatives may have reasonably
requested as to the accuracy, at and as of each of the Closing Dates, of
the representations and warranties made herein by it and as to compliance
at and as of each of the Closing Dates by it with its covenants and
agreements herein contained and other provisions hereof to be satisfied at
or prior to each of the Closing Dates, and as to satisfaction of the other
conditions to the obligations of the U.S. Underwriters hereunder.
(q) SG Cowen shall have received the written agreements, substantially in
the form of Exhibit IV hereto, of each of the officers, directors and
holders of Common Stock, or securities convertible into or exchangeable or
exercisable for Common Stock listed in Schedule C that each of them will
not offer, sell, assign, transfer, encumber, contract to sell, grant an
option to purchase or otherwise dispose of, any shares of Common Stock
(including, without limitation, Common Stock which may be deemed to be
beneficially owned by such officer, director or holder in accordance with
the Rules and Regulations) during the 180 days following the date of the
final Prospectuses.
(r) The CSE and EASDAQ shall have approved the Common Stock for listing
and admission for trading, respectively, subject only to official notice of
issuance.
(s) Contemporaneously with the purchase by the U.S. Underwriters of the
U.S. Firm Stock under this Agreement, the European Managers shall have
purchased the European Firm Stock under the European Underwriting
Agreement.
(t) The NASD shall not have raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in
form and substance to the U.S. Representatives. The Company will furnish
to the U.S. Representatives conformed copies of such opinions,
certificates, letters and other documents as the U.S. Representatives shall
reasonably request. If any of the conditions hereinabove provided for in
this Section 9 shall not have been satisfied when and as required by this
Agreement, this Agreement may be terminated by the U.S. Representatives by
notifying the Company of such termination in writing or by telegram at or
prior to each of the Closing Dates, but SG Cowen, on behalf of the U.S.
Representatives, shall be entitled to waive any of such conditions.
10. Effective Date. This Agreement shall become effective immediately as to
--------------
Sections 6, 7, 8, 10, 11,12, 14, 15, 16, 17 and 18 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the date of effectiveness of the Registration Statement or at
such earlier time after the date hereof and after the Registration
Statement becomes effective as the U.S. Representatives may determine on
and by notice to the Company or by release of any of the Stock for sale to
the public. For the purposes of this Section 10, the Stock shall be deemed
to have been so released upon the release for publication of any newspaper
advertisement relating to the Stock or upon the release by you of telegrams
(i) advising U.S. Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.
11. Termination. This Agreement (except for the provisions of Section 6) may
-----------
be terminated by the Company at any time before it becomes effective in
accordance with Section 10 by notice to the
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<PAGE>
U.S. Representatives and may be terminated by the U.S. Representatives at
any time before it becomes effective in accordance with Section 10 by
notice to the Company. In the event of any termination of this Agreement
under this or any other provision of this Agreement, there shall be no
liability of any party to this Agreement to any other party, other than as
provided in Sections 6, 7 and 12 and other than as provided in Section 13
as to the liability of defaulting U.S. Underwriters.
This Agreement may be terminated after it becomes effective by the U.S.
Representatives by notice to the Company (i) if at or prior to the First
Closing Date trading in securities on any of the New York Stock Exchange,
American Stock Exchange, Nasdaq National Market, the CSE, or EASDAQ shall
have been suspended or minimum or maximum prices shall have been
established on any such exchange or market, or a banking moratorium shall
have been declared by New York, or United States, Danish or Belgian
authorities; (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market; (iii) if at or
prior to the First Closing Date there shall have been (A) an outbreak or
escalation of hostilities between any of the United States, Denmark or the
United Kingdom and any foreign power or of any other insurrection or armed
conflict involving the United States, Denmark or the United Kingdom or (B)
any change in financial markets or any calamity or crisis which, in the
judgment of the U.S. Representatives, makes it impractical or inadvisable
to offer or sell the Stock on the terms contemplated by the Prospectuses;
(iv) if there shall have been any development or prospective development
involving particularly the business or properties or securities of the
Company or any of the Subsidiaries or the transactions contemplated by this
Agreement, which, in the judgment of the U.S. Representatives, makes it
impracticable or inadvisable to offer or deliver the Stock on the terms
contemplated by the Prospectuses; (v) if there shall be any litigation or
proceeding, pending or threatened, which, in the judgment of the U.S.
Representatives, makes it impracticable or inadvisable to offer or deliver
the on the terms contemplated by the Prospectuses; or (vi) if there shall
have occurred any of the events specified in the immediately preceding
clauses (i) - (v) together with any other such event that makes it, in the
judgment of the U.S. Representatives, impractical or inadvisable to offer
or deliver the Stock on the terms contemplated by the Prospectuses.
12. Reimbursement of U.S. Underwriters. Notwithstanding any other provisions
----------------------------------
hereof, if this Agreement shall not become effective by reason of any
election of the Company pursuant to the first paragraph of Section 11 or
shall be terminated by the U.S. Representatives under Section 9 or Section
11, the Company will bear and pay the expenses specified in Section 6
hereof and, in addition to its obligations pursuant to Section 7 hereof,
the Company will reimburse the reasonable out-of-pocket expenses of the
several U.S. Underwriters (including reasonable fees and disbursements of
counsel for the U.S. Underwriters) incurred in connection with this
Agreement and the proposed purchase of the U.S. Stock, and promptly upon
demand the Company will pay such amounts to you as U.S. Representatives.
13. Substitution of U.S. Underwriters. If any U.S. Underwriter or U.S.
---------------------------------
Underwriters shall default in its or their obligations to purchase shares
of U.S. Stock hereunder and the aggregate number of shares which such
defaulting U.S. Underwriter or U.S. Underwriters agreed but failed to
purchase does not exceed ten percent (10%) of the total number of shares of
U.S. Stock underwritten, the other U.S. Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting U.S. Underwriter or U.S.
Underwriters agreed but failed to purchase. If any U.S. Underwriter or U.S.
Underwriters shall so default and the aggregate number of shares with
respect to which such default or defaults occur is more than ten percent
(10%) of the total number of shares of U.S. Stock underwritten and
arrangements satisfactory to the Representatives and the Company for the
purchase of such shares by other persons are not made within forty-eight
(48) hours after such default, this Agreement shall terminate.
25
<PAGE>
If the remaining U.S. Underwriters or substituted U.S. Underwriters are
required hereby or agree to take up all or part of the shares of U.S. Stock
of a defaulting U.S. Underwriter or U.S. Underwriters as provided in this
Section 13, (i) the Company shall have the right to postpone the Closing
Dates for a period of not more than five (5) full business days in order
that the Company may effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectuses, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus
which may thereby be made necessary, and (ii) the respective numbers of
shares to be purchased by the remaining U.S. Underwriters or substituted
U.S. Underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein contained
shall relieve any defaulting U.S. Underwriter of its liability to the
Company or the other U.S. Underwriters for damages occasioned by its
default hereunder. Any termination of this Agreement pursuant to this
Section 13 shall be without liability on the part of any non-defaulting
U.S. Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 6 and except for the provisions of Section
7.
14. Notices. All communications hereunder shall be in writing and, if sent to
-------
the U.S. Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their U.S. Representatives c/o SG Cowen Securities
Corporation at Financial Square, New York, New York 10005 except that
notices given to a U.S. Underwriter pursuant to Section 7 hereof shall be
sent to such U.S. Underwriter at the address furnished by the U.S.
Representatives or, if sent to the Company, shall be mailed, delivered or
telegraphed and confirmed c/o Phytera, Inc. at 377 Plantation Street,
Worcester , Massachusetts 01605.
15. Successors. This Agreement shall inure to the benefit of and be binding
----------
upon the several U.S. Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person other
than the persons mentioned in the preceding sentence any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person; except that
the representations, warranties, covenants, agreements and indemnities of
the Company contained in this Agreement shall also be for the benefit of
the person or persons, if any, who control any U.S. Underwriter or U.S.
Underwriters within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, and the indemnities of the several U.S.
Underwriters shall also be for the benefit of each director of the Company,
each of its officers who has signed the Registration Statement and the
person or persons, if any, who control the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act.
16. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of New York.
17. Authority of the U.S. Representatives. In connection with this Agreement,
-------------------------------------
you will act for and on behalf of the several U.S. Underwriters, and any
action taken under this Agreement by Cowen, as U.S. Representative, will be
binding on all the U.S. Underwriters.
18. Partial Unenforceability. The invalidity or unenforceability of any
------------------------
Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision
hereof. If any Section, paragraph or provision of this Agreement is for
any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are
necessary to make it valid and enforceable.
19. General. This Agreement constitutes the entire agreement of the parties to
-------
this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and
26
<PAGE>
negotiations with respect to the subject matter hereof. In this Agreement,
the masculine, feminine and neuter genders and the singular and the plural
include one another. The section headings in this Agreement are for the
convenience of the parties only and will not affect the construction or
interpretation of this Agreement. This Agreement may be amended or
modified, and the observance of any term of this Agreement (other than the
conditions set forth in Section 9 which may be waived on behalf of the U.S.
Underwriters solely by SG Cowen) may be waived, only by a writing signed by
the Company and the U.S. Representatives.
20. Counterparts. This Agreement may be signed in two or more counterparts,
------------
each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
27
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
PHYTERA, INC.
By: _________________________________
President and Chief Executive Officer
Accepted and delivered as of
the date first above written.
SG COWEN SECURITIES CORPORATION
CARNEGIE INC.
BANCBOSTON ROBERTSON STEPHENS INC.
Acting on their own behalf
and as Representatives of the several
U.S. Underwriters referred to in the
foregoing Agreement.
By: SG COWEN SECURITIES CORPORATION
By: ______________________________
John P. Dunphy
Managing Director - Syndicate
28
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of U.S.
Number of U.S. Firm Optional Shares to be
Name Shares to be Purchased Purchased
---- ---------------------- ---------
<S> <C> <C>
SG Cowen Securities Corporation
Carnegie Inc.
BancBoston Robertson Stephens Inc.
------------ -----------
Total
============ ===========
</TABLE>
29
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of European Number of European
Firm Shares to be Optional Shares to be
Name Purchased Purchased
---- --------- ---------
<S> <C> <C>
SG Cowen International L.P.
Carnegie Bank A/S
BancBoston Robertson Stephens International
Ltd.
--------- --------
Total
========= ========
</TABLE>
30
<PAGE>
SCHEDULE C
[DIRECTORS, OFFICERS AND SHAREHOLDERS EXECUTING LOCK-UP AGREEMENTS]
31
<PAGE>
Exhibit I
Form of Opinion of Issuer's Counsel
____________, 1998
SG Cowen Securities Corporation
Carnegie Inc.
BancBoston Robertson Stephens Inc.
As representatives of the several
U.S. Underwriters named in Schedule A to
the U.S. Underwriting Agreement
c/o SG Cowen Securities Corporation
Financial Square
New York, New York 10005
Re: Phytera, Inc.
____ Shares of Common Stock
Dear Ladies and Gentlemen:
We have acted as counsel for Phytera, Inc., a Delaware corporation (the
"Company"), in connection with the sale by the Company and purchase of ____
shares of Common Stock, par value $0.01 per share, of the Company (the "U.S.
Stock") by the several U.S. Underwriters listed in Schedule A to the U.S.
Underwriting Agreement, dated _______,1999 among the Company, SG Cowen
Securities Corporation, Carnegie Inc. and BancBoston Robertson Stephens Inc., as
U.S. Representatives of the several U.S. Underwriters named therein (the "U.S.
Underwriting Agreement"). This opinion is being furnished pursuant to Section
9(g) of the U.S. Underwriting Agreement. All capitalized terms not defined
herein shall have the meanings ascribed to them in the U.S. Underwriting
Agreement.
We are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified to do business and is in good standing as foreign corporation in the
Commonwealth of Massachusetts, and has all power and authority necessary to own
or hold its properties and conduct the businesses in which it is engaged;
2. The Company has an authorized capitalization as set forth in the
Prospectuses, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and all of the shares of Stock to be issued and sold by the Company to the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement have been duly and
validly authorized and, when issued and delivered against payment therefor as
provided for in the U.S. Underwriting Agreement, shall be duly and validly
issued, fully paid and non-assessable; all of the issued shares of capital stock
of each subsidiary of the Company have been duly and validly authorized and
issued and are fully paid, non-assessable and are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or claims;
and the only Subsidiaries of the Company are the Subsidiaries listed on Exhibit
21 to the Registration Statement;
32
<PAGE>
3. All of the shares of Stock conform to the description thereof contained in
the Prospectuses; the certificates for the shares of Stock are in due and proper
form and comply with all applicable statutory requirements, with any applicable
requirements of the Certificate of Incorporation and By-Laws of the Company and
the requirements of the CSE, the CBF and EASDAQ and no holders of shares of
Stock will be subject to personal liability solely as a result of being such a
holder;
4. There are no preemptive or other rights (contractual or statutory) to
subscribe for or to purchase or to convert or exchange any obligations or
capital stock into or for, nor any restriction upon the voting or transfer of,
any of the shares of Stock pursuant to the Company's Certificate of
Incorporation or By-Laws or any agreement or other instrument as to which the
Company is bound. Except as described in or contemplated by the Prospectuses, to
our knowledge, (a) there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and (b) there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such capital stock;
5. To the best of our knowledge without inquiry of court dockets, there are no
legal or governmental proceedings pending to which the Company or any of the
Subsidiaries is a party or of which any property or assets of the Company or any
of its Subsidiaries is the subject; and, to the best of our knowledge, no such
proceedings are threatened or contemplated by governmental authorities or other
third parties;
6. The Company and each of the Subsidiaries own or use under valid licenses all
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectuses as being owned by them or any of them or necessary
for the conduct of their respective businesses, and the Company is not aware of
any claim to the contrary or any challenge by any other person to the rights of
the Company or any of the Subsidiaries with respect to the foregoing. The
Company's business as now conducted and as proposed to be conducted does not and
will not infringe or conflict with any trademarks, service marks, trade names,
copyrights, trade secrets, licenses or other intellectual property or franchise
right of any person;
7. The Company has, and the Company as of the Closing Dates will have, good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned or proposed to be owned by it which is
material to the business of the Company, in each case free and clear of all
liens, encumbrances and defects except such as are described in the Prospectuses
or such as would in the aggregate not have a material adverse effect on the
Company and its subsidiaries considered as a whole; and any real property and
buildings held under lease by the Company or proposed to be leased after giving
effect to the transactions described in the Prospectuses are, or will be as of
each of the Closing Dates, held by it under valid, subsisting and enforceable
leases with such exceptions as would in the aggregate not have a material
adverse effect on the Company and its subsidiaries considered as a whole, in
each case except as are described in the Prospectuses;
8. The Company has full corporate power and authority to enter into the U.S.
Underwriting Agreement and to perform its obligations thereunder (including to
issue, sell and deliver the shares of Stock), and the U.S. Underwriting
Agreement has been duly and validly authorized, executed and delivered by the
Company;
9. To the best of our knowledge after due inquiry, the execution, delivery and
performance of the U.S. Underwriting Agreement and the consummation of the
transactions therein contemplated do not and will not conflict with or result in
a breach or violation of any of the terms or provisions of or constitute a
default under any indenture, mortgage, deed of trust, note agreement or other
agreement or instrument to which the Company is a party or by which it or any of
its properties is or may be bound, the Certificate of Incorporation, By-laws or
other organizational documents of the Company, or any law, order, rule or
33
<PAGE>
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its properties or result in the creation of a lien;
10. No consent, approval, authorization or order of any court or regulatory,
administrative or other governmental agency or body is required for the
consummation by the Company of the transactions contemplated by the U.S.
Underwriting Agreement, except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or under the Securities Act
or the securities or "Blue Sky" laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the U.S. Underwriters;
11. The Company is in compliance with, and conducts its businesses in
conformity with, all applicable United States federal, state and local laws,
rules and regulations, and the laws, rules and regulations of other applicable
jurisdictions including, but not limited to, those relating to the protection of
human health or the environment or imposing liability or requiring standards of
conduct concerning any Hazardous Materials (as defined in the U.S. Underwriting
Agreement) and the regulations, decisions and rulings of any governmental
agency, court or tribunal; to the best of our knowledge, no prospective change
in any of such federal, state, local or foreign laws, rules or regulations has
been adopted which, when made effective, would have a material adverse effect on
the operations of the Company and its subsidiaries considered as a whole;
12. The Registration Statement was declared effective under the Securities Act
as of __________, 1999, the Prospectuses were filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations on __________, 1999, and no stop
order or equivalent order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose is pending or, to
the best of our knowledge, threatened by the Commission;
13. The Registration Statement and the Prospectuses and any amendments or
supplements thereto comply as to form in all respects with the requirements of
the Securities Act and the Rules and Regulations, and if Rule 434 has been
relied upon, the Prospectuses were not "materially different," as such term is
used in Rule 434, from the prospectuses included in the Registration Statement
at the time it became effective;
14. To the best of our knowledge, there are no contracts or other documents
which are required by the Securities Act or by the Rules and Regulations to be
described in the Prospectuses or filed as exhibits to the Registration Statement
which have not been described in the Prospectuses or filed as exhibits to the
Registration Statement;
15. To the best of our knowledge, other than as described in the Prospectuses,
there are no contracts, agreements or understandings between the Company and any
person granting such person the right (other than rights which have been waived
or satisfied) to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act. To the best of our knowledge, no
person or entity has the right to require registration of shares of Common Stock
or other securities of the Company because of the filing or effectiveness of the
Registration Statement or otherwise, except for persons and entities who have
expressly waived such right or who have been given proper notice and have failed
to exercise such right within the time or times required under the terms and
conditions of such right;
16. The descriptions in the Registration Statement and Prospectuses of
statutes, rules, regulations, legal or governmental proceedings, contracts and
other documents are accurate and such descriptions fairly present the
information required to be disclosed; and to the best of our knowledge, there
are no legal or governmental proceedings, statutes, rules or regulations, or any
contracts or documents of a character
34
<PAGE>
required to be described in the Registration Statement or the Prospectuses or to
be filed as exhibits to the Registration Statement which are not described and
filed as required;
17. The statements under the captions "Risk Factors -- Dependence on
Partnerships," "--Future Capital Needs; Uncertainty of Additional Funding," "--
Sourcing Agreements," "--Regulation," "Potential Liability Regarding Hazardous
Materials," "--Control by Management and Existing Stockholders," "--Dilutive
Effect of Series E Convertible Preferred stock Conversion Rate Provision," "--
Shares Eligible for Future Sale and Potential Adverse Effect on Market Price,"
"--Anti-Takeover Effect of Certain Charter and By-Law Provisions and Delaware
Law," "--Year 2000 Compliance," "Business - Corporate Partnerships," "--
Biodiversity Sourcing Agreements," "--Regulation," "--Litigation; Legal
Proceedings," "Management," "Certain Transactions," "Description of Capital
Stock," "Shares Eligible for Future Sale," and "Tax Considerations," to the
extent they reflect matters of federal law arising under the laws of the United
States or legal conclusions relating to such law, accurately summarize and
fairly present the legal and regulatory matters described therein; and
18. The Company and each of the Subsidiaries are not, nor will they be
immediately after receiving the proceeds from the sale of the Stock, an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended.
The foregoing opinion is limited to matters governed by the Federal laws of the
United States of America, the general corporate law of the State of Delaware.
We have acted as counsel to the Company on a regular basis, have acted as
counsel to the Company in connection with previous financing transactions and
have acted as counsel to the Company in connection with the preparation and
filing of the Registration Statement and the Prospectuses, and based on the
foregoing, no facts have come to our attention which lead us to believe that the
Registration Statement or any amendment thereto, as of the Effective Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectuses contained or contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Very truly yours,
35
<PAGE>
Exhibit II
Form of Opinion of Issuer's U.S. Patent Counsel
____________, 1999
SG Cowen Securities Corporation
Carnegie Inc.
BancBoston Robertson Stephens Inc.
As representatives of the several
U.S. Underwriters named in Schedule A to
the U.S. Underwriting Agreement
c/o SG Cowen Securities Corporation
Financial Square
New York, New York 10005
Re: Phytera, Inc.
____ Shares of Common Stock
Dear Ladies and Gentlemen:
This opinion is being delivered pursuant to Section 9(i) of the U.S.
Underwriting Agreement dated _________, 1999, among the Phytera, Inc., a
Delaware corporation (the "Company"), SG Cowen Securities Corporation, Carnegie
Inc. and BancBoston Robertson Stephens Inc., as representatives of the several
U.S. Underwriters named therein (the "U.S. Underwriting Agreement").
We are of the opinion that:
1. The statements in the Prospectuses under the headings "Risk Factors
Dependence on Patents and Proprietary Rights" and "Business - Patents and
Proprietary Rights," "--In-Licensing Risk," in each case insofar as such
statements constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein.
2. We do not know of any legal or government proceedings pending relating to
patents, patent applications or intellectual property rights covering
technology of the Company described in the Prospectuses to which the
Company is a party or to which any patents, patent applications or
intellectual property rights covering technology of the Company described
in the Prospectuses are subject, which, if adversely decided, would have a
material adverse effect on the business, financial condition or results of
the operations of the Company and its subsidiaries, taken as a whole, and
we do not know of any such proceedings which are threatened or contemplated
by governmental authorities or others.
3. We are unaware of any basis for a finding that the Company does not have
clear title or valid license rights to the patents or patent applications
referenced in the Prospectuses as being owned
36
<PAGE>
by or licensed to the Company and covering the Company's technology, and we
are of the opinion that any such patents are valid and enforceable.
4. Other than as described in the Prospectuses, based upon a review of the
third party rights made known to us and discussions with Company scientific
personnel, we are not aware of any United States patent containing any
valid claim that is or would be infringed, either literally or under the
doctrine of equivalents, by the current or proposed activities of the
Company in the use of any of the technology described in the Prospectuses,
including, without limitation, __________ and _________.
Very truly yours,
37
<PAGE>
Exhibit III
Form of Opinion of Issuer's Danish Patent Counsel
____________, 1999
SG Cowen Securities Corporation
Carnegie Inc.
BancBoston Robertson Stephens Inc.
As representatives of the several
U.S. Underwriters named in Schedule A to
the U.S. Underwriting Agreement
c/o SG Cowen Securities Corporation
Financial Square
New York, New York 10005
Re: Phytera, Inc.
____ Shares of Common Stock
Dear Ladies and Gentlemen:
This opinion is being delivered pursuant to Section 9(i) of the U.S.
Underwriting Agreement dated _________, 1999, among the Phytera, Inc., a
Delaware corporation (the "Company"), SG Cowen Securities Corporation, Carnegie
Inc. and BancBoston Robertson Stephens Inc., as representatives of the several
U.S. Underwriters named therein (the "U.S. Underwriting Agreement").
We are of the opinion that:
1. The statements in the Prospectuses under the headings "Risk Factors -
Dependence on Patents and Proprietary Rights," "--In-Licensing Risk," and
"Business - Patents and", in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings in
Denmark or with respect to Danish law referred to therein, fairly present
the information called for with respect to such legal matters, documents
and proceedings and fairly summarize the matters referred to therein.
2. We do not know of any legal or government proceedings in Denmark or with
respect to Danish law pending relating to patents, patent applications or
intellectual property rights covering technology of the Company described
in the Prospectuses to which the Company is a party or to which any
patents, patent applications or intellectual property rights covering
technology of the Company described in the Prospectuses are subject, which,
if adversely decided, would have a material adverse effect on the business,
financial condition or results of the operations of the Company and its
subsidiaries, taken as a whole, and we do not know of any such proceedings
which are threatened or contemplated by governmental authorities or others.
3. We are unaware of any basis for a finding that the Company does not have
clear title or valid license rights to the Danish patents or patent
applications referenced in the Prospectuses as being
38
<PAGE>
owned by or licensed to the Company and covering the Company's technology,
and we are of the opinion that any such patents are valid and enforceable
in Denmark.
4. Other than as described in the Prospectuses, based upon a review of the
third party rights made known to us and discussions with Company scientific
personnel, we are not aware of any Danish patent containing any valid claim
that is or would be infringed, either literally or under the doctrine of
equivalents, by the current or proposed activities of the Company in the
use of any of the technology described in the Prospectuses, including,
without limitation, __________ and _________.
Very truly yours,
39
<PAGE>
Exhibit IV
Form of Lock-Up Agreement
______________, 1998
SG Cowen Securities Corporation
Carnegie Inc.
BancBoston Robertson Stephens Inc.
As representatives of the
several U.S. Underwriters
c/o SG Cowen Securities Corporation
Financial Square
New York, New York 10005
Re: Phytera, Inc.
__________ Shares of Common Stock
Dear Ladies and Gentlemen:
In order to induce you and your affiliates to enter into certain underwriting
agreements with Phytera, Inc., a Delaware corporation (the "Company"), with
respect to the public offering of shares of the Company's Common Stock, par
value $0.01 per share ( the "Common Stock"), the undersigned hereby agrees that
for a period of 180 days following the date of the final prospectus filed by the
Company with the Securities and Exchange Commission in connection with such
public offering, the undersigned will not, without the prior written consent of
SG Cowen Securities Corporation, directly or indirectly, offer, sell, assign,
transfer, encumber, pledge, contract to sell, grant an option to purchase or
otherwise dispose of, other than by operation of law, any shares of the Common
Stock or securities convertible into or exchangeable or exercisable for shares
of the Common Stock, including, without limitation, options, warrants and the
like, which are owned of record or which may be deemed to be beneficially owned
by the undersigned in accordance with the rules and regulations promulgated
under the United States Securities Act of 1933, as the same may be amended or
supplemented from time to time (collectively, the "Securities").
Anything contained herein to the contrary notwithstanding, any person to whom
Securities are transferred from the undersigned shall be bound by the terms of
this Agreement.
In addition, the undersigned hereby waives, from the date hereof until the
expiration of the one-year period following the date of the Company's final
prospectus, any and all rights, if any, to request or demand registration
pursuant to the Securities Act of any shares of the Common Stock that are
registered in the name of the undersigned or that may be beneficially owned by
the undersigned.
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Common Stock with respect to any Securities.
By: _________________________________
Name:
Title:
40
<PAGE>
EXHIBIT 3.2
FORM OF CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PHYTERA, INC.
Phytera, Inc., a company organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Company"), does hereby
certify:
FIRST: That the Board of Directors of Phytera, Inc., adopted a resolution
setting forth a proposed amendment of the Restated Certificate of Incorporation
of the Corporation, and declaring that such amendment is advisable and that such
amendment should be submitted to the stockholders of the Corporation for
approval. The resolution setting forth the proposed amendment is as follows:
That Article FOURTH of the Company's Restated Certificate of Incorporation
be amended by adding the following new paragraph after the first paragraph
of Article FOURTH:
"Upon the effectiveness of this Certificate of Amendment, each 1.53 issued
and outstanding shares of Common Stock of the Company shall thereby be combined
into one (1) validly issued, fully paid, and nonassessable share of Common Stock
of the Company. No scrip or fractional shares will be issued, and each
fractional share resulting from such combination shall be redeemed by the
Company for cash at a price per share equal to the price to the public in the
Company's initial public offering. There shall not be any change in the number
of shares authorized by reason of such combination."
SECOND: That the stockholders of said Company duly voted in favor of said
amendment by written consent, with the necessary number of shares as required by
statute and the Restated Certificate of Incorporation of the Company being voted
in favor of the adoption of said amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware and written notice of the adoption of this Certificate of Amendment
has been given as provided by Section 228 of the General Corporate Law of the
State of Delaware to every stockholder entitled to such notice.
Signed this ___th day of December, 1998.
PHYTERA, INC.
---------------------------------
By: Malcolm Morville
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT 4.1
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE ACT
AND SUCH LAWS OR (1) REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED
TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED.
PHYTERA, INC.
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, _____________________ (the
"Holder") is entitled to subscribe for and purchase up the number of shares of
------
fully paid and nonassessable Common Stock of PHYTERA, INC., a Delaware
corporation (the "Company"), as calculated pursuant to pursuant to the
-------
provisions of Section 5 hereof and subject to adjustments pursuant to Section 6
hereof, at the Warrant Price (as defined in Section 2 hereof), subject to the
provisions and upon the terms and conditions hereinafter set forth.
As used herein, the term "Common Stock" shall mean the Company's Common
------------
Stock, $.01 par value per share, and any stock into or for which such Common
Stock may hereafter be converted or exchanged.
1. Term of Warrant. The purchase right represented by this Warrant is
---------------
exercisable, in whole or in part, at any time during the period beginning on the
on the closing date of the Next Round (as defined in the Convertible Term Note
pursuant to which this Warrant was issued (the "Note")) and ending on the
earlier of (i) the third anniversary of the Next Round or (ii) the effective
date of an initial public offering which would cause the automatic conversion of
the preferred stock issued in the Next Round.
2. Warrant Price. The initial exercise price of this Warrant (the
-------------
"Warrant Price") shall equal the price per share at which shares of Preferred
- --------------
Stock (as defined in the Note) are offered and sold by the Company.
3. Method of Exercise; Payment; Issuance of New Warrant.
----------------------------------------------------
Subject to Section 1 hereof, the purchase right represented by this
Warrant may be exercised by the holder hereof, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Exhibit 1 duly executed) at the principal office of the Company and by the
- ---------
payment to the Company, by check or wire transfer, of an amount equal to the
then applicable Warrant Price per share multiplied by the number of shares then
being purchased. The Company agrees that the shares so purchased shall be deemed
to be issued to the holder hereof as the record owner of such shares as of the
close of business on the date on which
1
<PAGE>
this Warrant shall have been surrendered and payment made for such shares as
aforesaid. In the event of any exercise of this Warrant, certificates for the
shares of stock so purchased shall be delivered to the holder hereof within 15
days thereafter and, unless this Warrant has been fully exercised or expired, a
new Warrant representing the portion of the shares, if any, with respect to
which this Warrant shall not then have been exercised, shall also be issued to
the holder hereof within such 15 day period.
4. Stock Fully Paid; Reservation of Shares. All Common Stock which may be
---------------------------------------
issued upon the exercise of this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. Subject to the letter agreement dated the date hereof between
the Company and the Warrantholder, during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
5. Number of Warrant Shares. The number of shares of Common Stock as to
------------------------
which this Warrant is initially exercisable (the "Warrant Shares") shall equal
the quotient of ___________ divided by the initial Warrant Price (the Base
Warrant Shares") plus an additional number of shares of Common Stock equal to
the Base Warrant Shares multiplied by the number of monthly anniversaries of the
date of issuance of this Warrant which shall have passed prior to the earlier of
(i) the date on which the principal and accrued interest on this Note shall have
been repaid in full or (ii) the conversion of the Note in the Next Round.
6. Adjustment of Warrant Price and Number of Shares. The kind of
------------------------------------------------
securities purchasable upon the exercise of this Warrant, the Warrant Price and
the number of shares purchasable upon exercise of this Warrant shall be subject
to adjustment from time to time upon the occurrence of certain events as
follows:
(a) Adjustments to Warrant Price for Diluting Issues:
------------------------------------------------
(i) Special Definitions. For purposes of this Section 6(a), the
-------------------
following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to
------
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Original Issue Date" shall mean the date on which this
-------------------
Warrant shall first become exercisable.
(3) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than the Company's Common Stock, Series A
Convertible Preferred, Series B Convertible Preferred and Series BB Convertible
Preferred (collectively, the "Preferred Stock")) or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
2
<PAGE>
(4) "Additional Shares of Common Stock" shall mean all
---------------------------------
shares of Common Stock issued (or, pursuant to Section 6(a)(iii), deemed to be
issued) by the Company after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(A) upon conversion of shares of Preferred Stock or
by way of dividend or distribution on shares of Preferred Stock; and
(B) to officers, directors or employees of, or
consultants to, the Company pursuant to action by the Board of Directors prior
to the Original Issue Date, pursuant to the Company's Stock Option Plan in
existence as of the Original Issue Date or pursuant to any other stock purchase
or option plan or other employee or director stock incentive or compensation
program (collectively, the "Plans") approved by a majority of the members of the
Board of Directors designated by the holders of Preferred Stock.
(ii) No Adjustment of Warrant Price. No adjustment in the number
------------------------------
of shares of Common Stock into which this Warrant is exercisable shall be made
by adjustment in the Warrant Price in respect of the issuance of Additional
Shares of Common Stock or otherwise, unless the consideration per share for such
Additional Shares of Common Stock issued or deemed to be issued by the Company
is less than the Warrant Price in effect on the date of, and immediately prior
to, the issue of such Additional Shares.
(iii) Issue of Securities Deemed Issue of Additional Shares of
--------------------------------------------------------
Common Stock.
- ------------
(1) Options and Convertible Securities. In the event the
----------------------------------
Company at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 6(a)(v)) of such Additional Shares of
Common Stock would be less than the Warrant Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Warrant Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, or decrease in the number of shares of
Common Stock issuable, upon the exercise,
3
<PAGE>
conversion or exchange thereof, the Warrant Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Warrant Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto) and any
subsequent adjustments based thereon shall, upon such expiration, be recomputed
as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Company upon such exercise, or for
the issue of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (determined pursuant
to Section 6(a)(v)) upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Warrant Price to an amount which exceeds
the lower of (i) the Warrant Price on the original adjustment date, or (ii) the
Warrant Price that would have resulted from any issuance of Additional Shares of
Common Stock between the original adjustment date and such readjustment date;
(E) in the case of any Options which expire by their
terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Warrant Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the same manner
provided in clause (C) above; and
(F) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Warrant Price which became effective on such
record date shall be cancelled as of the close of business on such record date,
and thereafter the Warrant Price shall be adjusted pursuant to this Section
6(a)(iii) as of the actual date of their issuance.
4
<PAGE>
(2) Stock Dividends, Stock Distributions and Subdivisions.
-----------------------------------------------------
In the event the Company at any time or from time to time after the Original
Issue Date shall declare or pay any dividend or make any other distribution on
the Common Stock payable in Common Stock, or effect a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and in any such event, Additional
Shares of Common Stock shall not be deemed to have been issued, but the Warrant
Price shall be adjusted in accordance with Sections 6(b), (c) and (d).
(iv) Adjustment of Warrant Price Upon Issuance of Additional
-------------------------------------------------------
Shares of Common Stock.
- ----------------------
In the event the Company shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section 6(a)(iii)) without consideration or for a consideration per share
less than the Warrant Price in effect on the date of and immediately prior to
such issue, then and in such event, such Warrant Price shall be reduced,
concurrently with such issue in order to increase the number of shares of Common
Stock into which this Warrant is exercisable, to a price (calculated to the
nearest cent) determined by multiplying such Warrant Price by a fraction (x) the
numerator of which shall be (A) the number of shares of Common Stock outstanding
immediately prior to such issue (including shares of Common Stock issuable upon
conversion of any outstanding Preferred Stock or Convertible Securities), plus
(B) the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Warrant Price, and (y) the denominator of
which shall be (A) the number of shares of Common Stock outstanding immediately
prior to such issue (including shares of Common Stock issuable upon conversion
of any outstanding Preferred Stock or Convertible Securities), plus (B) the
number of such Additional Shares of Common Stock so issued, provided that the
Warrant Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $0.05, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.05 or more.
(v) Determination of Consideration. For purposes of this Section
------------------------------
6(a), the consideration received by the corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
5
<PAGE>
(C) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Company for Additional Shares of Common Stock deemed
to have been issued pursuant to Section 6(a)(iii)(1), relating to Options and
Convertible Securities, shall be determined by dividing (x) the total amount, if
any, received or receivable by the corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration until such subsequent adjustment occurs) payable to the
corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (y) the maximum number
of shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such number until such subsequent adjustment occurs) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities.
(b) Stock Dividends, Distributions or Subdivisions. In the event the
-----------------------------------------------
Company at any time or from time to time shall declare or pay any dividend or
make any other distribution on the Common Stock payable in Common Stock, or
effect a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
the Warrant Price in effect immediately prior to such stock dividend, stock
distribution or subdivision shall, concurrently with the effectiveness of such
stock dividend, stock distribution or subdivision, be proportionately decreased.
(c) Combinations or Consolidations. In the event the outstanding
------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(d) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any consolidation or merger of the Company with
or into another corporation, other than a merger with another corporation in
which the Company is a continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant, or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall execute a new Warrant, providing that the holder of this
Warrant shall have the right to exercise such new Warrant and procure upon such
exercise, in lieu of each share of Common Stock theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable
6
<PAGE>
upon such reclassification, change, consolidation, or merger by a holder of one
share of Common Stock. Such new Warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 6. The provisions of this subsection (d) shall similarly
apply to successive reclassification, changes, consolidations, mergers and
transfers.
(e) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price pursuant to any of Sections 6 (a) through (d), the number of
shares of Common Stock purchasable hereunder shall be adjusted, to the nearest
whole share, to the product obtained by multiplying the number of shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately prior to
such adjustment and the denominator of which shall be the Warrant Price
immediately thereafter.
7. Notice of Adjustments. Whenever any Warrant Price shall be adjusted
---------------------
pursuant to Section 6 hereof, the Company shall prepare a certificate signed by
its chief financial officer setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, the Warrant Price after giving effect to such
adjustment and the number of shares then purchasable upon exercise of this
Warrant, and shall cause copies of such certificate to be mailed (by first class
mail, postage prepaid) to the holder of this Warrant at the address specified in
Section 11(d) hereof, or at such other address as may be provided to the Company
in writing by the holder of this Warrant.
8. Fractional Shares. No fractional shares of Common Stock will be issued
-----------------
in connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect.
9. Compliance with the Act. The holder of this Warrant, by acceptance
-----------------------
hereof, agrees that this Warrant and the shares of Common Stock to be issued
upon exercise hereof are being acquired for investment and that it will not
offer, sell or otherwise dispose of this Warrant or any shares of Common Stock
to be issued upon exercise hereof except under circumstances which will not
result in a violation of the Act.
10. Transfer and Exchange of Warrant.
--------------------------------
(a) Transfer. This Warrant may be transferred or succeeded to by any
--------
person; provided, however, that the Company is given written notice by the
-------- -------
transferee at the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which such rights are
being assigned.
(b) Exchange. Subject to compliance with the terms hereof, this
--------
Warrant and all rights hereunder are transferable, in whole or in part, at the
office of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant properly Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable; provided, that the last
holder of this Warrant as registered on the books of the Company may be treated
by the Company and all persons dealing with this Warrant as the absolute owner
hereof for any
7
<PAGE>
purposes and as the person entitled to exercise the rights represented by this
Warrant or to transfer hereof on the books of the Company, any notice to the
contrary notwithstanding, unless and until such holder seeks to transfer
registered ownership of this Warrant on the books of the Company and such
transfer is effected.
11. Miscellaneous.
-------------
(a) No Rights as Shareholder. Except as provided in the Agreement, no
------------------------
holder of the Warrant or Warrants shall be entitled to vote or receive dividends
or be deemed the holder of Common Stock or any other securities of the Company
which may at any time be issuable on the exercise hereof for any purpose, nor
shall anything contained herein be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant or Warrants shall have been exercised and the shares purchasable upon
the exercise hereof shall have become deliverable, as provided herein.
(b) Replacement. On receipt of evidence reasonably satisfactory to
-----------
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity
agreement, or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at its expense, will execute and deliver, in lieu of this Warrant, a
new Warrant of like tenor.
(c) Notice of Capital Changes. In case:
-------------------------
(i) the Company shall declare any dividend or distribution
payable to the holders of its Common Stock;
(ii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation or business organization; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the holder
of this Warrant written notice, in the manner set forth in subparagraph (d)
below, of the date on which a record shall be taken for such dividend, or
distribution or for determining shareholders entitled to vote upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and of the date when any such transaction shall take
place, as the case may be. Such written notice shall be given at least 30 days
prior to the transaction in question and not less than 20 days prior to the
record date in respect thereof.
8
<PAGE>
(d) Notice. Any notice given to either party under this Warrant shall
------
be in writing, and any notice hereunder shall be deemed to have been given upon
the earlier of delivery thereof by hand delivery, by courier, or by standard
form of telecommunication or three (3) business days after the mailing thereof
if sent registered mail with postage prepaid, addressed to the Company at its
principal executive offices and to the holder at its address set forth in the
Company's books and records or at such other address as the holder may have
provided to the Company in writing.
(e) No Impairment. The Company will not, by amendment of its Restated
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions in the
Warrant.
(f) Governing Law. This Warrant shall be governed by and construed
-------------
under the laws of the State of Delaware.
IN WITNESS WHEREOF, this Warrant is executed as of this ______ day of
September, 1995.
PHYTERA, INC.
By: _____________
Title:
9
<PAGE>
EXHIBIT 1
---------
NOTICE OF EXERCISE
------------------
TO: PHYTERA, INC.
1. The undersigned hereby elects to purchase _________ shares of Common
Stock of PHYTERA, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________________________
(Name)
_______________________________________________
_______________________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
______________________________
Signature
10
<PAGE>
WARRANT HOLDERS:
BankBoston Ventures, Inc.
Commonwealth BioVentures V Limited Partnership
Concord Partners II, L.P.
CR Management Capital Partners I L.P.
Michael Porter
Lennart Lindberg, as Trustee (Carper Share)
Lennart Lindberg, as Trustee (Gamble Share)
Gabriel Schmergel
Robert and Dolores Lombardi
Robert J. Carpenter
Dillon, Read & Co., Inc.
Jospeh M. Siegman
MODL Ventures
11
<PAGE>
EXHIBIT 4.2
PHYTERA, INC.
WARRANT TO PURCHASE COMMON STOCK
[DANISH SHARE OWNERSHIP PLAN]
Phytera, Inc. (the "Company"), a Delaware corporation, as an incentive and
inducement to _____________________ (the "Holder"), who is presently a resident
of Denmark and {[an employee] [a consultant] of a subsidiary of the Company} {a
director of the Company}, to devote the Holder's best efforts to the affairs of
the Company, which incentive and inducement the Board of Directors of the
Company (the "Board") has determined to be sufficient consideration for the
grant of this Warrant, hereby grants to the Holder a warrant (this "Warrant") to
purchase from the Company up to ____ shares of its Common Stock, $0.01 par value
(the "Stock").
1. Price. The price to be paid for each share of Stock upon exercise of
-----
the whole or any part of this Warrant shall be $0.75 [$0.65 in the case of
Neilsen], which is not less than 100% of the fair market value of a share of
Stock of the Company on the date hereof.
2. Exercisability. Subject to Section 8 below, this Warrant may be
--------------
exercised
(i) as to _______ shares on January 1, 1999;
(ii) as to _______ additional shares on January 1, 2000;
(iii) as to _______ additional shares on January 1, 2001;
(iv) as to _______ additional shares on January 1, 2002; and
(v) as to _______ additional shares on January 1, 2003; provided,
however, that this Warrant may not be exercised as to any shares after the date
which is six (6) years from the date of this Warrant.
3. Method of Exercise. This Warrant may be exercised at any time and
------------------
from time to time, subject to the limitation of Section 2 above, up to the
aggregate number of shares specified herein, but in no event for the purchase of
other than full shares. Written notice of exercise shall be delivered to the
Company specifying the number of shares with respect to which the Warrant is
being exercised and a date not later than fifteen days after the date of the
delivery of such notice as the date on which the Holder will take up and pay for
such shares. On the date specified in such notice, the Company will deliver to
the Holder a certificate for the number of shares with respect to which the
Warrant is being exercised against payment therefor in cash or by certified
check.
4. Limitations on Rights. The Holder shall not be deemed, for any
---------------------
purpose, to have any rights whatever in respect of shares to which the Warrant
shall not have been exercised and payment made as aforesaid. The Holder shall
not be deemed to have any rights to continued [employment] [engagement] by
virtue of the grant of this Warrant.
5. Adjustment in Shares. In the event the Board in its discretion
--------------------
determines that any stock dividend, split-up, combination or reclassification of
shares, recapitalization or other
1
<PAGE>
similar capital change affects the Stock such that adjustment is required in
order to preserve the benefits or potential benefits of this Warrant, the
maximum aggregate number and kind of shares or securities of the Company subject
to this Warrant, and the exercise price of this Warrant, shall be appropriately
adjusted by the Board (whose determination shall be conclusive) so that the
proportionate number of shares or other securities subject to this Warrant and
the proportionate interest of the Holder shall be maintained as before the
occurrence of such event.
6. Effect of Certain Transactions. In the event of a consolidation or
------------------------------
merger of the Company with another corporation, or the sale or exchange of all
or substantially all of the assets of the Company, or a reorganization or
liquidation of the Company, the Holder shall be entitled to receive upon
exercise and payment in accordance with the terms of the Warrant the same
shares, securities or property as he would have been entitled to receive upon
the occurrence of such event if he had been, immediately prior to such event,
the holder of the number of shares of Stock purchasable under his Warrant to the
extent then exercisable; provided, however, that in lieu of the foregoing the
Board may upon written notice to the Holder provide that such Warrant shall
terminate on a date not less than 20 days after the date of such notice unless
theretofore exercised. In connection with such notice, the Board may in its
discretion accelerate or waive any deferred exercise period.
7. Non-transferability. This Warrant is not transferable by the Holder
-------------------
otherwise than by will or the laws of descent and distribution and is
exercisable, during the Holder's lifetime, only by him.
8. Warrant Exercise Rights. If the Holder ceases to be [an employee] [a
-----------------------
consultant] [a director] of the Company, or any subsidiary of the Company, for
any reason other than by his death or disability (as determined by the
Compensation Committee), the Holder may exercise this Warrant for up to the
number of shares exercisable as of the time of such termination only within
three months from the date of termination; provided, however that in no event
shall Holder be entitled to such exercise after December 9, 2003. If the Holder
ceases to be [an employee] [a consultant] [a director] for reason of disability,
such rights may be exercised within twelve months from the date of termination.
Upon the death of the Holder, those entitled to do so by the Holder's will or
the laws of descent and distribution shall have the right, at any time within
twelve months from the date of the termination, to exercise in whole or in part
any rights which were available to the Holder at the time of his death. This
Warrant shall terminate, and no rights hereunder may be exercised, after the
expiration of the applicable exercise period. Notwithstanding the foregoing
provisions of this Section 8, no rights under this Warrant may be exercised
after the expiration of the six (6) years from the date of this Warrant.
9. Securities Law Compliance. It shall be a condition to the Holder's
-------------------------
right to purchase shares hereunder that the Company may, in its discretion,
require that in the opinion of counsel for the Company the proposed purchase
shall be exempt from registration under the Securities Act of 1933, as amended,
and the Holder shall have made such undertakings and agreements with the Company
as the Company may reasonably require, and that such other steps, if any, as
counsel for the Company shall deem necessary to comply with any law, rule or
regulation applicable to the issue of such shares by the Company shall have been
taken by the Company or the Holder, or both. The certificates representing the
shares purchased under this Warrant may contain such legends as counsel for the
Company shall deem necessary to comply with the applicable law, rule or
regulation.
2
<PAGE>
10. Taxes. Any receipt, vesting and/or exercise of this Warrant is
-----
conditioned upon the payment, if the Company so requests, by the Holder or his
heirs by will or by the laws of descent and distribution, of all foreign, state
and federal taxes imposed upon the receipt, vesting, and/or exercise of this
Warrant and the issue to the Holder of the shares covered hereby. The Holders
should consult their personal tax advisors for advice with respect to the tax
consequences of the receipt, vesting and/or exercise of this Warrant.
IN WITNESS WHEREOF the Company has caused this Warrant to be executed on
its behalf and its corporate seal to be hereunto affixed as of December 9, 1997.
PHYTERA, INC.
By:_________________________
Title:
The undersigned hereby accepts this Warrant as of the date above.
HOLDER:
____________________________
[Name]
3
<PAGE>
Warrant Holders:
Danish Development Finance Company
DACC ApS
Thomas Bo Bjorn Jensen
Alexandra Santana Sorensen
Birgitte Johansen
Birgitte Sokilde
Lene Due Svensson
Kirsten Mejnholt
Annette Lind Nordestgaard
Soren Vedel Saaby Nielsen
Nanette Svendsen
Christina Askerud
Claus Schmidt Norgaard
Ditte Holst Nilsson
Fleming Jensen
Eva Vengel Nielsen
Poul Schuler
4
<PAGE>
EXHIBIT 5.1
PALMER & DODGE LLP
One Beacon Street, Boston, MA 02108-3190
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
December ___, 1998
Phytera, Inc.
377 Plantation Street
Worcester, Massachusetts 01605
Ladies and Gentlemen:
We are rendering this opinion in connection with the Registration Statement
on Form S-1 (the "Registration Statement") filed by Phytera, Inc. (the
"Company") with the U.S. Securities and Exchange Commission under the Securities
Act of 1933, as amended, on or about the date hereof. The Registration Statement
relates to up to 2,875,000 shares of the Company's Common Stock, $0.01 par value
(the "Shares"), being sold by the Company, including 375,000 Shares issuable
upon exercise of the overallotment option granted by the Company. We understand
that the Shares are to be offered and sold in the manner described in the
Registration Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the proceedings of the Board of
Directors on September 17, 1998 in connection with the authorization, issuance
and sale of the Shares (the "Resolutions"). We have examined such other
documents as we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares have been
duly authorized and, when issued and delivered by the Company against payment
therefor at the price to be determined pursuant to the Resolutions, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Palmer & Dodge LLP
Palmer & Dodge LLP
<PAGE>
EXHIBIT 10.13
DATED 31 October, 1994
----------
THE UNIVERSITY OF SHEFFIELD (1)
-and-
PHYTERA LIMITED (2)
L E A S E
---------
relating to
Premises at Regent Court
Regent Street
Sheffield
Keeble Hawson
Sheffield Sl 1XA
A1/HM2GGGG
<PAGE>
THIS LEASE made the 31/st/ day of October, One Thousand Nine Hundred and
---------- ------ -------
Ninety Four BETWEEN the Landlord the Tenant and the Guarantor (if any)
-------
respectively named in Schedule 1 hereof
WITNESSETH as follows:-
- ----------
DEFINITIONS
- -----------
1.1 The terms defined in this clause shall for all purposes of this Lease have
the meanings specified
1.2 "the Building" means the property described in Part 1 of Schedule 2 hereof
1.3 "the Premises" means the premises described in Part 2 of Schedule 2 hereof
1.4 "the Landlord's Property" means all parts of the Building not let or
intended to be let to a tenant or to be occupied by the Landlord f or its
own purposes (including without prejudice to the generality of the
foregoing):-
1.4.1 the Common Parts;
1.4.2 office accommodation for any ancillary staff;
1.4.3 all Pipes in on under or serving the Building except any that are
within and solely serve premises let or intended to be let;
1.4.4 such parts of the Building including (again without prejudice to the
generality of the foregoing) those parts of the walls foundations
and roofs not let or intended to be let to a tenant
1.5 "the Common Parts" means the pedestrian ways forecourts car park landscaped
areas entrance halls landings staircases passages and other areas which
from time to time during the Term are provided by the Landlord for common
use and enjoyment by the tenants and occupiers of the Building and all
persons expressly or by implication authorized by it
1.6 "the Plans" means the plans annexed hereto and numbered 1, 2 and 3
1.6.1 "Plan 1" means the plan numbered 1 annexed hereto
1.6.2 "Plan 2" means the plan numbered 2 annexed hereto
1.6.3 "Plan 3" means the plan numbered 3 annexed hereto
1.7 "the Rights" means the rights set out in Schedule 3 hereof
2
<PAGE>
1.8 "the Exceptions" means the exceptions and reservations set out in Schedule
4 hereof
1.9 "Pipes" means and includes pipes sewers drains conduits gutters
watercourses wires cables ducts channels and all other conducting media
1.10 "the Term" means the term specified in Schedule 5 hereof
1.11 "the Rent" means the rent (subject to review) specified and to be paid in
the manner set out in Schedule 6 hereof and such term does not include the
Insurance Rent and the Service Charge but the term `rents' includes the
Rent and the Insurance Rent and the Service Charge
1.12 "the Insurance Rent" means the greater of 12.40% or other fair proportion
to be reasonably determined by the Surveyor acting as an expert and not as
an arbitrator of the sums payable by the Landlord from time to time by way
of premiums for insuring the Building including all of any increased
premiums payable by reason of any act or omission of the Tenant and all the
premium or premiums that the Landlord shall from time to time pay (where
such insurance includes other premises a reasonable proportion of such
premium to be determined by the Surveyor acting as an expert and not as an
arbitrator) for insuring against the loss of Rent
1.13 "the Service Charge" means the greater of 12.40% or other fair proportion
to be reasonably determined by the Surveyor acting as an expert and not as
an arbitrator of the Annual Expenditure
PROVIDED THAT the Service Charge to be paid by the Tenant
1.13.1 during the period of five years from the date of this Lease shall
be calculated at the rate of (Pounds)1.00 per square foot per annum
of the area comprised in the demise of the part of the Premises
shown edged red on Plan 2 (9,764 square feet)
1.13.2 from the Review Date (for rent) shall be the equivalent of 10% per
annum of the revised Rent during the Review Period or 12.40% of the
Annual Expenditure whichever shall be the less 3 (the expressions
"Review Date" and "Review Period" having the meanings ascribed to
them in paragraph 1.2 of Schedule 6)
1.14 "the Initial Provisional Service Charge" means (Pounds)9764 per annum
payable quarterly in advance on the same days as for payment of Rent
1.15 "the Annual Expenditure" means all costs expenses and outgoing whatsoever
properly and reasonably incurred by the Landlord in or incidentally to
providing all or any of the Services and all sum properly and reasonably
incurred by the
3
<PAGE>
Landlord in relation to the items set out in Schedule 12 and any
irrevocable Value Added Tax payable thereon including any costs incurred by
a third party such as (without prejudice to the generality of the
foregoing) the Surveyor or the managing agents where the costs have been
incurred for and on behalf of the Landlord and where the Landlord is liable
to reimburse the third party for the costs but excluding any expenditure in
respect of any part of the Building for which the Tenant or any other
tenant shall be wholly responsible
1.16 "the Services" means the services set out in Schedule 11 hereto and which
expression (without prejudice to the generality of the foregoing) includes
all costs and expenses ancillary to the provision of the Services
1.17 "the Tenant's Covenant" means the covenants set out in Schedule 7 hereof
1.18 "the Landlord's Covenants" means the covenants set out in Schedule 8
hereof
1.19 "the Guarantor's Covenants" means the covenants set out in Schedule 10
hereof
1.20 "the Insured Risks" means any risks against which the Landlord shall at
the time of the damage or destruction in question have effected insurance
1.21 "Interest" means interest at the rate of four per cent per annum above the
Royal Bank of Scotland plc base rate or in the event of the said base rate
ceasing to exist such other reasonable and comparable rate of interest as
the Landlord may from time to time in writing specify during the period
from the date on which the payment is due to the date of payment both
before and after any judgment
1.22 "the Planning Acts" means the Town and Country Planning Act 1990 the
Planning (Listed Buildings and Conservation Areas) Act 1991 the Hazardous
Substances Act 1990 the Planning Consequential Provisions Act 1990 and the
Environmental Protection Act 1990 and all statutes regulations and orders
included by virtue of Clause 2.5. hereof
1.23 "Development" has the meaning given by Section 55 of the Town and Country
Planning Act 1990
1.24 "the Accountant" means any person or firm appointed by or acting for the
Landlord (including an employee of the Landlord)
1.25 "the Surveyor" means any person or firm appointed by or acting for the
Landlord (including an employee of the Landlord) to perform the function of
a surveyor for any purpose of this Lease
1.26 "Tenants Works" means such fitting out or other works as the Tenant may
require to carry out in connection with the use and enjoyment of the
Premises in
4
<PAGE>
accordance with the specification prepared by and approved and signed by
the parties hereto and exchanged at the date of this Lease
1.27 "Interest Defect" means a defect existing but not visible at the
commencement of the Term that is the result of defective design supervision
of the construction of the Premises or the Building or defective
workmanship or defective materials used during the construction thereof
1.28 "Permitted Part" means the entirety of the north west quadrant or of the
south west quadrant of the Premises together with up to five parking spaces
in each case
INTERPRETATION
- --------------
2.1 The expression "the Landlord" includes the reversioner for the time being
and the expression "the Tenant" includes its successors in title
2.2 Where the Landlord or the Tenant or the Guarantor for the time being are
two or more individuals the terms the Landlord and the Tenant shall include
the plural number and obligations expressed or implied to be made by or
with such party shall be deemed to be made by or with such individuals
jointly and severally
2.3 Words importing the neuter gender include the masculine or feminine gender
(as the case may be) and words importing the masculine gender include the
feminine gender and vice versa and words importing the singular number
include the plural number and vice versa
2.4 Reference to any right exercisable by the Landlord or any right exercisable
by the Tenant in common with the Landlord shall be construed as including
(where appropriate) the exercise of such right in common with all other
persons having the like right
2.5 Any reference to a statute shall include any statutory extension or
modification or reenactment of such statute and any regulations or orders
made thereunder
2.6 Any covenant by the Tenant not to do an act or thing shall be deemed to
include an obligation not to permit such act or thing to be done
2.7 The clause or paragraph headings do not form part of this Lease and shall
not be taken into account in the construction or interpretation thereof
2.8 References to any right to enter the Premises conferred herein upon the
Landlord and (by virtue of Clause 2.4. hereof) others shall be construed as
being exercisable so far as the Landlord and all persons authorized by the
Landlord are concerned only (except in cases of emergency) at reasonable
times during normal working hours after giving reasonable prior notice and
by prior appointment
5
<PAGE>
except where the Tenant unreasonably refuses to make an appointment within
a reasonable time of a request from the Landlord
THE DEMISE
- ----------
3. The Landlord HEREBY DEMISES unto the Tenant the Premises TOGETHER WITH the
-------------- -------------
Rights EXCEPTING AND RESERVING unto the Landlord the Exceptions TO HOLD the
----------------------- -------
same unto the Tenant for the Term SUBJECT to all rights easements
-------
privileges restrictions covenants and stipulations of whatever nature
affecting the Premises YIELDING AND PAYING therefor unto the Landlord the
-------------------
Rent without any deduction in accordance with Schedule 6 hereof the
Insurance Rent payable in accordance with Clause 4 of Schedule 7 hereof and
the Service Charge in accordance with Clause 6 of Schedule 8 hereof
THE COVENANTS
- -------------
4.1 The Tenant hereby covenants with the Landlord to observe and perform the
Tenant's Covenants at all times during the Term
4.2 The Landlord hereby covenants with the Tenant to observe and perform the
Landlord's Covenants at all times during the Term
4.3 The Guarantor hereby covenants to observe and perform the Guarantor's
Covenants at all times during the Term and as otherwise provided in this
Lease
PROVISOS
- --------
5.1 If and whenever during the Term:
5.1.1 the rents (or any of them or any part thereof) shall be in arrears
and unpaid for 28 days next after becoming payable (in the case of
the Rent whether formally demanded or not); or
5.1.2 there shall be any breach or non-performance or non-observance of
any of the covenants on the part of the Tenant herein contained; or
5.1.3 the Tenant (being an individual) or any one of them shall have a
bankruptcy petition presented or an interim order application made
against him or (being a company) shall enter into liquidation
whether compulsory or voluntary (save for the purpose of
amalgamation or reconstruction of a solvent company) or have a
receiver or administrative receiver appointed of its undertaking or
a petition is presented for an administration order or (in either
case) shall enter into an arrangement or composition for the benefit
of its creditors or suffer any distress or execution to be levied on
its goods;
6
<PAGE>
THEN and in any of the said cases it shall be lawful for the Landlord at
----
any time thereafter and notwithstanding the waiver of any previous right of
re-entry to re-enter into and upon the Premises or any part thereof in the
name of the whole and thereupon the Term shall absolutely cease and
determine but without prejudice to any rights or remedies which may then
have accrued to either party against the other in respect of any antecedent
breach of any of the covenants herein contained
5.2 Nothing herein contained or implied shall give the Tenant the benefit of or
the right to enforce or to prevent the release or modification of any
covenant agreement or condition entered into by any tenant of the Landlord
in respect of any property not comprised in this Lease
5.3 Any dispute arising as between the Tenant and the lessees tenants or
occupiers of adjoining or neighboring property belonging to the Landlord as
to any easement right or privilege in connection with the use of the
Premises and the adjoining or neighboring property or as to the party or
other walls separating the Premises from the adjoining property or as to
the amount of any contribution towards the expenses or services used in
common with any other property shall be decided by the Landlord or in such
manner as the Landlord shall direct and such decision shall be binding on
all parties to the dispute
5.4 The Landlord shall not be responsible to the Tenant or (save as is
otherwise provided by statute) to the Tenant's licensees servants agents or
other persons at the Premises expressly or by implication with the Tenant's
authority or calling upon the Tenant for any accident happening or injury
suffered or for any damage to or loss of any chattel or property sustained
in the Premises or the Building PROVIDED ALWAYS THAT this provision shall
not be construed as relieving the Landlord from any liability for breach of
any covenant on the part of the Landlord contained in this Lease
5.5 Each of the Tenant's Covenants shall remain in full force both at law and
in equity notwithstanding that the Landlord shall have waived or released
temporarily any such covenants or waived or released temporarily or
permanently revocably or irrevocably a similar covenant or similar
covenants affecting other adjoining or neighboring premises belonging to
the Landlord
5.6 Such of the internal division walls as divide the Premises from other
premises of the Landlord shall be deemed to be party walls within the
meaning of Section 38 of The Law of property Act 1925 and shall be
maintained at the equally shared expense of the Tenant and the other
respective estate owners
5.7 Nothing in this Lease or in any consent granted by the Landlord under this
Lease shall imply or warrant that the Premises may be used for the purpose
herein authorized (or any purpose subsequently authorized) under the
Planning Acts
7
<PAGE>
5.8 The Tenant acknowledges that this Lease has not been entered into in
reliance wholly or partly on any statement or representation made by or on
behalf of the Landlord save in so far as any statement or representation is
expressly set out in this Lease
5.9 Whilst the Landlord is a limited company or other corporation all licenses
consents approvals and notices required or permitted to be given by the
Landlord shall be sufficiently given if given under the hand of a director
the secretary or other duly authorized officer of the Landlord the Surveyor
on behalf of the Landlord
5.10 If after the Tenant has vacated the Premises on the expiry or sooner
determination of the Term any property of the Tenant shall remain in or on
the Premises and the Tenant shall fail to remove the same within fourteen
days after being requested in writing by the Landlord so to do the Landlord
may as the agent of the Tenant sell such property and hold the proceeds of
sale after deducting the costs and expenses of removal storage and sale
reasonably and properly incurred by the Landlord to the order of the Tenant
provided that the Tenant will indemnify the Landlord against any liability
incurred by it to any third party whose property shall have been sold by
the Landlord in the bona fide mistaken belief (which shall be presumed
unless the contrary be proved) that such property belonged to the Tenant
5.11 Except where any statutory provision prohibits the Tenant's rights to
compensation being reduced or excluded by agreement the Tenant shall not be
entitled to claim from the Landlord on quitting the Premises or any part
thereof any compensation under the Landlord and Tenant Act 1954
5.12 The provisions of Section 196 of The Law of Property Act 1925 as amended
by the Recorded Delivery Service Act 1962 shall apply to the service of all
documents under or in connection with this Lease except that Section 196
shall be deemed to be amended as follows: -
5.12.1 the final words of Section 196 (4): "...and that service...be
delivered" shall be deleted and there shall be substituted: and
that service shall be deemed to be made on the third working day
after the registered letter has been posted "working day" meaning
any day from Monday to Friday inclusive other than Christmas day,
Good Friday and any statutory bank or public holiday"
5.12.2 any notice or document shall also be sufficiently served on a party
if served on solicitors who have acted for that party in relation
to this Lease or the Premises at any time within the year preceding
the service of the notice or document
8
<PAGE>
5.12.3 any notice or document shall also be sufficiently served if sent by
telegraphic facsimile transmission to the party to be served (or
its solicitors where sub-clause 5.12.2 applies) and that service
shall be deemed to be made on the day of transmission if
transmitted before 4:00 p.m. on a working day but otherwise on the
next following working day
5.12.4 Subject to Clause 5.12.2 any notice or document must be served:
5.12.5 if to the Tenant at the Tenant's registered office AND at the
Premises
5.12.6 if to the Landlord at Firth Court Western Bank Sheffield or its
chief administration office from time to time notified to the
Tenant
5.12.7 or in either case such other address as the Landlord and the Tenant
shall respectively notify the other from time to time as its
address for service
5.13 If the Premises or any part thereof shall at any time during the Term be
destroyed or so damaged by any Insured Risks so that the Premises or any
part thereof or the means of access thereto preventing the Tenant's
permitted use of the Premises shall be unfit for occupation or use then
unless the insurance of the Premises shall have been vitiated or insurance
monies rendered irrecoverable by the act neglect default or omission of the
Tenant the Rent or a fair proportion thereof according to the nature and
extent of the damage sustained (the amount of such proportion to be
determined by the Surveyor acting as an expert and not as an arbitrator)
shall be suspended and cease to be payable until the Premises or the
damaged portion thereof shall have been reinstated or made fit for
occupation or use or until the expiration of three years from the
destruction or damage whichever is the shorter
COURT ORDER
- -----------
6. Pursuant to an order of the Sheffield County Court dated the [ 19 ] day of
----
[ October ] 1994 the provisions of Sections 24-28 of the Landlord and
---------
Tenant Act 1954 shall not apply to the Lease hereby granted
CHARITY DECLARATION
- -------------------
7. The Premises are held by or in trust for a charity by the Landlord and the
charity is an exempt charity
TENANTS OPTION TO DETERMINE
- ---------------------------
8. For so long as this Lease is vested in Phytera Limited if the Tenant wishes
to determine this Lease on the expiry of the Fifth year of the Term and
shall give to the Landlord not less than 6 months' notice in writing to the
Landlord to expire at the end of the Fifth year of the Term and shall up to
the time of such
9
<PAGE>
determination pay the rents reserved by and reasonably perform and observe
the covenants contained in this Lease then upon the expiry of such notice
the Term shall immediately cease and determine but without prejudice to the
respective rights of either party in respect of any antecedent claim or
breach of covenant
TENANT'S OPTION TO DETERMINE AFTER RENT REVIEW
- ----------------------------------------------
9. For so long as this Lease is vested in Phytera Limited:
9.1 during the period of 28 days (time being of the essence) immediately
following the agreement or determination of the revised Rent on the
occasion of the review of Rent pursuant to Schedule 6 (unless the new Rent
does not exceed the Rent payable before it was agreed or determined) the
Tenant shall have the option by written notice to the Landlord to determine
the Term
9.2 this option is conditional upon the Tenant having paid the rents reserved
by and performed and observed the covenants and conditions contained in
this Lease up to the date of service of such notice
9.3 if the Tenant exercises this option and satisfies the condition referred to
in clause 9.2 then:
9.3.1 the Term shall terminate at the expiry of 6 months from the date of
service of the Tenant's notice (but without prejudice to the rights
and remedies of either party against the other in respect of any
antecedent claim or breach of covenant)
9.3.2 The revised Rent so agreed or determined shall be effective from the
Review Date until the Lease is determined
IN WITNESS whereof the parties hereto have respectively executed the original
- ----------
and counterpart of this Lease as their deed on the day and year first before
written
10
<PAGE>
SCHEDULE 1
----------
THE PARTIES
-----------
THE LANDLORD
- ------------
THE UNIVERSITY OF SHEFFIELD
- ---------------------------
of First Court Western Bank Sheffield S1O 2TN
THE TENANT
- ----------
PHYTERA LIMITED
whose registered office is at Five Chancery Lane Clifford's Inn London EC4A 1BU
THE GUARANTOR
- -------------
None at the date of this Lease
SCHEDULE 2
----------
PART 1
------
THE BUILDING
------------
The land and building known as REGENT COURT REGENT STREET SHEFFIELD shown for
-------------------------------------
the purposes of identification only edged blue on Plan 1
PART 2
------
THE PREMISES
------------
ALL THAT the premises shown edged red on Plans 2 and 3 situate on the ground
- --------
floor and basement respectively of the Building and the parking bays edged green
on Plan 3 including:-
(1) The internal plaster and other surfaces or finishes of or applied to the
interior of the exterior walls of the Building and other load bearing walls
and columns but not any other part of the exterior walls
(2) The floor finishes so that the lower limit of the Premises shall include
such finishes but shall not extend to anything below them
(3) The ceiling plaster of other surfaces or finishes so that the upper limit
of the Premises shall include such finishes but shall not extend to
anything above them
(4) The entirety of any non load-bearing internal walls within the Premises
11
<PAGE>
(5) The inner half severed medially of the internal non load-bearing walls
dividing the Premises from other parts of the Building
(6) The windows and the window frames
(7) All additions and improvements to the Premises
(8) All the Landlord's fixtures and fittings of every kind which shall from
time to time be in or upon the Premises whether originally affixed or
fastened to or upon the same or otherwise except and such fixture installed
by the Tenant and that can be removed from the Premises without defacing
the same and
(9) Any Pipes that exclusively serve the Premises
SCHEDULE 3
----------
THE RIGHTS
----------
SERVICES
- --------
1. The free right of passage and running (subject to temporary interruption
for repair alteration or replacement) of water soil gas electricity
telecommunications signals and other services to and from the Premises in
and through the Pipes presently or hereafter laid in on through or under
the Building in common with the Landlord and all others having a like right
COMMON PARTS
- ------------
2. The right for the Tenant and all persons expressly or by implication
authorized by the Tenant (in common with the Landlord and all persons
having a like right) to use the Common Parts for all proper purposes in
connection with the use and enjoyment of the Premises
SUPPORT
- -------
3. The right of subjacent and lateral support protection and shelter for the
benefit of the Premises as is now enjoyed from all other parts of the
Building
SIGNS
- -----
4. The right at all times to display and maintain a suitable sign showing the
Tenant's trading or business name of a size and kind first approved by the
Surveyor such approval not unreasonably to be withheld or delayed at a
point to be specified by the Surveyor in writing
TENANT TO MAKE GOOD DAMAGE
- --------------------------
12
<PAGE>
5. in exercising the foregoing rights the Tenant shall cause as little
interference as possible to the Building the Landlord and the tenants or
occupiers of any adjoining or neighboring property and shall forthwith make
good any damage caused by the exercise of the said rights
SCHEDULE 4
----------
THE EXCEPTIONS
--------------
SERVICES
- --------
1. The free passage and running of water soil gas electricity
telecommunications signals and other services from and to other parts of
the Building in and through the Pipes presently laid or hereafter laid in
on through or under the Premises and the free and uninterrupted use of all
gas electricity telephone and other Pipes serving the Building at any time
during the Term in on through or under the Premises
CONSTRUCT EASEMENTS
- -------------------
2. The right to construct and maintain in over or under the Premises any
easements or services for the benefit of the Building
ACCESS
- ------
3. The right at any time during the Term but except in cases of emergency only
at reasonable times during normal working hours after giving reasonable
prior notice to the Tenant and by prior appointment except where the Tenant
unreasonably refuses to make an appointment within a reasonable time of a
request from the Landlord to enter (or in case of emergency to break and
enter) upon the Premises in order:-
3.1 To inspect cleanse repair amend remove or replace with others the Pipes and
any service meters or connections relating to the Building
3.2 To inspect and to execute works in connection with any of the easements or
services referred to in this Schedule
3.3 To view the state and condition of and to repair and maintain the Building
where such work would not otherwise be reasonably practicable
3.4 To carry out work or do anything whatsoever comprised within the Landlord's
obligations herein contained whether or not the Tenant is liable hereunder
to make a contribution
3.5 To exercise any of the rights possessed by the Landlord under the terms of
this Lease
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3.6 To cross the Premises for the purposes of escape in cases of emergency
LIGHT
- -----
4. Full right and liberty at any time hereafter and from time to time to
execute works and erections upon or to alter or rebuild the Building and to
use the Building in such manner as the Landlord shall think fit
notwithstanding that the access Of light and air to the Premises may
thereby be interfered with providing the same shall not materially affect
the Premises or the Tenant's normal use and occupation of the Premises
SUPPORT
- -------
5. The rights of light air support and shelter and all other easements and
rights now or hereafter belonging to or enjoyed by the Building and all
adjacent or neighboring land or buildings an interest wherein in possession
or reversion is at any time during the Term vested in the Landlord
SCAFFOLDING
- -----------
6. The right to use scaffolding for the purpose of repairing or cleaning the
Building or any adjoining or neighboring buildings of the Landlord
notwithstanding that such scaffolding may temporarily restrict the access
to or enjoyment and use of the Premises (but so that access to the Premises
shall be available at all times)
LANDLORD TO MAKE GOOD DAMAGE
- ----------------------------
7. In exercising the foregoing rights the Landlord shall cause as little
damage as possible to the Premises and shall forthwith make good any damage
caused to the Premises by or in the exercise of the said rights
SCHEDULE 5
----------
THE TERM
--------
Ten years from and including the 31 day of October, 1994 to (and including) the
-- -------
31 day of October, 2004
- -- -------
SCHEDULE 6
----------
THE RENT
--------
1.1 The Rent shall be paid by equal quarterly installments in advance on the
usual quarter days a proportionate sum being payable for any broken period
the first such payment being a proportionate sum in respect of the period
from and including the Rent Commencement Date to and including the day
before the quarter day next thereafter to be paid on the date hereof
14
<PAGE>
1.2 In this deed:-
1.2.1 "the Rent Commencement Date" shall mean the 31 day of October, 1994
-- -------
1.2.2 "Review Date" means the 31 day of October, 1999
-- -------
1.2.3 "Review Period" means the period starting with the Review Date to
the end of the Term
2. The yearly Rent shall be:-
2.1 Until the Review Date the Rent of One Hundred and Thirty Six Thousand Four
Hundred and Four Pounds ((Pounds)l36404) apportioned as follows:
2.1.1 For the part of the Premises edged red on Plan 2 the Rent of One
Hundred and Thirty One Thousand Eight Hundred and Fourteen Pounds
((Pounds)131814) (9764 square feet at (Pounds)13.50 per square foot)
2.1.2 For the part of the Premises edged red on Plan 3 the Rent of One
Thousand Five Hundred and Ninety Pounds ((Pounds)1590) (318 square
feet at (Pounds)5.00 per square foot)
2.1.3 For the part of the Premises edged green on Plan 3 the Rent of Three
Thousand Pounds ((Pounds)3000) (10 parking spaces at (Pounds)300 per
space)
2.2 During the Review Period EITHER the Rent of Eighty Two Thousand Seven
Hundred and Two Pounds ((Pounds)82702) apportioned as follows:
2.2.1 For the part of the Premises edged red on Plan 2 the Rent of Seventy
Eight Thousand One Hundred and Twelve Pounds ((Pounds)78112) (9764
square feet at (Pounds)8.00 per square foot)
2.2.2 For the part of the Premises edged red on Plan 3 the Rent of One
Thousand Five Hundred and Ninety Pounds ((Pounds)l590) (318 square
feet at (Pounds)5.00 per square foot)
2.2.3 For the part of the Premises edged green on Plan 3 the Rent of Three
Thousand Pounds ((Pounds)3000) (10 parking spaces at (Pounds)300 per
space)
OR such revised Rent as may be ascertained as herein provided
whichever be the greater PROVIDED THAT if at any time during the
Review Period the Lease (and the residue of the Term thereby
granted) is vested in a tenant other than Phytera Limited the
minimum Rent payable under paragraph 2.2.1 hereof shall be One
Hundred and Two Thousand Five Hundred and Twenty Two Pounds
((Pounds)l02522) (9764 square feet at (Pounds)10.50
15
<PAGE>
per square foot) and the minimum combined Rent under paragraph 2.2
shall be One Hundred and Seven Thousand One Hundred and Twelve
Pounds ((Pounds)107112) payable from the Review Date or the date of
vesting of the Lease in a tenant other than Phytera Limited
whichever is the later
3. Such revised Rent for the Review Period may be agreed at any time between
the Landlord and the Tenant or (in the absence of agreement) determined not
earlier than the Review Date by an arbitrator such arbitrator to be
nominated in the absence of agreement by or on behalf of the President for
the time being of the Royal Institution of Chartered Surveyors on the
application of either party made not earlier than six months before the
Review Date but not later than the end of the Review Period and so that in
the case of such valuation the revised Rent to be awarded by the arbitrator
shall be such as he shall decide is the yearly Rent at which the Premises
might reasonably be expected to be let at the Review Date on the following
assumptions at that date:-
3.1.1 That the Premises:-
3.1.1.1 are available to let on the open market without a fine or
premium with vacant Possession by a willing landlord to a
willing tenant for a term of years equal to the original
term of this Lease
3.1.1.2 are to be let as a whole subject to the terms of this Lease
(other than the amount of the Rent but including the
provisions for review of that Rent)
3.1.2 That the Tenant's Covenants have been fully performed and observed
3.1.3 That the Premises are fit for immediate occupation and use and that
no work has been carried out to the Premises which has diminished
the rental value and in case the Premises have been destroyed or
damaged they have been fully restored
3.1.4 That if Value Added Tax or other similar tax is charged on the rents
and/or any other monies payable from time to time under this Lease
that a willing tenant will be able to recover such Value Added Tax
or other similar tax in full
3.1.5 That no reduction is to be made to take account of any rental
concessions which on a new letting with vacant possession might be
granted to the incoming tenant for a period within which its fitting
out works would take place
3.2 But disregarding:-
16
<PAGE>
3.2 1. Any effect on Rent of the fact that the Tenant or any underlessee
or their respective predecessors in title have been in occupation
of the Premises
3.2.2. Any goodwill attached to the Premises by reason of the carrying on
thereat of the business of the Tenant or any undersell or their
respective predecessors in title in that trade or business and
3.2.3. Any increase in rental value of the Premises attributable to the
existence at the Review Date of any improvement to the Premises or
any part thereof carried out with consent where required otherwise
than in pursuance of an obligation to the Landlord or the
Landlord's predecessors in title except obligations requiring
compliance with, statutes or directions of local authorities or
other bodies exercising powers under statute or Royal Charter
either by the Tenant or any underlessee or their respective
predecessors in title during the Term or during any period of
occupation prior thereto arising out of an agreement to grant the
Term
3.2.4 any adverse effect upon Rent of the taxable status of a willing
tenant for the purpose of Value Added Tax or any other tax
4. IT IS HEREBY FURTHER PROVIDED in relation to the said revised Rent as
-----------------------------
follows :-
4.1.1 The arbitration shall be conducted in accordance with The
Arbitration Acts 950 and 1979 or any statutory modification or re-
enactment thereof for the time being in force
4.1.2 If the arbitrator nominated pursuant to clause 3 hereof shall die
delay or become unwilling unfit or incapable of acting or if for any
other reason the President for the time being of the Royal
Institution of Chartered Surveyors or the person acting on his
behalf shall in his absolute discretion think fit he may on the
application of either the Landlord or the Tenant by writing
discharge the arbitrator and appoint another in his place
4.2 When the amount of any Rent to be ascertained as hereinbefore provided
shall have been so ascertained memoranda thereof shall thereupon be signed
by or on behalf of the Landlord and the Tenant and annexed to this Lease
and the counterpart thereof and the Landlord and the Tenant shall bear
their own costs in respect thereof
4.3 If the revised Rent payable on and from the Review Date has not been agreed
by the Review Date Rent shall continue to be payable at the rate previously
payable and forthwith upon the revised Rent being ascertained the Tenant
shall pay to the Landlord any shortfall between the Rent and the revised
Rent payable up to and on the preceding quarter day together with interest
on any shortfall at the seven day deposit rate of The Royal Bank of
Scotland plc such interest to be calculated
17
<PAGE>
on a day to day basis from the Review Date on which it would have been
payable if the revised Rent had then been ascertained to the date of actual
payment of any Shortfall and the interest so payable shall be recoverable
in the same manner as Rent in arrears or as the case may be as a debt
4.4 For the purposes of this proviso the revised Rent shall be deemed to have
been ascertained on the date when the same has been agreed between the
Landlord and the Tenant or as the case may be the date of the award of the
arbitrator
SCHEDULE 7
----------
THE TENANT'S COVENANTS
----------------------
RENT
- ----
1. To pay the rents on the days and in the manner required by this Lease
provided that if and so long as the amount of Rent which the Tenant is
liable to pay shall be restricted by law the Tenant will in lieu of the
Rent pay the maximum amount of Rent which such restriction may from time to
time allow and in such circumstances the term "the Rent" shall be construed
as meaning such maximum amount and if so required by the Landlord to make
such payments by banker's order or credit transfer to any bank and account
which the Landlord may from time to time nominate
OUTGOINGS
- ---------
2. To pay and to indemnify the Landlord against all rates taxes assessments
duties charges impositions and outgoings which now are or during the Term
shall be charged assessed or imposed upon the Premises or any part thereof
or upon the owner or occupier thereof excluding any payable by the Landlord
occasioned by any imposition in dealing with or ownership of the reversion
of this Lease and if demanded to pay the Value Added Tax (or any tax which
may be substituted for it or levied in addition to it) on all taxable
supplies received by or payments made by the Tenant under or in connection
with this Lease in return for a proper and valid Value Added Tax invoice
SHARED ITEMS
- ------------
3. To pay the Landlord on demand a fair and reasonable proportion (to be
finally and conclusively determined by the Surveyor such determination to
be conclusive as to matters of fact but not as to questions of law) of the
expense of maintaining and keeping in good and substantial repair and
condition and (where appropriate) cleaning all party walls fences pipes and
other things the use of which is common to the Premises and to other
premises in the Building (BUT SO THAT any sums payable by the Tenant under
this Clause 3 shall when aggregated with the Service Charge not exceed the
sums referred to in Clauses 1.13.1 and 1.13.2
18
<PAGE>
INSURANCE
- ---------
4.1 To pay to the Landlord on demand the Insurance Rent which the Landlord
shall from time to time pay by way of premiums for keeping the Building
insured under Clause 2 of Schedule 8 hereof
4.2 Not to do or omit anything whereby any policy of insurance on the Building
may become void or voidable wholly or in part nor (unless the Tenant shall
have previously notified the Landlord and has agreed to pay the increased
premium) anything whereby additional Insurance Rent may become payable
4.3 To comply with all regulations requirements and recommendations of the
Landlord (acting reasonably) the Landlord's insurers and the fire authority
in relation to the Premises and the remainder of the Building including all
regulations for evacuation of the Building in cases of emergency or
potential emergency and fire or other emergency drills
4.4 To keep the Premises supplied with such fire fighting equipment as the
insurers and the fire authority may require or as the Landlord may
reasonably require and to maintain the same to its satisfaction
4.5 Not to obstruct the access to any fire equipment or the means of escape
from the Premises
4.6 To give notice to the Landlord forthwith upon the Tenant becoming aware of
the happening of any event which might affect any insurance policy relating
to the Premises
4.7 In the event of the Premises or any part thereof being destroyed by any of
the Insured Risks at any time during the Term and the insurance money under
any policy of insurance effected thereon being rendered by reason of any
act or default of the Tenant or anyone at the Premises expressly or by
implication with the Tenant' s authority wholly or partially irrecoverable
at the sole option of the Landlord either:
4.7.1 forthwith in every such case to rebuild and reinstate at its own
expense the Building the Premises or part destroyed or damaged to
the reasonable satisfaction and under the supervision of the
Surveyor the Tenant being allowed towards the expenses of so doing
upon such rebuilding and reinstatement being completed the amount
(if any) actually received, in respect of such destruction or damage
under any such insurance as aforesaid or
4.7.2 to pay to the Landlord the whole or (as the case may be) a fair and
reasonable proportion of the costs including professional or other
fees of rebuilding and reinstating the Building the Premises or part
destroyed or
19
<PAGE>
damaged with Interest thereon from 14 days after demand until
payment any dispute as to the proportion to be so contributed by the
Tenant to be referred to arbitration in accordance with the
provisions of the Arbitration Act 1950 or any statutory modification
or re-enactment thereof for the time being in force
4.8 If at any time the Tenant shall be entitled to the benefit of any insurance
on the Premises (which is not effected or maintained in pursuance of any
obligation herein contained) then to apply all moneys received by virtue of
such insurance in making good the loss or damage in respect of which the
same shall have been received
4.9 To provide the Landlord and the Police at all times with the names
addresses and telephone numbers of not less than two key holders of the
Premises
REPAIRS
- -------
5.1 At all times to keep the Premises in good and tenantable repair and
condition and clean (damage caused by an Inherent Defect or the Insured
Risks only excepted save where the insurance monies shall be irrecoverable
in consequence of any act or default of the Tenant or anyone at the
Premises expressly or by implication with the authority of the Tenant) and
where necessary to rebuild and to replace from time to time the Landlord's
fixtures and fittings and appurtenances in the Premises, which may be or
become beyond repair (damage as aforesaid excepted) at any time during or
at the expiration or sooner determination of the Term
5.2 Without prejudice to the generality of the foregoing covenants to clean the
inside of all windows and other plate glass in the Premises at least once
in every month
5.3 Not to damage nor interfere with the lifts the water sanitary apparatus
heating and hot water system the pipes ducts fittings connected with or
relating to electricity or other services in or serving the Premises
5.4 To employ for the cleaning of the Premises only such firm or company as
shall either be nominated or approved of by the Landlord such approval not
to be unreasonably withheld or delayed
DECORATION
- ----------
6. In the fifth year and also in the last year of the Term (whether determined
by effluxion of time or otherwise but not twice within any period of 12
months) to prepare paint (with two coats of good quality paint) grain
varnish whitewash color and paper with paper of a suitable quality in a
good and workmanlike manner all parts of the Premises previously or usually
so treated such painting and papering in the last year of the Term to be
previously approved of by the Landlord such approval not unreasonably to be
withheld or delayed
20
<PAGE>
KEEP TIDY
- ---------
7. Not at any time during the Term to cause the Common Parts or any roads
pavements or land abutting on the Premises or the remainder of the Building
to become untidy or in a dirty condition but at all times to keep the
Premises in a clean neat and tidy state and condition and free from
deposits of waste materials and refuse and within one month of the service
thereof to comply with the reasonable requirements of any written notice to
restore the amenity of the Premises and in the event of the Tenant failing
to comply with such notice the, Landlord shall be entitled to enter upon
the Premises and carry out any necessary works and to recover the cost
thereof from the Tenant
ALTERATIONS OR ADDITIONS
- ------------------------
8.1 Not to commit or permit waste and not to cut remove divide alter maim or
injure the Premises or any part thereof or any of the ceilings walls floors
principal girders or structure of the Premises or any part nor the Pipes
and not to make any alterations additions or improvements to the Premises
PROVIDED THAT:
8.1.1 the installation of the approved Tenant's Works shall not be deemed
to be a breach of this covenant and
8.1.2 the installation by the Tenant of internal partitions in the
Premises of a design and of materials approved in writing by the
Landlord (such approval not to be unreasonably withheld or delayed)
shall not be deemed to be a breach of this covenant and
8.1.3 the Tenant may with the consent of the Landlord (such consent not to
be unreasonably withheld or delayed) alter such internal partitions
from time to time and install new partitions
8.2 Not to make any alteration or addition to the electrical installation of
the Premises nor to connect any apparatus thereto which might endanger or
overload the said installation or any part thereof
8.3 To remove any additions or alterations made to the Premises (including the
Tenant's Works) at the expiration or sooner determination of the Term if so
requested by the Landlord PROVIDED THAT this covenant shall not apply
whilst the Term is vested in Phytera Limited
8.4 To indemnify the Landlord against any liability for tax on land development
assessed by reason of any alteration or addition to the Premises carried
out by the Tenant
STATUTORY OBLIGATIONS
- ---------------------
21
<PAGE>
9.1 At the Tenant's own expense to do and execute all such works as shall be
required at any time during the Term to be done or executed in or upon the
Premises by the owner and/or the occupier under or by virtue of any Act
being in force or by the direction of any local or public authority
9.2 Without prejudice to the generality of the foregoing provisions to comply
in all respects with the provisions of any Statutes and any other
obligations imposed by law or by any bye-laws applicable to the Premises or
in regard to carrying on the trade or business for the time being carried
on by the Tenant on the Premises
ACCESS OF LANDLORD AND NOTICE TO REPAIR
- ---------------------------------------
10.1 To permit the Landlord at reasonable times during normal business hours
after giving reasonable prior notice to the Tenant and by prior
appointment except where the Tenant unreasonably refuses to make an
appointment within a reasonable time of a request from the Landlord to
enter upon the Premises for the purpose of:-
10.1.1 taking schedules or inventories of fixtures and things to be
yielded up at the expiration of the Term; and
10.1.2 ascertaining that the covenants and conditions herein contained
have been duly observed and performed and in particular to view the
state of repair and condition of the Premises and of all defects
and wants of repair cleansing maintenance amendments and painting
then and there found and to give to the Tenant or leave upon the
Premises a notice in writing specifying any repairs cleaning
maintenance amendments and painting necessary to be done and to
require the Tenant forthwith to execute the same
10.1.3 inspecting the Premises in relation to any rent review or other
purpose in connection with this lease
10.2 To forthwith repair cleanse maintain amend and paint the Premises as
required by such notice and in accordance with the covenants in that behalf
hereinbefore contained
10.3 if the Tenant shall not within one month after service of such notice
proceed diligently with the execution of the same or shall have failed to
complete the same within two months or such other reasonable period agreed
by the Surveyor to permit the Landlord and/or its contractors agents and
workmen to enter upon the Premises to execute such works as may be
necessary to comply with the same and to pay to the Landlord the cost of
executing such works and all expenses reasonably and properly incurred by
the Landlord in connection with the same
22
<PAGE>
(including legal Costs and surveyors fees) within fourteen days of a
written demand in that behalf
DEALING
- -------
11.1 Not to hold on trust for another or (save pursuant to a transaction
permitted by and effected in accordance with the provisions of this Lease)
part with or share the possession or occupation of the whole or any part of
the Premises
11.2 Not to assign charge underlet hold on trust for another part with nor
share possession or occupation of part only of the Premises
11.3 11.3.1 Not to underlet part only of the Premises otherwise than by means
of an underlease of a Permitted Part
11.3.2 Not without the consent in writing of the Landlord to underlet a
Permitted Part otherwise than by means of an underlease which
complies with the provisions Of paragraph 11.3.3 granted at a full
open market rent without any fine or premium being taken
11.3.3 In any underlease of a Permitted Part referred to in paragraph
11.3.2
11.3.3.1 such underlease shall contain the same provisions as
those contained in this Lease (other then the amount of
the Rent) with such amendments as may be approved in
writing by the Landlord (such approval not to be
unreasonably withheld or delayed)
11.3.3.2 the rent reserved by such underlease shall not be payable
more than 6 months in advance
11.3.3.3 if the term of such underlease shall extend beyond a date
upon which the Rent payable under this Lease is to be
reviewed such underlease shall contain provisions for
review of the rent to take effect at the same intervals
and on the same dates as those provided in this Lease and
on like terms
11.3.3.4 no sub-lessee shall have the right to underlet hold on
trust share or part with the possession or occupation of
the whole or any part of the Permitted Part or to assign
or charge part only of it but shall have only the right
(with the prior consent in writing of the Landlord (not
to be unreasonably withheld or delayed) and the Tenant)
to assign or charge the whole of the Permitted Part
contained in such underlease
11.3.3.5 the Tenant shall not demise any part of the Landlord's
Property and such underlease shall contain Provisions for
a service charge
23
<PAGE>
under which the sub-lessee is liable to pay a fair
proportion of the cost of repairing the Landlord's
Property and of other Services provided in connection
with the Premises on similar terms to those contained in
this Lease
11.4 Not to assign charge or underlet the whole of the Premises without the
prior written consent of the Landlord such consent not to be unreasonably
withheld or delayed
11.5 Prior to any permitted assignment to procure that the assignee enters into
direct covenants with the Landlord to perform and observe all the Tenant's
Covenants and all other provisions herein during the residue of the Term
11.6 on a permitted assignment or underletting to a limited company and if the
Landlord shall so reasonably require to procure that a guarantor or
guarantors reasonably acceptable to the Landlord enter into direct
covenants with the Landlord in the form set out in Schedule 10 of this
Lease with "Assignee" or "Sub-Tenant" as appropriate substituted for
"Tenant"
11.7 Prior to any permitted underletting to procure that the underlessee enters
into direct covenants with the Landlord as follows:-
11.7.1 to observe and perform all the Tenant's Covenants and all other
provisions of this Lease (other than the payment of rents) during
the residue of the Term so far as appropriate to the Premises
comprised in such underlease
11.7.2 an unqualified covenant by the underlessee that the underlessee
will not assign underlet charge hold on trust for another part with
nor share the possession or occupation of part only of the Premises
or underlet hold on trust for another part with nor share the
possession or occupation of the whole of the Premises; and
11.7.3 a covenant by the underlessee that the underlessee will not assign
the whole of the Premises without obtaining the prior written
consent (which shall not be unreasonably withheld or delayed) of
the Landlord under this Lease
11.8 That each and every permitted underlease shall be granted without any fine
or premium at a rent equal to not less than the then open market rental
value of the Premises to be approved by the Landlord prior to any such
underlease (such approval not to be unreasonably withheld or delayed) or
the Rent then being paid (whichever shall be the greater) such rent being
payable in advance on the days on which Rent is payable under this Lease
and shall contain provisions approved by the Landlord such approval not to
be unreasonably withheld or delayed):
24
<PAGE>
11.8.1 for the upwards only review of the rent thereby reserved on the
basis and on the dates on which the Rent is to be reviewed in
this Lease
11.8.2 prohibiting the underlessee from doing or allowing any act or
thing in relation to the underlet premises inconsistent with or
in breach of the provisions of this Lease
11.8.3 a condition for re-entry by the underlessor on breach of any
covenant by the underlessee, and
11.8.4 an absolute covenant against underletting and the same
restrictions on assignment and underletting charging holding on
trust for another parting with or sharing with another possession
or occupation of the underlet premises and the same provisions
for direct covenants and registration as in this Lease
11.9 To enforce the performance and observance by every such underlessee of
the provisions of the underlease and not at any time either expressly or
by implication to waive any breach of the covenants or conditions on the
part of any underlessee or assignee of any underlease nor (without the
consent of the Landlord such consent not to be unreasonably withheld or
delayed) vary the terms of any permitted underlease
11.10 Notwithstanding clauses 11.1 and 11.2 hereof the Tenant or any permitted
undertenant may with the Landlord's prior written consent share the
occupation of the whole or any part of the Premises with Phytera Inc. or
any other company which is a member of the same group as the Tenant or
undertenant (within the meaning of Section 42 of the Landlord and Tenant
Act 1954) for so long as both companies shall remain members of that
group and in either case otherwise than in a manner that transfers or
creates a legal estate
USER AND PERMITTED HOURS
- ------------------------
12.1 Not to do (or permit or suffer to remain upon the Premises or any part
thereof) anything which may be or become a nuisance annoyance disturbance
inconvenience injury or damage to the Landlord or the Landlord's other
tenants or the occupiers of adjacent or neighboring premises
12.2 Not without the written consent of the Landlord (not to be unreasonably
withheld or delayed) or otherwise than in compliance with, the Landlord's
regulations or codes of practice to store or bring upon the Premises any
article substance or liquid of a specially combustible inflammable or
dangerous nature and to comply with all recommendations of the insurers
and fire authority as to fire precautions relating to the Premises
25
<PAGE>
12.3 Not to use or permit to be used the Premises or any part thereof for any
dangerous noxious noisy or offensive trade or business or as a betting
office or for residential purposes or for sleeping nor for any illegal or
immoral act or purpose and no sale by auction shall take place therein
12.4 Not to permit any oil or grease or any deleterious objectionable dangerous
poisonous or explosive matter or substance to be discharged into any Pipes
serving the Building and to take all reasonable measures for ensuring that
any effluent so discharged will not be corrosive or otherwise harmful to
the said Pipes or cause obstruction or deposit therein polluted or the
composition thereof changed
12.5 Not to use and occupy the Premises for any purpose save as specified in
Schedule 9 hereof
12.6 Not to obstruct the Common Parts nor to stand place deposit or expose
outside any part of the Premises any goods, materials, articles or things
whatsoever
12.7 To make proper and adequate arrangements for the frequent and regular
removal from the Premises of all trade and other waste or refuse
ROOF AND FLOOR WEIGHTING
- ------------------------
13.1 Not without the consent in writing of the Landlord to
13.1.1. suspend any weight from the ceilings or the roof or roof trusses
or use the roof or roof trusses of the Premises or the Building
for the storage of goods or to place or permit or suffer to be
placed any weight thereon;
13.1.2 bring or permit to remain upon the Premises any safes machinery
goods or other articles which shall or may strain or damage the
Premises or any part thereof
13.2 on the application of the Tenant for the Landlord's consent under
paragraph 13.1 hereof the Landlord shall be entitled to consult and obtain
the advice of an engineer in relation to the ceilings roof or floor
loading proposed by the Tenant and the Tenant shall repay to the Landlord
on demand the fees of such engineer
ELECTRICITY GAS AND OTHER SERVICES CONSUMED
- -------------------------------------------
14. To pay to the suppliers thereof and to indemnify the Landlord against all
charges for electricity gas water and telephone and other services
(including meter rents) consumed or used at or in relation to the Premises
where a separate supply is provided for the Premises
26
<PAGE>
AERIALS SIGNS AND ADVERTISEMENTS
- --------------------------------
15.1 Not to erect any pole mast or wire (whether in connection with telegraphic
telephonic radio or television communications or otherwise) upon any part
of the Building without the Landlord's consent not to be unreasonably
withheld or delayed
15.2 Not to affix to or exhibit or permit to be affixed or exhibited on the
outside of the Building or to or through any part of the Premises
(including the windows) any placard sign notice fascia board or
advertisement except any sign permitted by this Lease
NOTICES SPECIFYING BREACH AND LANDLORD'S COSTS
- ----------------------------------------------
16.1 To pay all reasonable costs charges and expenses including solicitors'
costs and surveyors' fees incurred by the Landlord for the purposes of and
incidental to the preparation and service of a notice under Section 146 of
the Law of Property Act 1925 or incurred in or in contemplation of
proceedings under Sections 146 or 147 of that Act notwithstanding in any
such case forfeiture is avoided otherwise than by relief granted by the
Court
16.2 To pay all reasonable costs, charges and expenses including solicitors'
costs and surveyors' fees incurred by the Landlord for the purposes of and
incidental to the service of all notices and schedules relating to wants
of repair to the Premises and whether served during or after the
expiration or sooner determination of the Term (but, relating in all cases
to such wants of repair that accrued not later than such expiration or
sooner determination)
16.3 To pay all reasonable costs, charges and expenses including solicitors
costs and those of counsel incurred by the Landlord in the recovery or
attempted recovery of arrears of the rents or other funds due from the
Tenant or in the enforcement of all other obligations of the Tenant to the
Landlord hereunder
PLANNING ACTS
- -------------
17.1 To comply in all respects with the Provisions and requirements of the
Planning Acts whether as to the permitted user hereunder or otherwise and
to indemnify (both after the expiration of the Term by effluxion of time
or otherwise and during its continuance) and keep the Landlord indemnified
against all liability whatsoever including costs and expenses in respect
of any contravention thereof
17.2 Forthwith to produce to the Landlord any notice order or proposal
permission or consent relating to the Premises given or issued to the
Tenant by a planning authority under or by virtue of the Planning Acts and
at the joint cost of the Tenant and the Landlord to join with the Landlord
in making any objection or representation against the same that the
Landlord shall deem appropriate
27
<PAGE>
17.3 To obtain at the expense in all respects of the Tenant all planning
permissions and serve all such notices as may be required for the carrying
out of any operations on the Premises or any use thereof at the
commencement which may constitute development provided that no application
for planning permission shall be made without the previous written consent
of the Landlord
17.4 Subject only to any statutory direction to the contrary to pay and satisfy
any charge or levy that may hereafter be imposed under the Planning Acts
in respect of the carrying out or maintenance of any such operations or
the commencement or continuance of any such use as aforesaid
17.5 Notwithstanding any consent which may be granted by the Landlord under
this Lease not to carry out or make any alteration or addition to the
Premises or any change of use hereof before all necessary notices under
the Planning Acts in respect thereof have been served or before all such
notices and all such necessary planning permissions have been produced to
the Landlord and in the case of a planning permission acknowledged by it
in writing as is satisfactory to the Landlord (such acknowledgment not
unreasonably to be withheld or delayed) it being understood that the
Landlord may refuse so to express its satisfaction with any such planning
permission on the grounds that any condition contained therein or anything
omitted therefrom or the period thereof would in the reasonable opinion of
the Surveyor be or be likely to be prejudicial to its interest in the
Premises or the Buildings or any adjoining or neighboring premises whether
during the Term or following the determination or expiration thereof
17.6 Unless the Landlord shall otherwise direct to carry out and complete
before the expiration or sooner determination of the Term:-
17.6.1 any works stipulated to be carried out to the Premises by a date
subsequent to such expiration or sooner determination as a
condition of any planning permission granted for any development
begun before such expiration or sooner determination; and
17.6.2 any development begun upon the Premises in respect of which the
Landlord shall or may be or become liable for any charge or levy
under the Planning Acts
17.7 If the Tenant shall receive any compensation with regard to the interest
of the Tenant hereunder because of any restriction placed upon the user of
the Premises under or by virtue of the Planning Acts then if and when the
Tenant's interest hereunder shall be determined by surrender or under the
power of re-entry herein contained the Tenant shall forthwith make such
provision as is just and equitable for the Landlord to receive its due
benefits from such compensation
28
<PAGE>
PLANS AND DOCUMENTS
- -------------------
18. if and when called upon so to do to produce to the Landlord or the surveyor
all such plans and documents and other evidence as the Landlord may
reasonably require in order to satisfy itself that the provisions of this
Lease have been complied with in all respects
INDEMNITIES
- -----------
19. To be responsible for and to indemnify the Landlord against all damages
losses liabilities actions claims proceedings costs expenses and demands
made against the Landlord as a result of:-
19.1.1 any act omission or negligence of the Tenant or the servants agents
licensees or invitees of the Tenant or other persons expressly or
impliedly with the Tenant's authority or
19.1.2 Any breach or non-observance by the Tenant of the Tenant's
Covenants and other terms hereof
RE-LETTING BOARDS
- -----------------
20. To permit the Landlord at any time during the last six months of the Term
howsoever determined (or sooner if the Rent or any part thereof shall be in
arrears and unpaid for upwards of one calendar month) to enter upon the
Premises and affix and retain without interference upon any part of the
Premises a notice for re-letting the same and during such period to permit
persons with written authority of the Landlord or its agents at reasonable
times of the day to view the Premises without interruption PROVIDED THAT
such boards shall not obstruct the access to the Premises or the access of
light and air to the windows thereof
RIGHTS OF LIGHT AND ENCROACHMENT
- --------------------------------
21.1 Not without the consent of the Landlord (not to be unreasonably withheld
or delayed) to stop up darken or obstruct any windows or lights belonging
to the Building
21.2 Not to permit any new window light opening doorway path passage drain or
other encroachment or easement to be made or acquired in against out of or
upon the Premises and that in case any such window light opening path
passage drain or other encroachment or easement shall be made or acquired
or attempted to be made or acquired the Tenant will give immediate notice
thereof to the Landlord and will at the request and cost of the Landlord
adopt such means as may be reasonably required or deemed proper for
preventing any such encroachment or the acquisition of any such easement
29
<PAGE>
YIELD UP
- --------
22.1 To yield up the Premises at the expiration or sooner determination of the
Term in good and tenantable repair and condition in accordance with the
Tenant's Covenants and subject to the proviso to Clause 8.3 of this
Schedule to dismantle and remove from the Premises all the Tenant's
fixtures if reasonably so required by the Landlord and all lettering and
signs erected by the Tenant and to make good any part or parts of the
Premises or remainder of the Building which may be damaged in such
dismantling and/or removal
22.2 If at the expiration of the Term the Premises are not in the state of
repair and decoration in which they should be having regard to the
Tenant's Covenants and conditions contained in this Lease the Tenant shall
(if so required by the Landlord) pay to the Landlord on demand by way of
liquidated damages:-
22.2.1 such sum as shall be certified by the Surveyor to represent in his
reasonable opinion:-
22.2.1.1 the cost of putting the Premises into the state of
repair and decoration in which they should have been had
the Tenant complied with the terms of this Lease
22.2.1.2 the Rent at the rate prevailing at the expiration of the
Term that would have been payable under this Lease if
the Term had been extended for such period as is
reasonably necessary to put the Premises into the state
of repair and decoration in which they should have been
and
22.2.2 the reasonable fees of the Surveyor for the preparation and
service of Schedule of Dilapidations and the preparation and issue
of the said certificate
LICENSE FEE
- -----------
23. To pay all reasonable legal costs and surveyors fees incurred by the
Landlord attendant upon or incidental to every application made by the
Tenant for a consent or license hereinbefore required or made necessary
whether the same be granted refused withdrawn or offered subject to
qualifications or conditions
INTEREST ON ARREARS
- -------------------
24.1 If and whenever the Tenant shall fail to pay the rents or any other sum
due under this Lease within fourteen days of the due date the Tenant shall
pay to the Landlord Interest on such rents or other money as the case may
be from the date when it was due to the date on which it is actually paid
and such interest shall be deemed to be rent due to the Landlord
30
<PAGE>
24.2 Nothing in the preceding clause shall entitle the Tenant to withhold or
delay any payment of the rents or any other sum due under this Lease after
the date on which it falls due or in any way prejudice affect or derogate
from the rights of the Landlord in relation to the said non-payment
including (but without prejudice to the generality of the foregoing) under
the proviso for re-entry contained in this Lease
REGISTRATION OF DOCUMENTS
- -------------------------
25. Within twenty eight days of any assignment charge underlease or sub-
underlease or any transmission or other devolution relating to the
Premises to produce for registration with the Landlord's Solicitor a
certified copy thereof and to pay the Landlord's Solicitor's reasonable
charges for the registration of every such document such charges not being
less than forty pounds
SALE OF REVERSION ETC.
- ----------------------
26. To permit upon not less than two working days notice at any time during
the Term prospective purchasers of or dealers in or agents instructed in
connection with the sale of the Landlord's reversion or of any interest
superior to the Term upon reasonable notice to view the Premises without
interruption providing the same are authorized in writing by the Landlord
or its agents
LANDLORDS RIGHTS
- ----------------
27. To permit the Landlord at all times during the Term to exercise without
interruption or interference any of the rights excepted and reserved to it
by virtue of the provisions of this Lease
NOTICES
- -------
28. To give full particulars to the Landlord of any notice direction or order
or proposal for the same made given or issued to the Tenant by any local
or public authority within seven days of the receipt of the same and if so
required by the Landlord to produce the same to the Landlord and without
delay to take all necessary steps to comply with any such notice direction
or order so far as the same is the responsibility of the Tenant under this
Lease (save for this Clause 28) and at the request of the Landlord and the
joint cost of the Landlord and the Tenant to make or join with the
Landlord in making such objection or representation against or in respect
of any proposal for such a notice direction or order as the Landlord shall
deem expedient
NEW GUARANTOR
- -------------
31
<PAGE>
29. Within fourteen days of the death during the Term of any Guarantor or of
such person becoming bankrupt or having a Receiving order made against him
or being a company passing a Resolution to wind up or entering into
liquidation or having a receiver appointed to give notice of this to the
Landlord and if so required by the Landlord at the expense of the Tenant
within twenty eight days to procure some other person acceptable to the
Landlord to execute a guarantee in respect of the Tenant's obligations
contained in this Lease in the form set out in Schedule 10 hereto
LANDLORD'S COSTS
- ----------------
30. To pay the reasonable fees and disbursements of the Landlord's Solicitors
and all other costs and expenses incurred by the Landlord (including any
V.A.T. payable thereon) in relation to the negotiation preparation
execution and grant of this Lease and the Stamp Duty on the Counterpart
thereof
SCHEDULE 8
----------
THE LANDLORD'S COVENANTS
------------------------
QUIET ENJOYMENT
- ---------------
1. To permit the Tenant to peaceably and quietly hold and enjoy the Premises
without any lawful interruption or disturbance from or by the Landlord or
any person claiming under or in trust for the Landlord or by title
paramount
INSURANCE
- ---------
2.1 Subject to the Tenant paying the Insurance Rent to insure and keep insured
the Building against the Insured Risks (unless such insurance shall be
vitiated by any act of the Tenant or the Tenant's servants or visitors or
by any other person at the Premises expressly or by implication with the
Tenant's authority) in such sum as the Landlord shall from time to time be
advised by the Surveyor as being the full cost of rebuilding or
reinstatement of the Building (together with an appropriate addition for
professional fees the cost of debris removal demolition site clearance and
any works that may be required by statute and incidental expenses and three
year's loss of Rent under the Lease or such longer period as the Landlord
shall deem necessary) against loss or damage by any or all of the Insured
Risks and to produce to the Tenant on demand either the policy of such
insurance and the receipt for the last premium or reasonable evidence from
the insurers of the term of the policy and the fact that the same is
subsisting and in effect and (subject as hereinafter provided) in case of
destruction of or damage to the Building by the Insured Risks or any of
them the Landlord will with all convenient speed take such steps as may be
requisite and proper to obtain any necessary permits and consents under any
regulations or enactment for the time being in force to enable the Landlord
to rebuild and reinstate the same and will as soon as such permits and
consent have been obtained spend and lay out all monies received in respect
32
<PAGE>
of such insurance (except sums in respect of loss of rent) in rebuilding or
reinstating the Premises so destroyed or damaged making good any shortfall
from its own monies PROVIDED THAT if the Premises shall not be rendered fit
for occupation or use or accessible for the business carried on by the
Tenant therein within two years of such destruction or damage as aforesaid
then on the expiration of such period of two years the Tenant may give
three month's notice in writing to the Landlord and upon the expiration of
such notice this Lease and the term hereby granted shall cease and
determine but without prejudice to any claim by any party against the other
in respect of any antecedent breach of any condition herein contained
PROVIDED FURTHER that if the rebuilding or reinstatement of the Premises
shall be prevented or frustrated or this Lease is determined pursuant to
the Tenant's notice as aforesaid all such insurance monies relating to the
Premises shall be the absolute property of the Landlord
2.2 if at any time during the Term the Building is increased or decreased on a
permanent basis the percentages referred to in clause 1.12 shall be varied
in the manner set out in clause 3 of this Schedule
2.3 To request the insurers to endorse or note the interest of the Tenant on
the records of the policy to be effected under paragraph 2.1 of this
Schedule
2.4 To request that the terms of insurance include a waiver of all rights of
subrogation against the Tenant and a non-invalidation clause in the event
of the insurance policy being prejudiced by the act or default of the
Tenant
SERVICES
- --------
3.1 Subject to the Tenant paying to the Landlord the Service Charge in
accordance with its obligations herein contained and complying with all the
other covenants and conditions in this Lease the Landlord will perform the
Services throughout the Term provided that the Landlord shall not be liable
to the Tenant in respect of any failure or interruption in any of the
Services by reason of necessary repair replacement maintenance of any
installations or apparatus or their damage or destruction or by reason of
mechanical or other defect or breakdown or frost or other inclement
conditions or shortage of fuel materials water or labor or any other cause
beyond the Landlord's control provided that the Landlord uses and continues
to use its reasonable endeavors to restore the Services in question as
quickly as possible
3.2 For the purposes of this clause:-
3.2.1 "Computing Date" means the 29th day of September in every year of
the Term or such other date as the Landlord may from time to time
nominate and
3.2.2 "Financial Year" means the period:-
33
<PAGE>
3.2.2.1 from the commencement of the Term to and including the first
Computing Date and thereafter
3.2.2.2 between two consecutive Computing Dates (excluding the first
but including the second computing Date in the period)
3.3 The Landlord shall as soon as convenient after each Computing Date prepare
an account showing Annual Expenditure for that Financial Year and
containing a fair summary of the expenditure referred to therein and upon
such account being certified by the Accountant the same shall be conclusive
evidence for the purposes of this Lease of all matters of fact referred to
in the said account (save in case of manifest error or error in law)
3.4 The Tenant shall pay for the period from the Rent Commencement Date to the
next Computing Date the Initial Provisional Service Charge the first
payment being a proportionate sum in respect of the period from and
including the Rent Commencement Date to and including the day before the
next quarter day to be paid on the date hereof the subsequent payments to
be made in advance on the usual quarter days in respect of the said
quarters
3.5 The Tenant, shall pay for the next and each subsequent Financial Year a
provisional sum calculated upon an estimate by the Surveyor acting as an
expert and not as an arbitrator of what the Annual Expenditure is likely to
be for that Financial Year by four equal quarterly payments on the usual
quarter days
3.6 If the Service Charge for any Financial Year shall:-
3.6.1 exceed the provisional sum for that Financial Year the excess shall
be due to the Landlord on demand or
3.6.2 be less than the said provisional sum the overpayment shall be
credited to the Tenant against the next quarterly payment of the
Rent and Service Charge
3.7 If at any time during the Term the total property enjoying or capable of
enjoying the benefit of any of the Services be increased or decreased on a
permanent basis or the benefit of any of the Services be extended on a like
basis to any adjoining or neighboring property the percentage referred to
in clause 1.13 shall be varied with effect from the Computing Date
following such event by agreement between the parties or in default of
agreement within three months of the first proposal for variation made by
either party as shall be determined to be a fair and reasonable variation
reflecting the event in question by the Surveyor (acting as an expert and
not as an arbitrator) except that nothing herein contained shall imply an
obligation an the part of the Landlord to provide the Services to any
adjoining or neighboring property
34
<PAGE>
3.8 The Landlord may withhold add to extend vary or make any alteration in the
rendering of the Services or any of them from time to time if the Landlord
at its absolute discretion deems it desirable to do so
3.9 The Landlord shall not include within the Service Charge any costs directly
or indirectly attributable to an Inherent Defect
4. The Landlord shall make good and repair all Inherent Defects and damage
arising thereby in the Premises as so as reasonably practical following
notice being given by the Tenant
SCHEDULE 9
----------
THE PERMITTED USE
-----------------
The part of the Premises edged red on Plan 2 as and for research development and
associated purposes and office accommodation only
The part of the Premises edged red on Plan 3 for storage purposes
The part of the Premises edged green on Plan 3 f or the parking of 10 motor cars
SCHEDULE 10
-----------
THE GUARANTOR'S COVENANTS
-------------------------
1. If at any time during the Term the Tenant shall make any default in payment
of the rents or in observing or performing any of the covenants conditions
or other terms of this Lease the Guarantor will pay the rents and observe
or perform the covenants conditions or terms in respect of which the Tenant
shall be in default notwithstanding:-
1.1.1 any time or indulgence granted by the Landlord to the Tenant or any
neglect or forbearance of the Landlord in enforcing the payment of
the rents Or any of them or the observance or performance of the
Tenant's Covenants or any refusal by the Landlord to accept rents
tendered by or on behalf of the Tenant at a time when the Landlord
was entitled (or would after the service of a notice under Section
146 of the Law of Property Act 1925 have been entitled) to re-enter
the Premises
1.1.2 that the terms of this Lease may have been varied by agreement
between the parties
1.1.3 that the Tenant shall have surrendered part of the Premises in which
event the liability of the Guarantor hereunder shall continue in
respect of the part of the Premises not so surrendered after making
any necessary apportionments under Section 140 of the Law of
Property Act 1925, and
35
<PAGE>
1.1.4 any other act or thing whereby but for this provision the Guarantor
would have been released
2. If at any time during the Term the Tenant (being an individual) or any one
of them shall become bankrupt or (being a company) shall enter into
liquidation and the trustee in bankruptcy or liquidator shall disclaim this
Lease or if this Lease shall otherwise be disclaimed the Guarantor will if
the Landlord shall by notice within sixty days after such disclaimer so
require take from the Landlord a lease of the Premises for the residue of
the Term which would have remained had there been no disclaimer at the Rent
then being paid hereunder and subject to the same covenants and conditions
as in the Lease with the exception of this clause such new lease to take
effect from the date of the said disclaimer and in such case the Guarantor
shall pay the reasonable and proper costs of such new lease and execute and
deliver to the Landlord a counterpart thereof
SCHEDULE 11
-----------
THE SERVICES
------------
MAINTAINING ETC THE LANDLORD'S PROPERTY
- ---------------------------------------
1. Maintaining repairing amending altering rebuilding renewing and reinstating
fencing and where appropriate washing down painting and decorating to such
standard as the Landlord may from time to time consider adequate the
Landlord's Property (including (for the avoidance of doubt but without
prejudice to the generality of the foregoing) the main structure roofs
foundations and common services of and in the Building)
MAINTAINING ETC APPARATUS AND PLANT MACHINERY ETC
- -------------------------------------------------
2. Inspecting servicing repairing amending overhauling replacing and insuring
(save in so far as insured under, other provisions of this Lease) all
apparatus plant machinery and equipment within the Landlord's Property from
time to time including (without prejudice to the generality of the
foregoing) any lifts stand-by generators and boilers and items relating to
mechanical ventilation heating cooling and alarm systems
MAINTAINING ETC PIPES
- ---------------------
3. Maintaining repairing cleansing emptying draining amending renewing all
Pipes in or serving the Building except those that are within and solely
serve the Premises or any parts of the Building that are let or are
intended for letting
36
<PAGE>
MAINTAINING ETC SECURITY AND FIRE ALARMS ETC
- --------------------------------------------
4. Maintaining and renewing any security alarms fire alarms and ancillary
apparatus fire prevention and fire fighting equipment and other apparatus
in the Landlord's Property
CLEANING ETC THE LANDLORD'S PROPERTY
- ------------------------------------
5. Cleaning treating polishing heating and lighting the Landlord's Property to
such standard as the Landlord may from time to time reasonably consider
adequate
GARDENS ETC
- -----------
6. Providing and maintaining (at the Landlord's absolute discretion) any
plants shrubs trees or garden or grassed areas in the Landlord's Property
and keeping the same planted and free from weeds and the grass cut
FIXTURES, FITTINGS ETC
- ----------------------
7. Supplying providing purchasing hiring maintaining renewing replacing
repairing servicing overhauling and keeping in good and serviceable order
and condition all appurtenances fixtures fittings bins receptacles tools
appliances materials equipment and other things which the Landlord may deem
desirable or necessary for the maintenance appearance upkeep or cleanliness
of the Building or any part of it
WINDOWS
- -------
8. Cleaning as frequently as the Landlord shall in its absolute discretion
consider adequate the exterior of all windows and window frames in the
Building save those for which the Tenant is responsible in accordance with
the Tenant's covenants
REFUSE
- ------
9. Collecting and disposing of refuse from the Building (save where the
tenants are responsible for collection and disposal of refuse from premises
let) and the provision, repair, maintenance and renewal of plant and
equipment for the collection, treatment, packaging or disposal of refuse
OTHER SERVICES
- --------------
10. Any other services relating to the Building or any part of it provided by
the Landlord (acting reasonably) from time to time during the Term and not
expressly mentioned herein which shall at any time during the Term be:
37
<PAGE>
10.1 capable of being enjoyed by the occupier of the Premises or
10.2 reasonably calculated to be for the benefit of the Tenant in conjunction
with other tenants of the Building or be reasonably necessary for the
maintenance upkeep or cleanliness of the Building and
10.3 in keeping with the principles of good estate management
SCHEDULE 12
-----------
ADDITIONAL ITEMS OF EXPENDITURE
-------------------------------
FEES
- ----
1.1 The reasonable and proper fees and disbursements (and any Value Added Tax
payable thereon) of:-
1.1.1 the Surveyor the Accountant and any other individual firm or
company employed or retained by the Landlord for (or in
connection with) such surveying or accounting functions or the
management of the Building
1.1.2 the managing agents whether or not the Surveyor for (or in
connection with):-
1.1.2.1 the management of the Building;
1.1.2.2 the collection of the rents and all other sums due to
the Landlord from the tenants of the Building;
1.1.2.3 the performance of the Services and any other duties in
and about the Building or any part of it relating to
(without prejudice to the generality of the foregoing)
the general management administration security
maintenance protection and cleanliness of the Building;
1.1.3 any other individual firm or company employed or retained by the
Landlord to perform (or in connection with) any of the Services or
any of the functions or duties referred to in this paragraph
1.2 The reasonable fees of the Landlord for any of the services or the other
functions and duties referred to in paragraph 1.1 above that shall be
undertaken by the Landlord and not by a third party
STAFF ETC
- ---------
2. The cost of employing (whether by the Landlord the managing agents or any
other individual firm or company) such staff as the Landlord may in its
absolute
38
<PAGE>
discretion deem necessary for the performance of the Services and the other
functions and duties referred to in paragraph 1.1 above and all other
incidental expenditure in relation to such employment including but without
prejudice to the generality of the foregoing the provision of vehicles,
tools, appliances, cleaning and other materials, fixtures, fittings and
other equipment for the proper performance of their duties and a store for
housing the same and the cost of entering into any contracts for the
carrying out of all or any of the Services and the other functions and
duties that the Landlord may in its absolute discretion deem desirable or
necessary except that where the Services or functions and duties referred
to in paragraph 1.1 above (or any of them) are undertaken by the Landlord
rather than by a third party nothing in this Schedule shall permit the
Landlord to include in the Annual Expenditure both a fee by virtue of
paragraph 1.2 for the performance of the Services or the other functions
and duties (or any of them) and also by virtue of this paragraph the cost
of employing staff to perform the Services or the other functions and
duties (or any of them) and in such circumstances the Landlord shall in its
absolute discretion in respect of each Financial Year elect to include in
the Annual Expenditure either a fee for any such items or the cost of
employing staff to perform them
OUTGOINGS
- ---------
3. All existing and future rates water rates charges duties assessments
impositions and other outgoings payable by the Landlord in respect of the
Building or any part of it (excluding the Premises and any other parts of
the Building that are let or intended for letting)
ELECTRICITY AND GAS ETC
- -----------------------
4. The cost of the supply of electricity gas oil or other fuel for the
provision of the Services and for all purposes in connection with the
Landlord's Property
ROAD ETC CHARGES
- ----------------
5. The amount which the Landlord shall be called upon to pay as a contribution
towards the expense of making repairing maintaining rebuilding and
cleansing roads ways pavements or structures Pipes party fences walls or
anything which may belong to or be used for the Building or any part of it
exclusively or in common with other premises near or adjoining the Building
REGULATIONS
- -----------
6. The costs charges and expenses of preparing and supplying to the tenants
copies of any regulations made by the Landlord relating to the Building or
the use of it
39
<PAGE>
STATUTORY ETC REQUIREMENTS
- --------------------------
7. The cost of taking all steps deemed desirable or expedient by the Landlord
for complying with making representations against or otherwise contesting
the incidence of the provisions of any regulation by law notice legislation
order or statutory requirement concerning town planning public health
highways streets drainage or other matters relating or alleged to relate to
the Building or any part of it for which any tenant is not directly liable
NUISANCE
- --------
The cost to the Landlord of abating a nuisance in respect of the Building
or any part of it in so far as the same is not the liability of any
individual tenant
ANTICIPATED EXPENDITURE
- -----------------------
9. Such provision (if any) for anticipated expenditure in respect of any of
the Services or the above mentioned matters as the Landlord shall in its
absolute discretion consider appropriate
40
<PAGE>
THE COMMON SEAL of THE )
- --------------- ---
UNIVERSITY OF SHEFFIELD )
- -----------------------
was affixed to this Deed )
in the presence )
of:- )
Member of the Council /s/ N. M. Atherton
------------------
Member of the Council /s/ D. Williams
---------------
Director of Finance /s/ K.R. Bearfork
-----------------
41
<PAGE>
On Counterpart
- --------------
THE COMMON SEAL of PHYTERA )
- --------------- -------
LIMITED was affixed to this )
- -------
Deed in the presence of:- )
Director /s/ James E. Eardley
--------
Secretary [illegible]
---------
42
<PAGE>
PLAN 1: DIAGRAM OF LAND AND BUILDING AT REGENT COURT REGENT STREET
43
<PAGE>
PLAN 2: DIAGRAM OF LEASED PREMISES
44
<PAGE>
PLAN 3: DIAGRAM OF LEASED PREMISES
45
<PAGE>
Exhibit 10.22
Agreement
between
Nycomed Amersham plc
(formerly known as Amersham International plc)
Amersham Place
Little Chalfont
Bucks. HP7 9NA
United Kingdom
(hereafter AMERSHAM)
Phytera Inc
377 Plantation Street
Worcester
MA 01605
USA
(hereafter PHYTERA)
AND
Phytera Limited
Regent Court
Regent Street
Sheffield S1 4DA
United Kingdom
(hereafter SHEFFIELD)
WHEREAS
Under an agreement of 30th July 1993 (hereafter the ORIGINAL AGREEMENT) it was
agreed (as per clause 8.1 of the ORIGINAL AGREEMENT) that AMERSHAM would use its
best efforts to grant licenses relating to the research conducted under this
ORIGINAL AGREEMENT in the field of clinical diagnostics.
The Parties desire that PHYTERA now assumes responsibility for this activity
NOW
It is hereby agreed that the responsibilities of AMERSHAM in respect of clause
8.1 shall cease, and shall by virtue of this Agreement, become the
responsibility of PHYTERA, according to the terms and arrangements set out
below.
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1. DEFINITIONS
1.1. The Project Rights shall be defined as any patents, patent applications,
know-how (whether patentable or not), processes, software, trademarks,
designs or copyright which have arisen from the programme of research set
out in schedule I of the ORIGINAL AGREEMENT.
1.2. The Clinical Diagnostics Field is defined as the use of products or
reagents for the purpose of determining, measuring or monitoring the
metabolic or disease state of a human being, with such products or
reagents requiring the approval, prior to sale, of the US FDA (or the
equivalent regulatory agencies for other countries).
2. LICENSING ACTIVITIES BY PHYTERA
2.1. For the duration of this Agreement PHYTERA shall use its best efforts to
grant licenses under The Project Rights in The Clinical Diagnostics Field
on terms which are commercially reasonable and agreed by Amersham.
2.2. PHYTERA shall not be under any obligation to offer any company first
option to The project rights.
2.3. PHYTERA agrees to pay AMERSHAM half of any royalties, option payments, up
front license payments, fixed annual license payments or similar payments
that it may receive under the terms of any license which PHYTERA may grant
under the provisions of this Agreement. Payments made for activities such
as feasibility studies, research and development work or for the
production of materials shall not be covered by this clause.
2.4. All costs associated with the licensing activities shall be the
responsibility of PHYTERA.
3. GRANT OF RIGHTS, PATENTING
3.1. Notwithstanding Clause 7 of the Original Agreement, for the sole purpose
of PHYTERA pursuing the licensing programme as set out above, AMERSHAM
hereby grants PHYTERA an exclusive license to The Project Rights for The
Clinical Diagnostics Field.
3.2. In the course of its licensing activities PHYTERA may seek to protect The
Project Rights in various ways, including the filing of patent
applications. Any such patent applications shall be made in consultation
with AMERSHAM and shall ensure that AMERSHAM's rights in the Life Sciences
field (as defined in the Original Agreement) are respected. The
responsibility for costs of any patent filings and associated activities
shall be discussed in good faith between PHYTERA and AMERSHAM. Such costs
shall be deductible from any payments received before the allocation of
payments as per Clause 2.3.
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3.3. PHYTERA may not sell, grant options over, or license The Project Rights to
any third party except as outlined in clause 2.1, and all such sales,
options or licenses shall require the written signature of AMERSHAM to be
valid, which signature shall not unreasonably be withheld or delayed.
3.4. In the event that PHYTERA sells non-exclusive licenses to The project
Rights, then AMERSHAM shall be entitled, during the period of this
Agreement to obtain a non exclusive license for The Clinical Diagnostics
Field at the same royalty levels and terms as set out in the Original
Agreement. Should PHYTERA sell an exclusive license to The Project Rights,
then AMERSHAM shall have no such right to obtain a non exclusive license.
4. CONFIDENTIAL INFORMATION & DISCLOSURE
4.1. PHYTERA and AMERSHAM shall jointly agree a standard confidentiality
agreement which is to be used by PHYTERA during the course of its
licensing activities under this Agreement. This confidentiality agreement
shall include provisions committing both PHYTERA and AMERSHAM.
4.2. PHYTERA shall be entitled to make such disclosures relating to The Project
Rights as it deems necessary to pursue the licensing activities set out in
clause 2.1. Any detailed disclosures shall be made under confidentiality
agreements, but non-confidential summary information may be released into
the public domain.
4.3. Except as set out in clause 4.2, for the duration of this Agreement
neither party shall allow any of information or knowledge relating to The
Project Rights to be released into the public domain, nor may either party
take any action which reduces or lowers either the prospect of patent
filings being made on The Project Rights, or the value of The Project
Rights.
5. PERIOD OF AGREEMENT, TERMINATION
5.1. This Agreement shall come into effect following signature by all parties.
5.2. This Agreement shall remain in effect for a period of 24 months from the
effective date.
5.3. This Agreement shall terminate at the end of the 24 month period, unless
either:
(a) PHYTERA has (with Amersham's agreement) licensed The project Rights
to one or more third parties, or:
(b) The parties mutually agree to extend the period of the Agreement.
5.5 Upon termination of this Agreement then
(a) all provisions and rights assigned from AMERSHAM to PHYTERA under
this Agreement shall lapse and revert to AMERSHAM.
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(b) any patent applications created under this Agreement shall, at
AMERSHAM's request, be assigned by PHYTERA to AMERSHAM.
(c) any existing agreements (such as confidentiality agreements, options
or licenses) between PHYTERA, AMERSHAM and third parties shall remain
in force in accordance with their terms.
(d) The terms of the ORIGINAL AGREEMENT shall remain in force in an
unamended form.
6. PRIMACY OF ORIGINAL AGREEMENT
6.1. Except as amended in this Agreement, all other clauses of the ORIGINAL
AGREEMENT shall remain in effect.
7. SIGNATURES
Signed in three copies, each of which shall constitute an original.
/s/ M. R. Evans V.P. Drug Discovery 29 October 1998
- -------------------------- ------------------- ---------------
Signature Position Date
for Nycomed Amersham plc
/s/ Malcolm Morville President September 18, 1998
- -------------------------- ------------------- ------------------
Signature Position Date
for Phytera Inc.
/s/James Eardley Director September 18, 1998
- -------------------------- ------------------- ------------------
Signature Position Date
for Phytera Ltd.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
