As filed with the Securities and Exchange Commission on December 29, 1999
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Name of Small Business Issuer as specified in its charter)
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<S> <C> <C>
Delaware 2836 94-3049219
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification number)
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1387 Marina Way South, Richmond, California 94804, (510) 215-8000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Paul E. Freiman
President and Chief Executive Officer
NEUROBIOLOGICAL TECHNOLOGIES, INC.
1387 Marina Way South
Richmond, California 94804
(510) 215-8000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Stephen C. Ferruolo
Heller Ehrman White & McAuliffe
4250 Executive Square, 7th Floor
San Diego, CA 92037-9103
Telephone: (858) 450-8400
Facsimile: (858) 450-8499
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please 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 number of the earlier effective registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration 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,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Aggregate Price Aggregate Offering Amount of
Securities to be Registered Registered Per Security Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par value $.001 8,039,580 $3.03(1) $24,359,927(1) $6,431
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(1) Estimated solely for the purpose of computing the amount of registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the bid and asked price reported of the
Registrant's Common Stock on the OTC Bulletin Board on December 27, 1999.
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 that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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THE INFORMATION IN THE PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE ARE NOT
ALLOWED TO SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion) Dated December 29, 1999
NEUROBIOLOGICAL TECHNOLOGIES, INC.
5,434,700 SHARES OF COMMON STOCK
2,604,880 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANTS
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These shares may be offered and sold from time to time by the stockholders
of the Company identified in this prospectus. See "Selling Stockholders". Of the
shares offered by this prospectus, 5,434,700 of the shares were acquired by the
selling stockholders, and 2,173,880 of the shares are issuable upon exercise of
warrants to purchase common stock issued to the selling stockholders, in the
Company's recent unit financing. In addition, 431,000 shares are issuable upon
exercise of warrants to purchase common stock issued to the placement agent in
connection with the financing.
The selling stockholders will receive all of the proceeds from the sale of
the shares and will pay all underwriting discounts and selling commissions, if
any, applicable to the sale of the shares. We will pay the expenses of
registration of the sale of the shares.
On December 22, 1999, Neurobiological Technologies, Inc. had 13,259,790
shares of common stock issued and outstanding. Our common stock trades on the
Over the Counter (OTC) Bulletin Board(R), an electronic stock listing service
provided by the Nasdaq Stock Market, Inc. under the symbol "NTII". On December
27, 1999, the last bid price for the common stock on the OTC Bulletin Board was
$2.94 per share.
Our principal offices are located at 1387 Marina Way South, Richmond,
California, and our phone number is (510) 215-8000.
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Beginning on page 3, we have listed several "Risk Factors" which you should
consider. You should read the entire prospectus carefully before you make your
investment decision.
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Neither the Securities and Exchange Commission nor state regulatory
authorities 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.
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The date of this prospectus is December __, 1999
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TABLE OF CONTENTS
Forward-Looking Information................................................... 2
Risk Factors.................................................................. 3
Use of Proceeds............................................................... 9
Market Price/Dividends........................................................ 9
Management's Discussion and Analysis of Financial Condition...................10
Business......................................................................12
Directors and Executive Officers..............................................20
Executive Compensation........................................................21
Certain Relationships and Related Transactions................................23
Security Ownership of Certain Beneficial Owners and Management................24
Description of Common Stock...................................................25
Selling Stockholders..........................................................26
Plan of Distribution..........................................................29
Legal Matters.................................................................30
Experts.......................................................................30
Where You can Find More Information...........................................30
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell, and
seeking offers to buy, shares of Neurobiological Technologies, Inc. common stock
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the
shares.
In this prospectus, the "Company," "Neurobiological Technologies, Inc.,"
"NTI," "we," "us," and "our" refer to Neurobiological Technologies, Inc.
FORWARD-LOOKING INFORMATION
Statements made in this prospectus or in the documents incorporated by
reference herein that are not statements of historical fact are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. A number of risks and
uncertainties, including those discussed under the caption "Risk Factors"
beginning on page 3 and the documents incorporated by reference in this
prospectus could affect such forward-looking statements and could cause actual
results to differ materially from the statements made in this prospectus.
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RISK FACTORS
You should consider carefully the following risk factors, along with the
other information contained or incorporated by reference in this prospectus, in
deciding whether to invest in our securities. These factors, among others, may
cause actual results, events or performance to differ materially from those
expressed in any forward-looking statements we make in this prospectus.
NTI will require substantial additional funds to conduct the research and
development and preclinical and clinical testing of its potential products and
to market any products that may be developed.
Since 1987 when NTI was founded, we have applied a substantial portion of
our resources to our research and development programs. As part of the strategic
planning process, we have limited expenditures to only two drug candidates,
Memantine and XERECEPT.
We will need to obtain additional financing to continue operations beyond
June 30, 2000. NTI intends to seek such funding through public or private
financings, collaborative or other arrangements with corporate partners, or from
other sources. There is a risk that we may not be able to obtain the additional
financing from any of these sources, or, if financing is available, that it will
not be available on acceptable terms. In addition, we may seek to raise
additional funds whenever market conditions permit. Raising additional funds
through issuing equity securities may result in significant dilution to our
existing stockholders.
If we are not able to raise adequate funds, we may be required to delay,
scale back, or terminate our clinical trials, or to obtain funds through
collaborative partners or others. Such arrangements may require us to give up
additional rights to our technology, product candidates or products.
Our future capital requirement will depend on a number of factors,
including:
* the amount of royalties received from Merz + Co. GmbH & Co. for future
sales of Memantine;
* the progress of our clinical development programs;
* the time and cost involved in obtaining regulatory approvals;
* the cost of filing, prosecuting, defending, and enforcing patent claims and
other intellectual property rights;
* competing technological and market developments;
* our ability to establish collaborative relationships;
* the development of commercialization activities and arrangements; and
* the purchase of additional capital equipment.
Our continuing losses raised a going concern issue in the report of our
independent auditors.
The report of our independent auditors with respect to our financial
statements included in our Annual Report on Form 10-KSB for the year ended June
30, 1999 includes a paragraph indicating that, as more fully described in the
financial statements, our recurring losses during the development stage and a
working capital deficit and net capital deficiency at June 30, 1999 raise
substantial doubt about our ability to continue as a going concern.
Because all our potential products are in clinical development, we may not
develop a candidate product that will receive required regulatory approval or be
successfully commercialized.
We are still in the development stage and have no marketable products. As a
result, we have no revenues from product sales, and most of our resources are
dedicated to the development of selected candidate pharmaceutical products.
We are currently evaluating the results of our Phase IIB clinical trials of
Memantine for peripheral diabetic neuropathy. In addition, we recently announced
the conclusion of our abbreviated Phase II clinical trial of XERECEPT for
peritumoral brain edema. The results of our preclinical studies and early stage
clinical trials are not necessarily indicative of those that will be obtained
upon further clinical testing in later stage clinical trials. Although the trial
of Memantine completed in January 1998
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indicated potential effectiveness in treating peripheral diabetic neuropathy,
the recently completed Phase IIB clinical trial may not be successful in
confirming Memantine's efficacy for this indication. Further, even though the
results of abbreviated XERECEPT clinical trials confirmed neurologic
improvements, the data were not statistically significant and the status of any
further clinical development of XERECEPT for this indication is uncertain.
Our potential products are subject to the risks of failure inherent in the
development of products based on new technologies.
Our potential products are subject to the risks of failure inherent in the
development of products based on new technologies. These risks include the
possibility that the potential products may:
* be found to be unsafe, ineffective or toxic;
* fail to receive necessary regulatory clearances;
* if approved, be difficult to manufacture on a large scale or uneconomical
to market;
* be precluded from marketing by NTI due to the proprietary rights of third
parties; and
* not be successful because third parties market or may market superior or
equivalent products.
Our development activities may not result in any commercially viable
products. NTI does not expect to be able to commercialize any products for a
number of years, if at all.
We have relied and will continue to rely heavily on others for research,
development, manufacture and commercialization of our potential products.
We have entered into various contractual arrangements (many of which are
non-exclusive) with consultants, academic collaborators, licensors, licensees
and others, and we are dependent upon the level of commitment and subsequent
success of these outside parties in performing their responsibilities. Certain
of these agreements place significant responsibility for preclinical testing and
human clinical trials and for preparing and submitting submissions for
regulatory approval for potential products on the collaborator, licensor or
contractor. If the collaborator, licensor or contractor fails to perform, our
business, financial conditions and results may be adversely affected.
We have also relied on scientific, mechanical, clinical, commercial and
other data supplied and disclosed by others in entering into these agreements.
We have relied on this data in support of applications for human clinical trials
for our potential products. Although we have no reason to believe that this
information contains errors or omissions of fact, it is possible that there are
errors or omissions of fact that would change materially to our view of the
future likelihood of FDA approval or commercial viability of these potential
products.
A number of our agreements and licenses with third parties require us to
pay royalties and make other payments to such parties. Failure by NTI to make
such payments could cause us to lose rights to technology or data under these
agreements.
With respect to Memantine, NTI is dependent on Merz for:
* the manufacturing and supply of drug for any future human clinical trials;
and
* the successful commercialization of the product to treat neuropathic pain
and AIDS-related dementia.
The only revenues that we will receive in the future for Memantine are
royalties received on product sales by Merz or its marketing partner or
partners. Any failure by Merz or its partners to successfully commercialize
Memantine after its development will have a material adverse effect on our
business, financial condition and results of operations.
The FDA and state and local agencies, and comparable agencies and entities in
foreign countries impose substantial requirements on the manufacturing and
marketing of human therapeutics through lengthy and detailed laboratory and
clinical testing procedures, sampling activities and other costly and time
consuming procedures.
All of our products will require regulatory approval prior to
commercialization in any country. In particular, human therapeutic products are
subject to rigorous preclinical and clinical testing and other FDA requirements
in the United States and similar health authorities in foreign countries.
Various federal and, in some cases, state statutes and regulations also govern
or influence the
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manufacturing, safety, labeling, storage, recordkeeping, clinical trials and
marketing of such products, including the use, manufacture, storage,
recordkeeping, disposal of hazardous materials and certain waste products. The
process of obtaining these approvals and the subsequent compliance with
appropriate federal, state, and foreign statutes and regulations require the
expenditure of substantial resources. We cannot yet accurately predict when we
might be able to first submit an application for approval of any products to the
FDA or other regulatory review agency.
In order to clinically test, produce, and market products for therapeutic
use, a company must comply with mandatory procedures and safety standards
established by the FDA and comparable agencies in foreign countries.
A company generally must conduct preclinical testing on laboratory animals
of new pharmaceutical products prior to commencement of clinical studies
involving humans. These studies evaluate the potential efficacy and safety of
the product. The company then submits the results of these studies to the FDA as
part of an investigational new drug application or IND, which must become
effective before beginning clinical testing in humans.
Typically, human clinical evaluation involves a time-consuming and costly
three-phase process:
* In Phase I, a company conducts clinical trials with a small number of
subjects to determine a drug's early safety profile and its pharmacokinetic
pattern.
* In Phase II, a company conducts clinical trials with groups of patients
afflicted with a specific disease in order to determine preliminary
effectiveness, optimal dosages and further evidence of safety.
* In Phase III, a company conducts large-scale, multi-center, comparative
trials with patients afflicted with a target disease in order to provide
enough data to demonstrate the effectiveness and safety required by the FDA
prior to commercialization.
The FDA closely monitors the progress of each phase of clinical testing.
The FDA may, at its discretion, re-evaluate, alter, suspend, or terminate
testing based upon the data accumulated to that point and the FDA's assessment
of the risk/benefit ratio to patients.
The results of the preclinical and clinical testing are submitted to the
FDA in the form of a new drug application or NDA for approval prior to
commercialization. In responding to an NDA, the FDA may grant marketing
approval, request additional information, or deny the application. Failure to
receive approval for any of our potential products would have a material adverse
effect on NTI. Among the requirements for product approval is the requirement
that each domestic manufacturer of the product conform to the FDA's current Good
Manufacturing Practice regulations, which must be followed at all times.
Compliance with the cGMP regulations requires that manufacturers continue to
expend time, money and effort in the area of production and quality control to
ensure full technical compliance.
Once the sale of a product is approved, FDA regulations continue to govern
the manufacturing process and marketing activities. A post-marketing testing and
surveillance program may be required to continuously monitor a product's usage
and effects in patients. Product approvals may be suspended or withdrawn if
compliance with regulatory standards is not maintained.
Foreign regulatory approval of a product must also be obtained prior to
marketing the product internationally. Foreign approval procedures vary from
country to country. The time required for approval may delay or prevent
marketing in certain countries. In certain instances, the company or its
collaborative partners may seek approval to market and sell certain products
outside of the United States before submitting an application for United States
approval to the FDA. The clinical testing requirements and the time required to
obtain foreign regulatory approvals may differ from that required for FDA
approval.
Fulfillment of regulatory requirements for marketing human therapeutics
typically takes many years and varies substantially based on the type,
complexity, and novelty of the drug for which approval is sought. Government
regulation may:
* delay for a considerable period of time or prevent marketing of any product
that we may develop; and/or
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* impose costly procedures upon our activities.
Either of these effects of government regulation may provide an advantage to our
competitors.
There can be no assurance that FDA or other regulatory approval for any
products developed by NTI will be granted on a timely basis or at all. Any delay
in obtaining, or failure to obtain, required approvals would adversely affect
the marketing of our proposed products and our ability to earn product revenues
or royalties.
In addition, success in preclinical or early stage clinical trials does not
assure success in later stage clinical trials. As with any regulated product,
additional government regulations may be instituted which could delay regulatory
approval of our potential products. Additional government regulations that might
result from future legislation or administrative action cannot be predicted.
Our success will depend, in large part, on our ability to obtain or license
patents, protect trade secrets and operate without infringing upon the
proprietary rights of others.
The patent position of biotechnology firms generally is highly uncertain
because:
* patents involve complex legal and factual issues that have recently been
the subject of much litigation;
* no consistent policy has emerged from the United States Patent and
Trademark Office regarding the breadth of claims allowed or the degree of
protection afforded under biotechnology patents; and
* others may independently develop similar products, duplicate any of our
potential products, or design around the claims of any potential patented
products of NTI.
In addition, because of the time delay in patent approval and the secrecy
afforded United States patent applications, we do not know if other
applications, that might have priority over our applications, have been filed.
As a result of all of these factors, there can be no assurance that patent
applications relating to our potential products or processes will result in
patents being issued, or that patents, if issued, will provide protection
against competitors who successfully challenge our patents, obtain patents than
may have an adverse effect on our ability to conduct business, or be able to
circumvent our patent position.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to our business.
Some of these technologies, applications or patents may conflict with NTI's or
any of our licensors' technologies or patent applications. Such conflict could
limit the scope of the patents, if any, that we may be able to obtain or to
which we have a license or result in the denial of our patent applications or
the patent applications for which we have licenses. In addition, if patents that
cover our activities have been or are issued to other companies, there can be no
assurance that we would be able to obtain licenses to these patents at a
reasonable cost, or be able to develop alternative technology.
Competition in pharmaceutical products and drug delivery systems is intense.
Competition in the biopharmaceutical industry is intense and is expected to
increase. The development and sale of drugs for the treatment of the therapeutic
targets we pursue is highly competitive. There are therapies under development
for each of these therapeutic targets. We may not develop products that will be
as efficacious or as cost-effective as currently-marketed products. Because we
have non-exclusive licenses to patent rights covering certain uses of XERECEPT,
others may develop, manufacture and market products that could compete with
those we develop.
We will face intense competition from pharmaceutical, chemical, and
biotechnology companies both in the United States and abroad in our attempt to
discover, develop and market therapeutic drugs. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage. In addition, we will face competition from universities and other
nonprofit research institutions, which now conduct significant level of research
in biotechnology and medicine and are increasingly active in seeking patent
protection and licensing revenues for their research.
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We believe that our ability to compete successfully will depend, among
other factors, on our ability to:
* obtain funding;
* create and maintain scientifically advanced technology;
* develop proprietary products that can be protected by patents;
* attract and retain scientific personnel;
* obtain patent or other protection for its products;
* obtain required regulatory approvals; and
* manufacture and successfully market products either alone or through other
parties.
Most of our competitors have substantially greater financial, marketing and
human resources, and accordingly we will need to continue to attract and retain
qualified scientific personnel, finance pre-clinical and clinical trials, obtain
requisite regulatory approvals and commercialize our products.
Because we do not have our own manufacturing facilities we face risks from
outsourcing.
We have established arrangements with our corporate collaborator, Merz +
Co. GmbH & Co., and with contract manufacturers to supply potential products for
preclinical and clinical trials. We intend to establish similar arrangements for
the manufacture, packaging, labeling and distribution of our products if they
are approved for marketing.
We face certain risks by outsourcing manufacturing, including:
* the delay of our preclinical and human clinical testing if our contractors
are unable to supply sufficient quantities of product candidates
manufactured in accordance with cGMP on acceptable terms;
* the delay of market introduction and subsequent sales of such products if
we encounter difficulties in establishing relationships with manufacturers
to produce, package and distribute our products; and
* adverse effects on FDA pre-market approvals of the products of our
collaborators and contract manufacturers if they do not adhere to cGMP
regulations.
Therefore, our dependence on third parties for the manufacture of products
may adversely affect our results of operations and our ability to develop and
deliver products on a timely and competitive basis.
Clinical trials or marketing of any of our potential products may expose us to
liability claims from the use of such products which our insurance may not
cover.
We have a limited amount of product liability insurance to cover
liabilities arising from clinical trials. It is possible that our current
insurance may not be adequate to cover any liabilities arising from our clinical
trials.
Our current product liability insurance does not cover commercial sales
of products. We can not be sure that we will be able to obtain product liability
insurance covering commercial sales or, if such insurance is obtained, that
sufficient coverage can be acquired at a reasonable cost. An inability to obtain
insurance at acceptable cost or otherwise protect against potential product
liability claims could prevent or inhibit commercialization of any products we
develop. Further reductions in our staff might significantly delay the
achievement of planned development objectives.
Each person currently employed by NTI serves an essential function. During
fiscal year 1998, we reduced our workforce from 22 to 13 persons, during fiscal
year 1999 we reduced our workforce from 13 to 11 persons, and during the quarter
ending September 30, 1999, we further reduced our workforce from 11 to 10
persons. Any further reduction in force could impair our ability to manage
ongoing clinical trials and may have a material adverse effect on our
operations.
If previously unregistered shares of our common stock are sold into the market,
it could cause the price of our common stock to drop.
Prior to this offering, we had approximately 7,825,090 shares of common
stock outstanding. This prospectus covers an additional 8,039,580 shares of
common stock. Consequently, the number of shares freely tradable in the open
market will increase significantly. If holders of these shares sell large
numbers of their shares in the open market, the
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market price of the common stock could fall sharply. In addition, the perception
that such sales could occur may cause the market price of our common stock to
remain relatively low indefinitely.
The market price of the shares of our common stock has been, and is likely to
continue to be, highly volatile.
The average daily trading volume of our common stock during fiscal 1999 has
been low compared to that of other biopharmaceutical companies. Our common stock
was delisted from The Nasdaq Stock Market in February 1998 because we failed to
meet the financial conditions necessary to remain listed. The delisting has
adversely affected, and is expected to continue to adversely affect, the trading
volume and price volatility of our stock.
Other factors that may cause volatility in our stock price include:
* the results of preclinical studies and clinical trials by NTI or our
competitors;
* other evidence of the safety or efficacy of products of NTI or our
competitors;
* announcements of technological innovations or new therapeutic products by
NTI or our competitors;
* developments in patent or other proprietary rights of NTI or our
competitors, including litigation;
* fluctuations in our operating results;
* government regulation and health care legislation; and
* market conditions for life sciences' stocks in general.
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USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock by the selling stockholders. If the warrants underlying certain of
the shares offered under this prospectus are exercised by paying cash, rather
than pursuant to their net exercise provisions, we could receive up to
approximately $5.3 million in proceeds. We intend to use any proceeds we receive
from the exercise of the warrants for general corporate purposes.
MARKET PRICE OF NTI COMMON STOCK; DIVIDENDS
Since February 1998, the Company's common stock has been quoted on the
Over-the-Counter ("OTC") Bulletin Board, an electronic stock listing service
provided by The Nasdaq Stock Market, Inc., under the symbol NTII.
As of December 22, 1999, there were approximately 282 holders of record of
the Company's common stock and 13,259,790 shares of common stock outstanding.
The price range of the Company's common stock during the past two fiscal
years is shown below. Except as otherwise noted, high and low prices given here
refer to the high and low bid quoted on the OTC Bulletin Board. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
Fiscal 1998 High Low
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First Quarter*....................... $3.63 $1.56
Second Quarter*...................... $3.56 $0.44
Third Quarter........................ $1.28 $0.47
Fourth Quarter....................... $1.50 $0.69
Fiscal 1999 High Low
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First Quarter........................ $1.06 $0.38
Second Quarter....................... $0.69 $0.41
Third Quarter........................ $0.66 $0.47
Fourth Quarter....................... $1.44 $0.50
Fiscal 2000 High Low
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First Quarter........................ $1.53 $0.84
Second Quarter (through December 20,
1999)................................ $3.75 $0.84
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* Prices shown during these quarters reflect the high and low closing price
of the Company's Common Stock on the Nasdaq SmallCap Market.
No dividends have been paid on the common stock since the Company's
inception, and the Company does not anticipate paying any dividends in the
foreseeable future.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operation," and elsewhere in this prospectus that are
not historical are forward-looking statements and are subject to a number of
risks and uncertainties which could cause actual results to differ materially
from those discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those set forth under "Risks
Factors".
Since 1987 when NTI was founded, the Company has applied a majority of its
resources to its research and development programs. The Company is a development
stage company, has not received any revenue from the sale of products, and does
not anticipate receiving revenue from the sale of products in the near future.
The Company has incurred losses since its inception and expects to incur
substantial, increasing losses due to ongoing and planned research and
development efforts.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 and September 30, 1998
The Company's research and development expenses increased to approximately
$536,000 in the three months ended September 30, 1999 from approximately
$441,000 in the same period of the prior year. The increase was primarily due to
the initiation of a Phase IIB human clinical trial to evaluate Memantine as a
treatment for peripheral diabetic neuropathy. General and administrative
expenses increased to approximately $247,000 in the three months ended September
30, 1999 from $222,000 in the three months ended September 30, 1998. The
increase was primarily due to increased expenditures in activities relating to
seeking financing and corporate partnerships. Interest income decreased to
$2,000 in the three months ended September 30, 1999 from $23,000 in the same
period of the prior year primarily due to lower average cash balances.
Fiscal Years Ended June 30, 1999 and June 30, 1998
The Company's research and development expenses increased to $2,780,000 in
fiscal 1999 from $2,026,000 in fiscal 1998. The increase in fiscal 1999 was
primarily due to the initiation of a Phase IIB human clinical trial to evaluate
Memantine as a treatment for peripheral diabetic neuropathy. General and
administrative expenses decreased to $1,058,000 in fiscal 1999 from $2,347,000
in fiscal 1998. The decrease in fiscal 1999 was primarily due to lower salaries,
facility costs and professional fees. In fiscal 1999, the Company's revenues of
$99,544 were due to a Small Business Innovative Research grant awarded from the
NIH. Interest income decreased from $99,000 in fiscal 1998 to $47,000 in fiscal
1999, primarily due to changes in average cash balances.
The Company expects to incur substantial ongoing costs primarily for Phase
II clinical trials for its development programs and related administrative
support. The Company expects that its expenditures will continue to increase as
its products move through Phase II and, if the Phase II trials are successful,
Phase III clinical trials.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its cash requirements to increase significantly in
future periods. Future cash requirements will depend on numerous factors,
including: the in-licensing of potential drug candidates; the progress on
development programs; the time and costs involved in seeking to obtain
regulatory approval; the ability of the Company to establish collaborative
arrangements; product commercialization activities; and the acquisition of
manufacturing or laboratory facilities.
From inception through November 30, 1999, the Company has raised a total of
$35.5 million in net proceeds from the sale of common and preferred stock.
The Company believes that its available cash and cash equivalents of
approximately $2.6 million as of November 30, 1999 are adequate to fund its
operations through the fiscal year ending June 30, 2000. The
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Company will need to raise substantial additional capital to fund operations
beyond the fiscal year ending June 30, 2000. The Company intends to seek funding
through public or private financings, collaborative or other arrangements with
corporate partners, or from other sources. However, there can be no assurance
that funding will be available on favorable terms from any of these sources, if
at all. If such funding is unavailable, the Company will be required to delay,
scale back, or eliminate one or more of its research, discovery, or development
projects, including clinical trials, and to make further reductions in
workforce. The Company will also need to consider obtaining funds through
entering into arrangements with collaborative partners or others which may
require the Company to relinquish rights to certain of its technologies, product
candidates or products that the Company would not otherwise relinquish, and
other restructuring alternatives, including the license or sale of certain of
its assets and technology, discontinuing operations or liquidation.
IMPACT OF YEAR 2000 ISSUE
Year 2000 or Y2K exposure is the result of computer programs using two
instead of four digits to represent the year. These computer programs may
erroneously interpret dates beyond the year 1999, which could cause system
failures or other computer errors, leading to disruptions in operations.
The Company has completed an assessment of its computer systems. The
Company utilizes only commercially available software applications and these
have been upgraded to versions that the vendors advertise to be Y2K compliant.
The Company has contacted selected vendors with regards to their Y2K status.
Based upon vendors' representations to date, the Company believes that they will
be able to supply NTI with its needs in the year 2000.
NTI believes its computer systems will function properly with regard to
Y2K. If any problems were to arise, the worst-case scenario for Y2K problems for
NTI would be to cease using the affected systems for an indefinite period of
time while the Company attempts to correct the problems. In the event that Y2K
issues are not resolved in a timely manner, the Company will implement
alternative methods to carry out these tasks and services until the affected
systems are upgraded. However, we do not know if this would have a material
effect on NTI's operations, liquidity or financial condition.
NTI has made forward-looking statements regarding its Y2K compliance. These
statements include the expected completion schedule for system upgrades and the
costs to the Company of such upgrades. There are many factors that could cause
actual events or results to differ materially from those stated in the
forward-looking statements. These factors include difficulties in identifying or
upgrading software or hardware systems that are not currently Y2K compliant and
in coordinating these efforts through NTI's internal staff and specialized
contractors. The Company expects to be able to complete these upgrades before
any Y2K problem could arise. Unanticipated problems such as material costs
caused by undetected errors or defects in the technology used in the Company's
internal systems could delay the Company's completion of the upgrades.
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<PAGE>
BUSINESS
OVERVIEW
NTI is an emerging drug development company focused on the clinical
development and regulatory approval of neuroscience drugs. NTI is developing
neuroprotective and neuromodulatory agents to treat progressive neurological
impairments characteristic of various nervous system disorders, including
diabetic neuropathy, brain cancer and AIDS dementia syndrome. NTI was organized
as a California corporation in 1987, and it was reincorporated in Delaware in
1994.
Our strategy is to in-license and develop early-stage drug candidates that
target major medical needs and that may be rapidly commercialized. Our
experienced management team oversees the human clinical trials necessary to
establish preliminary evidence of efficacy and seeks partnerships with
pharmaceutical and biotechnology companies to complete development of and market
its product candidates.
NTI has recently completed Phase II human clinical testing for two product
candidates. One of these, the orally-available compound Memantine, appears to
restore the function of impaired neurons by modulating the N-methyl-D-aspartate
("NMDA") receptor, integral to the membranes of such cells. Such restoration of
function inhibits injured or damaged neurons from firing abnormally, a
pathological process associated with many neurological conditions, including
dementia, Alzheimer's disease, neuropathic pain (persistent pain resulting from
abnormal signals to the brain) and AIDS dementia. Memantine may be an effective
and marketable treatment for such conditions due to its favorable side effect
profile and oral dosage formulation. There are currently no approved
neuroprotective treatments for any of the pathologies associated with abnormal
NMDA-receptor activity.
Memantine has been marketed by Merz + Co. GmbH & Co. of Frankfurt, Germany
in Germany since 1989 with the labeling "dementia syndrome." In April 1998, we
entered into a strategic research and marketing cooperation agreement with Merz
and a revenue sharing partnership with Children's Medical Center Corporation of
Boston, Massachusetts, to further the development and commercialization of
Memantine. Pursuant to this agreement, Children's Medical Center Corporation
terminated our existing license for AIDS-related dementia and neuropathic pain
and granted exclusive rights to Merz. In exchange, we received an up-front
payment of $2.1 million from Merz. NTI and Children's Medical Center Corporation
will share in future revenue from sales of Memantine by Merz or its marketing
partners. NTI and Merz are currently assisting each other to advance their
respective clinical development programs by sharing their scientific information
and clinical trial data. They are also seeking a marketing agreement for
Memantine with a large pharmaceutical company.
In October 1999, we announced that our alliance partner, Merz + Co. GmbH &
Co., concluded two major Phase III trials in vascular dementia with Memantine
and that the initial results look promising. A total of 900 patients were
enrolled in multiple sites in the UK and France. The trial was designed to
investigate improvements in cognition, a major focus of drug therapy for
dementia. Merz plans to disclose data from the trials at the International
Stockholm/Springfield Symposium on Advances in Alzheimer's Therapy Conference to
be held in Stockholm in April 2000. Merz's Phase III program for Memantine as a
treatment for Alzheimer's disease in the United States is continuing. We
recently announced the completion of enrollment of a 421 patient Phase IIB
clinical trial to evaluate the ability of Memantine to relieve chronic pain due
to diabetic neuropathy or nerve damage, particularly nocturnal pain that
frequently interferes with sleep. Quintiles CNS Therapeutics, a leading contract
research organization with experience in neurology, is jointly managing the
trial for two product candidates with us. We are currently analyzing the results
of this trial, and we expect to announce the results in January 2000.
Memantine is also currently being evaluated as a treatment for AIDS-related
dementia in a Phase II human clinical trial funded by the National Institutes of
Health or NIH. The trial is being conducted by AIDS Clinical Trials Group or
ACTG, and is designed to evaluate Memantine's ability to reduce symptoms of
dementia and neuropathic pain in patients with AIDS. The ACTG has also
implemented a protocol permitting open-label dosing for up to 60 weeks following
the double blinded phase of the trial. This open-label phase will provide data
on the long-term safety of Memantine. NTI is supplying Memantine for the trial
and will have the right to use the resulting data for the commercial development
of Memantine for that indication.
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We are also developing XERECEPT, our synthetic preparation of the natural
human peptide Corticotropin-Releasing Factor or CRF, as a treatment for brain
swelling due to brain tumors (peritumoral brain edema). We evaluated XERECEPT, a
synthetic preparation of the natural human peptide, Corticotropin-Releasing
Factor in a randomized, double-blind, positive-controlled Phase II human
clinical trial for peritumoral brain edema (swelling of the brain caused by a
tumor). We closed enrollment for this trial at 33 patients (one third of
projected enrollment) in order to provide expedited but abbreviated analysis of
the data. All responders, as defined by the trial protocol, were in the XERECEPT
treatment groups. Rigorous statistical analysis of the data was not meaningful
due to the small numbers enrolled. The clinical study should be regarded as
confirmatory but not definitive with regard to neurologic improvements that may
be attained with XERECEPT in symptomatic brain tumor patients.
During fiscal 1999, we were awarded a Small Business Innovative Research
(SBIR) grant of approximately $100,000 from the NIH for clinical development of
XERECEPT for peritumoral brain edema. In April 1998, XERECEPT received orphan
drug designation for this indication. Orphan drug designation provides us with
seven years market exclusivity and makes us eligible to receive Orphan Drug
Grants to fund clinical research.
Previously we sought to out-license Dynorphin A, a human peptide previously
tested as an analgesic agent. During the fourth quarter of fiscal 1999, we
abandoned our rights to Dynorphin A.
PRODUCT CANDIDATES
<TABLE>
<CAPTION>
Product/Indication Development Status Primary Benefit Sought
------------------ ------------------ ----------------------
<S> <C> <C>
MEMANTINE
Diabetic Neuropathic Pain Phase IIA trial completed. Analgesia
Phase IIB trial initiated November Analgesia
1998. Patient enrollment completed
September 1999. Data expected in
January 2000.
AIDS-related Dementia and Phase II trial in progress. Improvement in neurological function
Neuropathic Pain and peripheral neuropathy.
Patient enrollment completed in
December 1999.
Moderate to Severe Dementia and Phase III trial initiated in 1998. Functional and/or cognitive
Alzheimer's Disease* improvement.
*Merz + Co. GmbH & Co. trial in the United States.
XERECEPT(TM) (CORTICOTROPIN-RELEASING FACTOR)
Peritumoral Brain Edema Multiple Phase I/II trials completed. Improvement in neurological function.
Phase II trial enrollment closed at Stabilization or improvement of
33 patients. Results confirmatory neurological function.
but not definitive.
</TABLE>
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SCIENTIFIC BACKGROUND
Our therapeutic focus is neuroprotection and neuromodulation: the
prevention and treatment of neurological impairment by preserving or restoring
neurological function of damaged neurons. We are developing neuroprotective and
neuromodulatory agents which may slow or reverse the progressive neurological
impairment associated with multiple nervous system disorders, including diabetic
neuropathy, brain cancer, and AIDS-dementia complex.
Because neuronal injury contributes significantly to functional impairment
in many nervous system disorders, scientists believe that neuroprotective
compounds are potentially powerful and flexible therapeutic agents.
Neuroprotective compounds are currently being tested in human clinical trials
conducted by multiple third parties for their ability to slow or halt
progressive functional neurologic impairment.
Mechanisms common to progressive neuronal injury in various medical
conditions are thought to result in multiple neurologic symptoms such as chronic
pain, motor difficulties, memory loss and other cognitive deficits. By
modulating such mechanisms, neuroprotective agents may prevent or restore loss
of neurological function. Our current scientific focus is on two mechanisms
contributing to progressive neuronal injury: excitotoxicity and edema. There is
evidence that Memantine prevents or reduces excitotoxicity, a cascade of
neuronal cell injury and death associated with the release of abnormal levels of
excitatory neurotransmitters. XERECEPT has the potential to prevent the
progressive neuronal injury resulting directly from cerebral edema (swelling of
the brain), damage that more frequently results in clinical impairment than the
damage resulting from the presence of a tumor.
PRODUCTS IN DEVELOPMENT
Memantine
Memantine is an orally-available neuromodulatory agent that has been
marketed in Germany since 1989 with the labeling "dementia syndrome." It is one
of a class of agents referred to as NMDA-receptor antagonists. Scientific
research has indicated that modulating the NMDA receptor may protect against the
neuronal injury and death associated with a number of medical conditions.
Accumulating evidence from various studies indicates that overstimulation of
NMDA receptors contributes to the injury and death of neurons. This occurs in a
variety of chronic neurodegenerative diseases including neuropathic pain,
dementia, Alzheimer's disease, and Huntington's disease. There are currently no
approved neuroprotective treatments for any of the pathologies associated with
NMDA-receptor overstimulation.
NTI is currently developing Memantine both as a treatment for neuropathic
pain as well as for neurological deficits associated with AIDS. Estimates are
that approximately 1,000,000 patients in the United States suffer from
intractable neuropathic pain. In addition, as many as one-third of AIDS patients
eventually develop neurological problems, such as loss of cognition and
coordination.
Nerve cells in the brain communicate by sending signals to excite or
inhibit each other. These signals are initiated by compounds known as
neurotransmitters. The principal excitatory neurotransmitter, glutamate, binds
to the NMDA receptor embedded in the cell membrane of the neuron. When glutamate
binds to the receptor, a channel in the neuron opens which enables charged
calcium molecules to flow freely into the neuron. Normally, the influx of
calcium triggers chemical reactions that cause the neuron to change its
electrical charge and fire a message to neighboring neurons. This basic function
of the NMDA receptor is essential for normal movement, sensation, memory, and
cognition. In certain medical conditions, glutamate levels surrounding neurons
are elevated, which results in overstimulation of the NMDA receptor. In these
situations, excessive amounts of calcium enter the neuron, releasing internally
stored glutamate into the surrounding area. This glutamate further stimulates
NMDA receptors on neighboring neurons, causing a cascade of neuronal cell injury
and/or death throughout the area, referred to as excitotoxicity.
Neuroscientists have been developing ways to prevent the damaging influx of
excess calcium into neurons. One approach is to prevent glutamate from binding
to the receptor. This can be accomplished by using either a competitive
NMDA-receptor antagonist which prevents glutamate from binding to the receptor,
or a closed
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NMDA-receptor channel blocker, which binds to the entrance of the closed
channel. However, if such compounds prevent the channel from opening for too
long, they may impede the normal functioning of the NMDA receptor, causing side
effects including hallucinations, paranoia, delirium, and amnesia.
Scientists affiliated with Children's Hospital of Boston, Massachusetts
working on understanding the function of the NMDA receptor found Memantine to
modulate the NMDA receptor's calcium ion channel. Memantine binds
uncompetitively to the NMDA receptor and appears to interfere relatively little
with normal functioning, while reducing abnormal signals associated with
excessive calcium influx. Rather than blocking the NMDA receptor for long
periods of time, Memantine appears to restore regulation of the channel to near
normal activity, while permitting routine neurotransmission.
The profound psychotic side effects associated with other NMDA receptor
antagonists previously evaluated by third parties in human clinical trials have
very rarely been reported with Memantine. Merz has carefully documented
Memantine's history of safe clinical use in Germany over years of post-launch
clinical experience and active surveillance. In a post-marketing surveillance
study sponsored by Merz with 1,420 dementia outpatients treated for up to more
than one year, Memantine was rated as having very good to good tolerability in
93.8% of the cases at the end of the observation period.
Product Development Status
The Neuropathic Pain of Diabetes
Diabetes mellitus is a chronic disorder that affects an estimated 16
million Americans. One of its most common complications is nerve damage,
particularly damage to peripheral nerves that send sensory signals from the
extremities to the central nervous system or CNS. This condition, referred to as
peripheral diabetic neuropathy or PDN, is a large, unmet medical need. This
condition most frequently damages nerves in the feet, making walking or standing
painful and difficult. We estimate that approximately 800,000 patients in the
United States currently receive treatments for the symptoms of PDN, including
severe, chronic pain known as neuropathic pain (persistent pain in the absence
of an obvious stimulus). As the neuropathy progresses, the sensation of pain may
become more intense, encompass more areas, and become increasingly difficult to
treat with available therapeutic agents.
Peripheral nerve damage disrupts pain pathways in the nervous system,
causing nerves to send abnormal signals that the brain interprets as pain. In
effect, neurons in the CNS are bombarded with abnormal signals until their
ability to process pain signals is compromised. This leads to
hyper-sensitization of neurons to pain impulses and results in progressive
neuronal injury in the CNS. Although the precise mechanisms of these events are
not completely understood, there is evidence that overactivation of NMDA
receptors in the CNS plays an important role.
Memantine has been shown to inhibit abnormal pain signals by modulating the
NMDA receptor in several animal models of neuropathic pain. Based on the results
of these studies, we sponsored and completed a 122-patient placebo-controlled
Phase IIA human clinical trial of Memantine in patients with neuropathic pain
due to diabetes or post-herpetic neuralgia (a complication of shingles). No
treatment benefit was observed in patients with post-herpetic neuralgia. Trends
indicating efficacy of Memantine were observed in patients with PDN, however.
The strongest efficacy trend was the reduction of nocturnal pain associated with
PDN. Nocturnal pain is a major problem for these patients, frequently leading to
insomnia and other associated health and psychological problems. After eight
weeks of treatment in our clinical trial, subjects dosing with Memantine
reported a mean nocturnal pain rating of 31.2 millimeters (on a visual analogue
scale of 1-100 millimeters) compared to a mean of 44.4 millimeters for those who
received placebo. The difference between these means indicates that the
Memantine-treated subjects had 42% less nocturnal pain than those treated with
placebo. The results for the other primary variables of daytime pain and pain
relief, although not statistically significant, exhibited consistent trends
representative of analgesic benefit with Memantine compared to placebo.
Based on the results from our Phase IIA trial of Memantine in patients with
neuropathic pain, we initiated a Phase IIB trial of Memantine in the second
quarter of fiscal 1999, exclusively in patients with PDN.
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This randomized, double-blind, placebo-controlled dose-ranging trial is
evaluating the ability of Memantine to relieve chronic pain due to nerve damage
in patients with PDN (particularly nocturnal pain). The trial protocol specifies
that Memantine subjects will receive a 10 mg daily dose, escalating by 10 mg at
weekly intervals to either 20 mg or 40 mg daily. Quintiles CNS Therapeutics, a
leading contract research organization with experience in neurology, is jointly
managing the trial with the Company. In September 1999, we completed patient
enrollment in this trial. Enrollment was closed at 421 patients. We expect to
report results from this trial in January 2000. Results will determine whether
we will initiate a pivotal Phase III trial for this indication in collaboration
with a corporate partner.
AIDS: Dementia and Neuropathic Pain
Recent research indicates that infection of the CNS with HIV, the virus
associated with AIDS, also leads to neuronal damage. Such damage may result in
neurological complications, including loss of cognition, movement, and
sensation, referred to as AIDS dementia complex. Approximately one-half of
children and one-third of adults with AIDS are expected to develop these
symptoms. There are currently no therapies specifically directed towards
HIV-associated neuronal damage. Current AIDS therapies, even if effective at
reducing the circulating virus level, do not appear to be effective at
eliminating AIDS-induced damage to the CNS.
Besides the AIDS-related cognitive impairments, many AIDS patients
experience painful peripheral neuropathies due to overstimulation of NMDA
receptors. This often occurs in the later stages of AIDS and results in a
burning pain of the feet as well as pain from anything that touches the skin.
Walking in particular may become extremely difficult. Effective treatments are
still unavailable for this incapacitating condition and certain AIDS therapies
may aggravate this type of neuropathic pain.
Memantine has been shown to reduce NMDA receptor-mediated neuronal damage
in both in vitro (outside the body) experiments and in vivo animal models.
Neuronal dysfunction due to HIV infection has been shown to be mitigated by
antagonists of the NMDA receptor, including Memantine.
In December 1996, we announced the initiation of a Phase II clinical trial
of Memantine as a treatment for AIDS-related dementia and neuropathic pain. This
study is funded by the NIH and is being conducted by the ACTG, a clinical trials
consortium associated with the Division of AIDS of the NIH. The trial protocol
submitted under our Investigational New Drug application calls for the
enrollment of 140 AIDS patients with symptoms of dementia. In December 1999,
enrollment was completed. The ACTG has also implemented a protocol extension
permitting open-label dosing for up to 60 weeks following the blinded phase of
the trial. This open-label phase will provide data on the long-term safety of
Memantine. We are supplying Memantine for the trial and will have the right to
use the resulting data to further the commercial development of Memantine for
that indication. If positive trial results are reported, we intend to discuss
the additional regulatory requirements for this indication including future
clinical trials with the Food and Drug Administration.
Agreement with Merz and Additional Indications
In April 1998, we entered into a strategic research and marketing
cooperation agreement with Merz and a new revenue sharing partnership with
Children's Medical Center Corporation to further the clinical development and
commercialization of Memantine. Pursuant to this agreement, Children's Medical
Center Corporation terminated its existing license to NTI for AIDS-related
dementia and neuropathic pain and granted exclusive rights to Merz. NTI and Merz
will share scientific, clinical and regulatory information about Memantine,
particularly safety data, to facilitate regulatory review and marketing approval
by the FDA and foreign regulatory authorities.
Pursuant to the agreement with Merz, NTI will share in future revenues from
sales of Memantine for treatment of moderate to severe dementia and Alzheimer's
disease, indications which Merz is developing. Severe dementia is characterized
by progressive decline in motor and cognitive skills associated with multiple
central nervous system disorders, chiefly neurodegenerative conditions such as
Alzheimer's disease. According to the NIH, approximately 4 million people are
affected by Alzheimer's disease in the U.S. There are currently no approved
treatments indicating clinical benefits in patients with severe dementia.
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Merz has completed three Phase III clinical trial of Memantine for moderate
to severe dementia in Europe and is currently conducting a Phase III trial in
the U.S. managed by Quintiles CNS Therapeutics.
In the March 1999 issue of the peer-review International Journal of
Geriatric Psychiatry, positive results were reported from the first Phase III
human clinical trial of Memantine sponsored by Merz. In this double-blind
placebo-controlled trial, 166 elderly, care-dependent and severely demented
patients were randomized to receive a 10 mg oral dose of Memantine or placebo
for 12 weeks. All patients were diagnosed with primary dementia: 49% with
Alzheimer's disease and 51% with vascular or mixed-type dementia. Subjects'
motor performance and functional independence were assessed after 4 and 12 weeks
of treatment using two standard scales. The effect of Memantine, as evaluated on
both scales, resulted in statistically significant improvement compared to
placebo. Functional evaluations performed by physicians and nursing staff
included ability to move, wash, bathe and dress, as well as the ability to
recognize persons and participate in group activities. Memantine was well
tolerated and no significant side effects were reported.
In October 1999, NTI announced that its alliance partner, Merz + Co. GmbH &
Co., concluded two major Phase III trials in vascular dementia with Memantine
and that the initial results look promising. A total of 900 patients were
enrolled in multiple sites in the UK and France. The trial was designed to
investigate improvements in cognition, a major focus of drug therapy for
dementia. Merz plans to disclose data from the trials at the International
Stockholm/Springfield Symposium on Advances in Alzheimer's Therapy Conference to
be held in Stockholm in April 2000. Merz's Phase III program for Memantine as a
treatment for Alzheimer's disease in the United States is continuing.
XERECEPT(TM) (Human Corticotropin-Releasing Factor)
XERECEPT(TM) is our synthetic preparation of the human peptide
Corticotropin-Releasing Factor which we are developing as a treatment for brain
swelling due to brain tumors (peritumoral brain edema). There is clinical
evidence that XERECEPT may be demonstrated to be a safer treatment than
synthetic corticosteroids, which are associated with serious adverse side
effects including muscle wasting, osteoporosis, hyperglycemia, vision problems,
and psychosis. Results from preclinical studies and pilot human clinical trials
previously sponsored by the Company have demonstrated the compound's potential
to reduce swelling in brain tissue and to be well-tolerated and apparently safe.
Thus, XERECEPT has the potential to significantly improve the quality of life
for brain cancer patients with dysfunction due to brain swelling. In the United
States, approximately 30,000 patients are diagnosed every year with brain
tumors. Patients with this condition are in need of a safe alternative to
corticosteroids, which have serious adverse effects at the high, chronic doses
required for efficacy. The FDA has approved our application for orphan drug
designation for XERECEPT to treat this unmet medical need. Orphan drug
designation provides NTI with seven years market exclusivity and makes us
eligible to receive federal monies for clinical research under the Orphan Drug
Grant Program. During fiscal 1999, we were awarded a Small Business Innovative
Research grant of approximately $100,000 from the NIH for clinical development
of XERECEPT for peritumoral brain edema.
CRF is a natural neuroendocrine peptide hormone found in humans both
centrally (within the brain) and peripherally (outside the brain). Researchers
discovered anti-edema affects of CRF through systemic administration. Research
by scientific collaborators of NTI has revealed that XERECEPT significantly
reduces edema or swelling of damaged tissue in animal models. Edema is a
condition characterized by swelling after tissue injury when fluid, plasma
proteins, and white blood cells flow from small blood vessels into the
surrounding tissues, further contributing to the destruction of these tissues.
Preclinical studies sponsored by the Company have shown that XERECEPT reduces
the flow of fluid through blood vessels at sites of traumatic tissue injury.
Specifically, these studies have shown that XERECEPT injected systemically into
animals can reduce brain edema after injury, brain edema associated with cancer
tumors, and swelling in muscle tissue following surgical trauma.
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Product Development Status
Peritumoral Brain Edema
We have been initially evaluating XERECEPT for the treatment of cerebral
edema caused by brain tumors. In these patients, the tumor promotes increased
permeability of the small blood vessels in the brain resulting in the excess
flow of fluids into the brain, swelling of brain tissue, and a consequent
impairment of neurological function. Current treatment of peritumoral brain
edema, primarily corticosteroids, results in serious adverse side effects at the
high, chronic doses required for efficacy. Reactions can include muscle wasting,
immunosuppression, osteoporosis, hyperglycemia, glaucoma, and other potentially
dose-limiting side effects.
Although endogenous CRF is involved in stimulating the release of natural
corticosteroids, studies sponsored by the Company have shown that XERECEPT
exerts its anti-edema action independent of cortisol release when administered
systemically.
Based on the pharmacologic profile of XERECEPT, there is evidence that the
compound may be efficacious without the adverse side effects associated with
current therapies. XERECEPT has been safely administered to several hundred
healthy volunteers and patients according to numerous studies published by third
parties. In human clinical trials sponsored by the Company, XERECEPT was well
tolerated and appeared to be safe in more than 230 courses of treatment.
Results from pilot human clinical trials previously sponsored by NTI
demonstrated the potential of XERECEPT to reduce swelling of brain tissue and to
be well-tolerated and apparently safe. Based on these results, we initiated a
Phase II human clinical trial in 1997 to evaluate the efficacy of XERECEPT to
stabilize or improve neurological symptoms caused by peritumoral brain edema.
Patients enrolled in this randomized, double-blind, positive-controlled trial
must have neurological symptoms requiring stable dosing of synthetic
corticosteroids, the current standard treatment. We closed enrollment for this
trial at 33 patients (one third of projected enrollment) in order to provide
expedited but abbreviated analysis of the data. All responders, as defined by
the trial protocol, were in the XERECEPT treatment groups. Rigorous statistical
analysis of the data was not meaningful due to the small numbers enrolled. The
clinical study should be regarded as confirmatory but not definitive with regard
to neurologic improvements that may be attained with XERECEPT in symptomatic
brain tumor patients. We are currently evaluating whether to commit further
resources to the clinical development of XERECEPT for this indication or for
other indications.
PATENTS AND PROPRIETARY TECHNOLOGY
Memantine
In April 1998, in connection with our agreement with Merz, our exclusive
license from Children's Medical Center Corporation to a series of patents and
patent applications relating to certain non-ophthalmic uses of Memantine was
terminated.
XERECEPT(TM)
We hold non-exclusive worldwide licenses to four issued U.S. patents
covering the composition of matter of XERECEPT and various analogues, together
with certain foreign patents and patent applications. We also have exclusive
rights to four issued patents and one patent application covering uses of
XERECEPT and analogues. We are responsible for the costs of prosecuting the
patent applications related to XERECEPT for which it has exclusive rights. In
addition to the patents and pending applications we have licensed from others,
we hold U.S. Patent No. 5,870,430 which covers certain liquid formulations of
CRF and CRF-related peptides.
In addition to patent protection, we rely upon trade secret protection for
its confidential and proprietary information. It is our policy that each
employee enter into a confidentiality agreement which contains provisions
generally prohibiting the disclosure of confidential information to anyone
outside NTI and requiring disclosure to NTI of ideas, developments, discoveries
or inventions conceived during employment and assignment to NTI of
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proprietary rights to such matters related to the business and technology of
NTI. However, it is possible that these agreements could be breached. In
addition, others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets or
disclose such technology.
MANUFACTURING
Memantine currently is being supplied to NTI by our corporate collaborator,
Merz. We have also contracted with external vendors to manufacture compounds for
our other clinical trials. The manufacturers of clinical products have
represented to us that they are qualified to produce drugs under FDA regulations
and that they follow current Good Manufacturing Practice. XERECEPT has been
manufactured by established methods using chemical synthesis to NTI
specifications. We performed audits on our contractors who supplied XERECEPT to
assess compliance with the cGMP regulations. Alternative cGMP suppliers of the
bulk drugs and of finished dosage form products are available to us. We
currently have no plans to build or develop an in-house manufacturing
capability.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
PROPERTIES
Our executive offices are located in Richmond, California. We entered into
a sublease dated March 31, 1999 that decreased our occupied space from
approximately 6,900 square feet to 5,750 square feet. The master lease, which
commenced in April 1995, will expire in April 2000.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of NTI are as follows:
Name Age Position
- ---- --- --------
Paul E. Freiman 65 President and Chief Executive
Officer and Director
Calvert Y. Yee 47 Vice President, Operations and
Administration
Lisa U. Carr, M.D., Ph.D. 44 Vice President, Medical Affairs
Abraham E. Cohen 63 Chairman of the Board of Directors
Enoch Callaway, M.D. 75 Director
Theodore L. Eliot, Jr. 71 Director
Abraham D. Sofaer 61 Director
John B. Stuppin 66 Director
Paul E. Freiman joined the Company as a director in April 1997 and was
selected President and Chief Executive Officer in May 1997. He is the former
chairman and chief executive officer of Syntex Corporation. Mr. Freiman
currently serves as chairman of the boards of Digital GeneTechnologies, Inc., a
private genomics company and SciGen Pte. Ltd. Mr. Freiman currently serves on
the boards of Penwest Pharmaceutical Co., Calypte Biomedical Corporation and
Otsuka America Pharmaceuticals, Inc. He has been chairman of the Pharmaceutical
Manufacturers Association of America (PhARMA) and has also chaired a number of
key PhARMA committees. Mr. Freiman is also an advisor to Burrill & Co., a San
Francisco merchant bank. Mr. Freiman holds a B.S. degree from Fordham University
and an honorary doctorate from the Arnold & Marie Schwartz College of Pharmacy.
Calvert Y. Yee has been Vice President, Operations and Administration of
the Company since February 1991. Prior to joining NTI, Mr. Yee was employed for
15 years with Cetus Corporation, where he held both research and management
positions, serving as Senior Director, Research and Development Administration
and Operations from 1987 until September 1990. Mr. Yee holds an A.B. degree in
bacteriology and an M.B.A. degree from the University of California, Berkeley.
Lisa U. Carr, M.D., Ph.D. was appointed Vice President of Medical Affairs
in September 1998. Prior to joining the Company in June 1998 as Director of
Medical Affairs, Dr. Carr was Associate Medical Director at the Institute of
Clinical Immunology and Infectious Diseases at Syntex Development Research in
Palo Alto, California. Dr. Carr has more than 8 years of international industry
experience in conducting clinical drug trials in immunosuppression, nephrology,
neurology, gastroenterology and cardiovascular disorders. She was Lead Clinical
Research Physician at Syntex, directing a pivotal clinical trial of
mycophenolate mofetil (IND and NDA approved for solid organ transplantation). As
a member of the Clinical Dossier Filing Team, Dr. Carr was instrumental in
obtaining an accelerated drug approval from the FDA in 1995, and Europe-wide
approval was granted in 1996. Dr. Carr holds a medical degree and a Ph.D. magna
cum laude degree from the University of Munich in Germany.
Abraham E. Cohen has been a director of the Company since March 1993 and
has been Chairman of the Board of Directors since August 1993. From 1982 to
1992, Mr. Cohen served as Senior Vice President of Merck & Co. and from 1977 to
1988 as President of the Merck Sharp & Dohme International Division. While at
Merck, he played a key role in the development of Merck's international
business, initially in Asia, then in Europe and, subsequently, as President of
MSDI, which manufactures and markets human health products outside the United
States. Since his retirement from Merck and MSDI in January 1992, Mr. Cohen has
been active as an international business consultant. He was a director of
Agouron Pharmaceuticals, Inc. until its merger with Warner-Lambert Company. He
is presently a director of six public companies: Akzo Nobel N.V., Chugai
Pharmaceutical Co., Pharmaceutical Product Development, Smith Barney, Teva
Pharmaceutical Industries, Ltd. and Vasomedical, Inc.
20
<PAGE>
Enoch Callaway, M.D. is a founder and former employee of the Company and
has served as a director of the Company since September 1987. Dr. Callaway
previously served as Chairman of the Board of Directors of the Company from
September 1987 to November 1990, as Co-Chairman of the Board of the Company from
November 1990 until August 1993, as Vice President of the Company from September
1988 until August 1993 and as Secretary of the Company from September 1988 until
September 1991. Dr. Callaway has been Emeritus Professor of Psychiatry at the
University of California, San Francisco since 1986, where he also served as
Director of Research at the Langley Porter Psychiatric Institute from 1959 to
1988. Dr. Callaway is a director of Candide, Inc. He holds A.B. and M.D. degrees
from Columbia University.
Theodore L. Eliot, Jr. has served as a director of the Company since August
1992. Previously, he served as a director of the Company from September 1988
until April 1992, and as a Vice President of the Company from September 1988
until September 1991. Mr. Eliot retired from the United States Department of
State in 1978 with the rank of Ambassador. He served as Dean of the Fletcher
School of Law and Diplomacy from 1979 to 1985 and as Secretary General for the
United States of the Bilderberg Meetings from 1981 to October 1993. Mr. Eliot is
a director of Fiberstars, Inc., a publicly held company. Mr.
Eliot holds B.A. and M.P.A. degrees from Harvard University.
Abraham D. Sofaer has served as a director of the Company since April 1997.
Mr. Sofaer is the first George P. Shultz Distinguished Scholar & Senior Fellow
at the Hoover Institution, Stanford University, appointed in 1994. From 1990 to
1994, Mr. Sofaer was a partner at the legal firm of Hughes, Hubbard and Reed in
Washington, D.C., where he represented several major U.S. public companies. From
1985 to 1990, he served as the Legal Adviser to the United States Department of
State, where he was principal negotiator on several key international disputes.
From 1979 to 1985, he served as a federal judge in the Southern District of New
York. Mr. Sofaer is registered as a qualified arbitrator with the American
Arbitration Association and is a member of the National Panel of the Center for
Public Resolution of Disputes (CPR), a leading organization in the area of
resolution of disputes outside litigation. He has mediated or is now mediating
merger-acquisition arbitrations, commercial cases involving valuation of
commercial technology, and major securities class action suits. Mr. Sofaer is on
the International Advisory Board of Chugai Biopharmaceuticals, Inc. Mr. Sofaer
holds a B.A. degree from Yeshiva College and an L.L.B. from New York University.
John B. Stuppin is a founder and employee of the Company and has served as
a director of the Company since September 1988. From September 1987 until
October 1990, Mr. Stuppin served as President of the Company, from November 1990
to August 1993 as Co-Chairman of the Board of Directors, from October 1990 until
September 1991 as Executive Vice President, and from April 1991 until July 1994
as Treasurer. He also served as acting Chief Financial Officer of the Company
from the Company's inception through December 1993. Mr. Stuppin is an investment
banker and a venture capitalist. He has over 25 years experience in the start up
and management of companies active in emerging technologies and has been the
president of a manufacturing company. He is a director of Fiberstars, Inc. Mr.
Stuppin holds an A.B. degree from Columbia College.
21
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation for the
fiscal years ended June 30, 1997, 1998 and 1999 received by the individual who
served as the Company's Chief Executive Officer during 1999 and the Company's
two other most highly compensated executive officers whose total annual salary
and bonus for fiscal year 1999 exceeded $100,000 (the "Named Officers").
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
Name and Principal Position -------------------------- ------------
as of June 30, 1999 Year Salary ($) Bonus($) Options(#)
------------------- ---- ---------- -------- ----------
Paul E. Freiman (1) 1999 $152,527 $0 200,000
President and Chief Executive Officer 1998 92,533 0 250,000
1997 27,280 0 145,000
Lisa U. Carr, M.D., Ph.D.(2) 1999 104,360 0 100,000
Vice President, Medical Affairs 1998 8,333 0 0
Calvert Y. Yee 1999 105,625 0 10,000
Vice President, Operations and
Administration 1998 97,985 0 74,763
1997 96,277 0 0
- ----------
(1) 1997 salary shown for Mr. Freiman includes $5,068 for consulting services
earned prior to joining the Company as its President and Chief Executive
Officer on May 8, 1997.
(2) Dr. Carr joined the Company on June 1, 1998.
The following table sets forth further information regarding the grants of
stock options during the fiscal year ended June 30, 1999 to the Named Officers.
Since inception, the Company has not granted any stock appreciation rights.
Option Grants in Fiscal 1999
Individual Grant
-----------------------------------------------------
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise or
Options Fiscal Base Price Expiration
Name Granted (#)(1) 1999(%)(2) ($/Share)(1) Date
---- -------------- ---------- ------------ ----
Paul E. Freiman 50,000(3) 10.2% $0.625 3/17/09
150,000(4) 30.7 0.70 9/22/08
Lisa U. Carr, M.D., Ph.D. 100,000(5) 20.5 0.625 1/20/09
Calvert Y. Yee 10,000(6) 2.0 0.625 2/28/09
- ----------
(1) The options were granted under the Company's Amended and Restated 1993
Stock Plan. The exercise price on the date of grant was equal to 100% of
the fair market value on such date.
(2) Based on a total of 488,500 stock options granted to employees during the
fiscal year ended June 30, 1999.
(3) These options were fully exercisable upon the date of grant.
(4) The options become exercisable at a rate of 20% per year over a period of
five years.
(5) 15% of these options were exercisable on the grant date. The remainder of
the options become exercisable at a rate of 2.125% per month until May 30,
2002.
(6) These options become exercisable at a rate of 2.083% per month over a
period of four years.
22
<PAGE>
None of the Named Officers exercised any options during fiscal 1999. The
following table sets forth information regarding the number and value of
unexercised options held by the Named Officers at fiscal year-end.
Aggregated Option Exercises and Fiscal Year-End Option
Values in Last Fiscal Year
Value of Unexercised
-------------------------------------------------------
Number of Unexercised Options In-the-Money Options
Held at Fiscal Year End(#) at Fiscal Year End($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Paul E. Freiman 245,000 350,000 $21,610 $63,690
Lisa U. Carr, M.D., Ph.D. 29,875 70,125 7,319 17,181
Calvert Y. Yee 79,763 4,000 22,528 248
- ----------
(1) Based on the amount, if any, by which the last per share quote of the
Common Stock on the OTC-Bulletin Board(R) at June 30, 1999 ($0.875) exceeds
the exercise price.
Employment Agreements
In March 1999, the Company entered into a retention agreement with Lisa U.
Carr, M.D., Ph.D. which provides for additional compensation of $100,000,
payable on February 1, 2001, provided Dr. Carr continues to serve as the
Company's Vice President, Medical Affairs through February 1, 2001. In the event
of a change of control of the Company and subsequent involuntary termination of
Dr. Carr prior to February 1, 2001, Dr. Carr will be entitled to receive the
additional compensation of $100,000.
Pension and Long-Term Incentive Plans
The Company has no pension or long-term incentive plans.
Directors' Compensation
Dr. Callaway was paid $15,000 during fiscal 1999 for consulting services
rendered to the Company pursuant to a consulting agreement. Mr. Stuppin was paid
$13,008 during fiscal 1999 as an employee of the Company. Mr. Cohen is
reimbursed for his expenses for each meeting attended.
Non-employee directors are currently eligible to participate in the
Company's 1993 Stock Plan. Subject to the 1993 Stock Plan, each new non-employee
director of the Company will receive an option to purchase 5,000 shares of
common stock on the date of his or her election to the Board at the fair market
value on the date of grant. In addition, each non-employee director continuing
to serve on the Board will also receive an automatic annual grant of an option
to purchase 1,000 shares of the Company's Common Stock at the Annual Meeting of
the Company's stockholders. On November 12, 1998, Dr. Callaway, Mr. Eliot, Mr.
Sofaer and Mr. Cohen were each granted an option to purchase 1,000 shares of
Common Stock at an exercise price of $0.672 per share. The options vested fully
on November 12, 1999. On November 11, 1999, Dr. Callaway, Mr. Eliot, Mr. Sofaer
and Mr. Cohen were each granted an option to purchase 1,000 shares of Common
Stock at an exercise price of $1.94 per share. The options will vest fully on
November 11, 2000.
In March 1999, Dr. Callaway, Mr. Eliot, Mr. Sofaer, and Mr. Stuppin were
each granted an option to purchase 15,000 shares of Common Stock. In March 1999,
Mr. Cohen was granted an option to purchase 25,000 shares of Common Stock. These
options have an exercise price of $0.625 per share and were fully exercisable at
the grant date.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended June 30, 1998, Paul Freiman, NTI's Chief
Executive Officer and President, was a member of the board of directors of Life
Science Economics, Inc. or LSE. We had a consulting arrangement with LSE under
which we paid an aggregate of $409,000 in fiscal 1998. We did not pay LSE any
consulting fees in fiscal 1999.
23
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the Company's
outstanding shares of each class of equity securities beneficially owned as of
December 1, 1999 by: (1) each person who is known to the Company to own
beneficially more than five percent of each class of the outstanding equity
securities; (2) each of the Company's directors; (3) all officers named in the
Summary Compensation Table above; and (4) all directors and executive officers
as a group. The information relating to share ownership is based upon
information furnished to the Company. The number of shares of Common Stock shown
includes shares subject to warrants or options exercisable within 60 days after
December 1, 1999 as if such shares were outstanding on December 1, 1999 and
assumes that no other person has exercised any outstanding warrants or options.
Applicable percentages of ownership are based on 13,259,790 shares of common
stock outstanding and 2,332,000 shares of Series A Preferred stock outstanding
as of December 1, 1999. The Company believes that the beneficial owners of each
class of equity securities, based on information supplied by such owners, have
sole investment and voting power with respect to the shares of each class of
equity securities shown as being beneficially owned by them, except as otherwise
set forth in the footnotes to the table.
<TABLE>
<CAPTION>
Number Subject
to Options and Number of Percentage
Number of Warrants Percentage of Shares of of Series A
Shares of Exercisable Common Series A Preferred
Name and Address Common Stock Within 60 days Stock Preferred Stock Stock
---------------- ------------ -------------- ----- --------------- -----
<S> <C> <C> <C> <C> <C>
New York Life Insurance Company (1) 553,750 160,000 4.1% 400,000 17.2%
51 Madison Avenue, Room 206
New York, NY 10010
Arthur Rock (2) .................... 1,164,997 415,071 8.5 500,000 21.4
One Maritime Plaza, #1220
San Francisco, CA 94111
Lindsay A. Rosenwald, M.D. (3) ..... 1,750,000 500,000 12.7 -- --
787 Seventh Avenue, 48th Floor
New York, NY 10019
Enoch Callaway, M.D. (4) ........... 126,204 43,028 * 4,000 *
Abraham E. Cohen ................... 557,891 288,054 4.1 100,000 4.3
Theodore L. Eliot, Jr. (5) ......... 80,160 52,616 * -- --
Paul E. Freiman (6) ................ 296,000 295,000 2.2 -- --
Lisa U. Carr, M.D., Ph.D ........... 42,714 40,500 * -- --
Abraham D. Sofaer .................. 562,931 285,004 4.2 100,000 4.3
John B. Stuppin (7) ................ 656,181 201,428 4.9 100,000 4.3
Calvert Y. Yee ..................... 84,002 79,055 * -- --
All directors and executive officers
(as a group 8 persons)(8) .......... 2,406,083 1,284,685 16.5 304,000 13.0
</TABLE>
- ----------
*Less than 1%
(1) According to Schedule 13G filed by New York Life Insurance Company.
(2) According to Schedule 13D/A filed by Arthur Rock.
(3) According to Form 3 flied by Lindsay A. Rosenwald, M.D.
(4) The number of shares of Common Stock shown includes 83,176 shares held by
Enoch Callaway and Dorothy C. Callaway, Trustees or Successor Trustees of
the Callaway 1989 Trust, executed May 20, 1989. Dr. Callaway may be deemed
to have a beneficial interest in the shares held by the Callaway Trust.
(5) The number of shares of Common Stock shown includes 27,544 shares held by
Theodore L. Eliot, Jr. and Patricia P. Eliot, Trustees, the Eliot Trust,
February 27, 1987. Mr. Eliot may be deemed to have a beneficial interest in
the shares held by the Eliot Trust.
(6) The number of shares of Common Stock shown includes 1,000 shares held in
the estate of Paul E. Freiman and Anna Mazzuchi Freiman.
24
<PAGE>
(7) The number of shares of Common Stock shown includes 453,253 shares held by
John B. Stuppin and Jane K. Stuppin, Trustees UTD dated March 11, 1991 and
500 shares held by Mrs. Stuppin. Mr. Stuppin may be deemed to have a
beneficial interest in the shares held by the Stuppin Trust and Mrs.
Stuppin.
(8) The number of shares of Common Stock shown includes shares included
pursuant to notes 4-7.
DESCRIPTION OF COMMON STOCK
NTI is authorized to issue 25,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock, par value $.001 per share. On December 1, 1999, NTI
had 13,259,790 shares of common stock issued and outstanding and 2,332,000
Shares of Series A Preferred Stock issued and outstanding.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Stockholders do
not have cumulative voting rights. The holders of common stock have the right to
receive dividends if they are declared by the NTI Board of Directors and there
are sufficient funds to legally pay dividends, subject to the rights of the
holders of any outstanding preferred stock to receive preferential dividends.
Upon the liquidation of NTI, holders of common stock would share ratably in any
assets available for distribution to stockholders after payment of all
obligations of NTI and the aggregate liquidation preference (including accrued
and unpaid dividends) of any outstanding preferred stock. Shares of common stock
currently outstanding are validly issued, fully paid and nonassessable.
ChaseMellon is the transfer agent and registrar for the NTI common stock.
25
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of NTI's common stock by the selling stockholders (1) as of December
1, 1999 and (2) as adjusted to reflect the sale by selling stockholders of
shares offered by this prospectus.
<TABLE>
<CAPTION>
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Prior to Offering(1) After Offering (1)
---------------------------------- -------------------
Number of
Shares
Issuable
within 60
Number of Days of
Outstanding December 1, Shares Offered
Holder Shares 1999(2) Percent in Offering Number Percent
------ ------ ------- ------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Active Site Partners........... 62,500 25,000 * 87,500 0 0
Apollo Medical Partners........ 62,500 25,000 * 87,500 0 0
Aries Domestic Fund, LP........ 352,750 141,100 3.7 493,850 0 0
Aries Domestic Fund II, LP..... 27,500 11,000 * 38,500 0 0
Aries Master Fund.............. 869,750 347,900 8.9 1,217,650 0 0
Larry R. Baer.................. 25,000 10,000 * 35,000 0 0
Christopher H. Berg Revocable
Trust dated 3/28/95............ 75,000 30,000 * 105,000 0 0
Mark Berger.................... 100,000 40,000 1.1 140,000 0 0
Bestley Holdings, Ltd.......... 125,000 50,000 1.3 175,000 0 0
Donald S. Brown................ 75,000 30,000 * 105,000 0 0
Alan R. Brudos................. 11,895 21,000 * 8,750 24,145 *
James Buckley Jr............... 93,982 62,500 1.2 43,750 112,732 *
Edna Caden Budde Trust U/A
dated 4/30/86.................. 62,500 25,000 * 87,500 0 0
Cape 1998 Trust................ 69,990 96,071 1.2 87,500 78,561 *
John M. de Castro, Ph.D........ 59,700 23,880 * 83,580 0 0
Clarion Capital Corporation.... 187,500 75,000 2.0 262,500 0 0
Clarion Offshore Fund Ltd...... 67,500 27,000 * 94,500 0 0
Clarion Partners, LP........... 182,500 73,000 1.9 255,500 0 0
Abraham E. Cohen IRA(3)........ 269,837 388,054 4.8 175,000 482,891 3.5
The Eliot Trust dated
2/27/87(4) .................... 27,544 52,616 * 8,750 71,410 *
Charles B. Engelberg, M.D...... 0 431,000 3.1 431,000 0 0
Claire Engelberg............... 62,500 25,000 * 87,500 0 0
Herbert C.V. Feinstein......... 31,250 12,500 * 43,750 0 0
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Prior to Offering(1) After Offering (1)
---------------------------------- -------------------
Number of
Shares
Issuable
within 60
Number of Days of
Outstanding December 1, Shares Offered
Holder Shares 1999(2) Percent in Offering Number Percent
------ ------ ------- ------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Jacob and Gloria Feinstein
Trust dated 9/18/92............ 62,500 25,000 * 87,500 0 0
Joseph Feinstein............... 62,500 25,000 * 87,500 0 0
Allan Fishbein, M.D............ 125,000 50,000 1.3 175,000 0 0
Richard J. Gaston.............. 62,500 25,000 * 87,500 0 0
John R. Hillsman............... 62,500 25,000 * 87,500 0 0
Jupiter Partners............... 206,715 272,500 3.5 113,750 365,465 2.7
Leon Kaplan.................... 37,500 15,000 * 52,500 0 0
Daniel S. Katz IRA............. 125,000 50,000 1.3 175,000 0 0
Robert L. Koch & Cori L. Pace
U/A dated 6/4/93............... 62,500 25,000 * 87,500 0 0
Robert W. Ledoux............... 15,011 21,500 * 8,750 27,761 *
Victor S. Lee.................. 312,500 125,000 3.3 437,500 0 0
Marksman Partners, LP.......... 120,000 40,000 1.2 140,000 20,000 *
Joyce McDermott................ 250,000 100,000 2.6 350,000 0 0
Molumphy Capitol Management
Profit Sharing Plan............ 37,593 53,000 * 17,500 73,093 *
Leonard O. Oppenheim & Dena G.
Oppenheim...................... 75,000 30,000 * 105,000 0 0
Patriot Group, LP.............. 75,000 30,000 * 105,000 0 0
Prudent Bear Fund, Inc......... 437,500 175,000 4.6 612,500 0 0
Qureishi 1998 Family Trust..... 175,000 70,000 1.8 245,000 0 0
Arthur Rock.................... 749,926 915,071 11.7 350,000 1,314,997 9.3
Dr. Henri van de Sand.......... 30,000 12,000 * 42,000 0 0
Charles L. Shreves............. 42,500 33,000 * 17,500 58,000 *
Abraham D. Sofaer & Marian
Scheurer Sofaer(5)............. 277,927 385,004 4.9 175,000 487,931 3.6
Frank J. Soriano............... 14,018 4,000 * 14,000 4,018 *
John B. & Jane K. Stuppin
Trust dated 3/11/91(6)......... 454,753 301,428 5.6 140,000 616,181 4.5
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Prior to Offering(1) After Offering (1)
---------------------------------- -------------------
Number of
Shares
Issuable
within 60
Number of Days of
Outstanding December 1, Shares Offered
Holder Shares 1999(2) Percent in Offering Number Percent
------ ------ ------- ------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Tufts & Joyce A.
Tufts, Trustees U/A dated
9/18/97 ....................... 163,143 184,000 2.6 49,000 298,143 2.2
Robert M. Winokur.............. 31,250 152,500 1.4 43,750 140,000 1.0
Ashford D. Wood................ 89,458 94,000 1.4 35,000 148,458 1.1
Phelps M. Wood................. 87,055 12,500 * 43,750 55,805 *
</TABLE>
- ----------
* Less than 1%
(1) Applicable percentage of ownership is based on 13,259,790 shares of common
stock outstanding as of December 1, 1999.
(2) Includes number of shares issuable upon exercise of stock options and
common stock purchase warrants exercisable within 60 days of December 1,
1999, as well as upon conversion of Series A Preferred Stock as if such
shares were outstanding on December 1, 1999 and assumes that no other
person has exercised any outstanding warrants or options nor converted any
Series A Preferred Stock.
(3) Mr. Cohen is a director of NTI.
(4) Theodore L. Eliot Jr., Trustee of the Eliot Trust 2/27/87, is a director of
NTI and may be deemed to have a beneficial interest in the shares held by
the Eliot Trust.
(5) Mr. Sofaer is a director of NTI.
(6) John B. Stuppin, Trustee of John B. Stuppin and Jane K. Stuppin UTD dated
March 11, 1991, is a director of NTI and may be deemed to have a beneficial
interest in the shares held by the trust. In addition, Mr. Stuppin directly
holds 1,500 shares of NTI and his wife, Jane K. Stuppin, holds 500 shares
in which Mr. Stuppin may be deemed to have a beneficial interest.
28
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders may offer their shares from time to time in one or
more of the following transactions:
* in the over-the-counter market;
* on the Nasdaq National Market or any other exchange on which the
shares may be listed in the future;
* in negotiated transactions; or
* a combination of such methods of sale.
The selling stockholders may sell the shares at the following prices:
* at market prices prevailing at the time of sale;
* at prices related to such prevailing prices; or
* at negotiated prices,
and may use the shares to cover short positions previously established. The
selling stockholders may use broker-dealers to sell the shares. The
broker-dealers will either receive discounts or commissions from the selling
stockholders, or they will receive commissions from purchasers of shares.
Under certain circumstances, the selling stockholders and any
broker-dealers that participate in the distribution may be "underwriters" within
the meaning of the Securities Act of 1933. Any commissions received by these
broker-dealers and any profits realized on the resale of shares by them may be
underwriting discounts and commissions under the Securities Act of 1933. The
selling stockholders may agree to indemnify these broker-dealers against certain
liabilities, including liabilities under the Securities Act of 1933.
Broker-dealers may agree with the selling stockholders to sell a specified
number of shares at a stipulated price per share, and may purchase as principal
any unsold shares at the price required to fulfill the broker-dealer commitment.
Broker-dealers who acquire shares as principal may resell the shares from time
to time in the manner described above, and may pay to, or receive from, the
purchasers' commissions computed as described above.
Under the rules and regulations of the SEC, any person engaged in the
distribution or the resale of shares may not simultaneously engage in market
making activities with respect to NTI common stock for a period of two business
days prior to the commencement of such distribution. The selling stockholders
will also be subject to applicable provisions of the Securities Exchange Act of
1934 and the rules and regulations under that Act which may limit the timing of
purchases and sales of shares of NTI's common stock by the selling stockholders.
The selling stockholders will pay all commissions, transfer taxes, and other
expenses associated with the sale of securities by them. We are registering the
shares offered in this prospectus in accordance with our contractual
obligations, and we have paid the expenses of the preparation of this
prospectus. We have not made any underwriting arrangements with respect to the
sale of shares offered by this prospectus.
29
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
NTI has adopted provisions in its Certificate of Incorporation that limit
the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the General Corporation Law of the State of Delaware. Delaware law
provides that directors of a company will not be personally liable for monetary
damages for breach of their fiduciary duty as directors, except for liability
(i) for any breach of their duty of loyalty to the company or its stockholders,
(ii) for acts or omissions not in good faith or involving intentional misconduct
or a knowing violation of law, (iii) for unlawful payment of a dividend or
unlawful stock repurchase or redemption, as provided in Section 174 of the
Delaware law, or (iv) for any transaction for which the director derived an
improper personal benefit.
NTI's Certificate of Incorporation and Bylaws also provide that NTI will
indemnify its directors and officers to the fullest extent permitted by Delaware
law. NTI has entered into separate indemnification agreements with its directors
and officers that could require the Company, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors and officers and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified. NTI
believes that the limitation of liability provision in its Certificate of
Incorporation and the indemnification agreements will facilitate its ability to
continue to attract and retain qualified individuals to serve as directors and
officers of the Company.
To the extent that indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
person of NTI pursuant to the above provisions, or otherwise, NTI has been
advised that in the opinion of the Securities Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for NTI by
Heller Ehrman White & McAuliffe, San Diego, California, counsel to NTI in
connection with the offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at June 30, 1999 and 1998, and for each of the three years in the
period ending June 30, 1999, and for the period from August 27, 1987 (inception)
through June 30, 1999 as set forth in their report (which contains an
explanatory paragraph describing conditions that raise substantial doubts about
the Company's ability to continue as a going concern as described in Note 1 to
the Financial Statements. We have included our financial statements in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other
documents with the Securities and Exchange Commission. You may read and copy any
document we file at the SEC's public reference room at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You should call
1-800-SEC-0330 for more information on the public reference room. The SEC
maintains an internet site at http://www.sec.gov where certain information
regarding issuers (including Neurobiological Technologies, Inc.) may be found.
This prospectus is part of a registration statement that we filed with the
SEC (Registration No. 333-___________________). The registration statement
contains more information than this prospectus regarding Neurobiological
Technologies, Inc. and its common stock, including certain exhibits and
schedules. You can obtain a copy of the registration statement from the SEC at
the address listed above or from its internet site.
30
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Ernst & Young LLP
Years Ended June 30, 1999, 1998, 1997
Report of Independent Auditors..............................................F-2
Balance Sheets as of June 30, 1999 and 1998.................................F-3
Statements of Operations for the years ended June 30, 1999, 1998, 1997......F-4
Statements of Stockholder's Equity (Deficit) for the years ended
June 30, 1999, 1998, 1997.................................................F-5
Statements of Cash Flow for the years ended June 30, 1999, 1998, 1997.......F-6
Notes to Financial Statements...............................................F-7
Three Months Ended September 30, 1999 and 1998
Condensed Balance Sheets as of September 30 and June 30, 1999...............F-13
Condensed Statements of Operations for Three Month ended
September 30, 1999 and 1998...............................................F-14
Condensed Statements of Cash Flow for Three Month ended
September 30, 1999 and 1998...............................................F-15
Notes to Condensed Financial Statements.....................................F-16
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Neurobiological Technologies, Inc.
We have audited the accompanying balance sheets of Neurobiological
Technologies, Inc. (a development stage company) as of June 30, 1999, and 1998,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended June 30, 1999, and
for the period from August 27, 1987 (inception) through June 30, 1999. 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 Neurobiological
Technologies, Inc. at June 30, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended June 30,
1999, and for the period from August 27, 1987 (inception) through June 30, 1999,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
Neurobiological Technologies, Inc. will continue as a going concern. As more
fully described in Note 1 to the financial statements, the Company has
experienced recurring losses during the development stage and at June 30, 1999
has a working capital deficit and a net capital deficiency. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
San Francisco, California
August 6, 1999
F-2
<PAGE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 201,202 $ 2,020,886
Prepaid expenses and other current assets ..................... 43,833 59,016
Total current assets ........................................ 245,035 2,079,902
------------ ------------
Property and equipment, net ................................... 3,796 53,447
------------ ------------
$ 248,831 $ 2,133,349
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .............................................. $ 447,124 $ 44,998
Accrued expenses .............................................. 487,715 452,580
Note payable to shareholder ................................... 200,000 --
------------ ------------
Total current liabilities ................................... 1,134,839 497,578
Commitments:
Stockholders' equity (deficit):
Convertible preferred stock, $.001 par value, 5,000,000
shares authorized, 2,332,000 issued and outstanding
at June 30, 1999 ............................................. 1,166,000 --
Common stock, $.001 par value, 25,000,000 shares
authorized, 7,563,575 outstanding at June 30, 1999
and 7,553,699 at June 30, 1998 ............................... 29,985,352 29,980,898
Deficit accumulated during development stage .................. (32,037,360) (28,345,127)
------------ ------------
Total stockholders' equity (deficit) ........................ (886,008) 1,635,771
------------ ------------
$ 248,831 $ 2,133,349
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
August 27, 1987
Year ended June 30 (inception)
----------------------------------------- through
1999 1998 1997 June 30, 1999
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUES
License ......................... $ -- $ 2,100,000 $ -- $ 2,100,000
Grant ........................... 99,544 -- -- 149,444
----------- ----------- ----------- ------------
Total revenue ................. 99,544 2,100,000 -- 2,249,444
EXPENSES
Research and development ........ 2,780,305 2,025,646 5,477,504 25,068,686
General and administrative ...... 1,058,421 2,346,893 2,298,391 11,396,572
----------- ----------- ----------- ------------
Total expenses ................ 3,838,726 4,372,539 7,775,895 36,465,258
----------- ----------- ----------- ------------
Operating loss .................. (3,739,182) (2,272,539) (7,775,895) (34,215,814)
Interest income ................. 46,949 99,335 407,307 2,178,454
----------- ----------- ----------- ------------
NET LOSS ........................... $(3,692,233) $(2,173,204) $(7,368,588) $(32,037,360)
=========== =========== =========== ============
BASIC AND DILUTED NET LOSS
PER SHARE ....................... $ (0.49) $ (0.32) $ (1.13)
=========== =========== ===========
Shares used in basic and diluted net
loss per share calculation ...... 7,554,522 6,862,186 6,527,392
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit Total
Common Stock Accumulated in Stockholders'
Preferred ----------------------- Development Equity
Stock Shares Amount Stage (Deficit)
----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Period from August 27, 1987
(inception) through June 30, 1996
Issuance of common stock ............... $ -- 740,863 $ 1,616,706 $ -- $ 1,616,706
Issuance of common stock for services... -- 72,428 84,500 -- 84,500
Issuance of common stock for license
rights ............................... -- 10,820 12,625 -- 12,625
Issuance of warrants to purchase
179,786 shares of common stock ....... -- -- 2,790 -- 2,790
Exercise of warrants ................... -- 142,500 70,252 -- 70,252
Exercise of options .................... -- 86,620 215,838 -- 215,838
Issuance of common stock under
employee stock purchase plan ......... -- 42,342 112,474 -- 112,474
Issuance of 5,691,000 shares of Series
A preferred stock, net of issuance
costs ................................ 5,573,194 -- -- -- 5,573,194
Issuance of 2,657,881 shares of Series
B preferred stock, net of issuance
costs ................................ 1,653,888 -- -- -- 1,653,888
Conversion of preferred stock in
connection with the initial
public offering ...................... (7,227,082) 1,046,912 7,227,082 -- --
Issuance of common stock at $8.00
per share in connection with initial
public offering, net of issuance
costs ................................ -- 1,840,000 12,817,000 -- 12,817,000
Issuance of common stock at $3.25
per share in connection with public
offering, net of issuance costs ...... -- 2,530,000 7,143,279 -- 7,143,279
Net loss and comprehensive loss ........ -- -- -- (18,803,335) (18,803,335)
----------- --------- ----------- ------------ ------------
Balances at June 30, 1996 ................ -- 6,512,485 29,302,546 (18,803,335) 10,499,211
Issuance of common stock for services .. -- 5,000 23,750 -- 23,750
Exercise of options .................... -- 2,999 10,331 -- 10,331
Issuance of common stock under
employee stock purchase plan ......... -- 19,830 45,844 -- 45,844
Net loss and comprehensive loss ........ -- -- -- (7,368,588) (7,368,588)
----------- --------- ----------- ------------ ------------
Balances at June 30, 1997 ................. -- 6,540,314 29,382,471 (26,171,923) 3,210,548
Issuance of warrants to purchase
125,000 shares of common stock ....... -- -- 40,500 -- 40,500
Issuance of common stock and
warrants at $0.55 per unit ........... -- 1,010,410 555,725 -- 555,725
Issuance of common stock under
employee stock purchase plan ......... -- 2,975 2,202 -- 2,202
Net loss and comprehensive loss ........ -- -- -- (2,173,204) (2,173,204)
----------- --------- ----------- ------------ ------------
Balances at June 30, 1998 ................. -- 7,553,699 29,980,898 (28,345,127) 1,635,771
Issuance of common stock under
employee stock purchase plan ......... -- 9,876 4,454 -- 4,454
Issuance of 2,332,000 shares of
Series A preferred stock and
warrants at $2.50 per unit,
net of issuance costs ................ 1,166,000 -- -- -- 1,166,000
Net loss and comprehensive loss ........ -- -- -- (3,692,233) (3,692,233)
----------- --------- ----------- ------------ ------------
Balances at June 30, 1999 ................. $ 1,166,000 7,563,575 $29,985,352 $(32,037,360) $ (886,008)
=========== ========= =========== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
August 27, 1987
Year ended June 30, (inception)
----------------------------------------- through
1999 1998 1997 June 30, 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ...................................... $(3,692,233) $(2,173,204) $(7,368,588) $(32,037,360)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .............. 41,792 128,402 122,773 638,206
Issuance of common stock and warrants
for license rights and services .......... -- 40,500 -- 139,775
Changes in assets and liabilities:
Prepaid expenses and other ............... 15,183 112,420 165,986 (43,833)
Accounts payable and accrued expenses .... 437,261 (498,978) 103,404 934,839
----------- ----------- ----------- ------------
Net cash used in operating activities ......... (3,197,997) (2,390,860) (6,976,425) (30,368,373)
INVESTING ACTIVITIES
Purchase of investments ....................... -- -- (1,462,723) (33,839,678)
Sale of investments ........................... -- 2,559,911 5,060,455 33,839,678
Purchases of property and equipment, net ...... 7,859 15,506 (25,645) (358,940)
Additions to patents and licenses ............. -- -- -- (283,062)
----------- ----------- ----------- ------------
Net cash provided by (used in) investing
activities .................................. 7,859 2,575,417 3,572,087 (642,002)
FINANCING ACTIVITIES
Proceeds of short-term borrowings ............. 200,000 -- -- 435,000
Issuance of common stock, net ................. 4,454 557,927 79,925 22,618,495
Issuance of preferred stock, net .............. 1,166,000 -- -- 8,158,082
----------- ----------- ----------- ------------
Net cash provided by financing activities ..... 1,370,454 557,927 79,925 31,211,577
Increase (decrease) in cash and cash
equivalents ................................. (1,819,684) 742,484 (3,324,413) 201,202
Cash and cash equivalents at beginning of
period ...................................... 2,020,886 1,278,402 4,602,815 --
----------- ----------- ----------- ------------
Cash and cash equivalents at end of period .... $ 201,202 $ 2,020,886 $ 1,278,402 $ 201,202
=========== =========== =========== ============
SUPPLEMENTAL DISCLOSURES
Conversion of short-term-borrowings to
Series A preferred stock ................... $ -- $ -- $ -- $ 235,000
=========== =========== =========== ============
Conversion of preferred stock to
common stock ............................... $ -- $ -- $ -- $ 7,227,082
=========== =========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
Organization
Neurobiological Technologies, Inc. ("NTI" or the "Company") is an emerging
drug development company focused on the clinical evaluation and regulatory
approval of neuroscience drugs. The Company's strategy is to in-license and
develop early-stage drug candidates that target major medical needs and which
can be rapidly commercialized. The Company's experienced management team
oversees the human clinical trials necessary to establish preliminary evidence
of efficacy and seeks partnerships with pharmaceutical and biotechnology
companies to complete development and marketing of its product candidates.
Basis of Presentation
In the course of its development activities, the Company has incurred
significant losses and expects additional losses in the year ending June 30,
2000. At June 30, 1999, the Company has a working capital deficit and a net
capital deficiency. In order to continue operations through the year ending June
30, 2000 and beyond, additional financing will be required. The Company believes
that its available cash and cash equivalents of $201,000 as of June 30, 1999
combined with funds from Merz loan agreement and a private placement, subsequent
to fiscal year end, are adequate to fund its operations through October 31,
1999. NTI will need to raise substantial additional capital to fund subsequent
operations. The Company intends to seek such funding through public or private
financings, collaborative or other arrangements with corporate partners, or from
other sources. The Company may seek to raise additional funds whenever market
conditions permit. However, there can be no assurance that funding will be
available from any of these sources, or, if available, that it will be available
on acceptable terms. If the Company is not able to raise adequate funds, it may
be required to delay, scale back, or terminate its clinical trials or to obtain
funds through entering into arrangements with collaborative partners or others
that may require the Company to give up additional rights to its technology,
product candidates or products. The accompanying financial statements have been
prepared assuming the Company will continue as a going concern, and do not
include any adjustments that might result from the outcome of this uncertainty.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Key Supplier
The Company is dependent on one party for the manufacturing and supply of
one of its drugs for the Company's human clinical trials and for the successful
commercialization of the related product. Any failure on the part of this
company in this regard could adversely affect the Company's business and results
of operations.
Cash and Cash Equivalents
Cash and cash equivalents, which consist of cash and highly liquid
short-term investments with insignificant interest rate risk and original
maturities of three months or less at date of purchase, are stated at cost,
which approximates fair value.
F-7
<PAGE>
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated using
the straight-line method based on estimated useful lives of 2 to 7 years. The
balances at June 30, 1999 and 1998 consisted of the following:
1999 1998
--------- ---------
Machinery and equipment .............. $ 176,756 $ 185,820
Furniture and fixtures ............... 115,426 114,221
--------- ---------
292,182 300,041
Less accumulated depreciation ........ (288,386) (246,594)
--------- ---------
$ 3,796 $ 53,447
========= =========
Net Loss Per Share
Net loss per share is presented under the requirements of FAS No. 128,
"Earnings per Share" ("FAS 128"). Basic earnings per share computed is based on
the average shares of common stock outstanding and excludes any dilutive effects
of options, warrants, and convertible securities. Potentially dilutive
securities such as options, warrants, and convertible preferred stock, have also
been excluded from the computation of diluted net loss per share as their effect
is antidilutive.
Stock-Based Compensation
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes the fair value method of accounting for stock
based compensation plans. The Company accounts for employee stock options in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), and has adopted the "disclosure only"
alternative described in SFAS 123.
Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and displaying comprehensive income (loss) and its components in the financial
statements. The Company has no items of other comprehensive income, and,
accordingly, its net loss is equal to its comprehensive loss.
Enterprise Segments
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related
Information," which establishes standards for the way public business
enterprises report information in annual statements and interim financial
reports regarding operating segments, products and services, geographic areas,
and major customers. The Company operates in one business segment.
Note 2. Operating Lease Commitments
The Company's lease for its premises in Richmond, California expires in
April 2000. Rent expense for the years ending June 30, 1999, 1998, and 1997 was
$39,000, $147,000, and $157,000, respectively. The future minimum payment has
been prepaid through the end of the lease period and is included in prepaid
expenses and other current assets.
F-8
<PAGE>
Note 3. Stockholders' Equity
Preferred Stock
At June 30, 1999, the Company has 2,332,000 shares of Series A convertible
preferred stock issued and outstanding. The holders of the Series A convertible
preferred stock are entitled to receive annual noncumulative dividends of 8% per
share per annum, when and if declared by the Board of Directors. These dividends
are in preference to any declaration or payment of any dividend on the common
stock of the Company. As of June 30, 1999, no dividends had been declared.
Each share of Series A preferred stock is convertible, at the holder's
option, subject to antidilution provisions, into one share of common stock.
Additionally, each share of the preferred stock will be automatically converted
into one share of common stock upon the election of more than 50% of the Series
A preferred stock to convert into common stock. The holders of preferred stock
are entitled to the number of votes equal to the number of shares of common
stock into which their preferred stock is convertible.
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of the Series A preferred stock have a liquidation preference of
$0.50 per share, over holders of common stock plus any declared but unpaid
dividends. After payment has been made to the holders of Series A preferred
stock, the entire remaining assets and funds of the Company legally available
for distribution, if any, would be distributed ratably among the holders of
common stock.
Warrants to Purchase Common Stock
At June 30, 1999, warrants to purchase an aggregate of 3,335,906 shares of
common stock are outstanding at a weighted average exercise price of $1.34 per
share. Warrants to purchase 932,800 shares of common stock were issued at a
price of $1.00 in connection with a private equity financing completed in April
1999 and expire in April 2004. Warrants to purchase 2,020,820 shares of common
stock were issued in connection with a private financing completed in March
1998: 1,010,410 of these shares at a price of $0.75 expired in September and
October 1999; and 1,010,410 of these shares at a price of $1.50 will expire in
March 2001. Warrants to purchase 100,000 and 25,000 shares of common stock were
issued in April 1998 at a price per share of $1.25 and $3.00, respectively, in
connection with the termination of a licensing agreement and expire in April
2001. Warrants to purchase 37,286 shares of common stock were issued between
April 1990 and July 1991 at a price of $5.60 for licensing rights and consulting
services and have expiration dates through June 30, 2001. Warrants to purchase
220,000 shares were issued to the underwriters of the 1996 public offering at a
price of $3.90 and expire on February 15, 2001. The weighted average fair value
of warrants issued during fiscal 1999 was $0.38 per share.
Stock Option Plan
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock option awards because, as discussed below, the
alternative fair value accounting provided under SFAS 123 requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of the Company's employee stock
option equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The Board of Directors adopted the Company's first stock option plans in
1989. In November 1993, the Board combined the plans and adopted the 1993 Stock
Plan. The 1993 Stock Plan was subject to amendment and/or restatement in
February 1994, November 1994, October 1996, and November 1997. Two million
shares of common stock have been reserved for issuance under the 1993 Stock
Plan. In general, options are granted at fair market value on the date of the
grant, have a term of 10 years and become exercisable over a period of up to 48
months.
F-9
<PAGE>
A summary of the Company's stock option activity, and related information
for the three years ended June 30, 1999 follows (all repricing activity is
reflected as cancellations and subsequent grants):
Weighted Average
Number of Shares Exercise
Subject to Options Price
------------------ -----
Balance at June 30, 1996 ............. 925,545 $4.19
Options granted ................... 338,304 2.58
Options canceled .................. (28,591) 5.61
Options exercised ................. (2,999) 3.44
---------- -----
Balance at June 30, 1997 ............. 1,232,259 3.72
Options granted ................... 844,454 1.66
Options canceled .................. (501,632) 4.11
---------- -----
Balance at June 30, 1998 ............. 1,575,081 2.42
Options granted ................... 488,500 0.65
Options canceled .................. (259,783) 2.51
---------- -----
Balance at June 30, 1999 ............. 1,803,798 1.93
========== =====
At June 30, 1999, options to purchase 140,392 shares of common stock
remained available for grant, and options to purchase 1,203,430 shares of common
stock were exercisable. The weighted average exercise price of options
exercisable at June 30, 1999 was $2.21. The weighted average fair value of
options granted during 1999, 1998 and 1997 was $0.37, $1.09, and $1.48,
respectively.
The following table summarizes information concerning currently outstanding
and exercisable options:
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life (years) Price Exercisable Price
------------ ----------- ------------ ----- ----------- -----
$0.01 - 1.99 964,721 8.85 $0.78 527,097 $0.90
2.00 - 3.99 826,559 5.62 3.22 665,828 3.20
4.00 - 5.99 7,768 4.79 4.21 7,755 4.21
6.00 - 8.00 4,750 5.62 7.42 2,750 8.00
--------- ---------
1,803,798 1,203,430
========= =========
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, which requires that the information be determined as if the Company
had accounted for its employee stock options granted subsequent to June 30, 1995
under the fair value method. The fair value of each option grant has been
estimated as of the date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for 1997, 1998 and
1999: Expected volatility calculations based on historical data (.846), risk
free interest rates based on U.S. government bonds with maturities equal to the
expected option lives of 6.5 percent, expected option lives of five years, and
no dividend yield.
The Black-Scholes option valuation 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 subjective assumptions including the expected stock price volatility
and expected life of the option. 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
F-10
<PAGE>
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of employee's options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro forma
information follows (in thousands, except per share amounts):
Year ended June 30,
------------------------------
1999 1998 1997
---- ---- ----
Net loss--as reported ........................... $(3,692) $(2,173) $(7,369)
Net loss--pro forma ............................. (3,940) (2,695) (7,845)
Basic and diluted net loss per share--as reported (0.49) (0.32) (1.13)
Basic and diluted net loss per share--pro forma . (0.52) (0.39) (1.20)
The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures in future years.
Stock Purchase Plan
Effective February 1994, the Company established an employee stock purchase
plan under which the employees may purchase common stock at 85% of the lower of
the share price at the beginning or end of a designated period. In November
1996, the amount of shares reserved for issuance under the plan was increased by
50,000 to 100,000. Under the plan, 24,977 shares remain available for issuance
at June 30, 1999.
Note 4. Income Taxes
The Company uses the liability method to account for income taxes as
required by FASB Statement No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rules and laws that will be in effect when
the differences are expected to reverse.
Significant components of the Company's deferred tax assets (in thousands)
are as follows:
June 30,
---------------------
1999 1998
---- ----
Net operating loss carryforward ......... $ 11,500 $ 10,000
Research and development carryforward ... 1,130 1,100
Capitalized research and development .... 290 500
Gross deferred tax assets ............... 12,920 11,600
Valuation allowance ..................... (12,920) (11,600)
-------- --------
Net deferred tax assets ................. $ -- $ --
======== ========
The valuation allowance increased by $1,320,000 and $790,000 in fiscal
years 1999 and 1998, respectively.
At June 30, 1999, and 1998, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately
$32,000,000 and $12,000,000 respectively, which expire in tax years 1999 through
2018. The Company has federal tax credit carryforwards of approximately $800,000
which expire in tax years 2006 through 2018.
During the years ended June 30, 1991 and 1994, the Company experienced a
"change in ownership" as defined by Section 382 of the Internal Revenue Code. As
a result, utilization of the Company's net operating loss
F-11
<PAGE>
and credit carryforwards incurred prior to the "change in ownership" may be
subject to an annual limitation. If additional "changes in ownership" should
occur, the availability of the Company's net operating loss and credit
carryforwards incurred subsequent to the 1994 "change in ownership" may also be
subject to an annual limitation and may expire before ultimately becoming
available to reduce future income tax liabilities.
Note 5. Notes Payable
In January 1999, the Company received a loan of $200,000 from Merz. The
loan, which bears interest at a rate of 8% per year, is required to be repaid
from any funds received by NTI upon Merz signing an agreement with a third party
regarding the development and marketing of Memantine. If no such agreement is
completed, the loan is due and payable on December 31, 2000. In lieu of NTI's
repayment of the principal and interest on the loan, Merz has the right to
exercise an option at its sole discretion to receive shares of NTI common stock
at the stock price of $1.20 per share. As of June 30, 1999, if Merz exercises
this option, NTI would be obligated to issue Merz 173,333 shares of common
stock.
Note 6. Related Party Transaction
The President and Chief Executive Officer of the Company is a member of the
board of directors of a company that provided the Company with consulting
services. Amounts paid to this company for such services totaled $409,000 and
$90,000 in the years ended June 30, 1998 and 1997, respectively (none in 1999).
Note 7. Events Subsequent to Date of Report of Independent Auditors (Unaudited)
In August 1999, the Company entered into another agreement with Merz
pursuant to which the Company can borrow up to $1.5 million to support the Phase
IIB trial of Memantine for neuropathic pain. As of September 15, 1999, the
Company has borrowed $500,000 pursuant to this agreement. The principal and
interest of the Merz loans are convertible into common stock of the Company at
Merz' option. The terms of the Merz loan agreement also require that future
license fees, royalties, and other consideration received by the Company for the
licensing of its products and technologies be used to repay the loan.
In November 1999, the Company sold 5,238,750 shares of common stock for
gross proceeds of approximately $4.2 million in a private financing.
Approximately $1.23 million of the proceeds were used to repay the outstanding
principal and interest on loans from Merz.
F-12
<PAGE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 546,830 $ 201,202
Prepaid expenses and other ............................. 49,391 43,833
------------ ------------
Total current assets ................................. 596,221 245,035
Property and equipment, net ............................ 3,468 3,796
------------ ------------
$ 599,688 $ 248,831
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .................. $ 950,081 $ 934,839
Note payable to shareholder ............................ 1,200,000 200,000
------------ ------------
Total current liabilities ............................ 2,150,081 1,134,839
Stockholders' equity (deficit):
Convertible preferred stock, $.001 par value,
5,000,000 shares authorized, 2,332,000 outstanding
at September 30, 1999 and June 30, 1999 .............. 1,166,000 1,166,000
Common stock, $.001 par value, 25,000,000 shares
authorized, 7,943,113 outstanding at September 30,
1999 and 7,563,575 at June 30, 1999 ................. 30,102,092 29,985,352
Deficit accumulated during development stage ........... (32,818,485) (32,037,360)
------------ ------------
Total stockholders' equity (deficit) ................ (1,550,393) (886,008)
------------ ------------
$ 599,688 $ 248,831
============ ============
</TABLE>
See accompanying notes.
F-13
<PAGE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Period from
September 30, August 27, 1987
-------------------------- (inception) through
1999 1998 September 30, 1999
---- ---- ------------------
<S> <C> <C> <C>
REVENUES
License ........................ $ -- $ -- $ 2,100,000
Grant .......................... -- -- 149,444
----------- ----------- ------------
Total revenue ................ -- -- 2,249,444
EXPENSES
Research and development ....... 535,938 440,573 25,604,624
General and administrative ..... 246,707 222,036 11,643,279
----------- ----------- ------------
Total expenses ............... 782,645 662,609 37,247,903
Operating loss .................... (782,645) (662,609) (34,998,459)
Interest income ................... 1,521 23,008 2,179,975
----------- ----------- ------------
NET LOSS .......................... $ (781,124) $ (639,601) $(32,818,484)
=========== =========== ============
BASIC AND DILUTED
NET LOSS PER SHARE ............. $ (0.10) $ (0.08)
=========== ===========
Shares used in basic and diluted
net loss per share calculation 7,690,088 7,553,699
=========== ===========
</TABLE>
See accompanying notes.
F-14
<PAGE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three months ended August 27, 1987
September 30, (inception)
------------------- through
1999 1998 September 30, 1999
---- ---- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................. $ (781,124) $ (639,601) $(32,818,484)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization .......... 328 15,718 638,534
Issuance of common stock and warrants
for license rights and services ...... -- -- 139,775
Changes in assets and liabilities:
Prepaid expenses and other ............. (5,558) (2,268) (49,391)
Accounts payable and accrued expenses .. 15,242 (51,364) 950,081
----------- ----------- ------------
Net cash used in operating activities ..... (771,112) (677,515) (31,139,485)
----------- ----------- ------------
INVESTING ACTIVITIES:
Purchase of investments ................... -- -- (33,839,678)
Sale of investments ....................... -- -- 33,839,678
Purchases of property and equipment, net .. -- -- (358,940)
Additions to patents and licenses ......... -- -- (283,062)
----------- ----------- ------------
Net cash used in investing activities ..... -- -- (642,002)
FINANCING ACTIVITIES:
Proceeds of short-term borrowings ......... 1,000,000 -- 1,435,000
Issuance of common stock, net ............. 116,740 -- 22,735,235
Issuance of preferred stock, net .......... -- -- 8,158,082
----------- ----------- ------------
Net cash provided by financing activities . 1,116,740 -- 32,328,317
----------- ----------- ------------
Increase (decrease) in cash and
cash equivalents ....................... 345,628 (677,515) 546,830
Cash and equivalents at beginning of period 201,202 2,020,886 --
----------- ----------- ------------
Cash and equivalents at end of period ..... $ 546,830 $ 1,343,371 $ 546,830
=========== =========== ============
</TABLE>
See accompanying notes.
F-15
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three month period ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended June 30, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Company's Form 10-KSB for the
fiscal year ended June 30, 1999.
Subsequent to quarter ending, the Company raised approximately $4.2 million
in a private placement and repaid the outstanding principal and interest on loan
from Merz + Co. GmbH & Co. ("Merz") in the aggregate amount of approximately
$1.23 million. The Company believes that its available cash and cash equivalents
of $547,000 as of September 30, 1999, combined with the net proceeds from the
private placement subsequent to the quarter ending, are adequate to fund its
operations through this fiscal year ending June 30, 2000. The Company will need
to raise substantial additional capital to fund subsequent operations beyond the
fiscal year ending June 30, 2000. The Company intends to seek funding through
public or private financings, collaborative or other arrangements with corporate
partners, or from other sources. However, there can be no assurance that funding
will be available on favorable terms from any of these sources, if at all. If
such funding is unavailable, the Company will be required to delay, scale back,
or eliminate one or more of its research, discovery, or development projects,
including clinical trials, and to make future reductions in workforce. The
Company will also need to consider obtaining funds through entering into
arrangements with collaborative partners or others which may require the Company
to relinquish rights to certain of its technologies, product candidates or
products that the Company would not otherwise relinquish. and other
restructuring alternatives, including the license or sale of certain of its
assets and technology, discontinuing operations or liquidation.
Basic and Diluted Net Loss Per Share
Net loss per share is presented under the requirements of Financial
Accounting Standards Board ("FAS") No. 128, "Earnings per Share." Basic loss per
share is computed based on the average shares of common stock outstanding and
excludes any effects of options, warrants, and convertible securities.
Potentially dilutive securities such as options, warrants, and convertible
preferred stock, have also been excluded from the computation of diluted net
loss per share as their effect is antidilutive.
Note 2 - Notes Payable to Shareholders
In April 1999, the Company entered into a $200,000 convertible loan
agreement with Merz. At its option, Merz may convert any amounts borrowed under
the loan agreement, plus interest into common stock of NTI at a price of $1.20
per share. As of September 30, 1999, if Merz exercises this option to convert,
NTI would be obligated to issue Merz approximately 176,667 shares of common
stock.
F-16
<PAGE>
In August 1999, the Company entered into a convertible loan agreement with
Merz pursuant to which the Company can borrow up to $1,500,000. As of September
30, 1999, the Company has borrowed $1,000,000 under this agreement. At its
option, Merz may convert any amounts borrowed under the loan agreement, plus
interest, into common stock of NTI at a price of $1.05 per share. As of
September 30, 1999, if Merz converted all outstanding principal and interest
under the loan, NTI would be obligated to issue Merz approximately 957,143
shares of common stock.
Note 3 - Subsequent Events
In November 1999, the Company sold 5,238,750 shares of common stock for
gross proceeds of approximately $4.2 million in a private financing.
Approximately $1.23 million of the proceeds were used to repay the outstanding
principal and interest on loans from Merz.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers
The registrant has the power to indemnify its officers and directors
against liability for certain acts pursuant to Section 145 of the General
Corporation Law of the State of Delaware. Article VIII, Sections A, B and C of
the registrant's Restated Certificate of Incorporation provide as follows:
"A. No Personal Liability. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as director, except for liability (a) for any
breach of the director's duty to loyalty to the Corporation and its
stockholders; (b) for act or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (c) under Section 174 of
the Delaware General Corporation Law; or (d) for any transaction from which the
director derived an improper personal benefit.
B. Indemnification. Each person who is or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the legal
representative , is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in the
second paragraph hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this section shall be a contract right and shall include the right to be paid by
the Corporation any expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
If a claim under the first paragraph of this section is not paid in full by
the Corporation within thirty (30) days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense
II-1
<PAGE>
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant had not met the applicable
standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
C. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law."
In addition, Article V of the registrant's Bylaws provides as follows:
"Section 1. Actions Other Than by or in the Right of the Corporation.
Subject to Section 4 of this Article V, the corporation shall indemnify any
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 (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions Other Than by or in the Right of the Corporation.
Subject to Section 4 of this Article V, the corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of the State of Delaware
or such other court shall deem proper.
Section 3. Success on the Merits. To the extent that any person described
in Section 1 or 2 of this Article V has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
II-2
<PAGE>
Section 4. Specific Authorization. Any indemnification under Section 1 or 2
of this Article V (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or 2, as the case may be, of this Article V. Such determination shall
be made (1) by the board of directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders of the corporation.
Section 5. Advance Payment. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
board of directors in the manner provided for in Section 4 of this Article V
upon receipt of an undertaking by or on behalf of any person described in said
Section to repay such amount unless it shall ultimately be determined that he is
entitled to indemnification by the corporation as authorized in this Article V.
Section 6. Non-exclusivity. The indemnification and advancement of expenses
provided by this Article V shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be director, officer, employee or agent of the corporation and
shall inure to the benefit of the heirs, executors and administrators of such a
person; provided, however, that any repeal or amendment of any of the provisions
of this Article V shall not adversely affect any right or protection of any
indemnitee existing at the time of such repeal or amendment.
Section 7. INSURANCE. The board of directors may authorize, by a vote of
the majority of the full board, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article V.
Section 8. Severability. If any word, clause or provision of this Article V
or any award made hereunder shall for any reason be determined to be invalid,
the provisions hereof shall not otherwise be affected thereby but shall remain
in full force and effect.
Section 9. Intent of Article. The intent of this Article V is to provide
for indemnification to the fullest extent not prohibited by section 145 of the
General Corporation Law of Delaware. To the extent that such Section or any
successor section may be amended or supplemented from time to time, this Article
V shall be amended automatically and construed so as to permit indemnification
to the fullest extent from time to time not prohibited by law."
II-3
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered. All of the amounts
shown are estimates except the Securities and Exchange Commission registration
fee.
Securities and Exchange Commission
Registration Fee .................................. $ 6,431
Legal fees and expenses .............................. $30,000
Printing and engraving expenses ...................... $ 3,800
Accounting fees and expenses ......................... $13,200
Miscellaneous ........................................ $ 569
-------
TOTAL: ...................................... $54,000
=======
Item 26. Recent Sales of Unregistered Securities
From September through November 1999, NTI raised approximately $4.3 million
through the sale of 1,086,940 units of the Company's securities in a private
placement. The purchase price was $4.00 per unit. Each unit consisted of 5
shares of Common Stock and one warrant to purchase 2 shares of Common Stock at
an exercise price of $1.75 per share (exercisable for 5 years). The Company sold
units to accredited investors and relied on Rule 506 of Regulation D to exempt
the sale from negotiations under the Securities Act.
In August 1999, the Company entered into a convertible loan agreement with
Merz pursuant to which the Company can borrow up to $1,500,000. As of September
15, 1999, the Company has borrowed $500,000 under this agreement. At its option,
Merz may convert any amounts borrowed under the loan agreement, plus interest
into common stock of NTI. If Merz converted all outstanding principal and
interest under the loan, NTI would be obligated to issue Merz approximately
482,540 shares of common stock. The Company relied upon Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act") to exempt the sale
from registration under the Securities Act.
In April 1999, NTI raised $1,166,000 through the sale of 466,400 units of
the Company's securities in a private placement. The purchase price was $2.50
per unit. Each unit consisted of 5 shares of Series A preferred stock and one
warrant to purchase 2 shares of common stock at an exercise price of $1.00 per
share (exercisable for 5 years). The Series A preferred stock is convertible
into common stock on a one-for-one basis, subject to antidilution adjustment,
votes together with the common stock on an as-converted basis and has
preferences with respect to dividends and liquidation. The Company sold the
units to 31 accredited investors and relied on Rule 506 of Regulation D to
exempt the sale from registration under the Securities Act.
In January 1999, the Company entered into a $200,000 convertible loan
agreement with Merz. At its option, Merz may convert outstanding principal and
interest into shares of NTI common stock at a price of $1.20 per share. As of
June 30, 1999, if Merz exercises this option to convert, NTI would be obligated
to issue Merz approximately 173,333 shares of common stock. The Company relied
on Section 4(2) of the Securities Act to exempt the sale from registration under
the Securities Act.
In March 1998, NTI raised $555,725 through the sale of 1,010,410 units of
the Company's securities in a private placement. The purchase price was $0.55
per unit. Each unit consisted of one share of the Company's common stock, one
Class A warrant to purchase common stock at an exercise price of $0.75 per share
(exercisable for 18 months) and one Class B warrant to purchase common stock at
an exercisable price of $1.50 per share (exercisable for 3 years). The Company
sold the units to 16 accredited investors and relied on Rule 506 of Regulation D
to exempt the sale from registration under the Securities Act.
II-4
<PAGE>
Item 16. Exhibits
Exhibit Description
------- -----------
5 Opinion of Heller, Ehrman, White & McAuliffe
10.1 Form of Subscription Agreement
10.2 Form of Warrant
10.3 Warrant to purchase up to 431,000 shares of common stock
10.4 Letter Agreement with AmeriCal Securities, Inc.
23.1 Consent of Heller, Ehrman, White & McAuliffe
(filed as part of Exhibit 5)
23.2 Consent of Ernst & Young LLP, Independent Auditors
Item 17. Undertakings
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement, and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs A(1)(i) and A(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 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 Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Richmond, State of
California, on this 29th day of December, 1999.
NEUROBIOLOGICAL TECHNOLOGIES, INC.
By: /s/ Paul E. Freiman
---------------------------------------
Paul E. Freiman
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Paul E. Freiman, as her or his attorney
in fact, to sign any supplements or amendments to this Registration Statement
(including post-effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Paul E. Freiman President, Chief Executive December 29, 1999
- -------------------------- Officer (Principal Executive
Paul E. Freiman and Principal Financial Officer
and Principal Accounting Officer)
and Director
/s/ Abraham E. Cohen Chairman of the Board December 29, 1999
- --------------------------
Abraham E. Cohen
/s/ Enoch Callaway Director December 29, 1999
- --------------------------
Enoch Callaway
/s/ Theodore L. Eliot, Jr. Director December 29, 1999
- --------------------------
Theodore L. Eliot, Jr.
/s/ Abraham D. Sofaer Director December 29, 1999
- --------------------------
Abraham D. Sofaer
/s/ John B. Stuppin Director December 29, 1999
- --------------------------
John B. Stuppin
II-6
<PAGE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
Index to Exhibits
Sequentially
Numbered
Exhibit Description Pages
- ------- ----------- ------------
5 Opinion of Heller, Ehrman, White & McAuliffe
10.1 Form of Subscription Agreement
10.2 Form of Warrant
10.3 Warrant to purchase up to 431,000 shares of common stock
10.4 Letter Agreement with AmeriCal Securities, Inc.
23.1 Consent of Heller, Ehrman, White & McAuliffe
(filed as part of Exhibit 5)
23.2 Consent of Ernst & Young LLP, Independent Auditors
II-7
Exhibit 5
December 29, 1999
23855-0001
Neurobiological Technologies, Inc.
1387 Marina Way South
Richmond, CA 94804
REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentleman:
We have acted as counsel to Neurobiological Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form SB-2 (the "Registration Statement") which the Company proposes to file with
the Securities and Exchange Commission on December 29, 1999 for the purpose of
registering under the Securities Act of 1933, as amended, an aggregate of
8,039,580 shares of its Common Stock, par value $.001 (the "Shares"), of which
5,434,700 Shares have been issued pursuant to Subscription Agreements (the
"Agreements") between and the Company and certain investors (individually the
"Investor" and together the "Investors"), 2,173,880 Shares are issuable upon
exercise of Common Stock Purchase Warrants (the "Purchase Warrants") issued to
the Investors and an additional 431,000 Shares are issuable upon exercise of a
Common Stock Purchase Warrant issued in connection with the transactions
contemplated by the Agreements (the "Common Warrant," together with the Purchase
Warrants, the "Warrants").
We have assumed the authenticity of all records, documents and instruments
submitted to us as originals, the genuineness of all signatures, the legal
capacity of natural persons and the conformity to the originals of all records,
documents and instruments submitted to us as copies.
In rendering our opinion, we have examined the following records, documents
and instruments:
(a) The Certificate of Incorporation of the Company, certified by the
Delaware Secretary of State as of November 29, 1999, and certified to
us by an officer of the Company as being complete and in full force as
of the date of this opinion;
(b) The Bylaws of the Company certified to us by an officer of the Company
as being complete and in full force and effect as of the date of this
opinion;
(c) A Certificate of an officer of the Company (i) attaching records
certified to us as constituting all records of proceedings and actions
of the Board of Directors, including any committee thereof, and
stockholders of the Company relating to the Shares, and the
Registration Statement, and (ii) certifying as to certain factual
matters;
(d) The Registration Statement;
(e) The Warrants;
(f) The Agreements; and
II-8
<PAGE>
(g) A letter from Chase Mellon Shareholder Services, the Company's
transfer agent, dated December 28, 1999, as to the number of shares of
the Company's Common Stock that were outstanding on December 27, 1999.
This opinion is limited to the federal laws of the United States of
America, the laws of the State of California, and the General Corporation Law of
the State of Delaware, as to corporate formalities, and we disclaim any opinion
as to the laws of any other jurisdiction. We further disclaim any opinion as to
any other statute, rule, regulation, ordinance, order or other promulgation of
any other jurisdiction or any regional or local governmental body or as to any
related judicial or administrative opinion.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
assuming that (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered and issued, (ii) the full
consideration stated in the Agreements and the Warrants for each Share is
received and that such consideration in respect of each Share includes payment
of cash or other lawful consideration at least equal to the par value thereof,
(iii) appropriate certificates evidencing the Shares are executed and delivered
by the Company, and (iv) all applicable securities laws are complied with, it is
our opinion that when issued by the Company, in the manner provided in the
Agreements, the Warrants and the Registration Statement, the Shares will be
legally issued, fully paid and nonassessable.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of any change of law that occurs, or any facts of
which we may become aware, after the date of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
II-9
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND
HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE
IN CONNECTION WITH ANY DISTRIBUTION THEREOF. THEY MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT,
EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION
ARE NOT REQUIRED.
THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE
IS SO EXEMPT.
SUBSCRIPTION AGREEMENT
Neurobiological Technologies, Inc.
1387 Marina Way South
Richmond, California 94804
Attn: Chief Executive Officer
Gentlemen:
1. Subscription.
(a) The undersigned is hereby purchasing from Neurobiological Technologies,
Inc., a Delaware corporation (the "Company"), _____ units (the "Units"), each
consisting of (i) five shares (the "Shares") of the Company's Common Stock,
$0.001 par value (the "Common Stock"); and (ii) a Common Stock Purchase Warrant,
in the form of EXHIBIT A (the "Warrant"), to purchase two shares of Common
Stock. The Shares and the Warrants are referred to herein as the "Securities."
The undersigned understands and agrees that the Company is only offering the
Shares and the Warrants together as a Unit, and that the Shares and Warrants may
only be purchased as a Unit. The purchase price of each Unit shall be $4.00 for
an aggregate purchase price of $________ (the "Purchase Price").
<PAGE>
(b) This subscription is submitted to the undersigned in accordance with
and subject to the terms and conditions described in this Subscription Agreement
relating to the offering of up to ________ Units; with a minimum subscription of
687,500 Units required to consummate the offering. The Company reserves the
right to amend, modify and/or withdraw all or a portion of the offering and to
increase or decrease the number of Units to be offered hereby.
2. (a) PURCHASE PRICE. The undersigned has tendered, together with this
Subscription Agreement, the Purchase Price by electronic wire transfer in
accordance with the following instructions:
Bank Name Wells Fargo Bank
Bank Address: 420 Montgomery Street, 5th Floor
San Francisco, CA 94104
ABA#: 121000248
WFB Account #: 4159 427 152
For further credit to Acct
Neurobiological Technologies, Inc.
Attn: Alice Byrd
or by delivery of a bank check or certified check made payable to
Neurobiological Technologies, Inc. against delivery to the undersigned of a
certificate representing the Securities.
(b) Closing. The closing of the sale and purchase of the Securities
shall occur on the date hereof or on such other date as shall be selected by the
Company (the "Closing Date"). The Securities subscribed for under this
Subscription Agreement shall not be deemed issued to, or owned by, the
undersigned until the Closing Date has occurred.
(c) Acceptance or Rejection. The undersigned understands and agrees
that the Company reserves the right, in its absolute discretion, to reject this
subscription for the Securities in whole or in part, at any time prior to the
Closing Date. In the event of rejection of this subscription, or in the event
the sale of the Securities is not consummated for any reason within 20 days
after the date of this Subscription Agreement (in which event this Subscription
Agreement shall be deemed to be rejected), the Company shall cause the return to
the undersigned of this Subscription Agreement and the Purchase Price tendered
by the undersigned, and this Subscription Agreement thereafter shall be of no
force or effect.
2
<PAGE>
3. Representations and Warranties of the Company. To induce the undersigned
to enter into this Subscription Agreement and to purchase the Securities, the
Company hereby represents and warrants to the undersigned the following:
(a) Organization, Standing, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to own or lease its
properties and to carry on its business as it is now being conducted. The
Company has the requisite corporate power and authority to issue the Securities
and to perform its obligations under this Subscription Agreement.
(b) Valid Issuance. The Securities, when issued and delivered pursuant
to the terms of this Subscription Agreement, will be duly authorized, validly
issued, fully paid and nonassessable. The shares of Common Stock issuable upon
exercise of the Warrants (the "Underlying Securities"), when issued and
delivered pursuant to the terms of the Warrants, will be duly authorized,
validly issued, fully paid and nonassessable.
(c) Corporate Acts and Proceedings. This Subscription Agreement has
been duly authorized by all necessary corporate action on behalf of the Company,
has been duly executed and delivered by an authorized officer of the Company, is
a valid and binding agreement on the part of the Company and is enforceable
against the Company in accordance with its terms. All corporate actions
necessary to the authorization, creation, issuance and delivery of the Shares,
Warrants and the Underlying Securities have been taken by the Company.
(d) Compliance With Applicable Laws and Other Instruments. Neither the
execution nor delivery of, nor the performance of or compliance with this
Subscription Agreement, the issuance of the Shares, the Warrants and the
Underlying Securities nor the consummation of the transactions contemplated
hereby will, with or without the giving of notice or passage of time, result in
any breach of, or constitute a default under, or result in the imposition of any
lien or encumbrance upon any asset or property of the Company pursuant to, any
material agreement or other material instrument to which the Company is a party
or by which it or any of its properties, assets or rights is bound or affected,
and will not violate the Company's Certificate of Incorporation or Bylaws.
(e) Securities Laws. Based in part upon the representations of the
undersigned in Section 5, no consents, authorization, approval, permit or order
of or filing with any governmental or regulatory authority is required under
current laws and regulations in connection with the execution and delivery of
this Subscription Agreement
3
<PAGE>
or the offer, issuance, sale or delivery of the Shares, the Warrants and the
Underlying Securities, other than the filing of a Form D pursuant to Regulation
D under the Securities Act of 1933 (the "Act"), the filing of a notice on Form
25102(f) with the State of California and a similar notice with any other state
whose laws require such filing, and the qualification thereof, if required,
under other applicable state laws which qualification has been or will be
effected as a condition of this transaction. Under the circumstances
contemplated by this Subscription Agreement, the offer, issuance, sale and
delivery of the Shares, the Warrants and the Underlying Securities will not,
under current laws and regulations, require compliance with the prospectus
delivery or registration requirements of the Act.
(f) Capital Stock. Except as set forth on SCHEDULE A attached hereto,
the authorized and issued capital stock of the Company is correctly set forth in
the audited financial statements of the Company for the fiscal year ended June
30, 1999. All of the outstanding shares of the Company's capital stock are duly
authorized and validly issued and are fully paid and nonassessable. Except as
described in the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1999 as filed with the Securities and Exchange Commission (the
"Commission"), or as set forth on SCHEDULE A, there are no outstanding
subscriptions, options, warrants, calls, contracts, demands, commitments,
convertible securities or other agreements or arrangements of any character or
nature whatever, other than this Subscription Agreement, pursuant to which the
Company is obligated to issue any securities of any kind representing an
ownership interest in the Company.
(g) Company Sec Filings. The Company has furnished, or made available
through the EDGAR Internet web site of the Commission, to the undersigned true
and complete copies of its Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1999 as filed with the Commission (the "SEC Filing"). As of its
filing date, the SEC Filing complied in all material respects with the
applicable requirements of the Exchange Act of 1934, as amended (the "Exchange
Act"), and the SEC Filing contained no 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 made therein, in the light of the circumstances
under which they were made, not misleading.
(h) Repayment of Merz Loans. The Company has given notice to Merz +
Co. GmbH & Co. ("Merz") that it will repay outstanding loans from Merz in the
aggregate principal amount of $1,200,000 plus accrued interest from the proceeds
of this offering.
4
<PAGE>
4. Transfer Restrictions.
(a) The undersigned realizes that the Shares, the Warrants and the
Underlying Securities are not registered under the Act, or any foreign or state
securities laws. The undersigned agrees that the Shares, the Warrants and the
Underlying Securities will not be sold, offered for sale, pledged, hypothecated,
or otherwise transferred (collectively, a "Transfer") except in compliance with
the Act, if applicable, and applicable foreign and state securities laws. The
undersigned understands that the undersigned can only Transfer the Shares, the
Warrants and the Underlying Securities pursuant to registration under the Act or
pursuant to an exemption therefrom. The undersigned understands that to Transfer
the Shares, the Warrants and the Underlying Securities may require in some
jurisdictions specific approval by the appropriate governmental agency or
commission in such jurisdiction.
(b) To enable the Company to enforce the transfer restrictions
contained in Section 4(a), the undersigned hereby consents to the placing of
legends upon, and stop-transfer orders with the transfer agent of the Common
Stock with respect to, the Shares, the Warrants and the Underlying Securities.
5. Representations and Warranties. To induce the Company to accept the
undersigned's subscription, the undersigned hereby represents and warrants to
the Company that:
(a) the undersigned, if an individual, has reached the age of majority
in the jurisdiction in which he/she resides, is a bona fide resident of the
jurisdiction contained in the address set forth on the signature page of this
Subscription Agreement; is legally competent to execute this Subscription
Agreement; and does not intend to change residence to another jurisdiction;
(b) the undersigned, if an entity, is duly authorized to execute this
Subscription Agreement and this Subscription Agreement, when executed and
delivered by the undersigned, will constitute a legal, valid, and binding
obligation enforceable against the undersigned in accordance with its terms; and
the execution, delivery, and performance of this Subscription Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate or other necessary action on the part of the
undersigned;
(c) the Shares, Warrants and Underlying Securities subscribed for
hereby are being acquired by the undersigned for investment purposes only, for
the account of the undersigned and not with the view to any resale or
distribution thereof, and the undersigned is not participating, directly or
indirectly, in a distribution of such Shares, Warrants and Underlying Securities
and will not take, or cause to be taken, any action that would cause the
undersigned to be deemed an "underwriter" of such Shares, Warrants and
Underlying Securities as defined in Section 2(11) of the Act;
5
<PAGE>
(d) the undersigned has had access to all materials, books, records,
documents, and information relating to the Company, including (i) the SEC
Filings and (ii) the Proxy Statement relating to the Company's 1998 annual
meeting;
(e) the undersigned acknowledges and understands that investment in
the Securities involves a high degree of risk, including without limitation the
risks set forth in the SEC Filing under the captions "Risks Associated with
Product Development," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in the Company's Form
10-KSB;
(f) the undersigned acknowledges that the undersigned has been offered
an opportunity to ask questions of, and receive answers from, officers of the
Company concerning all material aspects of the Company and its business, and
that any request for such information has been fully complied with to the extent
the Company possesses such information or can acquire it without unreasonable
effort or expense;
(g) the undersigned has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of an investment in the Company and can afford a complete loss of his
investment in the Company;
(h) the undersigned has never been notified by the Internal Revenue
Service that the undersigned is subject to backup withholding;
(i) the undersigned recognizes that no governmental agency has passed
upon the issuance of the Shares or made any finding or determination as to the
fairness of this investment;
(j) if the undersigned is purchasing the Securities subscribed for
hereby in a representative or fiduciary capacity, the representations and
warranties contained herein shall be deemed to have been made on behalf of the
person or persons for whom such Securities are being purchased;
(k) the undersigned has not entered into any agreement to pay
commissions to any persons with respect to the purchase or sale of the
Securities, except commissions for which the undersigned will be responsible;
and
(l) the undersigned is an "Accredited Investor" as that term is
defined in Section 501(a) of Regulation D promulgated under the Act.
Specifically the undersigned is (check appropriate item(s)):
6
<PAGE>
[ ] (i) a bank as defined in Section 3(a)(2) of the Act, or a savings
and loan association or other institution as defined in Section
3(a)(5)(A) of the Act whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the
Exchange Act; an insurance company as defined in Section 2(13) of the
Act; an investment company registered under the Investment Company Act
of 1940 or a business development company as defined in Section
2(a)(48) of that Act; a Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000, an employee benefit plan within the meaning of the
Employment Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of
such act, which is either a bank, savings and loan association,
insurance company, or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000, or if
a self-directed plan, with investment decisions made solely by persons
that are Accredited Investors;
[ ] (ii) a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
[ ] (iii) an organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, corporation, Massachusetts
or similar business trust, or partnership, not formed for the specific
purpose of acquiring Shares, with total assets in excess of
$5,000,000;
[ ] (iv) a director or executive officer of the Company;
[ ] (v) a natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his or her purchase
exceeds $1,000,000;
[ ] (vi) a natural person who had an individual income (not including
his or her spouse's income) in excess of $200,000 in 1997 and 1998 or
joint income with his or her spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching such income
level in 1999;
[ ] (vii) a trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring Shares, whose purchase is
directed by a person having such knowledge and experience in financial
and business matters that he or she is capable of evaluating the
merits and risks entailed in the purchase of Shares; or
7
<PAGE>
[ ] (viii) an entity in which all of the equity owners are Accredited
Investors. (If this alternative is checked, the undersigned must
identify each equity owner and provide statements signed by each
demonstrating how each is qualified as an Accredited Investor.)
6. Registration of Shares. On or before a date that is 30 days after the
Closing Date, the Company shall file with the Securities and Exchange Commission
a registration statement on Form S-3 to register for resale pursuant to Section
5 of the Act the Shares and the Underlying Securities sold and issued to the
undersigned in accordance with this Subscription Agreement. The Company will use
its best efforts to cause such registration statement to be declared effective
and to remain available for the resale of such shares and securities for a
period of 12 months from the effective date, provided, however, that the Company
may suspend the use of the prospectus constituting part of the registration
statement for up to two periods of 60 days each in the event the Company
determines, in its sole judgment, that such prospectus is incomplete, inaccurate
or omits to disclose any information required to be included therein, and
provided further, that the period during which the registration statement will
remain available shall be extended by any period in which the Company invoked
its right to suspend the use of the prospectus. In the event of any such
suspension, the Company will promptly notify the undersigned subscriber of the
suspension and use its best efforts to amend or supplement the registration
statement, and the prospectus constituting a part thereof, within said 60-day
period to enable the use of the amended or supplemented prospectus for the
resale of the shares and securities covered thereby. The Company will provide
the undersigned with such copies of the prospectus, or any amended or
supplemented prospectus, as the undersigned may reasonably request. The
undersigned agrees to cooperate with the Company in preparing and filing the
aforesaid registration statement, and any amendment or supplement thereto, and
to provide the Company with such information and documentation as the Company
may reasonably request. Notwithstanding anything to the contrary contained
herein, the Company shall not be obligated to maintain the effectiveness of any
registration statement, or to update, amend or supplement such registration
statement or any prospectus constituting a part thereof, after the undersigned
shall become eligible to sell all of his shares, or remaining shares, under Rule
144 of the Act within any three-month period without volume limitations.
7. Further Documents. The undersigned agrees that it will execute such
other documents as may be necessary or desirable in connection with the
transactions contemplated hereby.
8. Modification. Neither this Subscription Agreement nor any provisions
hereof shall be waived, modified, discharged, or terminated except by an
instrument in writing signed by the party against whom any such waiver,
modification, discharge, or termination is sought.
8
<PAGE>
9. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service and delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address set forth on the
first page hereof, (ii) if to the undersigned, at its address set forth on the
signature page hereto, or (iii) in either case, to such other address as the
party shall have furnished in writing in accordance with the provisions of this
Section 9. Notice to the estate of any party shall be sufficient if addressed to
the party as provided in this Section. Any notice or other communication given
by certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof. Any notice given by other means permitted by this
Section 9 shall be deemed given at the time of receipt thereof.
10. Counterparts. This Subscription Agreement may be executed through the
use of separate signature pages or in any number of counterparts, and each such
counterpart shall, for all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the same
counterpart.
11. Entire Agreement. This Subscription Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and there are
not representations, covenants or other agreements except as stated or referred
to herein.
12. Severability. Each provision of this Subscription Agreement is intended
to be severable from every other provision, and the invalidity or illegality of
any portion hereof shall not affect the validity or legality of the remainder
hereof.
13. Assignability. This Subscription Agreement is not transferable or
assignable by the undersigned.
14. Applicable Law. This Subscription Agreement has been negotiated and
consummated in the State of California and shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
conflict of laws.
15. Choice of Jurisdiction. Any action or proceeding arising, directly,
indirectly, or otherwise, in connection with, out of or from this Subscription
Agreement, any breach hereof or any transaction covered hereby shall be resolved
within San Francisco, California. Accordingly, the parties consent and submit to
the jurisdiction of the United States federal and state courts located within
San Francisco, California.
16. Taxpayer Identification Number. The undersigned verifies under
penalties of perjury that any Taxpayer Identification Number or Social Security
Number shown on the signature page hereto is true, correct, and complete.
17. Pronouns. Any personal pronoun shall be considered to mean the
corresponding masculine, feminine, or neuter personal pronoun, as the context
requires.
9
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this __ day of ___________, 1999.
Number of Units Subscribed for: ________ Units
INDIVIDUAL SUBSCRIBER: ENTITY SUBSCRIBER:
- ------------------------------------ ------------------------------------
(Signature of Subscriber) (Print Name of Subscriber)
By:
- ------------------------------------ ------------------------------------
(Typed or Printed Name) Name:
------------------------------
Title:
-----------------------------
- ------------------------------------ ------------------------------------
(Residence Address) (Address)
- ------------------------------------ ------------------------------------
(City, State and Zip Code) (City, State and Zip Code)
- ------------------------------------ ------------------------------------
(Telephone Number) (Telephone Number)
- ------------------------------------ ------------------------------------
(Telecopier Number) (Telecopier Number)
- ------------------------------------ ------------------------------------
(Tax I.D. or Social Security Number) (Tax I.D. or Social Security Number)
ACCEPTED:
NEUROBIOLOGICAL TECHNOLOGIES, INC.
By:
--------------------------------
Name: Paul Freiman
Title: Chief Executive Officer and President
Date: _________, 1999
10
EXHIBIT A
WARRANT NO. __
WARRANT TO PURCHASE A MAXIMUM OF
_________ SHARES OF COMMON STOCK OF
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Void after __________, 2004)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.
This certifies that _____________ (the "Holder"), or assigns, for value
received, is entitled to purchase from Neurobiological Technologies, Inc., a
Delaware corporation (the "Company"), subject to the terms set forth below, a
maximum of __________ fully paid and nonassessable shares (subject to adjustment
as provided herein) of the Company's Common Stock (the "Warrant Shares") for
cash at a price of $1.75 per share (the "Exercise Price") (subject to adjustment
as provided herein) at any time or from time to time up to and including 5:00
p.m. (California Time) on _________, 2004, (the "Expiration Date") upon
surrender to the Company at its principal office (or at such other location as
the Company may advise the Holder in writing) of this Warrant properly endorsed
with the Form of Subscription attached hereto duly filled in and signed and upon
payment in cash or by check of the aggregate Exercise Price for the number of
shares for which this Warrant is being exercised determined in accordance with
the provisions hereof. The Exercise Price is subject to adjustment as provided
in Section 3 of this Warrant. This Warrant is issued subject to the following
terms and conditions:
1. Exercise, Issuance of Certificates, Reduction in Number of Warrant
Shares.
1.1 General. This Warrant is exercisable at the option of the Holder
of record hereof on or prior to the Expiration Date, at any time or from time to
<PAGE>
time following its issuance, for all or any part of the Warrant Shares (but not
for a fraction of a share) which may be purchased hereunder, as that number may
be adjusted pursuant to Section 3 of this Warrant. The Company agrees that the
Warrant Shares purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such Warrant Shares as of the close
of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed and executed Form of Subscription delivered,
and payment made for such Warrant Shares. Certificates for the Warrant Shares so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense not later than 10 days after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the Warrant Shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver to the Holder hereof
within a reasonable time a new Warrant or Warrants of like tenor for the balance
of the Warrant Shares purchasable under the Warrant surrendered upon such
purchase. Each stock certificate so delivered shall be registered in the name of
such Holder.
1.2 Net Issue Exercise of Warrant. Notwithstanding any provisions
herein to the contrary, if the fair market value of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, Holder may elect to receive shares
of Common Stock equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Form of Subscription
in which event the Company shall issue to the Holder a number of shares of
Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued
to Holder;
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation);
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation); and
B = Exercise Price (as adjusted to the date of such
calculation).
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be the average of the closing bid and asked prices of the
Common Stock quoted in the over-the-counter market summary or the last reported
sale price of the Common Stock or the closing price quoted on the Nasdaq
2
<PAGE>
National Market System or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in The Wall Street Journal for the five
trading days prior to the date of determination of fair market value.
2. Shares to be Fully Paid. The Company covenants and agrees that all
Warrant Shares, will, upon issuance and, if applicable, payment of the
applicable Exercise Price, be duly authorized, validly issued, fully paid and
nonassessable, and free of all liens and encumbrances, except for restrictions
on transfer provided for herein or under applicable federal and state securities
laws.
3. Adjustment of Exercise Price and Number of Shares. The Exercise Price
and the total number of Warrant Shares shall be subject to adjustment from time
to time upon the occurrence of certain events described in this Section 3. Upon
each adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.1 Subdivision or Combination of Stock. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares issuable
hereunder proportionately increased, and conversely, in case the outstanding
shares of the Common Stock of the Company shall be combined into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
issuable hereunder proportionately decreased.
3.2 Reclassification. If any reclassification of the capital stock of
the Company or any reorganization, consolidation, merger, or any sale, lease,
license, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all, of the business and/or assets of the
Company (the "Reclassification Events") shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities, or other
assets or property, then, as a condition of such Reclassification Event lawful
and adequate provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of Common Stock of
the Company immediately theretofore purchasable and receivable upon the exercise
3
<PAGE>
of the rights represented hereby) such shares of stock, securities, or other
assets or property as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby. In any Reclassification Event,
appropriate provision shall be made with respect to the rights and interests of
the Holder of this Warrant to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of Warrant Shares), shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities, or assets thereafter deliverable
upon the exercise hereof.
3.3 Stock Dividends, ETC. Except as hereinafter provided, in case the
Company shall at any time after the date hereof issue any shares of Common Stock
(including shares held in the Company's treasury) without consideration, then,
and thereafter successively upon each issuance, the Exercise Price in effect
immediately prior to each such issuance shall forthwith be reduced to a price
determined by multiplying the Exercise Price in effect immediately prior to such
issuance by a fraction:
(a) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such issuance, and
(b) the denominator of which shall be the total number of shares of
Common Stock outstanding immediately after such issuance.
For purposes of any computation to be made in accordance with the
provisions of this Section 3.3, shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued and to be outstanding at the close of the business on the
record date fixed for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration. Shares of Common Stock issued otherwise than as a dividend, shall
be deemed to have been issued and to be outstanding at the close of business on
the date of issue.
3.4 Notice of Adjustment. Upon any adjustment of the Exercise Price or
any increase or decrease in the number of Warrant Shares, the Company shall give
written notice thereof, by first class mail postage prepaid, addressed to the
registered Holder of this Warrant at the address of such Holder as shown on the
books of the Company. The notice shall be prepared and signed by the Company's
Chief Financial Officer and shall state the Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4. No Voting or Dividend Rights. Nothing contained in this Warrant shall be
construed as conferring upon the holder hereof the right to vote or to consent
to receive notice as a shareholder of the Company on any other matters or any
4
<PAGE>
rights whatsoever as a shareholder of the Company. No dividends or interest
shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
5. Compliance With Securities Act; Transferability of Warrant; Disposition
of Shares of Stock.
5.1 Compliance With Securities Act. The Holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Warrant Shares 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 Warrant Shares except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Act") or any applicable state securities laws. The
Holder agrees that the Company is under no obligation to register the Warrants
and the Warrant Shares, and Holder acknowledges that the Company does not intend
to cause such a registration. This Warrant and all Warrant Shares shall be
stamped or imprinted with a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
5.2 Access to Information; Pre Existing Relationship. Holder has had
the opportunity to ask questions of, and to receive answers from, appropriate
executive officers of the Company with respect to the terms and conditions of
the transactions contemplated hereby and with respect to the business, affairs,
financial condition and results of operations of the Company. Holder has had
access to such financial and other information as is necessary in order for
Holder to make a fully informed decision as to investment in the Company, and
has had the opportunity to obtain any additional information necessary to verify
any of such information to which Holder has had access. Holder further
represents and warrants that he has either (i) a pre-existing relationship with
the Company or one or more of its officers or directors consisting of personal
or business contacts of a nature and duration which enable him to be aware of
the character, business acumen and general business and financial circumstances
of the Company or the officer or director with whom such relationship exists or
(ii) such business or financial expertise as to be able to protect his own
interests in connection with the purchase of the Shares.
5
<PAGE>
5.3 Warrant Transferable. Subject to compliance with applicable
federal and state securities laws under which this Warrant was purchased, this
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the Holder (except for transfer taxes), upon surrender of this Warrant
properly endorsed; provided, however, that the Holder shall notify the Company
in writing in advance of any proposed transfer, and if the Company notifies the
Holder within 5 business days of receipt of such notice that such person or
entity is then engaged in a business that in the reasonable judgment of the
Company is in direct competition with the Company, Holder shall not transfer
this Warrant or any rights hereunder to such person or entity.
5.4 Disposition of Warrant Shares and Common Stock. With respect to
any offer, sale, or other disposition of the Warrant or any Warrant Shares, the
Holder hereof and each subsequent Holder of this Warrant agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of such Holder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state law then in effect) of such Warrant or
Warrant Shares, as the case may be, and indicating whether or not under the Act
certificates for such Warrant or Warrant Shares to be sold or otherwise disposed
of require any restrictive legend as to applicable restrictions on
transferability in order to insure compliance with the Act. Upon receiving such
written notice and opinion, the Company, as promptly as practicable, shall
notify such Holder that such Holder may sell or otherwise dispose of such
Warrant or Warrant Shares, all in accordance with the terms of the notice
delivered to the Company. If a determination has been made pursuant to this
Section 5.4 that the opinion of the counsel for the Holder is not reasonably
satisfactory to the Company, the Company shall so notify the Holder promptly
after such determination has been made. Notwithstanding the foregoing, such
Warrant or Warrant Shares may be offered, sold or otherwise disposed of in
accordance with Rule 144 under the Act, provided that the Company shall have
been furnished with such information as the Company may request to provide
reasonable assurance that the provisions of Rule 144 have been satisfied. Each
certificate representing the Warrant or Warrant Shares thus transferred (except
a transfer pursuant to Rule 144) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with the Act,
unless in the aforesaid opinion of counsel for the Holder, such legend is not
required in order to ensure compliance with the Act. The Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions.
6. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
6
<PAGE>
7. NOTICES. Any notice, request, or other document required or permitted to
be given or delivered to the Holder hereof or the Company shall be delivered or
shall be sent by certified mail, postage prepaid, to each such Holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
8. Other Notices. If at any time:
(1) the Company shall declare any cash dividend upon its Common Stock;
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
(4) 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
(5) 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, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least 20 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least 20
days' prior written notice of the date when the same shall take place; provided,
however, that the Holder shall make a best efforts attempt to respond to such
notice as early as possible after the receipt thereof. Any notice given in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution, or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or conversion, as the case may be.
7
<PAGE>
9. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
10. Lost Warrants. The Company represents and warrants to the Holder hereof
that upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
11. Fractional Shares. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the Holder entitled to such fraction a sum in cash equal to such fraction
(calculated to the nearest 1/100th of a share) multiplied by the then effective
Exercise Price on the date the Form of Subscription is received by the Company.
12. No Impairment. The Company will not, by charter amendment or by
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 terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Upon the request of the Holder, the Company will
at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continued validity of this Warrant
and the Company's obligations hereunder.
13. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officer, thereunto duly authorized as of this ____ day of _________,
1999.
NEUROBIOLOGICAL TECHNOLOGIES, INC.
a Delaware corporation
By: _________________________________
Name: _________________________________
Title: _________________________________
8
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Neurobiological Technologies, Inc.
[Please mark one box]
[ ] The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, (1)_______________ shares of
Common Stock of Neurobiological Technologies, Inc. (the "Company") and
herewith makes payment of $_______________ therefor, and requests
certificates for such shares be issued in the name of, and delivered
to,_______________________________________________________ whose address
is_____________________________________________.
[ ] The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, (1)_______________ shares of
Common Stock of the Company and herewith elects to pay for such shares by
reducing the number of shares issuable thereunder in accordance with
Section 1.2 thereof. The undersigned hereby authorizes the Company to make
the required calculation under Section 1.2 of the Warrant.
The undersigned represents that it is acquiring such Common Stock for its
own account for investment and not with a view to or for sale in connection with
any distribution thereof.
DATED: __________, _____
-----------------------------------------------
(Signature must conform in all respects to name
of Holder as specified on the face of the
Warrant)
Name: __________________________________
Title: __________________________________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustments
for any stock or other securities or property or cash which, pursuant to
the adjustment provisions of the Warrant, may be deliverable upon exercise.
9
Warrant No. E-1
WARRANT TO PURCHASE A MAXIMUM OF
431,000 SHARES OF COMMON STOCK OF
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Void after November 9, 2004)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.
This certifies that Charles B. Engelberg, M.D. (the "Holder"), or assigns,
for value received, is entitled to purchase from Neurobiological Technologies,
Inc., a Delaware corporation (the "Company"), subject to the terms set forth
below, a maximum of 431,000 fully paid and nonassessable shares (subject to
adjustment as provided herein) of the Company's Common Stock (the "Warrant
Shares") for cash at a price of $4.40 per share (the "Exercise Price") (subject
to adjustment as provided herein) at any time or from time to time up to and
including 5:00 p.m. (California Time) on November 9, 2004, (the "Expiration
Date") upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly filled in
and signed and upon payment in cash or by check of the aggregate Exercise Price
for the number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. The Exercise Price is subject to
adjustment as provided in Section 3 of this Warrant. This Warrant is issued
subject to the following terms and conditions:
1. Exercise, Issuance of Certificates, Reduction in Number of Warrant
Shares.
1.1 General. This Warrant is exercisable at the option of the Holder
of record hereof on or prior to the Expiration Date, at any time or from time to
time following its issuance, for all or any part of the Warrant Shares (but not
for a fraction of a share) which may be purchased hereunder, as that number may
<PAGE>
be adjusted pursuant to Section 3 of this Warrant. The Company agrees that the
Warrant Shares purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such Warrant Shares as of the close
of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed and executed Form of Subscription delivered,
and payment made for such Warrant Shares. Certificates for the Warrant Shares so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense not later than 10 days after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the Warrant Shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver to the Holder hereof
within a reasonable time a new Warrant or Warrants of like tenor for the balance
of the Warrant Shares purchasable under the Warrant surrendered upon such
purchase. Each stock certificate so delivered shall be registered in the name of
such Holder.
1.2 Net Issue Exercise of Warrant. Notwithstanding any provisions
herein to the contrary, if the fair market value of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, Holder may elect to receive shares
of Common Stock equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Form of Subscription
in which event the Company shall issue to the Holder a number of shares of
Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued
to Holder;
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation);
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation); and
B = Exercise Price (as adjusted to the date of such
calculation).
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be the average of the closing bid and asked prices of the
Common Stock quoted in the over-the-counter market summary or the last reported
sale price of the Common Stock or the closing price quoted on the Nasdaq
National Market System or on any exchange on which the Common Stock is listed,
2
<PAGE>
whichever is applicable, as published in The Wall Street Journal for the five
trading days prior to the date of determination of fair market value.
2. Shares to be Fully Paid. The Company covenants and agrees that all
Warrant Shares, will, upon issuance and, if applicable, payment of the
applicable Exercise Price, be duly authorized, validly issued, fully paid and
nonassessable, and free of all liens and encumbrances, except for restrictions
on transfer provided for herein or under applicable federal and state securities
laws.
3. Adjustment of Exercise Price and Number of Shares. The Exercise Price
and the total number of Warrant Shares shall be subject to adjustment from time
to time upon the occurrence of certain events described in this Section 3. Upon
each adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.1 Subdivision or Combination of Stock. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares issuable
hereunder proportionately increased, and conversely, in case the outstanding
shares of the Common Stock of the Company shall be combined into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
issuable hereunder proportionately decreased.
3.2 Reclassification. If any reclassification of the capital stock of
the Company or any reorganization, consolidation, merger, or any sale, lease,
license, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all, of the business and/or assets of the
Company (the "Reclassification Events") shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities, or other
assets or property, then, as a condition of such Reclassification Event lawful
and adequate provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of Common Stock of
the Company immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby) such shares of stock, securities, or other
assets or property as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby. In any Reclassification Event,
appropriate provision shall be made with respect to the rights and interests of
3
<PAGE>
the Holder of this Warrant to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of Warrant Shares), shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities, or assets thereafter deliverable
upon the exercise hereof.
3.3 Stock Dividends, ETC. Except as hereinafter provided, in case the
Company shall at any time after the date hereof issue any shares of Common Stock
(including shares held in the Company's treasury) without consideration, then,
and thereafter successively upon each issuance, the Exercise Price in effect
immediately prior to each such issuance shall forthwith be reduced to a price
determined by multiplying the Exercise Price in effect immediately prior to such
issuance by a fraction:
(a) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such issuance, and
(b) the denominator of which shall be the total number of shares of
Common Stock outstanding immediately after such issuance.
For purposes of any computation to be made in accordance with the
provisions of this Section 3.3, shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued and to be outstanding at the close of the business on the
record date fixed for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration. Shares of Common Stock issued otherwise than as a dividend, shall
be deemed to have been issued and to be outstanding at the close of business on
the date of issue.
3.4 Notice of Adjustment. Upon any adjustment of the Exercise Price or
any increase or decrease in the number of Warrant Shares, the Company shall give
written notice thereof, by first class mail postage prepaid, addressed to the
registered Holder of this Warrant at the address of such Holder as shown on the
books of the Company. The notice shall be prepared and signed by the Company's
Chief Financial Officer and shall state the Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4
<PAGE>
4. No Voting or Dividend Rights. Nothing contained in this Warrant shall be
construed as conferring upon the holder hereof the right to vote or to consent
to receive notice as a shareholder of the Company on any other matters or any
rights whatsoever as a shareholder of the Company. No dividends or interest
shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
5. Compliance With Securities Act; Transferability of Warrant; Disposition
of Shares of Stock.
5.1 Compliance With Securities Act. The Holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Warrant Shares 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 Warrant Shares except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Act") or any applicable state securities laws. The
Holder agrees that the Company is under no obligation to register the Warrants
and the Warrant Shares, and Holder acknowledges that the Company does not intend
to cause such a registration. This Warrant and all Warrant Shares shall be
stamped or imprinted with a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
5.2 Access to Information; Pre Existing Relationship. Holder has had
the opportunity to ask questions of, and to receive answers from, appropriate
executive officers of the Company with respect to the terms and conditions of
the transactions contemplated hereby and with respect to the business, affairs,
financial condition and results of operations of the Company. Holder has had
access to such financial and other information as is necessary in order for
Holder to make a fully informed decision as to investment in the Company, and
has had the opportunity to obtain any additional information necessary to verify
any of such information to which Holder has had access. Holder further
represents and warrants that he has either (i) a pre-existing relationship with
the Company or one or more of its officers or directors consisting of personal
or business contacts of a nature and duration which enable him to be aware of
the character, business acumen and general business and financial circumstances
of the Company or the officer or director with whom such relationship exists or
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(ii) such business or financial expertise as to be able to protect his own
interests in connection with the purchase of the Shares.
5.3 Warrant Transferable. Subject to compliance with applicable
federal and state securities laws under which this Warrant was purchased, this
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the Holder (except for transfer taxes), upon surrender of this Warrant
properly endorsed; provided, however, that the Holder shall notify the Company
in writing in advance of any proposed transfer, and if the Company notifies the
Holder within 5 business days of receipt of such notice that such person or
entity is then engaged in a business that in the reasonable judgment of the
Company is in direct competition with the Company, Holder shall not transfer
this Warrant or any rights hereunder to such person or entity.
5.4 Disposition of Warrant Shares and Common Stock. With respect to
any offer, sale, or other disposition of the Warrant or any Warrant Shares, the
Holder hereof and each subsequent Holder of this Warrant agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of such Holder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state law then in effect) of such Warrant or
Warrant Shares, as the case may be, and indicating whether or not under the Act
certificates for such Warrant or Warrant Shares to be sold or otherwise disposed
of require any restrictive legend as to applicable restrictions on
transferability in order to insure compliance with the Act. Upon receiving such
written notice and opinion, the Company, as promptly as practicable, shall
notify such Holder that such Holder may sell or otherwise dispose of such
Warrant or Warrant Shares, all in accordance with the terms of the notice
delivered to the Company. If a determination has been made pursuant to this
Section 5.4 that the opinion of the counsel for the Holder is not reasonably
satisfactory to the Company, the Company shall so notify the Holder promptly
after such determination has been made. Notwithstanding the foregoing, such
Warrant or Warrant Shares may be offered, sold or otherwise disposed of in
accordance with Rule 144 under the Act, provided that the Company shall have
been furnished with such information as the Company may request to provide
reasonable assurance that the provisions of Rule 144 have been satisfied. Each
certificate representing the Warrant or Warrant Shares thus transferred (except
a transfer pursuant to Rule 144) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with the Act,
unless in the aforesaid opinion of counsel for the Holder, such legend is not
required in order to ensure compliance with the Act. The Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions.
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6. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
7. Notices. Any notice, request, or other document required or permitted to
be given or delivered to the Holder hereof or the Company shall be delivered or
shall be sent by certified mail, postage prepaid, to each such Holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
8. Other Notices. If at any time:
(1) the Company shall declare any cash dividend upon its Common Stock;
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
(4) 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
(5) 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, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least 20 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least 20
days' prior written notice of the date when the same shall take place; provided,
however, that the Holder shall make a best efforts attempt to respond to such
notice as early as possible after the receipt thereof. Any notice given in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution, or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
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<PAGE>
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or conversion, as the case may be.
9. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
10. Lost Warrants. The Company represents and warrants to the Holder hereof
that upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
11. Fractional Shares. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the Holder entitled to such fraction a sum in cash equal to such fraction
(calculated to the nearest 1/100th of a share) multiplied by the then effective
Exercise Price on the date the Form of Subscription is received by the Company.
12. No Impairment. The Company will not, by charter amendment or by
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 terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Upon the request of the Holder, the Company will
at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continued validity of this Warrant
and the Company's obligations hereunder.
13. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officer, thereunto duly authorized as of this 9th day of November, 1999.
NEUROBIOLOGICAL TECHNOLOGIES, INC.
a Delaware corporation
By: /s/ Paul E. Freiman
-------------------------------------
Name: Paul E. Freiman
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
9
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Neurobiological Technologies, Inc.
[Please mark one box]
[ ] The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, (1)_______________ shares of
Common Stock of Neurobiological Technologies, Inc. (the "Company") and
herewith makes payment of $_______________ therefor, and requests
certificates for such shares be issued in the name of, and delivered
to,_______________ whose address
is_____________________________________________.
[ ] The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, (1)_______________ shares of
Common Stock of the Company and herewith elects to pay for such shares by
reducing the number of shares issuable thereunder in accordance with
Section 1.2 thereof. The undersigned hereby authorizes the Company to make
the required calculation under Section 1.2 of the Warrant.
The undersigned represents that it is acquiring such Common Stock for its
own account for investment and not with a view to or for sale in connection with
any distribution thereof.
DATED: __________, _____
--------------------------------------------------
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Name: ___________________________________________
Title: ___________________________________________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustments
for any stock or other securities or property or cash which, pursuant to
the adjustment provisions of the Warrant, may be deliverable upon exercise.
10
AMERICAL SECURITIES, INC.
290 Seventh Avenue
San Francisco, California 94108
July 8, 1999
Neurobiological Technologies, Inc.
1387 Marina Way South
Richmond, California 94804
Gentlemen:
This letter sets forth our agreement whereby AmeriCal Securities,
Inc. ("AmeriCal") will act as exclusive placement agent for Neurobiological
Technologies, Inc. (the "Company") for the offer and sale of units ("Units") of
common stock and warrants to purchase common stock of the Company for a gross
purchase price not to exceed $2,000,000 as more particularly outlined in the
attached term sheet (the "Term Sheet"). It is understood that the offering shall
be made pursuant to Regulation D under the Securities Act of 1933, as amended
(the "Securities Act").
The sale of such securities is subject to the execution of
definitive documents satisfactory to the Company, the purchasers and AmeriCal.
The definitive agreements will contain representations, warranties and covenants
of the parties, conditions and indemnification provisions customary in
transactions of similar type and size.
All defined terms used and not otherwise defined herein shall have
the meanings set forth for such terms in the Term Sheet.
In consideration of the services rendered by AmeriCal as the result
of any sale of Units of the Company sold to any purchaser not excluded in
Appendix A, the Company shall at the closing of such sale pay to AmeriCal a cash
commission equal to 7.0% of the gross sales price for the Units sold (such gross
sales price shall not be deemed to include the exercise price of the warrants
contained in the Units) and issue to AmeriCal or its designee five year warrants
to purchase for 110% of the gross sales price per Unit sold, a number of shares
of common stock of the Company equal to 10% of the shares of common stock of the
Company sold as part of the Units (the "Placement Agent Warrants"). The Company
shall issue and deliver to AmeriCal a certificate representing the Placement
Agent Warrants within ten business days after the final closing date of the sale
of the Units. The Company also agrees to pay to AmeriCal a cash commission of
7.0% of the purchase price for any shares of Common Stock sold by the Company
upon exercise of any of the warrants included in the Units. Such cash commission
shall be payable within 10 days after the Company receives payment of the
purchase price for such Common Stock.
<PAGE>
Regardless of the investors involved , upon closing of an offering
which successfully raises at least $1.5 million dollars, AmeriCal shall receive
a cash commission of least one hundred and fifty thousand dollars ($150,000.00).
The Company also agrees to reimburse AmeriCal for all out-of-pocket
expenses of AmeriCal relating to the offering of securities of the Company,
including travel expenses and legal fees and disbursements of counsel retained
by AmeriCal in connection with the matters contemplated by this Agreement,
promptly after submission to the Company of reasonable documentation of such
expenses, provided that such fees and expenses shall not exceed $15,000 in the
aggregate.
To the extent that the terms of this Agreement conflict with the
terms of the agreement between AmeriCal and the Company dated March 3, 1999 (the
"March 1999 Agreement") the terms of this agreement shall control. Except as
provided in the preceding sentence, the March 1999 Agreement shall remain in
full force and effect.
The engagement of AmeriCal hereunder may be terminated at any time
after August 31, 1999 upon 30 days prior written notice given by the Company at
any time, provided that AmeriCal shall be entitled to receive all of the
compensation set forth in the third paragraph of this letter with respect to any
sale of Units or securities exercisable or convertible into common stock of the
Company (on an as-converted basis based upon the initial exercise or conversion
price) made to any person, firm or entity excluding those listed on Appendix A
hereto within six months after the effective date of termination of AmeriCal's
engagement. AmeriCal may resign at any time effective upon receipt by the
Company of written notice thereof from AmeriCal.
The services to be rendered by AmeriCal are on a best efforts basis
and the Company acknowledges that AmeriCal is not making any representation or
guarantee that any person will purchase any securities of the Company at any
time through the efforts of AmeriCal or otherwise.
The Company agrees that, without the prior written consent of AmeriCal, such
consent not to be unreasonably withheld, the Company will not disclose, and will
not include in any public announcement the name of any purchaser or offeree,
unless and until such disclosure is required by applicable law or applicable
regulation, and then only to the extent of such requirements. The Company agrees
that the withholding of consent by AmeriCal shall be deemed reasonable if the
purchaser or offeree directs AmeriCal not to allow disclosure of its name.
Each party agrees to maintain all non-public and proprietary
information obtained hereunder confidential and not to use such information for
any purpose other than to evaluate the proposed transaction. Notwithstanding the
foregoing, AmeriCal may disclose such information pursuant to applicable law,
regulation, subpoena or administrative investigation. The foregoing restriction
shall not apply to any such information which becomes generally known to the
public for any reason whatsoever other than a breach hereof by AmeriCal.
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The Company agrees to indemnify AmeriCal in accordance with the
indemnification provisions (the "Indemnification Provisions") attached to this
Agreement which Indemnification Provisions are incorporated herein and made a
part hereof and which shall survive any amendment, restatement, termination or
expiration of this Agreement.
This Agreement may not be amended or modified, except by an
instrument in writing signed by each of AmeriCal and the Company.
This Agreement shall be governed by and construed in accordance
with the laws of the State of California, without regard to its conflicts of law
principles. Each party hereby irrevocably submits to the jurisdiction of any
court of the State of California, County of San Francisco or the United States
District Court for the Northern District of California in connection with any
suit, action or proceeding arising out of this Agreement.
This Agreement shall be binding upon AmeriCal and the Company and
shall inure to the benefit of their respective successors and assigns. This
Agreement constitutes the entire understanding and agreement of the parties with
respect to the subject matter hereof and it supersedes all prior and/or
contemporaneous understandings and agreements with respect to such subject
matter, all of which are merged herein.
Please indicate your agreement with the terms of this letter by
signing a copy of this letter in the space set forth below and returning it to
the undersigned.
Sincerely ,
AMERICAL SECURITIES, INC.
By: /s/ Charles Engelberg, M.D.
---------------------------
Charles Engelberg, M.D.
Director of Research
The foregoing accurately sets forth our understanding and agreement
with respect to matters set forth herein.
Accepted this__________ day of July, 1999.
NEUROBIOLOGICAL TECHNOLOGIES, INC.
By: /s/ Paul E. Freiman
-----------------------------
Title: President and Chief Executive Officer
--------------------------------------
3
<PAGE>
INDEMNIFICATION PROVISIONS
Neurobiological Technologies, Inc. ("NTI") agrees to indemnify and
hold harmless AmeriCal Securities, Inc. ("AmeriCal") to the fullest extent
permitted by law, from and against, and AmeriCal shall not have any liability to
NTI, or its owners, parents, creditors or security holders for, any and all
losses, claims, damages, obligations, penalties, judgments, awards, liabilities,
costs, expenses and disbursements (and any and all actions, suits, proceedings
and investigations in respect thereof and any and all reasonable legal and other
costs, expenses or disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise), including, without limitation, the costs,
expenses and disbursements, as and when incurred, of investigating, preparing or
defending any such action, suit proceeding or investigation (whether or not in
connection with litigation in which AmeriCal is a party), directly or
indirectly, caused by, relating to, based upon, arising out of or in connection
with (a) AmeriCal's acting for NTI, including, without limitation, any act or
omission by AmeriCal in connection with its acceptance of or the performance or
non-performance of its obligations under the agreement dated July , 1999,
between NTI and AmeriCal, as it may be amended from time to time (the
"Agreement"), (b) any transaction, including the sale of the securities of NTI,
as contemplated by this Agreement; (c) any untrue statement or alleged untrue
statement of a material fact contained in, or omissions or alleged omissions
from any disclosure document used in connection with the sale of securities of
NTI or similar statements or omissions in or from any other information
furnished by NTI to AmeriCal or any prospective purchaser or (d) any use of
proceeds from a sale of securities contemplated by this Agreement; provided,
however, such indemnity agreement shall not apply to AmeriCal for any portion of
any such loss, claim, damage, obligation, penalty, judgment, award, liability,
cost, expense or disbursement to the extent it is found in a final judgment by a
court of competent jurisdiction (not subject to further appeal) to have resulted
from the negligence or willful misconduct of AmeriCal or to have resulted from
written information furnished to NTI by or on behalf of AmeriCal with respect to
AmeriCal expressly for use in any securities offering document of NTI.
These Indemnification Provisions shall be in addition to any
liability which NTI may otherwise have to AmeriCal and shall extend to all of
AmeriCal's affiliated entities, directors, officers, employees, legal counsel,
agents and controlling persons (within the meaning of the federal securities
laws). All references to AmeriCal in these Indemnification Provisions shall be
understood to include any and all of the foregoing.
If any action, suit, proceeding or investigation is commenced, as
to which AmeriCal proposes to demand indemnification, it shall notify NTI with
reasonable promptness; provided, however, that any failure by AmeriCal to notify
NTI shall not relieve NTI from its obligations hereunder unless such failure
prevents the presentation of material defenses thereto. NTI shall thereupon
assume the defense of any such action, proceeding or investigation at NTI's sole
cost and expense. AmeriCal shall have the right but not the obligation to
participate at its own expense in the defense thereof by counsel of its choice
and at AmeriCal's expense. In the event that NTI fails
4
<PAGE>
timely to defend, contest or otherwise protect AmeriCal against any such suit,
action, investigation or proceeding or if counsel chosen by NTI to defend
AmeriCal shall have a conflict of interest in its representation of AmeriCal,
AmeriCal shall have the right to appoint counsel of AmeriCal's choice to defend
AmeriCal at NTI's sole cost and expense. NTI shall be liable for any settlement
of any claim against AmeriCal made with NTI's written consent, which consent
shall not be unreasonably withheld. NTI shall not, without the prior written
consent of AmeriCal, settle or compromise any claim, or permit a default or
consent to the entry of any judgment in respect thereof, unless such settlement,
compromise or consent includes, as an unconditional term thereof, the giving by
the claimant to AmeriCal of an unconditional and irrevocable release from all
liability in respect of such claim.
In order to provide for just and equitable contribution, if a claim
for indemnification pursuant to these Indemnification Provisions is made but it
is found in a final judgment by a court of competent jurisdiction (not subject
to further appeal) that such indemnification may not be enforced in such case,
even though the express provisions hereof provide for indemnification in such
case, then NTI and AmeriCal shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses and
disbursements to which the indemnified persons may be subject in accordance with
the relative benefits received by them, and also their relative fault in
connection with the statements, acts or omissions which resulted in such losses,
claims, damages, obligations, penalties, judgments, awards, liabilities, costs,
expenses and disbursements and the relevant equitable considerations shall also
be considered. No person found liable for a fraudulent misrepresentation shall
be entitled to contribution from any person who is not also found liable for
such fraudulent misrepresentation. Notwithstanding the foregoing, AmeriCal shall
not be obligated to contribute any amount hereunder that exceeds the amount of
fees previously received by AmeriCal pursuant to the Agreement.
Neither termination nor completion of the engagement of AmeriCal
referred to above shall affect these Indemnification Provisions which shall
remain operative and in full force and effect.
<PAGE>
September 1, 1999
Charles B. Engelberg, M.D.
Director of Research
AmeriCal Securities, Inc.
290 7th Avenue
San Francisco, CA 94118
Dear Charles,
As I informed you yesterday when we spoke, I am hereby giving you
written notice of our intention to terminate the agreement between
Neurobiological Technologies, Inc. ("NTI") and AmeriCal Securities, Inc.
("AmeriCal") dated July 8, 1999 engaging AmeriCal as exclusive placement agent
for the sale of certain securities of NTI (the "Units").
As you agreed when we spoke, AmeriCal is not owed any compensation for
any of the subscriptions that NTI has received to purchase Units to date and
will also agree to waive its rights to any compensation for Units or other
securities sold by NTI within six months of the termination of the engagement. I
am also requesting that you waive AmeriCal's right to 30 days prior written
notice and agree to have this termination be effective as of the date of this
letter, so that I can proceed with raising the much needed funding for NTI.
Thank you for your willingness to promptly resolve this matter.
Sincerely,
/s/ Paul E. Freiman
Paul E. Freiman
President and Chief Executive Officer
Accepted and Agreed
AMERICAL SECURITIES, INC.
By: /s/ Charles Engelberg, M.D.
-----------------------------
Charles Engelberg, M.D.
Director of Research
<PAGE>
October 11, 1999
Via Facsimile
Charles B. Engelberg, M.D.
Director of Research
AmeriCal Securities, Inc.
290 7th Avenue
San Francisco, CA 94118
Dear Charles,
Following our conversation of last Friday, I would like to formalize the facts
that we reinstate our agreement of July 8, 1999 until November 1, 1999. NTI(R)
agrees to file a Form S-3 Registration Statement within 30 days of the closing.
We will register the securities for resale through this S-3 mechanism. However,
because of the costs entailed, we will not initiate that process until we have
received at least $2 million from you.
It was a pleasure to be with you and your colleagues and we hope that this run
will be highly successful.
Sincerely,
/s/ Paul E. Freiman
Paul E. Freiman
President and Chief Executive Officer
PEF/ab
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement and to the use of our report dated August 6, 1999, in the
Registration Statement (Form SB-2) and related Prospectus of Neurobiological
Technologies, Inc. for the registration of 8,039,580 shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
December 23, 1999
