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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________ .
Commission File Number 000-21141
PHARMAPRINT INC.
(Name of small business issuer as specified in its charter)
CALIFORNIA 33-0640125
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
4 PARK PLAZA, SUITE 1900, IRVINE, 92614
CALIFORNIA (Zip code)
(Address of principal executive officers)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 655-7778
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
WITHOUT PAR VALUE PER SHARE
INDICATE BY CHECK MARK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO
BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE ISSUER WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS.
Yes /X/ No / /
Cover Page i of ii
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INDICATE BY CHECK MARK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN
RESPONSE TO ITEM 405 OF REGULATION S-B IS NOT CONTAINED IN THIS FORM, AND NO
DISCLOSURE WILL BE CONTAINED, TO THE BEST OF THE ISSUER'S KNOWLEDGE, IN
DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III
OF THIS FORM 10-KSB OR ANY AMENDMENT TO THIS FORM 10-KSB. / /
ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR WERE $0.
BASED UPON THE CLOSING PRICE OF $7.63 PER SHARE OF COMMON STOCK AS REPORTED ON
THE NASDAQ STOCK MARKET ON JUNE 19, 1997, THE AGGREGATE MARKET VALUE OF THE
ISSUER'S VOTING STOCK HELD BY NON-AFFILIATES WAS $32,730,000. SOLELY FOR
PURPOSES OF THIS COMPUTATION, THE ISSUER'S DIRECTORS AND EXECUTIVE OFFICERS HAVE
BEEN DEEMED TO BE AFFILIATES. SUCH TREATMENT IS NOT INTENDED TO BE, AND SHOULD
NOT CONSTRUED TO BE, AN ADMISSION OF THE ISSUER OR SUCH DIRECTORS AND EXECUTIVE
OFFICERS THAT ANY OF SUCH PERSONS ARE "AFFILIATES", AS THAT TERM IS DEFINED
UNDER THE SECURITIES ACT OF 1934, AS AMENDED.
THERE WERE 11,000,000 ISSUED AND OUTSTANDING SHARES OF THE ISSUER'S COMMON
STOCK, WITHOUT PAR VALUE AT JUNE 19, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE ISSUER'S PROXY STATEMENT RELATING TO ITS ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD AUGUST 19, 1997, ARE INCORPORATED BY REFERENCE IN
PART III OF THIS REPORT ON FORM 10-KSB.
Cover page ii of ii
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PHARMAPRINT INC.
TABLE OF CONTENTS
COVER PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
PART I
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 13
Executive Officers of PhamaPrint Inc. . . . . . . . . . . . 13
PART II
Item 5. Market for PhamaPrint Inc. Common Stock and Related
Shareholder Matters. . . . . . . . . . . . . . . . . . . . . 14
Item 6. Management's Plan of Operation . . . . . . . . . . . . . . . 15
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . 17
Item 8. Change In and Disagreements With Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . . 34
PART III
Item 9. Directors, Executive Officers, Promotors and Control
Persons of PhamaPrint Inc.; Compliance with Section 16(a)
of the Exchange Act . . . . . . . . . . . . . . . . . . . . 35
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . 35
Item 11. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . 35
Item 12 Certain Relationships and Related Transactions . . . . . . . 35
Item 13 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 35
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking" statements. The Company is
including this statement for the express purpose of availing itself of
protections of the safe harbor provided by the Private Securities Litigation
Reform Act of 1995 with respect to all such forward-looking statements.
Examples of forward-looking statements include, but are not limited to: (a)
projections of revenues, capital expenditures, growth, prospects, dividends,
capital structure and other financial matters; (b) statements of plans and
objectives of the Company or its management or Board of Directors; (c)
statements of future economic performance; (d) statements of assumptions
underlying other statements and statements about the Company and its business
relating to the future; and (e) any statements using the words "anticipate,"
"expect," "may," "project," "intend" or similar expressions.
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The Company's ability to predict projected results or the effect of
certain events on the Company's operating results is inherently uncertain.
Therefore, the Company wishes to caution each reader of this report to
carefully consider the following factors and certain other factors discussed
herein and in the Company's Prospectus dated August 14, 1996, any or all of
which have in the past and could in the future affect the ability of the
Company to achieve its anticipated results and could cause actual results to
differ materially than those discussed herein: ability to attract partners
and third parties to transact business with the Company, government
regulation and uncertainty of product approvals, ability to commercialize and
market products, results of research and development and clinical studies,
technological advances by third parties and competition, ability to obtain
and enforce patents, future capital needs of the Company, history of
operating losses, dependence upon key personnel, uncertainty regarding health
care reimbursement and reform, limited manufacturing and marketing
experience, control by existing shareholders and general economic and
business conditions.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
PharmaPrint Inc. (the "Company" or "PharmaPrint"), a development stage
company, was incorporated in the State of California in September 1994. The
Company was formed in order to complete the development and commercialization
of the research initiated by Dr. Tasneem A. Khwaja, a founder and major
shareholder of the Company, over a 20 year period at the University of
Southern California ("USC") School of Medicine.
Effective October 30, 1996, the Company changed its name from ABT Global
Pharmaceutical Corp. to PharmaPrint Inc. In April 1997, the Board of
Directors approved a resolution to change the Company's state of
incorporation from California to Delaware. Such resolution requires the
approval of shareholders, which will be requested at the August 19, 1997,
Annual Meeting of Shareholders.
DESCRIPTION OF THE BUSINESS
The Company develops and manufactures pharmaceutical versions of herbal
medicines to be used in the treatment of various maladies. The Company's
technology for standardizing the manufacture of herbal medicines into
pharmaceuticals is marketed as the PharmaPrint-TM- process. The
PharmaPrint-TM-process enables the Company to precisely identify, quantify
and accurately reproduce each of the bioactive components in the herbal
compound. The Company believes that the PharmaPrint-TM- process provides the
information necessary to seek patent protection and together with the results
of toxicology testing and clinical trials, United States Food and Drug
Administration ("FDA") approval for each pharmaceutical version of the herbal
medicine. The Company also believes that the PharmaPrint-TM- process is the
only current method for developing acceptable and approvable pharmaceutical
versions of herbal medicines. The initial science underlying this technology
was developed in the laboratories of the USC School of Medicine by Dr. Khwaja.
The Company believes there is a significant market for the use of the
PharmaPrint-TM- process. The market opportunities include developing
pharmaceuticals from herbal medicines for the Company's own account, in joint
venture arrangements with other companies and on a contract basis for other
companies for a fee and a royalty on sales. The Company expects the products
it develops to be distributed in the United States and foreign markets. The
contract services that the Company seeks to provide to others for developing
pharmaceuticals from herbal medicines includes developing the PharmaPrint-TM-
of an herbal medicine, applying for patents, toxicology testing, preparing
and filing Investigational New Drug ("IND") applications, conducting FDA
regulated clinical trials and preparing and filing New Drug Applications
("NDA") for the pharmaceutical versions of such herbal medicines. In that
regard, the Company has obtained two letters of intent from foreign producers
of herbal medicines to develop pharmaceutical versions of three herbal
medicines in a joint venture arrangement. However, there can be no assurance
that either letter of intent will lead to a formal agreement or that the
Company will otherwise be able to successfully market its PharmaPrint-TM-
process.
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In its efforts to develop a pipeline of products, the Company has begun
development of pharmaceutical versions of 11 herbal medicines. Many of these
herbal medicines have long histories of human use and demonstrated clinical
effectiveness. Additionally, most of these herbal medicines are currently sold
in the United States as dietary supplements pursuant to The Dietary Supplements
and Health Education Act ("DSHEA") of 1994. The Company has completed
developing the PharmaPrint-TM- of saw palmetto, St. John's wort, and mistletoe,
used to treat the symptoms associated with benign prostatic hyperplasia ("BPH")
(prostate enlargement), mild to moderate depression and immunosuppression,
respectively. The Company recently commenced applying the PharmaPrint-TM-
process to the following additional herbal medicines: bilberry, milk thistle,
echinacea, valerian, ginger, agnus castus, black cohosh and garlic.
The Company held its pre-IND meeting for its saw palmetto product in May
1997 with the FDA and intends to file an IND application for saw palmetto with
the FDA in July 1997. Although no assurance can be given that such IND
application will be allowed by the FDA, if the application is allowed in the
form that the Company anticipates, the Company expects to commence Phase II
clinical trials in the United States in August 1997. The Company also
anticipates performing animal toxicology studies concurrent with such clinical
trials.
The Company also intends to file an IND application for St. John's wort
during the Fall of 1997. If such application is allowed in the form that the
Company expects to file it, the Company expects a similar development cycle as
with its saw palmetto product.
Initially, the Company used its PharmaPrint-TM- process to develop, on a
proprietary basis, a pharmaceutical-grade therapeutic mixture for treating the
immune systems of Human Immunodeficiency Virus ("HIV") patients. This mixture,
known as T4GEN, was derived from the VISCUM ALBUM plant (mistletoe). T4GEN is
derived from the same VISCUM ALBUM plant as an herbal medicine that has
indicated an effect on the immune system of CD4 cell stabilization in FDA
sanctioned Phase I and Phase II clinical trials conducted in Berlin, Germany
involving 50 HIV positive patients.
In June 1997, the Company completed Phase I clinical trials for T4GEN in
the United Kingdom. This initial clinical trial focused on the safety of T4GEN.
Pending review of the data regarding this clinical trial and other business
priorities, the Company anticipates commencing Phase II clinical trials in
either Zimbabwe or Thailand.
In August and October of 1996, the United States Patent and Trademark
Office issued patents for the composition and use of pharmaceutical versions
of T4GEN and n-T4GEN (a variation of T4GEN), respectively. These two patents
were filed by the Company on behalf of USC. The Company has also received
patent protection for an additional patent application that it filed, on
behalf of USC, covering the process of producing pharmaceutical-grade
therapeutic mixtures from mistletoe mixtures. The Company also has filed two
continuation-in-part patents covering the process of producing a
pharmaceutical version of any botanical using the PharmaPrint-TM- process.
In March 1995, the Company entered into the USC License Agreement, pursuant
to which USC licensed to the Company all worldwide rights to manufacture, use,
sell and sublicense T4GEN, n-T4GEN, the PharmaPrint-TM- process and all
additional patents and technologies developed by Dr. Khwaja's laboratory
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at USC. The Company performs its laboratory and research activities through the
use of both employees and independent consultants at numerous facilities
throughout the world.
All of the Company's regulatory activities are being performed in
conjunction with Advanced Bioresearch Associates ("ABA") of San Diego,
California. ABA is a clinical research organization that provides FDA
strategic consulting and professional services and whose staff has extensive
professional experience and advanced degrees in science, clinical medicine, law
and business.
BACKGROUND ON HERBAL MEDICINES
Herbal medicines, also known as natural medicines, are compounds extracted
or otherwise derived from plants and herbs that provide medicinal effects
without altering their original combination of components. Herbal medicines
have been used for thousands of years by much of the world to treat a variety of
diseases. For example, in Germany, herbal medicines are a part of the medical
system and many are prescribed by doctors. Estimated 1996 retail sales of
herbal medicines in Germany were $3 billion.
In the United States, herbal medicines are currently sold as dietary
supplements pursuant to DSHEA. Estimated 1996 retail sales of herbal medicines
in the United States were $3 billion. Under DSHEA, dietary supplements, which
include herbal medicines, are regulated as food, thereby avoiding the need for
special regulatory (FDA) clearance.
Manufacturers of products sold pursuant to DSHEA are not allowed to make
claims regarding an herbal medicine's ability to cure, treat, prevent or
ameliorate a condition. Such manufacturers, however, are allowed to make claims
regarding how their product affects the structure or function of the body. If
such a claim is made, the product must bear a specific disclaimer that the claim
has not been evaluated by the FDA.
DEVELOPMENT OF THE PROPRIETARY PHARMAPRINT-TM- PROCESS
The Company believes that the clinical effectiveness of herbal medicines
cannot be demonstrated by the use of conventional pharmaceutical techniques,
because a majority of the herbal medicine's therapeutic benefit derives from the
combination of components rather than from individual components. Conventional
pharmaceutical development has only been applied to medicines consisting of a
single component. Pharmaceuticals developed by the Company to date, saw
palmetto and T4GEN, could not have been developed into pharmaceuticals using
conventional pharmaceutical techniques because their clinical effectiveness and
toxicity cannot be controlled when they are separated into their individual
components. The PharmaPrint-TM- process, however, has proven to be effective in
the development of saw palmetto and T4GEN because it enabled the Company to
identify, quantify and accurately reproduce each of the bioactive components,
and thereby provide the information necessary to seek patent protection and,
together with the results of toxicology testing and clinical trials, FDA
approval for each pharmaceutical version of the herbal medicine. The
PharmaPrint-TM- process, in concept, is applicable to all herbal medicines for
the treatment of diseases or their symptoms, and is specifically applicable to
the herbal medicines that the Company intends to develop as pharmaceuticals.
The Company uses a range of bioassays to initially screen herbal
medicines for their overall effectiveness. For herbal medicines that pass
the initial screening process, the Company has developed a sophisticated
analytical methodology to
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isolate specific molecular components and precisely measure each component as
a percentage of the total medicine. These components are then tested for
their bioactivity and disease-specific biological effects (e.g.,
immunostimulatory) using a range of bioassays and precise standards are
developed for the manufacture of each active component. This method also
allows for the possibility of adjusting the relative proportions of critical
components to achieve maximal therapeutic effect with minimal toxicity.
The most active, as well as the major inactive, components are chemically
identified and a precise standard by percent weight, bioactivity and/or specific
biological effect is established for each component. These standards for each
component comprise the "PharmaPrint-TM-" for the herbal medicine. If any of
these components are out of tolerance in a batch of the manufactured
pharmaceutical, then the batch is either rejected or the components are modified
to achieve tolerance. A PharmaPrint-TM-, therefore, provides the basis for
quality control in manufacturing, assuring batch-to-batch consistency.
The Company believes that the PharmaPrint-TM- process, for the first time,
allows herbal medicines to qualify as pharmaceuticals and thereby qualify for
regulatory acceptance worldwide. The Company believes that the primary reason
that herbal medicines previously have not qualified as pharmaceuticals is the
lack of knowledge of the precise composition and specific biological activities
of their active components. Without a precise PharmaPrint-TM- of an herbal
medicine, batch-to-batch consistency cannot be accurately demonstrated and the
precise identity and quantity of the bioactive components cannot be determined.
This lack of precise characterization precludes a true measure of the compound's
effectiveness, and is contrary to the careful scientific analysis that forms the
foundation of pharmaceutical discovery. Furthermore, without first
characterizing the relative amount and spectrum of bioactivity of each active
component, the mechanism of action of an herbal medicine (how it works) cannot
be described. This scientific explanation is very useful to help an herbal
medicine qualify as a pharmaceutical and to obtain regulatory approval. In
contrast, the Company believes that applying the PharmaPrint-TM- process to a
given herbal medicine will allow it to qualify as a pharmaceutical and if, among
other things, clinical trials are successful, gain regulatory approval.
PRODUCT DESCRIPTION AND DEVELOPMENT
The Company's initial pharmaceutical, T4GEN, is derived from the VISCUM
ALBUM plant, commonly known as mistletoe. T4GEN is designed to treat
immunosuppression. This disease state commonly occurs in HIV patients and
post-operative cancer patients who have been treated with chemotherapy. The
United States Center for Disease Control estimates that there are approximately
one million HIV positive patients in the United States. The World Health
Organization estimates that there are 25 million HIV positive patients in the
world and that the number of HIV positive patients will increase to about 40
million worldwide by the year 2000.
T4GEN contains active lectins that stimulate CD4 cells, common nomenclature
for a T4 cell with a marker CD4 molecule. These CD4 cells function as the
directors of the patient's immune system, and a typical HIV patient with a
depressed immune system generally experiences a significant decline in the
number of active CD4 cells. Stimulation of these cells serves to stabilize the
patient's immune system by reversing the rate of decrease of the CD4 cells. The
stimulation occurs as the individual lectins bind to CD4 cell receptors. Once
the CD4 cells become stimulated, they produce chemicals that activate other
immune cells and also cause the CD4 cells to multiply and become active
participants in a patient's immune regulatory system.
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In June 1997, the Company completed Phase I clinical trials for T4GEN in
the United Kingdom. This initial clinical trial focused on the safety of T4GEN.
Pending review of the data regarding this clinical trial and other business
priorities, the Company anticipates commencing Phase II clinical trials in
either Zimbabwe or Thailand.
Another pharmaceutical that the Company is developing is derived from
SERENOA REPENS plant, more commonly known as saw palmetto. The saw palmetto
extract is prepared from the harvested, ripe fruit (berry) of the tree. Saw
palmetto is used to treat the symptoms associated with BPH, a common condition
among older men, with the majority of males over 60 years of age reporting some
symptoms of BPH. Importantly, the prevalence of BPH is likely to increase as a
greater proportion of the overall population reaches old age. Because life
expectancy is increasing worldwide, the number of elderly individuals is rising
in every geographic region. In the United States, the number of individuals
aged 65 years and over is expected to rise from 32 to 69 million between 1990
and 2050, and the number aged 85 years and over will grow from 3 to 15 million.
However, the elderly population in America has been growing faster than
predicted and, if this trend continues, the number of elderly individuals in the
year 2050 could be approximately 25% higher than anticipated. Growth in the
elderly population will be largest in Asia, Latin America, the Middle East and
Africa (from 190 million in 1990 to 1.3 billion in 2050), and the impact of such
changes on the number and regional distribution of BPH cases will be dramatic.
Already in the United States, approximately 400,000 to 500,000 prostatectomies
are performed annually in an attempt to alleviate the symptoms associated with
end-state BPH, making surgery for this condition the second most common major
operation among Medicare-aged men.
Prostatic enlargement, induration and voiding dysfunction are cardinal
features of BPH. Symptoms are generally divided into so-called obstructive and
irritative components. Obstructive symptoms occur during the emptying phase of
micturition and include hesitancy, impairment in the size and force of the
urinary stream, sensation of incomplete emptying, straining to void, urinary
retention, intermittent marked difficulty initiating urination and terminal
dribbling. Perhaps as many as 80% of men with symptomatic BPH present with
secondary irritative symptoms that occur during the filling/storage phase of
micturition. These symptoms include increased daytime frequency, nocturia,
urgency and incontinence associated with involuntary bladder contraction and
have been postulated to result from associated detrusor hyperactivity (i.e.,
unstable bladder).
There are a limited number of pharmaceuticals that have been approved by
the FDA for the treatment of BPH. The most widely prescribed pharmaceuticals
for the treatment of BPH are Proscar (Merck & Co. Inc.) and Hytrin (Abbott
Laboratories).
Saw palmetto is widely prescribed, recommended and used throughout Europe
and elsewhere to alleviate symptoms associated with BPH. Almost uniformly,
anecdotal reports, large open label studies and uncontrolled clinical trials of
saw palmetto suggest measurable, and often significant, reductions in subjective
and objective parameters that reflect BPH severity such as urinary flow rate,
residual urinary volume, nocturia and dysuria. Randomized controlled trials of
saw palmetto suggest superior performance of this agent compared with placebo
over a range of subjective and objective indications of voiding dysfunction.
The majority of studies suggest saw palmetto is well-tolerated with a low
incidence of side effects and with greater efficacy than placebo and similar
efficacy to finasteride.
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The Company held its pre-IND meeting for its saw palmetto product in May
1997 with the FDA and intends to file an IND application for saw palmetto with
the FDA in July 1997. Although no assurance can be given that such IND
application will be allowed by the FDA, if the application is allowed in the
form that the Company anticipates, the Company expects to commence Phase II
clinical trials in the United States in August 1997. The Company also
anticipates performing animal toxicology studies concurrent with such clinical
trials.
Another pharmaceutical that the Company is developing is derived from
HYPERICUM PERFORATUM, more commonly known as St. John's wort. The Company has
completed the PharmaPrint-TM- of St. John's wort and intends to file an IND
application for this herbal medicine during the Fall of 1997. If such
application is allowed in the form that the Company expects to file it, the
Company expects a similar development cycle as with its saw palmetto product.
The Company has also commenced developing the PharmaPrint-TM- of the
following herbal medicines: ginger, used to treat nausea; bilberry, used for
indications related to eyesight problems; milk thistle, used in liver disease;
echinacea, to aid in symptoms associated with the cold and flu; valerian, used
as a sleep aid; garlic, used for cholesterol control; agnus castus, used to
reduce premenstrual symptoms; and black cohosh, used to reduce post menopausal
symptoms.
Research and development activities, by their nature, preclude definitive
statements as to the time required and costs involved in reaching certain
objectives. Therefore, actual research and development costs could exceed
budgeted amounts, and estimated time frames may require extension. Cost
overruns due to unanticipated regulatory delays or demands, unexpected adverse
side effects or insufficient therapeutic efficacy would prevent or substantially
slow development efforts and ultimately could have a material adverse effect on
the Company. Any potential products that may be discovered would require
significant research, development, toxicology and clinical testing, regulatory
approval and commitments of resources prior to commercialization. There can be
no assurance that any such potential products will be successfully developed,
proven to be safe and effective in clinical trials, meet applicable regulatory
standards, be capable of being produced in commercial quantities at acceptable
costs or be successfully marketed.
COMMERCIALIZATION STRATEGY FOR THE PHARMAPRINT-TM- PROCESS AND PRODUCTS
The Company has identified three strategies to commercialize its products:
(1) development of pharmaceutical versions of herbal medicines for its own
account; (2) development of pharmaceutical versions of herbal medicines with
joint venture partners with each party sharing the development costs; and (3)
development of pharmaceutical versions of herbal medicines for other companies
on a contract basis for a fee and a royalty on sales. The particular strategy
that the Company will pursue with respect to each prospective product depends
upon many factors, including the willingness of third parties to pay some or all
of the drug development costs, the potential royalty and the projected size of
market for each such product. Regardless of the strategy chosen, there can be
no assurance that the Company will be successful in developing pharmaceutical
versions of herbal medicines, that it will receive FDA approval for its herbal
medicines, or that it will successfully market and sell such herbal medicines.
See "Government Regulations."
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Currently the Company is developing saw palmetto, St. John's wort and
mistletoe using the first strategy outlined above. However, should a third
party express an interest in developing these products pursuant to the second or
third strategies outlined above, the Company may decide to pursue one of those
strategies. The remaining eight herbal medicines currently under development
are anticipated to be commercialized using the second or third strategies
outlined above. The Company's initial development efforts are designed to
obtain certain information regarding such herbal medicines to increase a third
party's interest in contracting for the commercialization of a particular herbal
medicine.
Sales of the Company's pharmaceutical products will be dependent, in part,
on the extent that a consumer will be able to obtain reimbursement for the cost
of such products from third-party payors, such as government health
administration authorities, private health coverage insurers and other
organizations. If the Company's pharmaceutical products are not approved by the
FDA or the foreign regulatory bodies to which the Company applies, the Company
would have to sell its products as herbal medicines under DSHEA. As a result,
in the United States and in certain other countries, doctors may not prescribe,
certain claims regarding the effectiveness of an herbal medicine may not be made
and consumers may be unable to obtain full or partial reimbursement for the cost
of herbal medicines from third-party payors, any or all of which may have a
material adverse effect on the sale of the Company's products. Additionally,
the pricing of herbal medicines sold under DSHEA is lower than the pricing of
herbal medicines intended to be sold as pharmaceuticals, which may have a
materially adverse effect on the Company's future profit margins. See
"Government Regulation".
The Company believes that it has the only technology to identify and
measure the individual bioactive components of herbal medicines in order to
qualify them, together with the results of toxicology testing and clinical
trials, as pharmaceuticals by regulatory authorities such as the FDA. However,
there can be no assurance that similar technologies will not be developed by
others or that such approvals will be obtained. See "Technology Change and
Competition".
The Company has no experience in the sale, marketing, and distribution of
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on collaborative arrangements or license and distribution agreements
with third parties to provide for the sales, marketing and distribution of any
of its products approved by the FDA or foreign regulatory authorities. The
Company's strategy for development and commercialization of certain of its
products currently depends upon the Company entering into various arrangements
with corporate partners, licensees and others, and may also depend upon
subsequent success of its partners, results of toxicology and clinical testing,
obtaining regulatory approvals and manufacturing products. These arrangements
may require the Company to transfer certain material rights to such corporate
partners, licensees and others.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in important part on its ability to
obtain patent protection for its technologies and products, to preserve its
trade secrets and to operate without infringing on the proprietary rights of
third parties. The Company has applied for, and in the future will apply for,
United States and foreign patents for certain of its technologies and products.
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In August and October of 1996, the United States Patent and Trademark
Office issued patents for the composition and use of pharmaceutical versions
of T4GEN and n-T4GEN, respectively. These two patents were filed by the
Company on behalf of USC. The Company has also received patent protection
for an additional patent application that it filed, on behalf of USC,
covering the process of producing pharmaceutical-grade therapeutic mixtures
from mistletoe mixtures. The Company also has filed two continuation-in-part
patents covering the process of producing a pharmaceutical version of any
botanical using the PharmaPrint-TM- process. The Company, on behalf of USC,
plans to apply for foreign patents as required. There can be no assurance
that any United States or foreign patents will issue or that patents will be
held valid if subsequently challenged.
Many of the processes and much of the know-how of importance to the
Company's technology are dependent upon the skills, knowledge and experience of
its scientific and technical personnel. Such skills, knowledge and experience
are not patentable. To help protect its rights, the Company requires all
employees, collaborators and significant consultants and advisors to enter into
confidentiality agreements with the Company. There can be no assurance,
however, that these agreements will provide adequate protection for the
Company's trade secrets, know-how or proprietary information in the event of any
unauthorized use or disclosure.
RESEARCH AFFILIATION AND REGULATORY ADVISORS
The Company has contracted for various services to enable it to conduct its
research and seek regulatory approvals. The Company currently contracts with
numerous independent universities and laboratories and with ABA. The Company
has also been able to recruit well known and respected advisors of national and
international repute to help, in particular, with regulatory affairs.
INDEPENDENT UNIVERSITIES AND LABORATORIES. The Company utilizes numerous
laboratory, research and manufacturing facilities throughout the world. The
Company contracts for specific work to be performed with the operator of such
facilities.
ADVANCED BIORESEARCH ASSOCIATES. ABA is a clinical research organization that
provides FDA strategic consulting and professional services and provides
guidance to the Company in connection with various clinical, scientific and
regulatory matters. ABA has offices in San Diego and San Francisco, California,
and Washington D.C. ABA's staff has extensive professional experience and
advanced degrees in science, clinical medicine, law and business. Many staff
members are Regulatory Affairs Certified ("RAC") and International Standards
Organization ("ISO") certified.
USC LICENSE AGREEMENT. Effective March 1, 1995, the Company entered into the
USC License Agreement for the purpose of developing, manufacturing and marketing
immunotherapeutic products for the treatment of HIV, cancer and other diseases.
Pursuant to the USC License Agreement (the "License Agreement"), USC has granted
the Company an exclusive, worldwide license to use T4GEN, n-T4GEN, patents for
T4GEN and n-T4GEN, and a license for, including the right to sublicense, all
patent applications, issued patents, copyrightable materials (including computer
software), know-how, trade secrets, and all inventions (collectively the
"Licensed Products") developed under the USC Research Agreement (the "Research
Agreement"), and to manufacture, use, and sell the Licensed Products or other
products or methods manufactured using the PharmaPrint-TM- process. USC also
has granted the Company the right to
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sublicense the Licensed Products, and a right of first refusal to obtain a
license for any improvements to the Licensed Products developed after expiration
of the Research Agreement. The license's field of use is limited to the
therapeutic treatment of HIV, cancer, and other diseases using therapeutic
compounds and methods. USC and Dr. Khwaja retain an absolute, nontransferable
right to use the therapeutic products, the PharmaPrint-TM- process, patent
applications and all improvements thereof in conducting research. Moreover, all
inventions made by USC employees, including T4GEN, n-T4GEN, and the
PharmaPrint-TM- process will be owned by USC. In exchange for the license, the
Company agreed to pay USC (i) royalty payments of 3% of the Company's net sales
of the patent and technology products, as defined in the License Agreement; (ii)
after the first patent issues, an annual minimum royalty of $15,000, which shall
increase by $5,000 annually for two years and thereafter, an annual minimum
royalty of $25,000; and (iii) an annual license fee of $10,000 payable until a
patent issues. During fiscal 1996, USC and Dr. Khwaja were party to a
Distribution of Royalty Income Agreement pursuant to which USC agreed to pay Dr.
Khwaja 50% of the net royalties received by USC under the License Agreement.
During fiscal 1997, Dr. Khwaja waived his right to such consideration.
Additionally, the Company issued to USC 328,563 shares of common stock during
the period ended March 31, 1995.
The term of the License Agreement began on March 1, 1995 and ends on the
later of February 28, 2010 or the expiration of the last issued patent under the
License Agreement. Upon expiration of the License Agreement, USC has agreed to
grant to the Company an exclusive, worldwide license in perpetuity to continue
to use the technology and know-how in the Company's possession relating to the
Licensed Products and other products or methods manufactured using the
PharmaPrint-TM- process.
USC RESEARCH AGREEMENT. Effective March 1, 1995, the Company and USC
entered into a five year research agreement (the "Research Agreement") that
required USC to perform certain research, as defined under the Research
Agreement, from March 1, 1995 through February 29, 2000. All rights to
inventions, copyrightable materials (including software) and improvements made
solely by the Company's employees, will belong to the Company and will not be
subject to the terms of the Research Agreement. Due to the completion of the
work performed on the Company's initial pharmaceutical and the underlying
science relating to the PharmaPrint-TM- process, effective March 31, 1997, the
Company and USC mutually agreed to cancel the Research Agreement. Total
expenses incurred relating to the Research Agreement for the year ended March
31, 1996 were $201,000. During the year ended March 31, 1997, the Company
reimbursed USC $116,000 of the $176,000 amount outstanding as of March 31, 1996.
RAW MATERIALS
The Company procures the botanical extracts necessary for development of
its herbal medicines from various sources in the United States, Europe and
Asia. There are numerous alternative sources throughout the world where the
Company can obtain these botanical extracts. The Company intends to qualify
multiple suppliers for each extract.
MANUFACTURING
The Company has not yet manufactured any products on a commercial scale
and does not have the facilities to manufacture its products in commercial
quantities under current good manufacturing practices ("GMP") prescribed by
the FDA. To be successful, if approved by the FDA, the Company's products
must be manufactured in commercial quantities under GMP and at acceptable
cost. The Company has manufactured initial batches of saw palmetto and
mistletoe, to be used in clinical testing, through contract facilities.
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Additionally, for each product, the Company will develop standard operating
procedures for each of the manufacturing processes, validate each of the
PharmaPrint-TM- processes, quantify each of the bioactive components in such
product and establish a toxicology profile. The Company is currently in
negotiations with other companies to manufacture the Company's products on a
commercial scale. In the event the Company is unable to obtain contract
manufacturing on acceptable terms, its ability to commercialize or deliver
products at an acceptable cost in a timely manner may be adversely affected.
GOVERNMENT REGULATION
The Company's present and proposed activities, including toxicology
testing, clinical trials, the production and marketing of the Company's
products, and its ongoing research and development activities with numerous
laboratories and research facilities, are subject to regulation by numerous
governmental authorities in the United States and other countries, including
most notably the FDA. The process of obtaining required regulatory approvals
from the FDA and other authorities often takes many years, is expensive and
can vary substantially based on the type, complexity and novelty of the
product. To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to
particular statutory and regulatory provisions currently in effect. Any
change in applicable laws or regulations may have a material effect on the
business and prospects of the Company.
The Company's therapeutic products will be subject to regulation in the
United States by the FDA and by regulatory authorities in foreign
jurisdictions. The Company's products will be classified as pharmaceuticals
regulated under the Public Health Service Act and the Federal Food, Drug and
Cosmetic Act. Development of a pharmaceutical for human use under either act
is normally a multi-step process. In general, animal and IN VITRO testing
must establish the potential safety and efficacy of the experimental product
in a given disease. Once a product has been found to be reasonably safe and
potentially efficacious in animals, suggesting that human testing would be
appropriate, an IND application is submitted to the FDA. FDA approval
typically is granted or denied within 30 days of IND submission, but may, in
some circumstances, involve substantial delays.
Generally, clinical investigations involve three phases. FDA regulated
Phase I clinical studies are conducted to evaluate the safety of the
experimental product in humans, and if possible, to gain early evidence of
effectiveness. FDA regulated Phase I studies also evaluate various routes,
dosages and schedules of product administration. The demonstration of
therapeutic benefit is not required in order to complete FDA regulated Phase
I studies successfully. If acceptable product safety is demonstrated, Phase
II studies are initiated. The FDA has stated in seminars that it may waive
Phase I clinical studies for botanical drugs that have demonstrated their
safety through prior use. Phase II trials are designed to evaluate the
effectiveness of the product in the treatment of a given disease and,
typically, are well-controlled, closely monitored studies conducted on a
relatively small number of patients. The optimal routes, dosages and
schedules of administration are determined in these studies. When the Phase
II trials are successfully completed, Phase III studies are typically
commenced. Phase III studies are expanded, controlled trials that are
intended to gather additional information about safety and efficacy in order
to evaluate the overall risk/benefit relationship of the experimental product
and provide an adequate basis for physician labeling. These studies may also
compare the safety and efficacy of the experimental product with currently
available products. It is not possible to estimate the time in which FDA
regulated Phase I, II and III studies will be completed with respect to a
given product, although the time period could be lengthly.
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The results of initial toxicology and clinical testing are not necessarily
predictive of results that will be obtained from subsequent or more extensive
toxicology and clinical testing, and there can be no assurance that further
trials will be successful. Companies in the pharmaceutical industry have
suffered significant setbacks in advanced clinical trials, even after promising
results in earlier trials. Although the FDA has established a "botanical"
committee to provide regulatory guidelines, including guidelines for approval of
herbal medicines as pharmaceuticals, the Company believes that the FDA has never
approved a pharmaceutical version of an herbal medicine. Furthermore, the
adoption of less stringent standards by the FDA for approval of herbal medicines
that qualify as pharmaceuticals could result in competitive herbal medicines
that are not developed using the PharmaPrint-TM- process. Adverse governmental
regulation that might arise from future legislative or administrative action
cannot be predicted.
As part of the Company's proposed IND application for its saw palmetto
product, the Company intends to request a waiver of Phase I clinical studies and
to perform its toxicology testing concurrent with its clinical trials. The
Company proposes to perform two clinical trials, and if these two trials are
successful, the Company plans to file an NDA and seek FDA approval following the
completion of such trials to sell its saw palmetto product. The Company intends
to initially perform a Phase II dose escalation study involving approximately 50
patients, designed to evaluate safety, side effects and optimal dosages.
Following this initial study, the Company intends to perform a Phase II/III
pivotal clinical trial involving approximately 150 patients, designed to
evaluate efficacy. The inability of the Company to obtain a waiver of Phase I
trials, perform toxicology testing concurrent with its clinical trials or
inadequate results of the Company's proposed clinical trials or toxicology
testing, may result in significant delays and could have a materially adverse
effect on the Company.
Following the successful completion of clinical investigations, the
toxicology and clinical evidence that has been accumulated is submitted to the
FDA as part of an NDA. Approval of an NDA is necessary before a company may
market the product. While the Company anticipates that approval of the NDA will
be part of the fast-track approval process, the approval of an NDA can take
several years and depends upon the time it takes the FDA to review the submitted
data, the FDA's comments on the application and the time required to provide
satisfactory answers or additional data when requested.
Continued compliance with current GMP is required to be eligible to
continue to manufacture and market the products once they are approved. Failure
to comply with GMP regulations, or to comply with other applicable legal
requirements, can lead to federal seizure of violative products, injunctive
actions brought by the federal government, and potential criminal liability on
the part of the Company and of the officers and employees of the Company who are
responsible for the activities that lead to the violations.
In addition to the regulatory framework for product approvals, the Company
is and may be subject to regulation under local, state, federal and foreign law,
including requirements regarding occupational safety, laboratory practices, the
use, handling, and disposition of radioactive materials, and environmental
protection, waste and water disposal, and hazardous substance control. There
can be no assurance that the Company will not be required to incur significant
costs to comply with such regulations as manufacturing is increased to
commercial volumes, or that the operations, business, or assets of the Company
will not be materially and adversely affected by current or future laws, rules,
regulations and policies.
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TECHNOLOGY CHANGE AND COMPETITION
The pharmaceutical and biotechnology industries are subject to intense
competition and rapid technological change. The Company believes that
industry-wide interest in the application of the PharmaPrint-TM- process, the
use of its products, and related technology will continue and accelerate as the
technology becomes more widely understood. Competitors of the Company in the
United States and abroad are numerous, and include, among others,
pharmaceutical, biotechnology, herbal products, and chemical companies as well
as universities and other research organizations. There can be no assurance
that these competitors will not succeed in developing technologies and products
that are more effective than any that have been or may be developed by the
Company or that would render the Company's technology and products obsolete and
noncompetitive.
Many of the Company's competitors have substantially greater financial and
technical resources as well as greater production and marketing capabilities and
experience than the Company. In addition, many of the Company's competitors
have significantly greater experience than the Company in conducting toxicology
testing and human clinical trials on new pharmaceutical products and in
obtaining FDA and other regulatory approvals of products. Accordingly, a
certain number of the Company's competitors may succeed in obtaining regulatory
approval for products more rapidly or effectively than the Company. Moreover,
there can be no assurance that the Company will have sufficient resources to
undertake the continuing research and development necessary to remain
competitive.
INSURANCE
The testing, marketing and sale of human health care products entail an
inherent risk of allegations of product liability. Such risks exist in the
conduct of clinical trials and with respect to the distribution and sale of
those products, if any, that receive regulatory approval for commercial sale.
The Company maintains product liability insurance coverage it believes to be
adequate in amount and coverage. There can be no assurance that such insurance
will continue to be available at acceptable costs or that claims in excess of
the Company's insurance coverage or not covered by the Company's insurance will
be asserted against the Company.
EMPLOYEES
To maintain low overhead and maximize the benefits of research,
manufacturing, and regulatory capabilities of others, the Company has adopted a
strategy of contracting with others and maintains a minimal staff. As of March
31, 1997, the company employed 12 persons, all of whom were full-time employees
or full-time consultants. Consultants and others participating in the
activities of the Company, include the Company's Board of Scientific Advisors
and ABA.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Irvine, California.
The Company's headquarters currently occupy approximately 6,800 square feet.
The Company leases its headquarters facility for approximately $13,000 per
month, subject to a $1,500 increase in December 1997, pursuant to a lease
agreement that expires in December 1998.
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The Company utilizes numerous laboratory, research and manufacturing
facilities throughout the world. The Company contracts for specific work to be
performed with the operator of such facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the Company's fiscal year ended March 31, 1997.
EXECUTIVE OFFICERS OF PHARMAPRINT INC.
The following table sets forth certain information concerning the executive
officers of the Company as of May 31, 1997:
NAME AGE POSITION
- ------------------------- ----- ----------------------------------------
Elliot P. Friedman(1) 43 Chairman of the Board of Directors and
Chief Executive Officer
Robert J. Burgess 48 President and Chief Operating Officer
Tasneem A. Khwaja(1) 61 Chief Scientific Officer and Corporate
Secretary
Costas Loullis 47 Group Senior Vice President of Research
and Development
James R. Wodach 35 Senior Vice President and Chief
Financial Officer
-------------------------------------------------------
(1) Member of the Board of Directors of the Company
ELLIOT P. FRIEDMAN, has been the Chairman of the Board of Directors and
Chief Executive Officer since April 1997, and was the President and Chief
Executive Officer of the Company from October 1995 to April 1997. He was also
the Chief Financial Officer of the Company from November 1994 to December 1996.
He has been a Director since November 1994. From July1990 to July 1994, Mr.
Friedman was co-founder and Chief Executive Officer of BioTek Solutions, a
provider of systems used by pathologists to conduct diagnosis of cancer through
the use of monoclonal antibodies and DNA probes.
ROBERT J. BURGESS has been President and Chief Operating Officer of the
Company since April 1997 and was Executive Vice President and Chief Operating
Officer from May 1996 to April 1997, pursuant to a personal services contract
between Dimension Memory and the Company. From April 1995 to April 1996, Mr.
Burgess provided consulting services to the Company pursuant to consulting
agreements between the Company and Dimension Memory and Mr. Burgess,
respectively. From April 1994 to April 1995, he served as Chief Operating
officer of Dimension Memory, a company that trades in computer microchips. From
February 1993 to April 1994, Mr. Burgess served as Chief Executive Officer of J.
Micro Trading, an Australian company that trades in computer microchips. From
January 1991 to January 1993, he was Chief Operating Officer of Integrated
Memory Systems, which manufactured computer memory modules.
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<PAGE>
TASNEEM A. KHWAJA, Ph.D. has been Secretary of the Company since September
1994 and Chief Scientific Officer since October 1995. Form September 1994 to
April 1997, Dr. Khwaja served as Chairman of the Board of Directors and from
November 1994 to October 1995 served as President and Chief Executive Officer of
the Company. Dr. Khwaja has been a Professor of Pathology at the USC School of
Medicine for the past 24 years.
COSTAS C. LOULLIS has been Group Senior Vice President of Research and
Development since April 1997 and from October 1996 to April 1997 was Senior Vice
President of Research and Development. From November 1992 to October 1996, Dr.
Loullis was Vice President of Development of Houghten Pharmaceuticals. From
August 1991 to November 1992, he was a Section manager in the Central Research
Laboratories of Rhone-Poulenc Rorer.
JAMES R. WODACH has been Senior Vice President and Chief Financial Officer
since December 1996. From April 1996 to December 1996, Mr. Wodach was Director
of Finance for Paragon Biomedical, Inc. From October 1995 to April 1996, he was
an independent consultant. From April 1994 to October 1995, Mr. Wodach was
Senior Vice President Finance, from April 1993 to April 1994 Senior Vice
President and Chief Financial Officer, from July 1992 to April 1993 Vice
President Finance, and from November 1989 to July 1992 Controller for Regency
Health Services, Inc.
PART II
ITEM 5. MARKET FOR PHARMAPRINT INC. COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock, without par value, commenced trading on August
15, 1996 on the over-the-counter market and is quoted on the National
Association of Securities Dealers' Automated Quotation System ("NASDAQ")
National Market under the symbol PPRT. The following table sets forth the high
and low sales prices per share for the Common Stock, as reported by NASDAQ for
the periods indicated:
YEAR ENDED MARCH 31, 1997 HIGH LOW
----------------------------------- ------ -----
Second Quarter (from August 15, 1996) $ 6.50 $ 4.625
Third Quarter $ 5.50 $ 4.50
Fourth Quarter $ 5.50 $ 3.875
YEAR ENDING MARCH 31, 1998
-----------------------------------
First Quarter (through June 19, 1997) $ 7.63 $ 4.00
As of June 25, 1997, shares of the Company's Common Stock were held of
record by approximately 142 shareholders and beneficially owned by approximately
1,854 shareholders.
The Company has not declared or paid any cash dividends on its Common Stock
since its inception and does not currently intend to declare or pay any
dividends in the foreseeable future.
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ITEM 6: MANAGEMENT'S PLAN OF OPERATION
GENERAL
PharmaPrint Inc., a development stage company, was incorporated in the
State of California in September 1994. Effective October 30, 1996, the Company
changed its name from ABT Global Pharmaceutical Corp. to PharmaPrint Inc. In
April 1997, the Board of Directors approved a resolution to change the Company's
state of incorporation from California to Delaware. Such resolution requires
the approval of shareholders, which will be requested at the August 19, 1997,
Annual Meeting of Shareholders.
PRODUCT RESEARCH AND DEVELOPMENT
The Company develops and manufactures pharmaceutical versions of herbal
medicines to be used in the treatment of various maladies. The Company's
technology for standardizing the manufacture of herbal medicines into
pharmaceuticals is marketed as the PharmaPrint-TM- process. The PharmaPrint-TM-
process enables the Company to precisely identify, quantify and accurately
reproduce each of the bioactive components in the herbal compound. The Company
believes that the PharmaPrint-TM- process provides the information necessary to
seek patent protection and together with the results of toxicology testing and
clinical trials, FDA approval for each pharmaceutical version of the herbal
medicine. The Company also believes that the PharmaPrint-TM- process is the
only current method for developing acceptable and approvable pharmaceutical
versions of herbal medicines. The initial science underlying this technology
was developed in the laboratories of the USC School of Medicine by Dr. Tasneem
A. Khwaja.
The Company believes there is a significant market for the use of the
PharmaPrint-TM- process. The market opportunities include developing
pharmaceuticals from herbal medicines for the Company's own account, in joint
venture arrangements with other companies and on a contract basis for other
companies for a fee and a royalty on sales. The Company expects the products it
develops to be distributed in the United States and foreign markets. The
contract services that the Company seeks to provide to others for developing
pharmaceuticals from herbal medicines includes developing the PharmaPrint-TM- of
an herbal medicine, applying for patents, toxicology testing, preparing and
filing IND applications, conducting FDA regulated clinical trials and preparing
and filing NDAs for the pharmaceutical versions of such herbal medicines. In
that regard, the Company has obtained two letters of intent from foreign
producers of herbal medicines to develop pharmaceutical versions of three herbal
medicines in a joint venture arrangement. However, there can be no assurance
that either letter of intent will lead to a formal agreement or that the
Company will otherwise be able to successfully market its PharmaPrint-TM-
process.
In its efforts to develop a pipeline of products, the Company has begun
development of pharmaceutical versions of 11 herbal medicines. Many of these
herbal medicines have long histories of human use and demonstrated clinical
effectiveness. Additionally, most of these herbal medicines are currently sold
in the United States as dietary supplements pursuant to DSHEA. The Company has
completed developing the PharmaPrint-TM- of saw palmetto, St. John's wort, and
mistletoe, used to treat the symptoms associated with prostate enlargement,
mild to moderate depression and immunosuppression, respectively. The Company
recently commenced applying the PharmaPrint-TM- process to the following herbal
medicines: bilberry, milk thistle, echinacea, valerian, ginger, agnus castus,
black cohosh and garlic.
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Initially, the Company used its PharmaPrint-TM- process to develop, on a
proprietary basis, a pharmaceutical-grade therapeutic mixture for treating the
immune systems of HIV patients. This mixture, known as T4GEN, was derived from
the VISCUM ALBUM plant (mistletoe). T4GEN is derived from the same VISCUM ALBUM
plant as an herbal medicine that has indicated an effect on the immune
system of CD4 cell stabilization in FDA sanctioned Phase I and Phase II clinical
trials conducted in Berlin, Germany involving 50 HIV positive patients.
In June 1997, the Company completed Phase I clinical trials for T4GEN in
the United Kingdom. This initial clinical trial focused on the safety of T4GEN.
Pending review of the data regarding this clinical trial and other business
priorities, the Company anticipates commencing Phase II clinical trials in
either Zimbabwe or Thailand.
The Company held its pre-IND meeting for its saw palmetto product in May
1997 with the FDA and intends to file an IND application for saw palmetto with
the FDA in July 1997. Although no assurance can be given that such IND
application will be allowed by the FDA, if the application is allowed in the
form that the Company anticipates, the Company expects to commence Phase II
clinical trials in the United States in August 1997. The Company also
anticipates performing animal toxicology studies concurrent with such clinical
trials.
The Company also intends to file an IND application for St. John's wort
during the Fall of 1997. If such application is allowed in the form that the
Company expects to file it, the Company expects a similar development cycle as
with its saw palmetto product.
To achieve profitable operations, the Company alone or with others, must
successfully develop, introduce and market products. No assurance can be given
that the Company's development efforts will be successfully completed, that
required regulatory approvals will be obtained, or that any product, if
introduced, will be successfully marketed or obtain customer acceptance.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of
equity securities. From inception (September 15, 1994) through May 1996, the
Company had raised an aggregate net amount of approximately $2,100,000 through
private sales of equity securities. In August 1996, the Company completed an
initial public offering of 3,000,000 shares of its Common Stock at $5.00 per
share, raising net proceeds of approximately $12,705,000.
During the year ended March 31, 1997, the Company purchased approximately
$195,000 of equipment and furniture. Computer equipment and office furniture
comprised the majority of such capital expenditures. The Company anticipates
that it will purchase an additional $100,000 of equipment and furniture in the
next 12 months.
During the year ended March 31, 1997, the Company increased its staff of
full-time employees and consultants from four to 12. During fiscal 1998, the
Company expects to increase its staff by adding an additional 10 employees.
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The Company has incurred net operating losses since its inception and
expects substantial net operating losses in the near term as it continues its
research and development efforts. The Company will incur additional net
operating losses until such time as product or service sales can generate
sufficient revenue to fund continuing operations. The Company's ability to
generate revenues are dependent upon many factors, including its ability to
develop, introduce and market products and obtain regulatory approvals.
The proceeds of the initial public offering and cash flows from operations,
if any, are expected to be sufficient to meet the Company's working capital
requirements for at least the next 12 months. However, no assurance can be
given that there will be no change in the Company's operations that would
consume available resources more rapidly than anticipated. The Company will
need substantial funds to support its long term product development programs.
The Company has no established bank financing arrangement and it is unlikely
that the Company will establish a bank financing arrangement in the foreseeable
future. The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, progress with toxicology testing and clinical trials, the time and
cost involved in obtaining regulatory approvals, patent costs, competing
technological and market developments, changes in existing collaborative
relationships, the Company's ability to establish development, sales and
marketing arrangements and the cost of establishing manufacturing capabilities.
To the extent that the Company's capital resources are insufficient to meet its
operating requirements, the Company will seek additional funds through equity or
debt financings, collaborative or other arrangements with corporate partners,
licensees and others. The Company has no current arrangements with respect to,
or sources of, such additional financing, and the Company does not anticipate
that existing shareholders will provide any portion of the Company's future
financing requirements, if any. Additionally, no assurance can be given that
additional financing will be available when needed or upon terms acceptable to
the Company.
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
--------------------------------------------------- ----
Report of Independent Public Accountants . . . . . 18
Balance Sheet as of March 31, 1997 . . . . . . . . 19
Statements of Operations for the years ended
March 31, 1996 and 1997 and the period from
inception (September 15, 1994) through
March 31, 1997 . . . . . . . . . . . . . . . . . 20
Statements of Shareholders' Equity for the period
from inception (September 15, 1994) through
March 31, 1997 . . . . . . . . . . . . . . . . . 21
Statements of Cash Flows for the years ended
March 31, 1996 and 1997 and the period from
inception (September 15, 1994) through
March 31, 1997 . . . . . . . . . . . . . . . . . 23
Notes to Financial Statements. . . . . . . . . . . 24
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of PharmaPrint Inc.:
We have audited the accompanying balance sheet of PharmaPrint Inc. (a
California corporation in the development stage) as of March 31, 1997 and the
related statements of operations, shareholders' equity, and cash flows for
the years ended March 31, 1996 and 1997 and for the period from inception
(September 15, 1994) to March 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above represent
fairly, in all material respects, the financial position of PharmaPrint Inc.
as of March 31, 1997 and the results of its operations and its cash flows for
the years ended March 31, 1996 and 1997 and for the period from inception
(September 15, 1994) to March 31, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
May 2, 1997
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PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET - MARCH 31, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . $ 8,170,072
Other current assets. . . . . . . . . . . . . 337,593
----------------
Total current assets . . . . . . . . . . . 8,507,665
EQUIPMENT, NET . . . . . . . . . . . . . . . . . . 185,571
OTHER ASSETS, net of accumulated amortization of
$8,110. . . . . . . . . . . . . . . . . . . . 138,684
----------------
Total assets . . . . . . . . . . . . . . . . $ 8,831,920
----------------
----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . $ 927,773
Accrued expenses . . . . . . . . . . . . . . 166,823
----------------
Total current liabilities . . . . . . . . . 1,094,596
----------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value - 1,000,000
shares authorized, no shares issued or
outstanding . . . . . . . . . . . . . . . . ---
Common stock, without par value - 19,000,000
shares authorized, 11,000,000 shares
issued and outstanding. . . . . . . . . . . 22,826,898
Additional paid in capital. . . . . . . . . . 1,130,370
Deferred compensation . . . . . . . . . . . . (3,158,899)
Deficit accumulated during the development
stage . . . . . . . . . . . . . . . . . . . (13,061,045)
----------------
Total shareholders' equity . . . . . . . 7,737,324
----------------
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . . . $ 8,831,920
----------------
----------------
The accompanying notes are an integral part of this balance sheet.
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PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From Inception
Year Ended Year Ended (September 15, 1994)
March 31, 1996 March 31, 1997 through March 31, 1997
---------------- ---------------- ------------------------
<S> <C> <C> <C>
REVENUES . . . . . . . . . . . . . $ --- $ --- $ ---
EXPENSES:
Research and development . . 386,878 2,980,064 3,745,398
General and administrative . 957,307 8,252,788 9,315,647
---------------- ---------------- ------------------------
1,344,185 11,232,852 13,061,045
---------------- ---------------- ------------------------
LOSS FROM OPERATIONS . . . . . . . (1,344,185) (11,232,852) (13,061,045)
---------------- ---------------- ------------------------
NET LOSS . . . . . . . . . . . . . $ (1,344,185) $ (11,232,852) $ (13,061,045)
---------------- ---------------- ------------------------
---------------- ---------------- ------------------------
LOSS PER SHARE . . . . . . . . . . $ (.16) $ (1.10) $ (1.47)
---------------- ---------------- ------------------------
---------------- ---------------- ------------------------
WEIGHTED AVERAGE
SHARES AND
EQUIVALENT SHARES
OUTSTANDING . . . . . . . . . 8,297,103 10,193,131 8,897,833
---------------- ---------------- ------------------------
---------------- ---------------- ------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
-20-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------
ADDITIONAL
NUMBER OF PAID-IN DEFERRED
SHARES AMOUNT CAPITAL COMPENSATION
---------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, September 15, 1994 (inception) --- $ --- $ --- $ ---
Issuance of common stock at $.001 per share to officer in
November 1994 for cash and receivable. . . . . . . . . 4,265,845 4,100 --- ---
Issuance of common stock at $.004 per share to officer in
November 1994 for cash and receivable. . . . . . . . . 1,248,540 5,000 --- ---
Issuance of common stock at $.001 per share in
November 1994 for receivable . . . . . . . . . . . . . 104,045 100 --- ---
Issuance of common stock at $.96 per share in
December 1994 for cash and receivable. . . . . . . . . 624,270 600,000 --- ---
Issuance of common stock at $.96 per share in
March 1995 for technology rights . . . . . . . . . . . 328,563 315,789 --- ---
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . --- --- --- ---
---------------------------------------------------------------
BALANCE, MARCH 31, 1995 . . . . . . . . . 6,571,263 924,989 --- ---
Fair value of options granted (based upon estimated fair
values of common stock of $1.68 to $2.40 per share):
July 1, 1995 (67,629 options). . . . . . . . . . . . . --- --- 48,750 ---
November 1, 1995 (88,438 options). . . . . . . . . . . --- --- 127,500 ---
January 1, 1996 (88,438 options) . . . . . . . . . . . --- --- 127,500 ---
March 22, 1996 (712,708 options) . . . . . . . . . . . --- --- 1,027,500 (1,027,500)
Issuance of common stock in private placements in
December 1995 at $2.40 per share, net of expenses. . . 618,034 1,314,616 --- ---
Stock issued for services in March 1996. . . . . . . . . . 624,270 1,500,000 --- (1,500,000)
Fair value of warrants issued with notes payable . . . . . --- --- 31,250 ---
Payments on stock subscription receivable. . . . . . . . . --- --- --- ---
Contribution of shares by shareholder in March 1996. . . . (1,336,978) --- --- ---
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . --- --- --- ---
---------------------------------------------------------------
BALANCE, MARCH 31, 1996. . . . . . . . . . . . . . . . . . 6,476,589 3,739,605 1,362,500 (2,527,500)
Issuance of common stock in private placements in April
1996 at $2.40 per share, net of expenses and
repurchased shares . . . . . . . . . . . . . . . . . . 97,995 185,342 --- ---
Payments on stock subscription receivable. . . . . . . . . --- --- --- ---
<CAPTION>
STOCK DEFICIT ACCUMULATED
SUBSCRIPTION DURING DEVELOPMENT
RECEIVABLE STAGE TOTAL
------------------------------------------------
<S> <C> <C> <C>
BALANCE, September 15, 1994 (inception) $ --- $ --- $ ---
Issuance of common stock at $.001 per share to officer in
November 1994 for cash and receivable. . . . . . . . . (4,000) --- 100
Issuance of common stock at $.004 per share to officer in
November 1994 for cash and receivable. . . . . . . . . (2,500) --- 2,500
Issuance of common stock at $.001 per share in
November 1994 for receivable . . . . . . . . . . . . . (100) --- ---
Issuance of common stock at $.96 per share in
December 1994 for cash and receivable. . . . . . . . . (200,000) --- 400,000
Issuance of common stock at $.96 per share in
March 1995 for technology rights . . . . . . . . . . . --- --- 315,789
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . --- (484,008) (484,008)
------------------------------------------------
BALANCE, MARCH 31, 1995 . . . . . . . . . . . . . . . . . (206,600) (484,008) 234,381
Fair value of options granted (based upon estimated fair
values of common stock of $1.68 to $2.40 per share):
July 1, 1995 (67,629 options). . . . . . . . . . . . . --- --- 48,750
November 1, 1995 (88,438 options). . . . . . . . . . . --- --- 127,500
January 1, 1996 (88,438 options) . . . . . . . . . . . --- --- 127,500
March 22, 1996 (712,708 options) . . . . . . . . . . . --- --- ---
Issuance of common stock in private placements in
December 1995 at $2.40 per share, net of expenses. . . (100,000) --- 1,214,616
Stock issued for services in March 1996. . . . . . . . . . --- --- ---
Fair value of warrants issued with notes payable . . . . . --- --- 31,250
Payments on stock subscription receivable. . . . . . . . . 200,000 --- 200,000
Contribution of shares by shareholder in March 1996. . . . --- --- ---
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . --- (1,344,185) (1,344,185)
------------------------------------------------
BALANCE, MARCH 31, 1996. . . . . . . . . . . . . . . . . . (106,600) (1,828,193) 639,812
Issuance of common stock in private placements in April
1996 at $2.40 per share, net of expenses and
repurchased shares . . . . . . . . . . . . . . . . . . --- --- 185,342
Payments on stock subscription receivable. . . . . . . . . 106,600 --- 106,600
The accompanying notes are an integral part of these financial statements.
-21-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
COMMON STOCK
-------------------------------
ADDITIONAL
NUMBER OF PAID-IN DEFERRED
SHARES AMOUNT CAPITAL COMPENSATION
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issued upon cancellation of options in May
1996 . . . . . . . . . . . . . . . . . . . . . . . . . 712,708 1,712,500 (127,500) ---
Restricted shares issued for services upon cancellation of
options in May 1996. . . . . . . . . . . . . . . . . . 712,708 2,984,466 (1,027,500) (1,956,966)
Issuance of common stock in initial public offering in
August 1996, net of expenses . . . . . . . . . . . . . 3,000,000 12,704,985 --- ---
Remeasurement of stock issued in March 1996. . . . . . . . --- 1,500,000 --- (1,500,000)
Amortization of deferred compensation. . . . . . . . . . . --- --- --- 3,000,000
Fair value of options granted to consultants in
October 1996 . . . . . . . . . . . . . . . . . . . . . --- --- 274,433 (174,433)
Fair value of stock transferred by a major shareholder to
third parties as compensation for services in
December 1996. . . . . . . . . . . . . . . . . . . . . --- --- 648,437 ---
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . --- --- --- ---
---------------------------------------------------------------
BALANCE, MARCH 31, 1997. . . . . . . . . . . . . . . . . . 11,000,000 $22,826,898 $ 1,130,370 $(3,158,899)
---------------------------------------------------------------
---------------------------------------------------------------
STOCK DEFICIT ACCUMULATED
SUBSCRIPTION DURING DEVELOPMENT
RECEIVABLE STAGE TOTAL
------------------------------------------------
<S> <C> <C> <C>
Common stock issued upon cancellation of options in May
1996 . . . . . . . . . . . . . . . . . . . . . . . . . --- --- 1,585,000
Restricted shares issued for services upon cancellation of
options in May 1996. . . . . . . . . . . . . . . . . . --- --- ---
Issuance of common stock in initial public offering in
August 1996, net of expenses . . . . . . . . . . . . . --- --- 12,704,985
Remeasurement of stock issued in March 1996. . . . . . . . --- --- ---
Amortization of deferred compensation. . . . . . . . . . . --- --- 3,000,000
Fair value of options granted to consultants in
October 1996 . . . . . . . . . . . . . . . . . . . . . --- --- 100,000
Fair value of stock transferred by a major shareholder to
third parties as compensation for services in
December 1996. . . . . . . . . . . . . . . . . . . . . --- --- 648,437
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . --- (11,232,852) (11,232,852)
------------------------------------------------
BALANCE, MARCH 31, 1997. . . . . . . . . . . . . . . . . . $--- $(13,061,045) $ 7,737,324
------------------------------------------------
------------------------------------------------
</TABLE>
* No shares of Preferred Stock issued.
The accompanying notes are an integral part of these financial statements.
-22-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
YEAR ENDED YEAR ENDED (SEPTEMBER 15, 1994)
MARCH 31, 1997 MARCH 31, 1996 THROUGH MARCH 31, 1997
---------------- ---------------- -------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . $ ( 1,344,185) $ ( 11,232,852) $ (13,061,045)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation . . . . . . . . . . . . . --- 9,188 9,188
Amortization of discount on notes
payable. . . . . . . . . . . . . . . . --- 31,250 31,250
Fair value of stock issued for
technology licensing rights. . . . . . --- --- 315,789
Fair value of stock and options issued 303,750 5,333,437 5,637,187
(Increase) decrease in prepaid
research services. . . . . . . . . . . (5,000) 88,333 ---
Increase in other current assets . . . --- (308,351) (337,593)
Increase in other assets, net. . . . . (48,167) (84,598) (138,684)
Increase (decrease) in amount due to USC 166,000 (176,000) ---
Increase in accounts payable and accrued
expenses . . . . . . . . . . . . . . . 116,542 973,554 1,094,596
---------------- ---------------- -------------------------
Net cash used in operating activities. (811,060) (5,366,039) (6,449,312)
---------------- ---------------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment. . . . . . . . . --- (194,759) (194,759)
---------------- ---------------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common
stock. . . . . . . . . . . . . . . . . 1,214,616 12,890,327 14,507,543
(Increase) decrease in deferred offering
costs. . . . . . . . . . . . . . . . . (94,203) 94,203 ---
Proceeds from stock subscription
receivable . . . . . . . . . . . . . . 200,000 106,600 306,600
Proceeds from notes payable. . . . . . 250,000 20,000 270,000
Repayment of notes payable . . . . . . --- (270,000) (270,000)
---------------- ---------------- -------------------------
Net cash provided by financing activities 1,570,413 12,841,130 14,814,143
---------------- ---------------- -------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . 759,353 7,280,332 8,170,072
CASH AND CASH EQUIVALENTS,
beginning of period. . . . . . . . . . 130,387 889,740 ---
---------------- ---------------- -------------------------
CASH AND CASH EQUIVALENTS, end of
period . . . . . . . . . . . . . . . . $ 889,740 $ 8,170,072 $ 8,170,072
---------------- ---------------- -------------------------
---------------- ---------------- -------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-23-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, NARRATIVE DISCUSSION OF THE BUSINESS AND RISK FACTORS
ORGANIZATION
PharmaPrint Inc. (the "Company" or "PharmaPrint"), a development stage
company, was incorporated in the State of California in September 1994. The
Company was formed in order to complete the development and commercialization of
the research initiated by Dr. Tasneem A. Khwaja, a founder and major shareholder
of the Company, over a 20 year period at the University of Southern California
("USC") School of Medicine.
Effective October 30, 1996, the Company changed its name from ABT Global
Pharmaceutical Corp. to PharmaPrint Inc. In April 1997, the Board of Directors
approved a resolution to change the Company's state of incorporation from
California to Delaware. Such resolution requires the approval of shareholders,
which will be requested at the August 19, 1997, Annual Meeting of Shareholders.
NARRATIVE DESCRIPTION OF THE BUSINESS
The Company develops and manufactures pharmaceutical versions of herbal
medicines to be used in the treatment of various maladies. The Company's
technology for standardizing the manufacture of herbal medicines into
pharmaceuticals is marketed as the PharmaPrint-TM- process. The PharmaPrint-TM-
process is designed to enable the Company to precisely identify, quantify and
accurately reproduce each of the bioactive components in the herbal compound.
The Company believes that the PharmaPrint-TM- process provides the information
necessary to seek patent protection and together with the results of toxicology
testing and clinical trials, United States Food and Drug Administration ("FDA")
approval for each pharmaceutical version of the herbal medicine. The Company
also believes that the PharmaPrint-TM- process is the only current method for
developing acceptable and approvable pharmaceutical versions of herbal
medicines. The initial science underlying this technology was developed in the
laboratories of the USC School of Medicine by Dr. Khwaja.
The Company believes there is a significant market for the use of the
PharmaPrint-TM- process. The market opportunities include developing
pharmaceuticals from herbal medicines for the Company's own account, in joint
venture arrangements with other companies and on a contract basis for other
companies for a fee and a royalty on sales. The Company expects the products it
develops to be distributed in the United States and foreign markets. The
contract services that the Company seeks to provide to others for developing
pharmaceuticals from herbal medicines includes developing the PharmaPrint-TM- of
an herbal medicine, applying for patents, toxicology testing, preparing and
filing Investigational New Drug ("IND") applications, conducting FDA regulated
clinical trials and preparing and filing New Drug Applications ("NDA") for the
pharmaceutical versions of such herbal medicines. In that regard, the Company
has obtained two letters of intent from foreign producers of herbal medicines to
develop pharmaceutical versions of three herbal medicines in a joint venture
arrangement. However, there can be no assurance that either letter of intent
will lead to a formal agreement or that the Company will otherwise be able to
successfully market its PharmaPrint-TM- process.
-24-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DEVELOPMENT STAGE COMPANY AND RISK FACTORS
PharmaPrint is considered to be a development stage company. Since
inception (September 15, 1994), the Company has been primarily engaged in
research, filing for and securing patent protection, product development and
raising capital.
The Company, as a development stage enterprise, has yet to generate
revenues and has no assurance of future revenues. There can be no assurance
that the Company will obtain FDA approval or be able to successfully market its
PharmaPrint-TM- process. If the Company's marketing efforts with third parties
are unsuccessful, the Company expects to continue to incur substantial operating
losses over the next several years and may require substantial financing to fund
its operations. The Company's future capital requirements will depend on many
factors, including but not limited to the Company's ability to successfully
market its PharmaPrint-TM- process to third parties, overall product
development costs including the cost of toxicology testing and clinical trials,
the length of time required to obtain FDA approval, if any, competing
technological and market developments, changes in existing collaborative
relationships, sales and marketing arrangements and the costs of establishing
subcontracts for research and development. Additionally, no assurance can be
given that additional capital, if needed, will be available when required or
upon terms acceptable to the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For financial reporting purposes, the Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
EQUIPMENT
Equipment is stated at cost and consisted of the following at
March 31, 1997:
Equipment $119,252
Furniture 75,507
Less accumulated depreciation (9,188)
---------------
Equipment, net $185,571
---------------
---------------
-25-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Depreciation is provided using the straight-line method over the estimated
useful life for equipment of three years and furniture for five years.
OTHER LONG-TERM ASSETS
Organization costs are amortized on a straight-line basis over five years.
Patent costs are amortized on a straight-line basis over 10 years.
LOSS PER SHARE
Loss per share is computed based on the weighted average number of shares
outstanding for the period. Common equivalent shares are excluded from the
computation as their effect is antidulutive, except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares (stock options, warrants and preferred stock) issued during
the period commencing 12 months prior to the initial filing of the Company's
initial public offering (the "Offering") at prices below the public offering
price have been included in the calculation as if they were outstanding for all
periods presented (using the treasury stock method).
INCOME TAXES
The Company accounts for income taxes using the liability method as
prescribed by Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax basis of assets and liabilities using enacted tax rules that will be in
effect when the differences are expected to reverse.
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
During fiscal 1997, the Company adopted SFAS No. 123 "Accounting for
Stock-Based Compensation." As permitted under SFAS No. 123, the Company will
continue to account for employee stock options in accordance with APB Opinion
No. 25 and has made the necessary pro forma disclosures mandated by SFAS No.
123. Additionally, all non-employee stock options will be accounted for in
accordance with SFAS No. 123. Compensation expense related to such non-employee
stock options will be calculated using the fair market value of the stock option
on the date of grant. (See Note 6.)
The Company also adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in fiscal 1997.
The adoption of this pronouncement did not have a material impact on the
financial position and results of operations of the Company.
PENDING ACCOUNTING PRONOUNCEMENTS
In fiscal 1998, the Company will be required to adopt SFAS No. 128
"Earnings Per Share" and SFAS No. 129 "Disclosure of Information About Capital
Structure." SFAS No. 128 establishes standards for computing and presenting
earnings (loss) per share by simplifying the standards previously found in APB
Opinion No. 15, and makes them comparable to international standards. SFAS No.
129 establishes standards for disclosing information about an entity's capital
structure. The Company does not believe that
-26-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the adoption of either of these Statements will have a significant impact on its
financial position or reported results of operations.
RECLASSIFICATIONS
Certain reclassifications were made to prior period amounts, enabling them
to conform to current period presentation.
3. AGREEMENTS WITH USC
LICENSE AGREEMENT
In March 1995, the Company entered into a license agreement with USC (the
"USC License Agreement") that grants the Company an exclusive, worldwide license
to: (1) the PharmaPrint-TM- process; (2) use certain therapeutic compounds; and
(3) other related products developed by Dr. Khwaja's laboratory at USC. USC has
also agreed to grant the Company the right to sublicense certain products and a
right of first refusal to obtain a license for any improvements to certain
products developed by USC. The term of the USC License Agreement began March 1,
1995, and ends on the later of February 28, 2010, or the expiration of the last
issued patent under the USC License Agreement.
In exchange for the license, the Company agreed to pay USC: (1) royalty
payments of 3% of the Company's net sales of pharmaceutical products developed
using the PharmaPrint-TM- process; (2) after the first patent issues, an annual
minimum royalty of $15,000, which shall increase by $5,000 annually for the
following two years and be $25,000 annually thereafter; (3) an annual license
fee of $10,000 payable until a patent issues; and (4) 328,563 shares of the
Company's common stock at the time of the exchange. During fiscal 1996, USC and
Dr. Khwaja were party to a Distribution of Royalty Income Agreement pursuant to
which USC agreed to pay Dr. Khwaja 50% of the net royalties received by USC
under the USC License Agreement. During fiscal 1997, Dr. Khwaja waived his
right to such consideration. The cost of the USC License Agreement,
approximately $316,000, recorded as research and development expense in the
fiscal 1995 statement of operations, is also included in the accompanying
statement of operations for the period from inception (September 15, 1994)
through March 31, 1997.
RESEARCH AGREEMENT
Effective March 1, 1995, the Company and USC entered into a five year
research agreement (the "Research Agreement") that required USC to perform
certain research, as defined under the Research Agreement, from March 1, 1995
through February 29, 2000. Due to the completion of the work performed on the
Company's initial pharmaceutical and the underlying science relating to the
PharmaPrint-TM- process, effective March 31, 1997, the Company and USC mutually
agreed to cancel the Research Agreement. Total expenses incurred relating to
the Research Agreement for the year ended March 31, 1996, were $201,000. During
the year ended March 31, 1997, the Company reimbursed USC $116,000 of the
$176,000 amount outstanding as of March 31, 1996. The remaining $60,000 was
recorded as a reduction of research and development expense during fiscal 1997.
-27-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses through March 31, 1997. At March 31,
1997, the Company has net operating loss carryforwards available to offset
future taxable income for federal and state income tax purposes of approximately
$5,100,000 and $ 2,550,000, respectively; such carry forwards expire in various
years through 2012. Other deferred tax assets include the timing of certain
expenses for book and tax purposes. The company has provided a valuation
allowance to offset all deferred tax assets due to the uncertainty of
realization.
Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating losses carried forward may be impaired or limited in certain
circumstances. Events that may cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not limited
to, a cumulative ownership change of more than 50% over a three year period.
At March 31, 1997, the effect of such limitation, if imposed, has not been
determined.
5. COMMITMENTS AND CONTINGENCIES
LEASE
The Company leases its corporate headquarters under an operating lease that
expires in December 1998. Rent expense for the current and the previous
(expired) office lease was approximately $10,000 and $86,000 for the years ended
March 31, 1996 and 1997, respectively. At March 31, 1997, future minimum lease
payments under the noncancelable operating lease are as follows:
YEAR ENDED MARCH 31 AMOUNT
--------------------------- ---------------
1998 $ 160,000
1999 129,000
---------------
$ 289,000
---------------
---------------
EMPLOYMENT AGREEMENTS
At March 31, 1997, the Company had employment agreements (the "Employment
Agreements") with its Chief Executive Officer and its Chief Scientific Officer.
The Employment Agreements provide for base salaries in the aggregate of
$334,000, plus certain benefits. The Employment Agreements were effective
November 1, 1995, and were subsequently modified in May 1996 and March 1997.
The Employment Agreements expire in October 1998.
PERSONAL SERVICES AGREEMENT
The Company entered into an agreement (the "Personal Services Agreement")
with Dimension Memory, Inc. ("Dimension") in May 1996. Pursuant to the Personal
Services Agreement, which expires on December 31, 1998, Dimension is to provide
the services of Robert J. Burgess as Executive Vice President and Chief
Operating Officer of the Company. Under the terms of the Personal Services
Agreement, the Company is to provide annual compensation to Dimension of
$140,000, to be paid at a rate of $11,667
-28-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
monthly, and certain other benefits. The Company also issued 712,708 shares of
its common stock to Dimension. As a result of the issuance of common stock, the
Company recorded compensation expense of $1,585,000 for the year ended March
31, 1997.
In December 1996, the Company amended the Personal Services Agreement with
Dimension. The amended agreement provides for the immediate payment by the
Company of all amounts due under the Personal Services Agreement in exchange for
Dimension agreeing to provide additional services to the Company. As a result
of this amended agreement, in December 1996 the Company paid and capitalized an
amount to Dimension of $312,000 and will amortize such amounts through
December 1998. The unamortized amount, $266,000 at March 31, 1997, has been
recorded in other current assets in the accompanying balance sheet.
Effective April 15, 1997, Dimension agreed to provide the services of Mr.
Burgess as the Company's President and Chief Operating Officer and the Company
agreed to pay Dimension at a rate of $36,000 per year, effective March 1, 1997.
6. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company's Board of Directors is authorized, subject to California law,
to provide for the issuance of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, to fix or alter the rights, preferences, privileges and restrictions,
including voting, conversion, liquidation, dividend and redemption of the shares
of each wholly unissued series and any restrictions thereon, and to increase or
decrease the number of shares of any such series (but not below the number of
shares of such series then outstanding) without further action of the
shareholders. As of March 31, 1997, the Company has not issued any of the
1,000,000 shares of authorized preferred stock.
COMMON STOCK
Subject to the rights of any Preferred Stock that may be outstanding,
holders of common stock are entitled to receive dividends as determined by the
Company's Board of Directors. Each shareholder is entitled to one vote for each
share of common stock held. The common stock is not entitled to either
preemptive rights or redemption. In the event of liquidation, the holders of
common stock will be entitled to receive a pro rata basis all of the remaining
net assets of the Company available for distribution.
In July 1996, the Company's Board of Directors approved a 1.04045 for 1
stock split of the Company's common stock. All references in the accompanying
financial statements to the number of shares and per share amounts, unless
otherwise noted, have been restated to reflect the effect of this action.
In August 1996, the Company completed the Offering of 3,000,000 shares of
its common stock at $5.00 per share. From the sale, the Company received net
proceeds of approximately $12,705,000.
-29-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the fiscal year ended March 31, 1997, Dr. Khwaja, the Company's
then Chairman and a majority shareholder, agreed to transfer 125,000 shares of
his common stock to third parties. As a result of this transfer, compensation
expense of approximately $648,000 was recorded and included in general and
administrative expense during fiscal 1997 and additional paid-in capital at
March 31, 1997.
In May 1997, the Company's Board of Directors approved an increase in the
number of authorized shares of common stock from 19,000,000 to 24,000,000. Such
increase is subject to shareholder approval, which will be requested at the
Company's annual meeting in August 1997.
PRIVATE PLACEMENT
In December 1995, the Company sold 618,034 shares of its common stock at
$2.40 per share in a private placement. From the sale, the Company received
proceeds of approximately $1,315,000.
During 1996, the Company offered (the "Repurchase Offer") to certain
private placement shareholders of the Company's common stock two alternatives,
either (i) the right to receive an additional one share of common stock for each
share purchased in certain private placements, thus effectively reducing the
price by half, or (ii) the right to cause the Company to repurchase the shares
of common stock for $5.00 per share (the original purchase price), plus interest
from the date of purchase. By its terms, the Repurchase Offer remained open for
30 days and terminated on July 3, 1996. The Repurchase Offer resulted in the
Company repurchasing 35,600 shares (pre-split) for $91,000 in cash and the
cancellation of $87,000 of stock subscriptions receivable.
In April 1996, the Company sold 97,995 shares of its common stock at $2.40
per share in a private placement. From the sale, the Company received net
proceeds of approximately $185,000, net of fees and repurchased shares.
1995 STOCK OPTION PLAN
On April 14, 1995, the Company adopted the 1995 Stock Option Plan, as
Amended (the "1995 Plan"), pursuant to which directors, officers, key employees,
consultants, scientific advisors and other personnel working directly with the
Company are eligible to receive stock options as defined in the 1995 Plan. The
1995 Plan is administered by a designated committee (the "Committee") of the
Board of Directors, which is empowered to determine the terms and conditions of
each option, as defined by the 1995 Plan. The Company can grant either
nonqualified or incentive stock options, as defined, under the 1995 Plan that
vest as determined by the Committee. The 1995 Plan, unless terminated sooner by
the Board of Directors, will terminate on April 14, 2005.
-30-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Option activity from adoption of the 1995 Plan (April 15, 1995) to March 31,
1997 is as follows:
YEAR ENDED MARCH 31, 1996 YEAR ENDED MARCH 31, 1997
------------------------- -------------------------
WEIGHTED WEIGHTED
OPTIONS AVERAGE PRICE OPTIONS AVERAGE PRICE
------- ------------- ------- ---------------
Outstanding at beginning
of period: . . . . . . . . . --- --- 997,097 $ 0.96
Granted . . . . . . . . 997,097 $0.96 409,251 $ 5.08
Exercised . . . . . . . --- --- --- ---
Cancelled . . . . . . . --- --- (624,270) $ 0.96
------- -------
Outstanding at end of period 997,097 $0.96 782,078 $ 3.11
------- -------
------- -------
Exercisable at end of period 997,097 $0.96 577,566 $ 2.37
------- -------
------- -------
The 782,078 options to purchase common stock outstanding at March 31, 1997,
have exercise prices between $0.96 and $5.88 and a weighted average remaining
option period of approximately 5.3 years.
During the year ended March 31, 1996, the Company granted certain options
to purchase common stock at an exercise price below the estimated fair value of
the Company's common stock on the date of grant. As a result, the Company
recorded approximately $304,000 as compensation expense during fiscal 1996.
During the year ended March 31, 1996, the Company granted two individuals
options to purchase 801,147 shares of common stock at a price of $0.96 per share
outside of the 1995 Plan. During the year ended March 31, 1997, these options
were canceled.
During the year ended March 31, 1997, the Company also granted to
consultants, options to purchase 86,800 shares of common stock, at the fair
market value on the date of grant. Of such grants, 10,000 options were granted
under the 1995 Plan and vested immediately and 76,800 options were granted
outside the 1995 Plan (see below) and vest over two years. In accordance with
SFAS No. 123, the Company recorded compensation expense of approximately
$100,000 during fiscal 1997. Additionally, the Company has recorded $174,000 as
deferred compensation relating to the 76,800 options at March 31, 1997, such
amount to be amortized over the remaining vesting period (18 months) of the
options and has included $274,000 in additional paid-in-capital at March 31,
1997.
During the year ended March 31, 1997, the Company granted options to
purchase 141,800 shares of common stock, at the fair market value on the date of
grant, outside of the 1995 Plan. Additionally, the Company's then Chairman of
the Board of Directors and a majority shareholder, granted certain individuals
options to purchase 430,000 shares of his common stock.
-31-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
All of the aforementioned options are included in the Company's pro forma
calculation (see below) pursuant to SFAS No 123, with the exception of options
to purchase 76,800 shares of common stock, which are recorded as compensation
expense as discussed previously.
During fiscal 1997, the Company adopted the provisions of SFAS No. 123. As
permitted under SFAS No. 123, the Company will continue to account for employee
stock options in accordance with APB Opinion No. 25. Accordingly, no
compensation expenses has been recognized in the accompanying statements of
operations, other than compensation expense recognized for options granted to
employees below fair value of the Company's common stock on the date of grant
and options granted to consultants of the Company. Had compensation expense
been determined under the provisions of SFAS No. 123, the Company's net loss and
loss per share would have been as follows:
<TABLE>
<CAPTION>
FOR YEARS ENDED
-------------------------------------- FOR THE PERIOD FROM INCEPTION
MARCH 31, 1996 MARCH 31, 1997 (SEPTEMBER 15,1994) THROUGH MARCH 31, 1997
-------------------------------------- -------------------------------------------
<S> <C> <C> <C>
NET LOSS
As Reported . . . $(1,344,185) $(11,232,852) $ (13,061,045)
Pro Forma . . . . $(1,407,998) $(12,183,608) $ (14,075,614)
LOSS PER SHARE
As Reported . . . $ (.16) $ (1.10) $ (1.47)
Pro Forma . . . . $ (.17) $ (1.20) $ (1.58)
</TABLE>
The weighted average fair value of options granted was $1.37 and $2.65 for
the years ended March 31, 1996 and 1997, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in fiscal years
1996 and 1997, respectively: weighted average risk free interest rates of 5.99%
and 5.67%; expected dividend yields of 0% for each year; expected lives of 3
years and 4 years; and expected volatility of approximately 0% and 65%.
SHAREHOLDERS AGREEMENT
The Company entered into a shareholders agreement (the "Shareholders
Agreement") in March 1996, with Elliot P. Friedman, the Company's Chief
Executive Officer, Tasneem Khwaja, the Company's then Chairman, and certain
individuals and entities. Pursuant to the Shareholders Agreement: (1) Dr.
Khwaja contributed 1,336,978 shares of common stock to the Company as a capital
contribution; (2) the Company issued 624,270 shares of common stock to D-RAM
Industries PTY Ltd. ("D-RAM"), as nominee of Robert J. Burgess for consulting
services; and (3) the Company granted stock options to purchase 712,708 shares
of common stock at a price of $0.96 per share to Mr. Friedman.
The common stock options granted to Mr. Friedman and the common stock
issued to D-RAM were subject to cancellation if the Company did not raise a
minimum amount of proceeds in the Offering prior to August 16, 1997, as defined.
In addition, the options granted to Mr. Friedman were to be canceled on August
20, 2001, unless prior to that date: (1) the Company received approval of the
FDA for the public
-32-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
sale of any pharmaceutical product; (2) the Company consummated a merger or
other transaction or the Company sold substantially all of its assets; (3) the
Company generated net pretax earnings of $0.50 per share for two consecutive
years, as defined; or (4) certain shares of common stock of each of Mr. Friedman
and Dr. Khwaja, the sale of which is restricted until August 14, 2001 pursuant
to a lock-up agreement with the underwriter of the Offering, are released from
such lock-up agreement.
In May 1996, the Shareholders' Agreement was revised and the stock options
to purchase 712,708 shares of common stock granted to Mr. Friedman were canceled
and the Company issued 712,708 shares of common stock to Mr. Friedman. Such
shares are subject to the same conditions as the aforementioned options to
purchase common stock.
In August 1996, due to the successful completion of the Offering, the
conditions placed upon the common stock issued to D-RAM were met and thus the
Company recorded $3,000,000 of compensation expense in the accompanying
statement of operations for the year ended March 31, 1997, based upon the
estimated fair market value of the stock at the time the conditions were met.
Due to the remaining significant uncertainties related to the conditions
attached to the common stock issued to Mr. Friedman, the Company has deferred
recording compensation expense until the period that the required events occur.
Compensation expense will be based upon the fair value of the Company's common
stock at that time. Based upon the current fair value of the common stock, such
compensation expense would approximate $2,984,000 and has been recorded as
deferred compensation in the accompanying balance sheet.
WARRANTS
At March 31, 1997, a shareholder had a warrant outstanding for the purchase
of 52,203 shares of common stock at a purchase price of $0.96. The warrant is
exercisable through March 31, 2001.
At March 31, 1997, the underwriter of the Offering had a warrant
outstanding for the purchase of 300,000 shares of common stock at a purchase
price of $8.25 per share. The warrant is exercisable through August 2001. In
May 1997, the underwriter agreed that any shares of common stock purchased
pursuant to the warrant would not be sold for an additional year (until August
20, 1998) and the Company agreed to reduce the purchase price of the warrant to
$5.50 per share.
7. RELATED-PARTY TRANSACTIONS
Advanced Bioresearch Associates ("ABA") is a clinical research
organization that provides FDA strategic consulting and professional
services and provides guidance to the Company in connection with various
clinical, scientific and regulatory matters. ABA has offices in San Diego
and San Francisco, California and Washington, D.C. Mr. Howard R. Asher, a
member of the Company's Board of Directors, is the President and Chief
Executive Officer and a controlling shareholder of ABA. The Company incurred
approximately $98,000, and $1,069,000 of research and development expenses
relating to the services provided by ABA for the years ended March 31, 1996
and 1997, respectively. At March 31, 1997, the Company included in accounts
payable approximately $172,000 relating to amounts owed to ABA.
-33-
<PAGE>
PHARMAPRINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the year ended March 31, 1997, the Company utilized the services of
Mr. Phillip G. Trad, a member of the Company's Board of Directors, for various
legal and business development matters. The Company incurred approximately
$50,000 of general and administrative expenses for the year ended March 31,
1997, relating to the services provided by Mr. Trad. At March 31, 1997, the
Company included in accounts payable $10,000 relating to amounts owed to Mr.
Trad.
8. SUBSEQUENT EVENTS
In June 1997, the Board of Directors approved a resolution to increase the
number of authorized shares of common stock for grant under the 1995 Plan from
800,000 shares to 2,200,000 shares. Such resolution requires the approval of
shareholders, which will be requested at the August 19, 1997, Annual Meeting of
Shareholders.
-34-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
PHARMAPRINT INC.; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information regarding executive officers required by Item 9 is
furnished under "Executive Officers of PharmaPrint Inc." in Part I of this
Report. The other information required by Item 9 is hereby incorporated by
reference from the Company's definitive proxy statement relating to its annual
meeting of shareholders to be held on August 22, 1997 (the "Proxy Statement").
ITEM 10. EXECUTIVE COMPENSATION
Information on executive compensation is incorporated herein by reference
from the Registrant's Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on security ownership of certain beneficial owners and
management is incorporated herein by reference from the Registrant's Proxy
Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain relationships and related transactions is
incorporated herein by reference from the Registrant's Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER DESCRIPTION
-------- ---------------------------------------------------------------
3.1(2) Amended and Restated Articles of Incorporation of the Company
3.2(1) Bylaws of the Company as amended to date
4.2(1) Form of Common Stock certificate
10.2(1) 1995 Stock Option Plan, as amended, and Form of Incentive
Stock Option Agreement
-35-
<PAGE>
10.3(4) Form of Non-Qualified Stock Option Agreement
10.4(1) Elliot P. Friedman Employment Agreement, as amended
10.5(1) Tasneem A. Khwaja Employment Agreement, as amended
10.6(4) Form of Confidentiality Agreement
10.7(1) Canadian National Research Council Agreement
10.8(1) Dimension Memory, Inc. Personal Services Agreement
10.9(3) Amendment No. 1 to the Dimension Memory, Inc. Personal Services
Agreement
10.10(3) Lease dated October 28, 1997 for Company's headquarter facility
10.11(1) License Agreement dated March 1, 1995 between the Company and
USC, and related Registration Rights Agreement and Stock Waiver
10.12(1) Letter of Engagement between Company and Advanced BioResearch
Associates
10.13(1) Bridge Note and related Warrant
10.14(1) Shareholders Agreement
10.15(1) Agreement Among Certain Shareholders
10.16(1) Agreement Among Elliot Friedman, Tasneem Khwaja, and the Company
10.17(1) Registration Rights Agreement with D-RAM Industries PTY, Ltd.
10.18(1) Registration Rights Agreement with JadiJo, Inc.
10.19(4) Warrant agreement between the Company and M.H. Meyerson & Company
27.1(4) Financial Data Schedule
- -----------------------------------------
(1) Incorporated by reference to the Company's registration Statement on
Form SB-2 (No. 333-4912-LA)
(2) Incorporated by reference to the Company's September 30, 1996 report
on Form 10-QSB
(3) Incorporated by reference to the Company's December 31, 1996 report on
Form 10-QSB
(4) Filed herewith
(b) There were no reports on Form 8-K filed by the Issuer during the
fourth quarter of fiscal year ended March 31, 1997.
-36-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PHAMAPRINT INC.
BY: /s/ Elliot P. Friedman
------------------------------------------
Elliot P. Friedman
Chairman of the Board of Directors and
Chief Executive Officer
Date: June 30, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
---------------------------------------- ---------------------------------- -------------
<S> <C> <C>
/s/ Elliot P. Friedman
----------------------------------------
Elliot P. Friedman Chairman of the Board of Directors
and Chief Executive Officer June 30, 1997
/s/ James R. Wodach
----------------------------------------
James R. Wodach Senior Vice President and Chief
Financial Officer June 30, 1997
/s/ Tasneem A. Khwaja
----------------------------------------
Tasneem A. Khwaja, Ph.D. Chief Scientific Officer, Secretary,
and Director June 30, 1997
/s/ John H. Ables
----------------------------------------
John H. Ables, M.D. Director June 30, 1997
/s/ Lyle Anderson
----------------------------------------
Lyle Anderson Director June 30, 1997
/s/ Howard R. Asher
----------------------------------------
Howard R. Asher Director June 30, 1997
/s/ Phillip G. Trad
----------------------------------------
Phillip G. Trad Director June 30, 1997
/s/ Nathan Troum
----------------------------------------
Nathan Troum, M.D. Director June 30, 1997
</TABLE>
-37-
<PAGE>
Exhibit 10.3
PHARMAPRINT INC.
FORM OF
NON-QUALIFIED STOCK OPTION AGREEMENT
OPTIONEE:
GRANT DATE:
OPTION PRICE:
NUMBER OF SHARES:
EXPIRATION DATE:
This Agreement, made as of ___________, 19__, (the "Grant Date") between
PharmaPrint Inc., a California corporation (hereinafter called the "Company"),
and ___________________ (hereinafter called "Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the PHARMAPRINT INC. 1995 STOCK OPTION
PLAN, AS AMENDED (the "Plan"), which Plan is incorporated herein by reference
and made a part of this Agreement; and
WHEREAS, the Company regards Optionee as a valuable contributor to the
success of the Company and its Affiliates, and has determined that it would be
to the advantage and interest of the Company and its shareholders to grant the
Option provided for in this Agreement to Optionee under the Plan (as an
inducement to remain in the service of the Company and its Affiliates , and as
an incentive for increased efforts during such service);
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties to this Agreement hereby agree as follows:
1. NUMBER OF SHARES AND OPTION PRICE. The Company hereby grants to
Optionee the right and option to purchase from the Company on the terms and
conditions hereinafter set forth, all or any part of an aggregate of the number
of shares of the
<PAGE>
Common Stock, without par value, of the Company (hereinafter called the "Stock")
set forth above. The purchase price of the Stock subject to this Option shall
be the Option Price per share set forth above.
2. OPTION PERIOD. This Option shall be exercisable only during the
Option Period, and during such Option Period, the exercisability of the Option
shall be subject to the limitations of paragraph 3 and paragraph 4 (including
Exhibit A). The Option Period shall commence on the Grant Date set forth above
and, except as provided in paragraph 3 or paragraph 4 (including Exhibit A),
shall end on the Expiration Date as set forth above.
3. LIMITS ON OPTION PERIOD. The Option Period may end before the
Expiration Date, as follows:
(a) If Optionee's status as an employee of or consultant to the
Company or an Affiliate terminates for any reason during the Option Period,
other than as set forth in paragraphs 3(b), (c) or (d) below, the Option
Period shall end ninety (90) days after such termination or on the
Expiration Date, whichever occurs first. Optionee shall have the right to
exercise, to the extent then exercisable (or on such accelerated basis as
the Plan Committee shall determine at or after Grant Date), any portion of
this Option in accordance with the terms hereof.
(b) If Optionee's status as an employee of or consultant to the
Company is terminated by reason of (i) the Company terminating Optionee's
employment Agreement for Cause (as defined therein) or (ii) Optionee
terminating the Employment Agreement in breach of the provisions thereof,
the Option Period shall immediately end as of the date of termination and
Optionee shall forfeit all rights which he may have to exercise any vested
or unvested options. For purposes of determining the date of termination
of Optionee's Employment Agreement in the event of a termination by the
Company for Cause, such date shall be deemed for purposes of this paragraph
3(b) only, to be the date the Company provides Optionee with written notice
of his material failure to perform his duties under the Employment
Agreement.
(c) If Optionee's status as an employee of or consultant to the
Company is terminated by reason of death, the Option Period shall end one
year after the date of death or on the Expiration Date, whichever shall
occur first, and Optionee's executor or administrator or the person or
persons to whom Optionee's rights under this Option shall pass by will or
by the applicable laws of descent and distribution may exercise, to the
extent then exercisable (or on such accelerated basis as the Plan Committee
shall determine at or after Grant Date), any portion of this Option in
accordance with the terms hereof.
<PAGE>
(d) If Optionee's status as an employee of or consultant to the
Company is terminated by reason of disability, the Option Period shall end
one year after the date of cessation of such status or on the Expiration
Date, whichever shall first occur. Optionee shall have the right to
exercise, to the extent then exercisable (or on such accelerated basis as
the Plan Committee shall determine at or after Grant Date), any portion of
this Option in accordance with the terms hereof.
4. VESTING OF RIGHT TO EXERCISE OPTIONS; PARTIAL EXERCISE; FRACTIONAL
SHARES.
(a) Subject to the terms of paragraphs 2 and 3 above, this Option
shall vest in accordance with Exhibit A and shall be exercisable at any
time during the Option Period with respect to any shares that have vested
in accordance with such Exhibit. No options shall vest after the date on
which Optionee is no longer an employee of or consultant to the Company.
Any portion of the Option that is not exercised shall accumulate and may be
exercisable at any time prior to the Expiration Date.
(b) No partial exercise of this Option may be for less than five (5)
percent of the total number of shares then available under this Option to
purchase shares of Stock.
(c ) In no event shall the Company be required to issue fractional
shares.
(d) In the event of a Change of Control (as defined below) of the
Company, all unvested options shall immediately vest and become
exercisable. Change of Control shall mean the occurrence of any or all of
the following events: (i) the sale of all or substantially all of the
Company's assets, (ii) the merger or consolidation of the Company where (x)
the Company is not the surviving entity (other than a merger for the
purposes of reincorporating the Company in a jurisdiction other than
California) or (y) parties other than the Company's securityholders own,
following consummation of the merger, in excess of 50% of the Company's
issued and outstanding shares of Common Stock on a fully diluted basis
after giving effect to the exercise, exchange or conversion of any options,
warrants, preferred stock or other securities exercisable, exchangeable or
convertible into Common Stock of the Company, or (iii) if any individual,
corporation, partnership or other entity (a "Person"), other than the
Company or any employee benefit plan of the Company or of any Affiliate or
Associate (each as defined in Rule 12b-2 under the Securities Exchange Act
of 1934, as amended), shall, together with Affiliates or Associates of
such Person, acquire or become the beneficial owner of, in the aggregate,
in excess of 50% of the Common Stock of the Company issued and
<PAGE>
outstanding following such acquisition on a fully diluted basis after
giving effect to the exercise, exchange or conversion of any options,
warrants, preferred stock or other securities exercisable, exchangeable or
convertible into Common Stock of the Company.
5. METHOD OF EXERCISE. Subject to Section 4, Optionee may exercise this
Option with respect to all or any part of the shares of Stock then subject to
such exercise as follows:
(a) By giving the Company written notice of such exercise, specifying
the number of shares as to which this Option is exercised. Such notice
shall be accompanied by an amount equal to the Option Price of such shares,
in the form of any one or combination of the following: cash, a certified
check, bank draft, postal or express money order payable to the order of
the Company in lawful money of the United States.
(b) Optionee shall be required, as a condition precedent to acquiring
Stock through exercise of the Option to execute one or more agreements
relating to obligations in connection with ownership of the Stock or
restrictions on transfer of the Stock no less restrictive than the
obligations and restrictions to which other shareholders of the Company are
subject at the time of such exercise.
(c) Optionee shall give the Company satisfactory assurance in writing
signed by Optionee or Optionee's legal representative, as the case may be,
that such shares are being purchased for investment and not with a view to
the distribution thereof; provided that such assurance shall be deemed
inapplicable to (1) any sale of such shares by such Optionee made in
accordance with the terms of a registration statement covering such sale,
which has heretofore been (or may hereafter be) filed and become effective
under the Securities Act of 1933, as, amended (the "Securities Act"), and
with respect to which no stop order suspending the effectiveness thereof
has been issued, and (2) any other sale of such shares with respect to
which in the opinion of counsel for the Company, such assurance is not
required to be given in order to comply with the provisions of the
Securities Act.
As soon as practicable after receipt of the notice required in paragraph
5(a) hereof and satisfaction of the conditions set forth in paragraphs 5(b) and
5 (c ), the Company shall, without transfer or issue tax and without any other
incidental expense to the Optionee, deliver to Optionee at the office of the
Company or such other place as may be mutually acceptable to the Company and
Optionee a certificate or certificates of such shares of Stock; provided,
however, that the time of such delivery may be postponed by the Company for such
period as may be required for it with reasonable diligence to
<PAGE>
comply with applicable registration requirements under the Securities Act, the
Securities Exchange Act of 1934, as amended any applicable listing requirements
of any national securities exchange, and requirements under any other law or
regulation applicable to the issuance or transfer of such shares. Optionee
shall not be entitled to the privileges of stock ownership as to any shares of
Stock purchased hereunder until such certificate is delivered pursuant to this
paragraph 5. If Optionee fails to accept delivery any pay for all or any part
of the number of shares specified in such notice upon tender of delivery
thereof, Optionee's right to purchase such undelivered shares may be terminated
by the Company at its election.
6. ADJUSTMENTS. If there should be any change in the Stock subject to
this Option, through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock dividend (in excess of two percent) or other
change in the corporate structure of the Company, appropriate adjustments shall
be made to this Option in order to preserve, but not to increase, the benefits
to the Optionee, including adjustments in the number of shares subject to the
Option and in the price per share. Any adjustments made pursuant to this
paragraph 6 as a consequence of a change in the corporate structure of the
Company shall not entitle Optionee to acquire a number of shares of Stock of the
Company or shares of stock of any successor company greater than the number of
shares Optionee would receive if, prior to such change, Optionee had actually
held a number of shares of Stock equal to the number of shares subject to this
Option.
7. NON-TRANSFERABLE OPTION. This Option shall, during Optionee's
lifetime, be exercisable only by Optionee, and neither this Option nor any right
hereunder shall be transferable by Optionee by operation of law or otherwise
other than by will or the laws of descent and distribution. In the event of any
attempt by Optionee to alienate, assign, pledge, hypothecate, or otherwise
dispose of this Option or of any right hereunder, except as provided for in this
Agreement, or in the event of any attachment, execution, or similar process upon
the rights or interest hereby conferred, the Company at its election may
terminate this Option by notice to Optionee and this Option shall thereupon
become null and void.
8. NO SHAREHOLDER RIGHTS. Neither Optionee nor any person entitled to
exercise Optionee's rights in the event of Optionee's death shall have any of
the rights of a shareholder with respect to the shares of Stock subject to this
Option except to the extent the certificates for such shares shall have been
issued upon the exercise of this Option.
9. CONTINUATION OF SERVICE. Nothing in this Agreement shall confer upon
any person any right to continue in the service of the Company or any Affiliate
thereof, or interfere in any way with the right of the Company or any such
Affiliate to terminate such relationship at any time, with or without cause, but
nothing contained herein shall effect any other contractual rights of an
employee or consultant.
<PAGE>
10. CONFLICT WITH THE PLAN. This Agreement and the Option herein granted
is expressly subject to the terms and conditions of the Plan, which Optionee
acknowledges is incorporated herein by reference, and a copy of which has been
delivered to the Optionee. In the event of any conflict between this Agreement
and the Plan, the Plan shall prevail.
11. ABSENCE OF REGISTRATION OF OPTION SHARES AND EFFECT THEREOF. The
Optionee has been advised that the shares of stock acquired by exercise of the
option (the "Option Shares") have not been registered with the Securities and
Exchange Commission (the "SEC"), or under applicable state securities laws, and
accordingly may not be offered, sold, or otherwise transferred except in
compliance with the Securities Act and applicable state securities laws. The
Optionee has been further advised that the effect of the representations and
warranties above set forth is that the Optionee must bear the economic risk of
Optionee's investment in the stock indefinitely unless registered pursuant to
the Securities Act and applicable state securities laws or if, in the opinion of
counsel in form and substance satisfactory to the Company, an exemption from
such registration requirements is available.
12. REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE OPTION SHARES.
Optionee represents and warrants that Optionee is familiar with the business and
prospects of the Company and that the by-laws, minute book, stock transfer book
and other records of the Company have been made available for inspection by
Optionee, and that the Company has made available the opportunity to ask
questions and receive answers concerning the business and affairs of the
Company.
The Company has discussed with Optionee certain aspects of its business and
prospects and provided Optionee access to the records referred to above. Those
discussions and written information were intended to describe the aspects of the
Company's business and prospects which it believes to be material, but were no a
thorough or exhaustive description of the Company's business or prospects.
Therefore, the Company does not warrant the completeness of those discussions or
information but only that such discussions and information represent its good
faith opinion of its business and prospects.
Optionee represents and warrants that the investment occurring by reason of
exercise of the Option is in accord with the nature and size of Optionee's
present investments and net worth and that Optionee is financially able to bear
the economic risk of this investment for an indefinite period of time. Optionee
covenants to make such representations, warranties and covenants upon exercise,
in whole or in part, of the Option as counsel to the Company may deem
appropriate to assure compliance with securities laws.
<PAGE>
13. ABSENCE OF POSSIBILITIES FOR REGISTRATION RIGHTS. Only the Company
may file a registration statement with the SEC, and the Company is under no
obligation to file a registration statement or any other disclosure statement
with the SEC respecting the Option Shares.
14. EXEMPTION FROM REGISTRATION OF OPTION SHARES NOT ASSURED. The
Optionee also has been advised that holders of Option Shares cannot be assured
that any exemption from the Securities Act will be available, or if available,
will allow such holders to dispose of or otherwise transfer Option Shares, under
the circumstances, in the amounts, or at the times proposed by them.
Specifically, Optionee has been advised that Rule 144 promulgated under the
Securities Act which provides for certain limited, routine sales of unregistered
securities, is not available with respect to the Option Shares. If, as seems
unlikely, Rule 144 should come available, the Optionee understands that the
Company is under no obligation to furnish the Optionee or others with the
information necessary to enable the Optionee to sell any of the Optionee Shares
under Rule 144.
15. LEGENDS AND STOP-TRANSFER ORDER ON OPTION SHARES. The certificates
representing the Option Shares acquired by the Optionee upon exercise of the
Option shall bear legends substantially similar to the following (in addition to
any other legends deemed appropriate by counsel to the Company):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("THE ACT") OR ANY APPLICABLE STATE SECURITIES LAWS, AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ALL APPLICABLE STATE SECURITIES
LAWS OR, IN THE OPINION OF COUNSEL (IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY), SUCH OFFER, SALE OR TRANSFER OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
Additionally, in order to conform with various state securities and other
laws the following or similar legend may appear on any and all share
certificates issued to the Optionee upon exercise of the Option:
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS UPON TRANSFER
(INCLUDING RIGHTS OF FIRST REFUSAL AND OF REPURCHASE) AS SET FORTH IN A
NONQUALIFIED STOCK OPTION AGREEMENT AND STOCK PURCHASE AGREEMENT BY AND BETWEEN
THE COMPANY AND THE RECORD HOLDER, AND IN THE BYLAWS OF THE COMPANY.
The Optionee further agrees, in order to ensure compliance with the
restrictions referred to in the foregoing legends, or elsewhere herein, that the
Company may issue
<PAGE>
appropriate "stop transfer" instructions to its transfer agent, if any, with
respect to such certificates or instruments, or if the Company transfers its own
securities, that it may make appropriate notations to the same effect in the
Company's records.
16. NOTICES. Any notice required to be given under the terms of this
Option Agreement shall be addressed to the Company in care of its Chief
Financial Officer at the Office of the Company, and any notice given to Optionee
shall be addressed to Optionee at the address indicated beneath Optionee's
signature hereto or such other address as either party may here after designate
in writing to the other. Any such notice shall be deemed to have been duly
given when actually received or when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified, and deposited (postage
or registration or certification fee prepaid) in a post office or branch post
office regularly maintained by the United States.
17. CONCLUSIVE AUTHORITY OF COMMITTEE AND BOARD. All decisions of the
Committee and the Board upon any question arising under the Plan or under this
Agreement shall be conclusive.
18. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of any successor or assignee of the Company. Where the
context permits, "Optionee" as used in this Agreement shall include Optionee's
executor, administrator or other legal representative or the person or persons
to whom Optionee's rights pass by will or the applicable laws of descent and
distribution.
19. WITHHOLDING. Optionee agrees to make appropriate arrangements with
the Company for satisfaction of any applicable state or local income tax
withholding requirements or social security requirements.
20. GOVERNING LAW. The interpretation, performance, and enforcement of
this Option Agreement shall be governed by the laws of the State of California.
21. ATTORNEY'S FEES. In the event of litigation arising hereunder, the
prevailing party shall be entitled to reimbursement of reasonable attorney's
fees and costs.
<PAGE>
IN WITNESS WHEREOF, the Company has caused these presents to be executed on
its behalf by a duly authorized individual, and Optionee has hereunto set his
hand as of the day and year first written above.
Company: PharmaPrint Inc.
By ________________________________
Its ______________________________
Optionee: ________________________________
Signature
Address: ________________________________
________________________________
________________________________
<PAGE>
Exhibit 10.6
CONFIDENTIAL INFORMATION
DISCLOSURE AGREEMENT
PHARMAPRINT INC., a California corporation, [hereinafter referred to as
"PHARMAPRINT"], with offices located at Jamboree Center, Suite 1900, 4 Park
Plaza, Irvine, California, 92614, and_________________, [hereinafter referred
to as "SECOND PARTY"], with offices located at_________________to the following
Agreement regarding non-disclosure of Confidential Information.
WHEREAS, SECOND PARTY, has been engaged by PHARMAPRINT for the purpose of a
potential pharmaprinting agreement.
WHEREAS, in the course of said engagement certain proprietary and
Confidential Information belonging to PHARMAPRINT will need to be revealed and
disclosed to SECOND PARTY,
THEREFORE, in consideration of the said disclosure of said information by
PHARMAPRINT, and in consideration of the covenants, conditions and promises
contained herein, the parties agree as follows:
1. During the term of the engagement of SECOND PARTY, SECOND PARTY
will have access to and become acquainted with various technical information
including, trade secrets, know how, experience, patterns, devices, methods,
plans, raw data, processes and compilations of information, records and
specifications in connection with pharmaceutical drugs, and drug development
technologies, all of which are owned by PHARMAPRINT and used regularly in the
operation of PHARMAPRINT'S business, collectively termed Pharmaprinting and/or
Confidential Information.
2. The parties hereto acknowledge and agree that any written
information marked Confidential, or any other information reduced to writing and
marked Confidential within sixty [60] days and is provided by PHARMAPRINT to
SECOND PARTY, is considered to be Confidential Information and not otherwise
available for disclosure.
3. The parties further acknowledge that PHARMAPRINT is the proprietor
of said Confidential Information and that SECOND PARTY agrees to treat said
information confidentially, and that a fiduciary and confidential relationship
between the parties is hereby established, and that SECOND PARTY will disclose
said Confidential Information only to those employees of SECOND PARTY which are
necessary in order to carry out the terms of SECOND PARTY'S engagement with
PHARMAPRINT, and that said employees also
[Page 1 of 4].
<PAGE>
shall agree to respect the fiduciary and confidential relationship established
hereby.
4. All files, records, documents, drawings, specifications,
equipment, and similar items relating to the business of PHARMAPRINT, whether
they are prepared by the SECOND PARTY, or, come into the SECOND PARTY'S
possession in any other way and whether or not they contain or constitute trade
secrets owned by PHARMAPRINT, are and shall remain the exclusive property of
PHARMAPRINT and shall not be removed from the premises of PHARMAPRINT or the
premises of SECOND PARTY under any circumstances whatsoever without the prior
written consent of PHARMAPRINT. During the course of the engagement, certain
information may be generated by SECOND PARTY relating to PHARMAPRINT technical
information and shall also be deemed to be within PHARMAPRINT confidential
information.
5. SECOND PARTY promises and agrees that it shall not misuse,
misappropriate, or disclose any of said Confidential Information, directly or
indirectly, or use them in any way, either during the term of this Agreement,
thereafter, except as required im the course of SECOND PARTY'S engagement by
PHARMAPRINT.
6. It is contemplated that during the course of SECOND PARTY'S
engagement by PHARMAPRINT, SECOND PARTY will be engaged in work involving
PHARMAPRINT'S pharmaceutical drugs and drug development technologies, and will
have access to and become acquainted with experiments, developments, formulas,
patterns, devices, secret inventions, processes, compilations of information,
records and specifications relating thereto. All of said data described above
are Confidential Information, and are wholly owned and controlled by
PHARMAPRINT.
7. SECOND PARTY shall not disclose any of PHARMAPRINT'S Confidential
Information, directly or indirectly, or use them in any way, either during the
term of this Agreement, or at any time thereafter, hereafter, except as required
in the course of SECOND PARTY'S engagement.
8. On the termination of SECOND PARTY'S engagement with PHARMAPRINT,
or whenever requested by PHARMAPRINT, SECOND PARTY shall immediately deliver to
PHARMAPRINT all property in its possession or under its control belonging to
PHARMAPRINT.
9. SECOND PARTY agrees not to employ said Confidential Information,
including trade secrets for it's own use without prior written consent of
PHARMAPRINT.
[Page 2 of 4].
<PAGE>
10. The above agreement of Confidentiality shall not apply to:
[a]. Information which at the time of disclosure is published or
otherwise generally available to the public.
[b]. Information which after disclosure by PHARMAPRINT is
published or becomes generally available to the public, otherwise than through
any act or omission on the part of the SECOND PARTY.
[c]. Information which the SECOND PARTY can show was in it's
possession at the time of disclosure and which was not acquired directly or
indirectly from PHARMAPRINT.
[d]. Information rightfully acquired from others who did not
obtain it under a pledge of confidentiality to PHARMAPRINT.
11. SECOND PARTY shall take adequate precautions to maintain the
confidentiality of said Confidential Information, including trade secrets.
12. The Confidential Information shall not be deemed to be in the
public domain because any part of said Confidential Information is embodied in
general disclosures, or because individual features, components, or combinations
thereof, are now or become known to the public.
13. Nothing in this Agreement shall obligate PHARMAPRINT to disclose
to SECOND PARTY any particular information. No warranties of any kind are given
with respect to such Confidential Information, as well as, any use thereof.
Further, the disclosure of Confidential Information and materials which may
accompany the disclosure shall not result in any obligation to grant SECOND
PARTY rights therein. It is understood that no patent, copyright, trademark, or
other proprietary right or license is granted by this Agreement; and,
PHARMAPRINT shall have no obligation to enter into any further agreement with
SECOND PARTY, except as PHARMAPRINT, in it's sole discretion, may deem
advisable.
14. The above provisions, notwithstanding, SECOND PARTY agrees to
keep in strict confidence, and not to disclose the identity, interest, and
participation of PHARMAPRINT in connection with this Agreement, and any
relationship SECOND PARTY may have with PHARMAPRINT.
[Page 3 of 4].
<PAGE>
15. The parties hereto acknowledge that this Agreement contains the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereto, and merges and supersedes all prior discussions and
writings with respect to the confidential nature of the information provide by
PHARMAPRINT and the non-disclosure thereof. No modification or alteration of
this Agreement shall be effective unless made in writing and signed by both
parties hereto.
16. This Agreement may not be assigned by either party without the
prior written consent of the other. This Agreement is made subject to and shall
be construed under the laws of the State of California, without regard to its
conflict of laws and principles. Should any suit, claim or proceeding be
undertaken to enforce the terms and conditions of this Agreement, the prevailing
party shall be entitled to all attorneys fees and costs actually incurred.
IN WITNESS WHEREOF, this Agreement is executed by PHARMAPRINT INC., and
SECOND PARTY, as follows:
DATED:_____________________. PHARMAPRINT Inc.,
By: _______________________________
AGREED TO AND ACCEPTED BY:
DATED:_____________________. SECOND PARTY
By: _______________________________
[Page 4 of 4].
<PAGE>
Exhibit 10.19
NEITHER THIS WARRANT NOR ANY SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. EXCEPT AS OTHERWISE SET FORTH HEREIN, NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER SUCH ACT AND STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM.
PHARMAPRINT INC.
WARRANT TO PURCHASE
300,000 SHARES OF COMMON STOCK
PHARMAPRINT INC., a California corporation with its principal address at 4
Park Plaza, Suite 1900, Irvine, CA 92614 (the "Company"), for good and valuable
consideration the receipt of which is acknowledged by the Company, hereby grants
to M.H. MEYERSON & CO., INC. and its permitted transferees ("Underwriter" or
"Holder") the right to purchase 300,000 shares of common stock, without par
value ("Common Stock") of the Company (as such shares may be adjusted from time
to time, the "Warrant Shares") at a purchase price as set forth below.
This Warrant is subject to the following terms and conditions:
1. EXERCISE OF WARRANT. This Warrant is exercisable at the option of the
Holder hereof, in whole or in part (but not as to fractional shares of Common
Stock underlying this Warrant) on one or more occasions commencing May 9, 1997
and extending until 5:00 P.M., New York time, August 20, 2001 (the "Exercise
Period") by the surrender of this Warrant, together with a properly completed
and duly executed Subscription Form in the form attached hereto as Exhibit A to
the Company during normal business hours and upon payment to the Company of the
Purchase Price in cash, certified bank check or by wire transfer of immediately
available funds. In the case of the purchase of less than all the Warrant
Shares, the Company shall cancel this Warrant upon the surrender hereof and
shall execute and deliver a new Warrant of like tenor for the balance of the
shares of Common Stock purchasable hereunder.
2. ISSUANCE OF CERTIFICATES. Upon the exercise of this Warrant, the
Company shall issue certificates for shares of Common Stock underlying this
Warrant within five (5) business days after the satisfaction of the conditions
set forth in Section 1 hereof without additional charge to the Holder hereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall, subject to the provisions of
Article 3 hereof, be issued in the name of, or in such names as may be directed
by, the Holder. All shares issued upon exercise of Warrants in accordance with
the terms of this Warrant will, upon issuance, be duly and validly issued, fully
paid and non assessable and free from all taxes, liens and charges
<PAGE>
with respect to the issuance thereof. The Warrant Shares so purchased shall be
deemed to be issued to the holders thereof or such holder's designee, as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, the Subscription Form delivered and
payment for such shares shall have been made.
3. RESTRICTION ON TRANSFER OF WARRANT AND COMMON STOCK. The Holders of
this Warrant, by their acceptance hereof, covenant and agree that this Warrant
is being acquired as an investment and not with a view to the distribution
hereof, and that, for a period of twenty four months from and after the
effective date of that certain Registration Statement on Form SB-2 of the
Company (File No. 3333-4912-LA) (the "Registration Statement'), neither this
Warrant nor any shares of Common Stock issued upon exercise hereof, may be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, except to a successor of the business of the Underwriter, persons who are
officers and/or stockholders of the Underwriter, if a corporation, or partners
of the Underwriter, if a partnership, or the executor, administrator or personal
representative of such officer or partner in the event of his death or
incapacity. Thereafter, the Holder may transfer, in whole or in part, this
Warrant. Upon notice of such transfer and surrender of the Warrant so
transferred, the Company shall execute and deliver a new Warrant or Warrants of
like tenor for the number of Warrant Shares so transferred. Notwithstanding
anything to the contrary contained herein, this Warrant and Warrant Shares may
only be sold, transferred, assigned, hypothecated or otherwise disposed of in
accordance with all applicable securities laws.
4. PRICE.
4.1 INITIAL WARRANT PURCHASE PRICE. The Holders shall pay the sum of
$0.001 per share of Common Stock issuable hereunder to purchase this Warrant,
which sum the Company acknowledges has been received.
4.2 COMMON STOCK PURCHASE PRICE. This Warrant initially is
exercisable at a purchase price equal to $5.50 per share of Common Stock (as
such may be adjusted from time to time, the "Purchase Price").
5. REGISTRATION RIGHTS.
5.1 DEMAND REGISTRATION. (a) If the Holders of at least fifty-one
percent (51%) of the Warrant Shares issuable or issued but not sold shall give
notice to the Company at any time during the Exercise Period to the effect that
such Holders desire the Company to register under the Securities Act of 1933, as
amended (the "Act"), any or all of the Warrant Shares, then the Company will
promptly give notice to the other Holders of the Warrants, advising such that
the Company is proceeding with such registration, and offering to include
therein the Warrant Shares issuable or issued but not sold to the other Holders.
The Company shall file a registration statement pursuant to the Act, within
sixty (60) days of the date of such initial notice, registering the Warrant
Shares of the initial requesting Holders and any additional Holders that provide
such request in writing to the Company within thirty (30) days of receipt of
notice from the Company, as may be required, to effect the public sale of the
Warrant Shares
2
<PAGE>
under the Act as promptly as practicable thereafter. The Company will use its
best efforts to cause such registration to become effective as soon as
practicable thereafter and remain effective (including the taking of such steps
as are necessary to obtain the removal of any stop order) as set forth below.
Such Holders shall furnish the Company with appropriate information in
connection therewith as the Company may reasonably request in writing. The
Company is required to effect only one registration statement pursuant to this
Section 5.1. In the event the registration statement is not filed within sixty
(60) days of the initial request for registration and the expiration date of the
Warrant falls within such period, the expiration date of this Warrant shall be
extended by an amount of time equal to the delay in filing. In the event the
registration statement is not declared effective under the Act prior to the
expiration date of this Warrant, the Company shall extend the expiration date of
the Warrant to a date not less than ninety (90) days after the effective date of
such registration statement. All costs and expenses of such registration
statement shall be borne by the Company, as provided in Section 5.5 hereof.
Notwithstanding anything to the contrary contained in this Section 5.1, the
Company shall not be required (i) to make effective a registration statement
filed pursuant to this Section 5.1 within ninety (90) days of the effectiveness
of any registration statement registering any shares of Common Stock for the
account of the Company in a firm commitment underwritten public offering, if the
managing underwriter, in writing, informs the Holders that the declaration of
effectiveness of a registration statement registering Warrant Shares would have
a detrimental effect on the marketing of such underwritten public offering, or
(ii) file or effect a registration statement for the shorter of (x) thirty (30)
days from the date the Company notifies the Holders that the filing of such
registration statement would require the disclosure of material non-public
information, which writing shall include the written opinion of (A) the
Company's counsel opining that the disclosure of such information would be
required by law in such registration statement and (B) the Company's Chief
Executive Officer certifying that the disclosure of such information would be
detrimental to the Company, and (y) the period during which the Company is in
possession of material non-public information which would be required to be
disclosed in such registration statement.
(b) If within fifteen (15) days of the notification to the
Company by the Holders making a demand under this Section 5.1 that such Holders
intend to sell Warrant Shares to the public via a firm commitment underwriting,
the Company notifies the Holders making such demand that the Company wishes to
register securities of the same class for its own account on the registration
statement being filed pursuant to the demand, then the Company may include
securities for its own account in such registration statement; PROVIDED,
HOWEVER, that if the managing underwriting determines and advises in writing
that the inclusion of any or all such securities for the Company's account or
any account of a party other than a Holder in the registration statement covered
by the requests for registration made under this Section 5.1 would be
detrimental to the offering of the Warrant Shares being sold in such
registration, the requisite number of securities for the Company's account or
such other party's account shall be excluded from registration thereunder.
5.2 PIGGYBACK REGISTRATION. (a) If, at any time during the Exercise
Period, the Company proposes for any reason to register any of its equity
securities under the Act, other than registrations on Form S-4 or S-8 or their
equivalents relating to shares of Common Stock to be
3
<PAGE>
issued solely in connection with an acquisition of a business entity or in
connection with an employee benefit plan, it shall each such time, promptly give
written notice to the Holders of such intentions and, upon the written request
of a Holder received within thirty (30) days of receipt of such notice, shall
use its best efforts to cause any and all Warrant Shares with respect to which
Holders have requested registration, to be registered under the Act, all to the
extent required to permit the sale or other disposition by Holders of the
Warrant Shares to be registered.
(b) In the event that any registration pursuant to this Section
5.2 shall be, in whole or in part, an underwritten offering of securities of the
Company, the Company shall arrange for the Warrant Shares requested to be
registered pursuant to this Section 5.2 to be included in the underwriting on
the same terms and conditions as the comparable securities, if any, otherwise
being sold through such underwriters under such registration; PROVIDED, HOWEVER,
that if the managing underwriter determines and advises in writing that the
inclusion of any or all Warrant Shares in the registration statement covered by
the requests for registration made under this Section 5.2 would be detrimental
to the offering of the securities being sold by the Company for its own account
in such registration, then the requisite number of Warrant Shares and securities
registered for the account of a party other than the Company shall be excluded
from registration hereunder on a pro rata basis among the holders of Warrant
Shares requesting such registration and the holders of any other securities
registered thereunder for the account of a party other than the Company based
upon the number of such securities each holder owns or has the right to acquire.
(c) Notwithstanding the provisions of this Section 5.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 5.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
5.3 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. (a) In
connection with any registration under Article 5 hereof, the Company covenants
and agrees that it shall:
(i) use its best efforts to have a registration statement, if
any, declared effective at the earliest practicable time, and shall furnish each
Holder such number of prospectuses and such other documents as each shall
reasonably request in order to facilitate the public sale or other disposition
of such Warrant Shares.
(ii) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective until the earlier of (A) the date all Warrant
Shares registered thereunder are sold pursuant to such prospectus, (B) six (6)
months (and up to an additional three (3) months if requested by the Holders)
after the expiration of the Exercise Period and (C) that date upon which all
Warrant Shares registered thereunder may be sold by the Holders thereof pursuant
to Rule 144 promulgated under the Act ("Rule 144") without regard to the
provisions of paragraphs (c), (e),
4
<PAGE>
(f) and (h) of Rule 144.
(iii) take all reasonably necessary action which may be required
in qualifying or registering the Warrant Shares included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as are requested by the Holders provided that the Company shall not be
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(iv) notify each seller of the Warrant Shares covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Act within the appropriate period mentioned
in Section 5.3(a)(ii), of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the request
of any such seller prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Warrant Shares, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(b) The Company shall indemnify the Holders and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify the Underwriter contained in the Underwriting Agreement
(the "Underwriting Agreement") between the Company and the Underwriter relating
to the Registration Statement.
(c) The Holders and their successors and assigns, shall
severally and not jointly indemnify the Company, its officers and directors and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions pursuant to which the
Underwriter has agreed to indemnify the Company contained in the Underwriting
Agreement.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Sections 5.3(b) and
(c) is applicable
5
<PAGE>
but for any reason is held to be unavailable from the Company with respect to
all or any Holder, the Company and the Holder or Holders, as the case may be,
shall contribute to the aggregate losses, claims, damages and liabilities
(including any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted) to which the Company and one or more of the Holders may be
subject in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and the Holder or Holders on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities. Notwithstanding the foregoing, no Holder shall be required to
contribute any amount in excess of the net proceeds received by such Holder from
the Warrant Shares as the case may be, sold by such Holder pursuant to the
registration statement. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Each person, if any, who controls a Holder within the
meaning of the Act shall have the same rights to contribution as such Holder.
(e) The Holders demanding registration pursuant to Section 5.1
hereof or requesting piggyback registration pursuant to Section 5.2 hereof shall
not be required to exercise the purchase rights represented by this Warrant
prior to demanding registration hereunder. The obligations of the Company and
the holders of Warrant Shares under this Section 5.3 shall survive the
completion of any offering of Warrant Shares in a registration statement or
otherwise.
5.4 UNDERWRITING AGREEMENT. If Warrant Shares are sold pursuant to a
registration statement in an underwritten offering, the Company and any person
hereunder participating therein agree to enter into an underwriting agreement
containing customary representations and warranties with respect to the business
and operations of an issuer of, or, as the case may be, the seller of the
securities being registered and customary covenants and agreements to be
performed by such issuer or seller, including, without limiting the generality
of the foregoing, customary provisions with respect to indemnification by the
Company and sellers of the underwriters of such offering.
5.5 EXPENSES OF REGISTRATION. (a) The Company shall pay all costs,
fees and expenses in connection with all registration statements under Sections
5.1 and 5.2 hereof, including, without limitation, reasonable legal fees of the
Company and one counsel to the Holders, accounting fees, printing expenses and
blue sky fees and expense, except that the Company shall not pay for any (i)
underwriting discounts and commissions allocable to the Warrant Shares, (ii)
federal or state transfer taxes, and (iii) brokerage commissions.
(b) Commencing with the month in which notice of exercise of the
Warrant is received, the Company shall promptly pay or reimburse, as the case
may be, all expenses of registration and/or of the Holder in connection
therewith.
5.6 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. Any "piggyback"
registration rights granted by the Company to holders of its securities after
the date hereof, shall provide that if the managing underwriter for an
underwritten public offering determines in good
6
<PAGE>
faith that the inclusion of any or all securities in an offering for the account
of any party other than the Company would be detrimental to the offering, the
requisite number of securities for the accounts of parties other than the
Company may be excluded from such registration on a pro rata basis among the
holders of all such other securities based upon the number of securities each
holder requests to have registered.
6. ADJUSTMENTS IN PRICE AND TERMS.
6.1 GENERAL. It is the intention of the parties that the Holders
shall not receive any benefits in the terms of the Warrant Shares which are not
generally available to the holders of the publicly issued securities of the
Company.
6.2 ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
Notwithstanding the generality of the foregoing, the number and kind of
securities purchasable upon the exercise of the Warrants and the Purchase Price
shall be subject to adjustment from time to time upon the happening of the
following events:
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. At any time
while Warrants are outstanding and unexpired, in case of any reclassification or
change of outstanding securities issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value per share, or from
no par value per share to par value or as a result of subdivision or combination
of outstanding securities issuable upon the exercise of the Warrants), or in the
case of any sale or transfer to another corporation of all or substantially all
of the property of the Company, the Company, or such successor or purchasing
corporation, as the case may be, shall, without payment of any additional
consideration therefor, execute new Warrants providing that the holders of the
Warrants shall have the right to exercise such new Warrants (upon terms not less
favorable to the Holders than those then applicable to the Warrants) and to
receive upon such exercise, in lieu of each share of Common Stock theretofore
issuable upon exercise of the Warrants, the kind and amount of shares of stock,
other securities, money or property receivable upon such reclassification,
change, consolidation, merger, sale or transfer by the holder of one share of
Common Stock issuable upon exercise of the Warrants had the Warrants been
exercised immediately prior to such reclassification, change, consolidation,
merger, sale or transfer. Such new Warrants shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 6. The provisions of this Section 6.2(a) shall similarly
apply to successive reclassifications, changes, consolidations, mergers, sales
and transfers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while Warrants are outstanding and unexpired, shall subdivide or combine
its Common Stock, the Purchase Price shall be proportionately reduced, in case
of subdivision of such shares, as of the effective date of such subdivision, or,
if the Company shall take a record of holders of its Common Stock for the
purpose of so subdividing, as of such record date, whichever is earlier, or
shall be proportionately increased, in the case of combination, or, if the
Company shall take a record of holders of its Common Stock for the purpose of so
combining, as of such record date, whichever is earlier.
7
<PAGE>
(c) STOCK DIVIDENDS. If the Company at any time while Warrants
are outstanding and unexpired shall pay a dividend in shares of, or make other
distribution of shares of, its Common Stock, then the Purchase Price shall be
adjusted, as of the date the Company shall take a record of the holders of its
Common Stock for the purpose of receiving such dividend or other distribution
(or if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Purchase Price in
effect immediately prior to such payment or other distribution by a fraction (a)
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution and (b) the
denominator of which is the total number of shares of Common Stock outstanding
immediately after such dividend or distribution. The provisions of this
subsection 6(c) shall not apply under any of the circumstances for which an
adjustment is provided in subsections 6(a) or 6(b).
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in a
Purchase Price pursuant to any provisions of this Section 6, the number of
shares of Common Stock purchasable hereunder at that adjusted Purchase Price
shall be adjusted, to the nearest one hundredth of a whole share, to the product
obtained by multiplying such number of shares purchasable immediately prior to
such adjustment in the Purchase Price by a fraction, the numerator of which
shall be the Purchase Price immediately prior to such adjustment and the
denominator of which shall be the Purchase Price immediately thereafter.
(e) NOTICE OF ADJUSTMENTS. Whenever either the Purchase Price
or the number of shares of Common Stock purchasable under the terms of the
Warrants at that Purchase Price shall be adjusted pursuant to Section 6 hereof,
the Company shall promptly make a certificate signed by its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting froth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Purchase Price
after giving effect to such adjustment, and shall promptly cause copies of such
certificate to be mailed (by first class and postage prepaid) to the registered
holders of the Warrants.
In the event the Company shall, at a time when the Warrants are
exercisable, take any action which pursuant to paragraphs (a) through (d) of
Section 6 may result in an adjustment of the Purchase Price or the number of
shares of Common Stock purchasable at that Purchase Price upon exercise of the
Warrants or (i) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or (ii) a voluntary or involuntary
dissolution, liquidation or winding of the Company shall occur; then, in any one
or more of such events set forth above, the Company shall, in order to afford to
such holders of the Warrants an opportunity to exercise the Warrants and to
purchase shares of Common Stock of the Company prior to such action becoming
effective, give written notice of such event to the Holder or Holders of this
Warrant at the same time and in the same form as such notice is given to the
shareholders of the Company.
8
<PAGE>
Such notice shall specify the date on which the holders of Common Stock shall be
entitled to receive such rights, dividends, distribution or subscription rights
or to exchange their Common Stock for stock or other securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, as the case may be. Such
notice shall be given at least fifteen (15) days prior to the record date or on
which the Company's books are closed in respect thereof. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding-up or
sale.
(f) In the event the Company, in accordance with this Section 6,
makes an adjustment in the Purchase Price of a Warrant and the number of shares
of Common Stock purchasable thereunder as of the record date of an action to be
taken and such action is either not taken or is not taken in accordance with the
facts used to make such adjustment, the Company shall readjust the Purchase
Price and such number of shares of Common Stock in order that they reflect the
action actually taken by the Company. All calculations of adjustment in
Purchase Price under this Section 6 shall be to the nearest cent.
7. EXCHANGE AND REPLACEMENT OF WARRANT. This Warrant is exchangeable or
dividable without payment by a Holder, upon the surrender hereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant of like tenor and date representing in the aggregate the right to
purchase the same number of shares of Common Stock as then are purchasable
hereunder at the Purchase Price then in effect, in such denominations as shall
be designated by the Holder hereof at the time of such surrender. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor, in lieu of this Warrant.
8. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
on the exercise of this Warrant, nor shall it be required to issue scrip or pay
cash in lieu of fractional interests.
9. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of this Warrant, such number of
shares of Common Stock as shall be issuable upon the exercise hereof and
thereof. The Company shall use its best efforts to cause all shares of Common
Stock issuable upon the exercise of this Warrant to be listed (subject to
official notice of issuance) on all securities exchanges or automated quotation
systems on which the Common Stock, issued to the public in connection herewith,
may then be listed and/or quoted and shall maintain such listing so long as any
other shares of Common Stock shall be so listed and/or quoted.
9
<PAGE>
10. NO RIGHTS AS SHAREHOLDERS. Nothing contained in this Warrant shall
be construed as conferring upon the Holder hereof the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company.
11. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested
(i) if to the registered Holder of this Warrant, to the address of such Holder
as shown on the books of the Company, or (ii) if to the Company, to the address
set forth on the first page of this Warrant or to such other address as the
Company may designate by notice to the Holders.
12. SUCCESSORS. All the covenants, agreements, representations and
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
13. HEADINGS. The Section headings in this Warrant are inserted for
purposes of convenience only and shall have no substantive effect.
14. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with, and governed by, the laws of the State of California.
WITNESS THE SEAL OF THE COMPANY AND THE SIGNATURE OF ITS DULY AUTHORIZED
PRESIDENT.
PHARMAPRINT INC.
[SEAL]
By: /s/ Elliot P. Friedman
---------------------------------
Name: Elliot P. Friedman
Title: Chief Executive Officer
Dated: May 15, 1997
10
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to purchase
____ shares of Common Stock covered by this Warrant at a price of $5.50 per
share of Common Stock (or such other Purchase Price (as defined in the Warrant)
which is then in effect), according to the conditions hereof and herewith makes
payment of the Purchase Price of such shares of Common Stock in full.
---------------------------------
Signature
---------------------------------
---------------------------------
Address
Dated:
--------------------------
-----------------------------
Social Security Number or
Taxpayer's Identification Number
11
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 8,170,072
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,507,665
<PP&E> 194,759
<DEPRECIATION> 9,188
<TOTAL-ASSETS> 8,831,920
<CURRENT-LIABILITIES> 1,094,596
<BONDS> 0
0
0
<COMMON> 22,826,898
<OTHER-SE> (15,089,574)
<TOTAL-LIABILITY-AND-EQUITY> 8,831,920
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (11,232,852)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,232,852)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,232,852)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,232,932)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
